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As filed with the Securities and Exchange Commission on October 15, 2010

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Diana Containerships Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Republic of the Marshall Islands   4412  

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Pendelis 16

175 64 Palaio Faliro

Athens, Greece

011 30 210 947 0000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

212-574-1200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Gary J. Wolfe, Esq.

Edward S. Horton, Esq.

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

(212) 574-1200

(212) 480-8421—Facsimile

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:   ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

¨ Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

 

¨ Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered

 

Proposed

Maximum

Offering Price

Per Unit

 

Proposed

Maximum

Aggregate

Offering Price

 

Amount of

Registration

Fee

Common Stock, par value $.01

  2,558,997    $15.00(1)   $38,384,955(2)   $2,737(3)

Preferred Stock Purchase Rights(4)

               

Total

  2,558,997   $15.00   $38,384,955   $2,737
 

 

(1) Based upon the book value of the Common Stock as of October 15, 2010.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended (the “Securities Act”), based upon the book value of the Common Stock as of October 15, 2010 as no market presently exists for the registrant’s common shares.
(3) Determined in accordance with Section 6(b) of the Securities Act to be $2,737, which is equal to 0.00007130 multiplied by the proposed maximum aggregate offering price of $38,384,995.
(4) Preferred stock purchase rights are not currently separable from the common stock and are not currently exercisable. The value attributable to the preferred stock purchase rights, if any, will be reflected in the market price of the common stock.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated October 15, 2010

PRELIMINARY PROSPECTUS

OFFER TO EXCHANGE

REGISTERED SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE

FOR ANY AND ALL OUTSTANDING

UNREGISTERED SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE

OF

DIANA CONTAINERSHIPS INC.

Material Terms of the Exchange Offer

 

   

We are offering to exchange, commencing on                     , 2010, an aggregate of 2,558,997 common shares we sold previously in a private offering, or the Original Shares, for new registered exchange shares (including preferred stock purchase rights), or the Exchange Shares.

 

   

The terms of the Exchange Shares are identical to the terms of the Original Shares, except for the transfer restrictions and the preferred stock purchase rights.

 

   

We will exchange all Original Shares that are validly tendered and not validly withdrawn.

 

   

The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2010 unless we extend it.

 

   

You may withdraw tenders of Original Shares at any time before 5:00 p.m., New York City time, on the date of the expiration of the Exchange Offer.

 

   

We will not receive any proceeds from the Exchange Offer.

 

   

We will pay the expenses of the Exchange Offer.

 

   

No dealer-manager is being used in connection with the Exchange Offer.

 

   

No trading market currently exists for our common shares.

 

   

The exchange of shares will not be a taxable exchange for U.S. federal income tax purposes.

In connection with resales of Exchange Shares, any participating broker-dealer must acknowledge in that it will deliver a prospectus meeting the requirements of the Securities Act. The Securities and Exchange Commission has taken the position that broker-dealers who acquired the Original Shares as a result of market-making or other trading activities may use this prospectus to fulfill their prospectus delivery requirements with respect to the Exchange Shares.

See “ Risk Factors ” beginning on page 13 of this prospectus for a discussion of certain factors that you should consider before participating in the Exchange Offer.

 

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This prospectus is dated                     , 2010.


Table of Contents

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     13   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     34   

ENFORCEABILITY OF CIVIL LIABILITIES

     34   

SELECTED FINANCIAL DATA

     35   

USE OF PROCEEDS

     36   

CAPITALIZATION

     37   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     38   

THE INTERNATIONAL CONTAINERSHIP INDUSTRY

     49   

BUSINESS

     70   

MANAGEMENT

     85   

RELATED PARTY TRANSACTIONS

     89   

PRINCIPAL SHAREHOLDERS

     90   

THE EXCHANGE OFFER

     91   

DESCRIPTION OF EXCHANGE SHARES

     101   

DESCRIPTION OF CAPITAL STOCK

     102   

CERTAIN ERISA CONSIDERATIONS

     112   

TAXATION

     115   

DIVIDEND POLICY

     123   

PLAN OF DISTRIBUTION

     124   

LEGAL MATTERS

     124   

EXPERTS

     124   

WHERE YOU CAN FIND MORE INFORMATION

     125   

 

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PROSPECTUS SUMMARY

This summary does not contain all the information you should consider before exchanging your shares. We encourage you to read carefully the entire Registration Statement, of which this prospectus is a part, including the information under “Risk Factors.” As used throughout this prospectus, the terms “Company,” “Diana Containerships,” “we,” “our” and “us” refer to Diana Containerships Inc. Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. Dollars.

We use the term TEU in describing the size of containerships. TEU is a standard measure of a containership’s cargo-carrying capacity used in the container shipping industry. It means the space that would be occupied by a container having the International Organization for Standardization’s standard external dimensions, the length of which is 20 feet, the height of which is 8.5 feet and the width of which is 8.0 feet. Deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry. As used throughout this prospectus, the term “ton” refers to a metric ton, unless otherwise indicated.

Our Company

Diana Containerships Inc. is a corporation formed under the laws of the Republic of the Marshall Islands on January 7, 2010 founded to pursue vessel acquisitions in the container shipping industry. Diana Shipping Inc. (NYSE:DSX), or Diana Shipping, a global provider of drybulk transportation services, owns approximately 55% of our outstanding common stock as of the date of this prospectus. In April 2010, we completed the sale, with FBR Capital Markets & Co. acting as initial purchaser/placement agent, of an aggregate of 5,892,330 common shares in a private transaction, which we refer to as the private offering, with net proceeds of $85.3 million, including the sale of 290,000 common shares pursuant to the exercise of FBR Capital Markets & Co.’s option to purchase additional shares. Affiliates of ours (within the meaning of Rule 405 under the Securities Act) including Diana Shipping, may not participate in the Exchange Offer.

On June 8, 2010, we, through our wholly-owned subsidiaries, entered into memoranda of agreement to purchase two newbuilding containerships, identified as Hull 558 (named Sagitta) and Hull 559 (named Centaurus), from a third-party seller, each with a carrying capacity of approximately 3,400 TEU for a purchase price of Euro 37,300,000 per ship (or $45.7 million and $47.2 million, respectively, excluding any predelivery expenses). We took delivery of the vessel Sagitta on June 29, 2010 following which the vessel commenced time charter employment with A.P. Møller-Maersk A/S for a minimum period of nine months and a maximum period of 12 months at a gross daily rate of $16,000. We took delivery of the Centaurus on July 9, 2010, following which the vessel commenced time charter employment with Hapag Lloyd AG, Hamburg for a minimum period of 30 days and a maximum period of 60 days at a gross daily rate of $8,400, and on September 4, 2010 following the expiration of this time charter the vessel was delivered to CSAV, Valparaiso for a period of 24 months plus or minus 45 days at a gross daily rate of $20,000. On July 7, 2010, we, through our wholly owned subsidiaries, entered into a new secured term loan facility with DnB NOR Bank ASA for up to $40.0 million. We have drawn down $10.0 million per vessel in connection with the acquisition of the two newbuilding containerships and expect that the remaining $20.0 million will be available for future vessel acquisitions. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

 

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Our Fleet

Set forth below is summary information concerning our fleet as of October 1, 2010.

 

Vessel Name

   Size      Built      Delivery Date(1)     Charter Expiration(2)     Gross Daily Rate  

Sagitta

     3,426 TEU         June 2010         June 30, 2010        Mar. 30, 2011 – Jun. 30, 2011 (3)    $ 16,000   

Centaurus

     3,426 TEU         July 2010         Sept. 4, 2010        Jul. 21, 2012 – Oct. 19, 2012      $ 20,000   
                  

Total

     6,852 TEU             

 

(1) Date delivered from the owners to the charterers.
(2) Dates reflect the charterer’s optional period to re-deliver the vessel.
(3) Charterers have the right to add the off hire days to the duration of the charter, if any, and therefore the optional period may be extended.

We intend to grow our fleet by capitalizing on the current investment opportunities in the containership market by purchasing containerships in the secondhand market, from shipyards and lending institutions. We may also enter into newbuilding contracts with shipyards for new containerships. We expect to build our fleet primarily through the acquisition of vessels ranging from 2,500 TEU to 7,500 TEU in size; however, we will consider acquisitions of all sizes of containerships if the returns associated with these acquisitions are deemed appropriate by our management team and board of directors. We believe that our acquisition strategy will enable us to capture low points in vessel values within our industry and acquire a fleet that will result in attractive returns. We further believe that by maintaining the flexibility to invest in all sizes of containerships, we will be able to capitalize on dislocations in various segments within the containership market.

We actively monitor charter rates and intend to employ our vessels in the spot market or on short-term or long-term charters if market conditions warrant or we may have to temporarily cease the use of, or lay-up, vessels until our management team determines that charter rates reach a level where the economics of chartering more favorably outweigh the total operating and asset carrying costs present in the current rate environment. We have incurred costs related to administrative costs, vessel maintenance and general business expenses before being able to generate income and we may not operate our vessels profitably once we employ them.

Our Management Team

Our management team is responsible for the strategic management of our company, including the development of our business plan and overall vision for our operations. Strategic management also involves, among other things, locating, purchasing, financing and selling vessels. We believe that our management team’s experience, expertise and reputation within the international shipping industry will enhance shareholder value for our investors by providing sourcing opportunities for vessel purchases and sales, newbuilding acquisitions, chartering and financing arrangements. We have entered into an Administrative Services Agreement with a wholly-owned subsidiary of Diana Shipping, Diana Shipping Services S.A., whom we refer to as DSS or the Manager, pursuant to which the Manager provides administrative services to us. DSS also provides commercial and technical vessel management services to us through separate vessel management agreements between the Manager and each of our vessel-owning subsidiaries.

We and Diana Shipping have entered into a non-competition agreement whereby we have agreed that, during the term of the Administrative Services Agreement and any vessel management agreements we enter into with DSS, 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.

Our management team is comprised of four executive officers of Diana Shipping who together have an aggregate of over 87 years of experience in the shipping industry and have demonstrated ability in managing the commercial, technical and financial aspects of an international shipping company. Our management team is led

 

 

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by our Chairman and Chief Executive Officer Mr. Symeon Palios, who has served as the Chairman and Chief Executive Officer of Diana Shipping since 2005 and as a director since 1999. Mr. Palios is a qualified naval architect and engineer who has 40 years of experience in the shipping industry and expertise in technical and operational matters. Mr. Anastasios Margaronis, our President and a director, also serves as President and as a director of Diana Shipping and has been employed by the Diana Shipping group of companies since 1979. Mr. Ioannis Zafirakis, our Chief Operating Officer, Secretary and a director, serves as Executive Vice President and Secretary of Diana Shipping 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 since 2006. Our management team has experience in multiple sectors of the international shipping industry, including in 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.

Our Manager

DSS performs commercial and technical management services for our vessels. DSS also manages Diana Shipping’s drybulk carrier fleet with a combined cargo carrying capacity of approximately 2.9 million dwt, including two vessels under construction with deliveries expected in the second and third quarter of 2012. Commercial management includes, among other things, negotiating charters for vessels, monitoring the performance of vessels under charter, managing our relationships with charterers, obtaining insurance coverage for our vessels, as well as supervision of the technical management of the vessels. Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging the hire of qualified officers and crew, arranging and supervising drydocking and repairs, arranging for the purchase of supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. Our Manager also provides to us accounting, administrative, financial reporting and other services necessary for the operation of our business. We actively monitor the performance of our Manager. Pursuant to the Administrative Services Agreement, we have agreed to pay our Manager a monthly fee of $10,000 for administrative services. We, through our vessel-owning subsidiaries, have entered into vessel management agreements with DSS for the provision of commercial and technical management services for the vessels in our fleet. Pursuant to each vessel management agreement, DSS receives a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and will receive $20,000 per vessel per month for laid-up vessels, if any. Pursuant to the Broker Services Agreement, dated June 1, 2010, the Manager has appointed Diana Enterprises Inc., or Diana Enterprises, a related party, as broker to assist the Manager in providing services to the Company. Under the Broker Services Agreement, the Manager pays a commission of $1,040,000 per year to Diana Enterprises. We reimburse this cost to the Manager pursuant to the Administrative Services Agreement. We believe that the above management fees and commissions are consistent with fees and commissions charged by third party managers and are consistent with fees and commissions charged by DSS to Diana Shipping. Please see “Business—Administrative Services Agreement,” “Business—Broker Services Agreement” and “Business—Vessel Management Agreements.”

Our Arrangements with our Affiliates

We were formed on January 7, 2010 as a wholly-owned subsidiary of Diana Shipping and on that date, we issued 500 common shares to Diana Shipping at par value. We sold 3,333,333 common shares to Diana Shipping in the private offering for consideration of $50.0 million. Pursuant to the registration rights agreement, dated April 6, 2010, we have agreed to register the resale of the common shares owned by Diana Shipping. See “Exchange Offer—Registration Rights Agreement.” As of the date of this prospectus, Diana Shipping owns approximately 55% of our common shares. Under the Administrative Services Agreement with the Manager, a

 

 

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wholly-owned subsidiary of Diana Shipping, we pay the Manager a monthly fee of $10,000 for administrative services. We, through our vessel-owning subsidiaries, have entered into vessel management agreements with the Manager for the provision of commercial and technical management services. Pursuant to each vessel management agreement, the Manager receives a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and $20,000 per vessel per month for laid-up vessels. Pursuant to the Broker Services Agreement, dated June 1, 2010, the Manager has appointed Diana Enterprises Inc., or Diana Enterprises, a related party controlled by our Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist the Manager in providing services to the Company. Under the Broker Services Agreement, the Manager pays a commission of $1,040,000 per year to Diana Enterprises. We reimburse this cost to the Manager pursuant to the Administrative Services Agreement. Please see “Business—Administrative Services Agreement,” “Business—Broker Services Agreement” and “Business—Vessel Management Agreements.” We have issued an aggregate of 213,331 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan. Of these shares, 25% have vested and the remaining shares vest ratably over three years by one-third each year. Following the completion of an initial public offering, we expect to issue an additional 53,333 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan of which 25% will vest upon the grant of such shares, and the remainder will vest ratably over three years from their date of grant. See “Management—2010 Equity Incentive Plan.”

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 the board of directors of us and 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 drybulk carrier sector, which limits our ability to expand our operations.

Industry Trends

Current Market Dynamics in the Container Shipping Sector

Preliminary data suggests that in 2009 the volume of container trade decreased for the first time in recent history, due to the severity of the worldwide recession. For the year as a whole, the volume of global container trade was approximately 10% below that of the corresponding period in 2008. As a result of declining volume and falling rates, global carrier revenues in 2009 were approximately 35% below those of 2008. For the global container industry (excluding the non-operating owners), losses were in excess of $22 billion in 2009, which will make it the worst year in the recent history of the industry in terms of losses. However, based on limited data, there is some evidence to suggest that market conditions have improved in tandem with renewed growth in the world economy.

The size of the newbuilding orderbook increased rapidly in the period from 2006 to 2008, when strong freight rates encouraged high levels of new ordering. As of July 30, 2010, newbuilding containerships with an aggregate capacity of 3.97 million TEU were on order, representing 29.8% of the total capacity of the existing cellular containership fleet.

 

 

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Declining volumes and increasing containership supply have led to a decline in containership time charter rates and asset values. One-year time charter rates for a 3,500 TEU containership declined by 78% from 2007 to 2009. Secondhand containership values have dropped by more than 50% since late 2007. However, while certain analysts believe that the containership shipping sector is likely to remain volatile, others point to economic indicators that suggest both rates and secondhand values have stabilized in the first few months of 2010, and in some cases rates have increased.

Market Catalysts

Historically, growth in container trade volumes has been driven primarily by the growth of economic output and consumption, increases in global sourcing and changes in patterns of world trade. GDP serves as an indicator of prospective container volumes. The preliminary indications are that global GDP will rebound in 2010.

Since reaching a peak in late 2008, new ordering has slowed and the containership orderbook has declined in size due to a combination of deliveries, cancellations and conversions to other types of vessels. According to Drewry, more than 15% of the orderbook has already been cancelled and delays have pushed out the deliveries of many containerships.

Other factors can help improve the demand for containerships over and above volume demand growth. One of these factors is slow steaming, which is the slowing down of a vessel’s speed to reduce fuel consumption, greenhouse gas emissions as well as operational costs. For example, in a high fuel price environment, liner companies may find it cost-effective to operate more vessels at slower speeds on a given route, in order to save on fuel costs, thus increasing demand for container vessels.

Management believes that the current market dislocation combined with the long-term catalysts make this the opportune time to invest in the containership segment.

Our Competitive Strengths

We believe that our prospects for success are enhanced by the following aspects of our business:

Experienced management team with established relationships within the international shipping industry and extensive evaluation capabilities

One of our key strengths is our experienced management team comprised of four executive officers of Diana Shipping who have experience in multiple sectors of the international shipping industry, including in the containership sector. We believe that we will be able to capitalize on the industry experience and reputation of our management team who have successfully developed the business of Diana Shipping, a leading provider of seaborne transportation services, from the formation of the Diana Shipping group of companies in 1972, to a fleet of nine vessels at the time of Diana Shipping’s initial public offering in 2005. As of the date of this prospectus, Diana Shipping owns a fleet of 24 vessels, including two newbuilding vessels with deliveries expected in the second and third quarters of 2012. As a result of decades of experience, we believe our management team has developed strong relationships with major international charterers, shipbuilders and financial institutions that reflect the quality of Diana Shipping’s operations and the strength of its management team.

Collectively, over the last 38 years, our management team has purchased and sold numerous vessels, including transactions involving secondhand and newbuilding containerships and multi-purpose vessels that were modified to transport containers. Accordingly, we believe our management team has developed strong target evaluation capabilities that will give us an advantage in analyzing potential acquisitions.

 

 

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We believe that our capitalization, combined with our management team’s established reputation within the shipping industry and network of relationships will cause us to be viewed as an attractive purchaser of containerships by ship brokers, financial institutions and shipyards. As a result, we believe that we will be afforded the opportunity to evaluate a breadth of potential acquisition opportunities in the containership market, and thus be positioned to acquire vessels that we believe will maximize shareholder returns.

Diana Shipping has invested significant cash in us and therefore Diana Shipping’s interests are aligned with those of our shareholders

Diana Shipping purchased from us $50.0 million of our common shares in the private offering, or 3,333,333 common shares, thereby aligning the interests of Diana Shipping with our shareholders. We believe we will benefit not only from the established reputation of Diana Shipping from enhanced credibility and access to shipping and financial industry participants over our competitors, but also from the incentive for our management team, comprised of executive officers of Diana Shipping, to enhance shareholder value by virtue of Diana Shipping’s $50.0 million investment.

Highly successful and reputable fleet manager

DSS performs commercial and technical management services for the vessels in our fleet. DSS currently manages a modern, high quality fleet of 22 Panamax and Capesize drybulk carriers and two Newcastlemax newbuildings with expected deliveries in the second and third quarter of 2012 for which DSS provides supervisory services, and maintains the quality of its vessels by carrying out regular inspections, both while in port and at sea, and adopting a preventative maintenance program for each vessel. DSS currently employs approximately 60 shore-based personnel in Athens, Greece and 460 offshore employees and, including its predecessors, has, since 1972 managed more than 100 vessels, including nine vessels that were containerships or multi-purpose vessels that were modified to transport containers. DSS provides comprehensive ship management services including technical supervision, such as repairs, maintenance and inspections, safety and quality, crewing and training, as well as supply provisioning. We believe that the resources and reputation of our Manager as a safe and reliable technical manager will provide us with favorable charter opportunities with well established charterers, many of whom consider the reputation of the vessel manager when seeking vessels. DSS will supervise the construction of any newbuilding vessels that we may agree to acquire as well as provide administrative services to us such as accounting and financial reporting services.

We believe that DSS has established a reputation in the international shipping industry for operating and maintaining a fleet with high standards of performance, reliability and safety. DSS has obtained documents of compliance for its office and safety management certificates for the vessels it manages for us. We believe that employing DSS as our technical manager provides us with a competitive advantage over other containership operators by allowing us to more closely monitor our operations and to offer higher quality performance, reliability and efficiency in the maintenance of our vessels. Additionally, we expect to benefit from economies of scale in maintenance, supply and crewing of our vessels, as well in purchasing bunkers and spare parts. We further expect that the experience of DSS in providing administrative services such as office space and equipment, accounting and financial reporting services will result in lower administrative costs to us than if we performed these services in-house or employed a third party service provider.

Business Strategy

Acquire high quality containerships at low valuations

We will seek to provide attractive returns to our investors by purchasing modern containerships in the secondhand market, including from shipyards and lending institutions. We believe that, currently, the container

 

 

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shipping industry is in a period of reduced demand and increased supply, leading to historically low asset values and charter rates, which we expect will provide us with attractive acquisition opportunities. Members of our senior management team have navigated previous market cycles and we believe have the experience and discipline to capitalize on market rebounds. We may also enter into newbuilding contracts with shipyards on terms that meet our acquisition criteria.

Capitalize on the extensive experience of our management team

Our management team and board of directors have extensive experience in the shipping industry with a strong track record in vessel sale and purchase transactions and chartering. We believe that our management team has developed strong relationships with shipyards, ship finance banks and vessel owners from whom we expect to source acquisition opportunities. Collectively, over the last 38 years, our management team has purchased and sold numerous vessels, including transactions involving secondhand and newbuilding containerships and multi-purpose vessels that were modified to transport containers. We believe we will benefit from the extensive experience of our management team by having access to high quality charterers and international financing institutions and gain a competitive advantage over other containership operators.

Maximize total returns by employing vessels in the spot market or on short-term or long-term time charters, or by laying-up vessels as market conditions warrant

We intend to actively monitor market conditions, charter rates and vessel operating expenses, as well as the cost of laying-up 1 vessels, in order to selectively employ vessels as market conditions warrant. In market conditions where charter rates may or may not cover the operating costs of a vessel, we may choose to lay-up the vessel with the aim of extending the useful life of the vessel and securing more favorable charter rates when vessel supply and demand are more in balance within the containership market.

Maintain a strong balance sheet

We intend to finance future acquisitions with a combination of equity and debt while maintaining an appropriate leverage profile as determined by our management and board of directors. We believe that maintaining a strong balance sheet will provide us with the flexibility to capitalize on vessel purchase opportunities as they arise, as well as attract potential investors and customers. When determined appropriate by our management team based on prevailing conditions and our outlook for the container market, we will consider incurring further indebtedness in the future to enhance returns to our shareholders.

Maintain low cost, highly efficient and reliable operations

We operate as an efficient and reliable owner of containerships as a result of the experience of our Manager. DSS currently manages a modern fleet of 22 Panamax and Capesize drybulk carriers and two Newcastlemax newbuildings with deliveries expected in the second and third quarter of 2012 for which DSS provides supervisory services. We believe we can build on the reputation of our Manager for safe vessel operations and intend to comply with rigorous health, safety and environmental protection regulation. We further believe we will benefit from economies of scale in maintenance, supply and crewing of our vessels, as well in purchasing bunkers and spare parts.

 

1 Laying-up: Temporary cessation of trading of a ship by a shipowner during a period when there is a surplus of ships in relation to the level of available cargoes. This surplus, known as overtonnaging, has the effect of depressing freight rates to the extent that some shipowners no long find it economical to trade their ship, preferring to lay them up until there is a reversal in the trend.

 

 

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Use of Proceeds of the Private Offering

Our amended and restated by-laws provide that, by April 6, 2012, we are obligated to either complete an initial public offering of common stock pursuant to an effective registration statement under the Securities Act, or use at least ninety percent (90%) of the net proceeds of the private offering (i) to fund containership acquisitions; (ii) for capital expenditures relating to our vessels; (iii) for vessel operating expenses, which may include expenses incurred in the lay-up of our vessels, and reasonable reserves established by our board of directors for any such operating or lay-up expenses; (iv) general and administrative expenses; and (v) other expenses related to the ownership, operation, management and maintenance of our containerships (the items set forth in clauses (i) to (v) above are referred to collectively as a “Permitted Purpose”). It is our intention that no more than ten percent (10%) of the net proceeds of the private offering shall be used for general corporate purposes other than Permitted Purposes.

In the event that on April 6, 2012 (i) we have not completed an initial public offering of common stock pursuant to an effective registration statement under the Securities Act, and (ii) we have not applied at least ninety percent (90%) of the net proceeds of the private offering to a Permitted Purpose then our Board of Directors shall call within 60 days of such date a special meeting of shareholders in accordance with our amended and restated by-laws to consider and vote upon a proposal to distribute to our shareholders the amount of net proceeds of the private offering that has not been expended by the Company for a Permitted Purpose as of such date. Diana Shipping has agreed to vote its shares in accordance with the majority of the votes cast by shareholders that are not affiliated with Diana Shipping at such special meeting.

Following the acquisition of the two vessels in our initial fleet and the drawdown of $20.0 million under our secured loan facility, we have applied approximately 85% of the net proceeds of the private offering to a Permitted Purpose.

Dividend Policy

We currently do not intend to pay dividends to our shareholders. Our board of directors will re-evaluate our dividend policy in light of various factors including, among others, available distributable cash from operating revenue, present vessel acquisition opportunities and vessel prices, current charter rates, market trends and restrictions contained in any loan agreements.

In connection with its review of our dividend policy from time to time, our Board of Directors will consider the distribution of up to the full amount of the Company’s free cash flow, as determined by our Board of Directors in its discretion, at such time as market conditions improve significantly and the net proceeds of the private offering have been invested in a Permitted Purpose, as defined above.

Corporate Structure

Diana Containerships Inc. is a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. Each of our vessels is owned by separate wholly-owned subsidiaries. Diana Containerships Inc. is the owner of all the issued and outstanding shares of the subsidiaries listed in Exhibit 21.1 to the Registration Statement of which this prospectus is a part. We maintain our principal executive offices at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at that address is 011 30 210 947 0000. Our office space is provided to us by DSS pursuant to our Administrative Services Agreement with DSS.

 

 

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SUMMARY OF THE EXCHANGE OFFER

 

Background

We recently completed the offering of an aggregate of 5,892,330 common shares in a private transaction, including 3,333,333 common shares issued to Diana Shipping Inc., or Diana Shipping. In connection with that private offering, we entered into a registration rights agreement whereby we agreed to conduct a registered exchange offer for the common shares sold in the private offering or, under certain circumstances, register the resale of such common shares. The Exchange Offer is intended to satisfy our obligations under the registration rights agreement. If the Exchange Offer is not completed by December 1, 2010, we are obligated to register the resale of the Original Shares. Affiliates of ours (within the meaning of Rule 405 under the Securities Act) may not participate in the Exchange Offer.

 

Offer to Exchange Original Shares for Exchange Shares

Under the terms of the Exchange Offer, you are entitled to exchange the Original Shares for Exchange Shares. All Original Shares that are validly tendered and not validly withdrawn prior to the expiration of the Exchange Offer will be exchanged promptly. Any Original Shares not accepted for tender for any reason will be returned promptly after termination or expiration of the Exchange Offer.

Any holder electing to have Original Shares exchanged pursuant to this Exchange Offer must properly tender such holder’s Original Shares for Exchange Shares prior to 5:00 p.m. on the Expiration Date.

The Exchange Offer is not being made to, nor will we accept surrenders of Original Shares for exchange from, holders of Original Shares in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of the jurisdiction.

 

Procedures for Tendering Original Shares

If you wish to tender your Original Shares for exchange in the Exchange Offer, you or the custodial entity through which you hold your Original Shares must send to the Exchange Agent, on or before the Expiration Date:

 

   

A properly completed and executed letter of transmittal, which has been provided to you with this prospectus, together with your Original Shares and any other documentation requested by the letter of transmittal;

 

   

For holders who hold their positions through the Depositary Trust Company (DTC):

 

   

An agent’s message from DTC stating that the tendering participant agrees to be bound by the letter of transmittal and the terms of the Exchange Offer;

 

   

Your Original Shares by timely confirmation of book-entry transfer through DTC; and

 

 

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All other documents required by the letter of transmittal.

If you beneficially own Original Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Original Shares in the Exchange Offer, you should contact the registered holder promptly and instruct it to tender on your behalf.

If you wish to tender your Original Shares and the Original Shares are not immediately available, or time will not permit your Original Shares or other required documents to reach the Exchange Agent before the Expiration Date (defined below), or the procedure for book-entry transfer cannot be completed on a timely basis, you may tender your Original Shares according to the guaranteed delivery procedures set forth under “The Exchange Offer—Guaranteed Delivery Procedures.”

 

Expiration Date

The Exchange Offer will remain open for at least 20 full business days and will expire at 5:00 p.m., New York City time, on                     , 2010, unless extended by us at our sole discretion, or the Expiration Date.

 

Resales of Exchange Shares

We believe that the Exchange Shares may be offered for resale, resold or otherwise transferred by you (unless you are our “affiliate” of ours within the meaning of Rule 405 of the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that:

 

   

You acquire the Exchange Shares in the ordinary course of business; and

 

   

You are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the Exchange Shares.

If any of the foregoing is not true and you transfer any Exchange Shares without delivering a prospectus meeting the requirements of the Securities Act and without an exemption for the transfer of your Exchange Shares from such requirements, you may incur liability under the Securities Act. We do not assume or indemnify you against such liability. If you are a broker-dealer and receive Exchange Shares for your own account in exchange for Original Shares that were acquired as a result of market-making activities or other trading activities, you must represent to us that you will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Shares.

 

Consequences of Failure to Exchange

If we complete the Exchange Offer and you do not participate in it, then:

 

   

Your Original Shares will continue to be subject to the existing restrictions upon their transfer; and

 

 

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The liquidity of the market for your Original Shares could be adversely affected.

We will be obligated to register the resale of the Original Shares under certain circumstances. See “Exchange Offer—Resale Registration Statement.”

 

Withdrawal of Tenders

You may withdraw your tender of Original Shares at any time prior to the Expiration Date. To withdraw, you must submit a notice of withdrawal to the Exchange Act before 5:00 p.m., New York City time on the Expiration Date.

 

Conditions to Exchange Offer

The Exchange Offer is subject to certain customary conditions.

 

Tax Considerations

A shareholder will not recognize gain or loss for U.S. federal income tax purposes on the exchange of Original Shares for Exchange Shares pursuant to the Exchange Offer.

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.

The Company is treated as a corporation for U.S. federal income tax purposes. Depending upon the identity of its shareholders, the Company may be exempt from U.S. federal income tax on its U.S.- source shipping income pursuant to Section 883 of the United States Internal Revenue Code of 1986, as amended. If the Company is not so exempt, it will be subject to a 4% gross basis tax on its U.S.-source shipping income.

Prior to the filing of a registration statement with the Securities and Exchange Commission, any dividends paid by the Company will be treated as ordinary income to a U.S. shareholder. On the disposition of shares in the company, a U.S. shareholder will recognize capital gain or loss, which will be treated as long-term capital gain or loss if the shares have been held for more than one year. Under certain circumstances, the Company may be treated as a “passive foreign investment company” for U.S. federal income tax purposes. If the Company were to be so treated, a U.S. shareholder may be subject to adverse U.S. federal income tax consequences with respect to dividends received by the Company and gain on the sale of the Company’s shares, although a U.S. shareholder may be able to make certain tax elections to ameliorate these adverse consequences. See “Taxation.”

 

Use of Proceeds

We will not receive any cash proceeds from the issuance of the Exchange Shares in this Exchange Offer. See “Use of Proceeds.”

 

 

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Exchange Agent

BNY Mellon Shareowner Services has been appointed as the Exchange Agent in connection with the Exchange Offer. Deliveries should be addressed to BNY Mellon Shareowner Services at the address on the back cover of this prospectus.

 

Exchange Shares

The Exchange Shares are identical to the Original Shares except that the Exchange Shares have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer.

FOR MORE DETAILS, PLEASE READ “THE EXCHANGE OFFER.”

 

 

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RISK FACTORS

You should carefully consider the risks described below, as well as the other information included in this prospectus before deciding to participate in the Exchange Offer.

Industry Specific Risk Factors

The container shipping industry is cyclical and volatile and the recent global economic recession has resulted in decreased demand for container shipping, which may negatively impact our ability to commence operations.

Our growth will generally depend on continued growth in world and regional demand for container shipping services, and the recent global economic slowdown has resulted in decreased demand for container shipping and a related decrease in charter rates.

The ocean-going shipping container industry 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 recent economic crisis began to affect global container trade. Rates have fallen significantly and are now estimated to be at late 2001 levels, with further pressure expected through 2010. In the future, rates may continue to decline. 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.

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; and

 

   

weather.

The factors that influence the supply of containership capacity include:

 

   

the number of newbuilding deliveries;

 

   

the scrapping rate of older containerships;

 

   

containership owner access to capital to finance the construction of newbuildings;

 

   

the price of steel and other raw materials;

 

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changes in environmental and other regulations that may limit the useful life of containerships;

 

   

the number of containerships that are sailing at reduced speed, or slow-steaming, to conserve fuel;

 

   

the number of containerships that are out of service; and

 

   

port congestion and canal closures.

Our ability to employ any containerships that we acquire will depend upon, among other things, the then current state of the containership market. If the containership market is in a period of sustained depression, we may be unable to operate our vessels profitably.

If economic conditions throughout the world do not improve, it may impede our ability to establish our operations and implement our growth successfully.

Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. The deterioration in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods and, thus, shipping. Continuing economic instability could have a material adverse effect our ability to implement our business strategy.

The United States, the European Union and other parts of the world have been in a recession and continue to exhibit weak economic trends. The credit markets in the United States have experienced significant contraction, de-leveraging and reduced liquidity, and the United States federal government and state governments have implemented and are considering a broad variety of governmental action and/or new regulation of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Securities and Exchange Commission, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws. Global financial markets and economic conditions have been, and continue to be, severely disrupted and volatile. Credit markets and the debt and equity capital markets have been exceedingly distressed.

We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our ability to establish our operations and implement our growth successfully.

Continued economic turmoil in the Asia Pacific region, especially in Japan and China, may exacerbate the effect on us of the recent slowdown in the rest of the world. Before the global economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. China and other countries in the Asia Pacific region may continue to experience slowed economic growth in the future. Moreover, the current economic slowdown in the economies of the United States, the European Union and other Asian countries may further adversely affect economic growth in China and elsewhere. Our ability to establish our operations and implement our growth successfully would be impeded by a continuing or worsening economic downturn in any of these countries.

The current state of global financial markets and current economic conditions may adversely impact our ability to obtain financing on acceptable terms which may hinder or prevent us from expanding our business.

Global financial markets and economic conditions have been, and continue to be, volatile. Recently, the debt and equity capital markets have been severely distressed. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions have made, and

 

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will likely continue to make, it difficult to obtain financing. The current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which 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. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete acquisitions or otherwise take advantage of business opportunities as they arise.

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

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

Vessel values may fluctuate which may adversely affect our financial condition, result in the incurrence of a loss upon disposal of a vessel or increase the cost of acquiring additional vessels.

Vessel values may fluctuate due to a number of different factors, including: general economic and market conditions affecting the shipping industry; competition from other shipping companies; the types and sizes of available vessels; the availability of other modes of transportation; increases in the supply of vessel capacity; the cost of newbuildings; governmental or other regulations; prevailing freight rates, which are the rates paid to the shipowner by the charterer under a voyage charter, usually calculated either per ton loaded or as a lump sum amount; and the need to upgrade second hand 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 container 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.

 

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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 flow and financial condition.

The containership industry 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 affect on us.

The containership industry 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 over-supply of containership capacity may lead to a further reduction in charter rates, which may limit our ability to operate our vessels profitably.

While the size of the containership orderbook has declined over the last 12 months, newbuilding containerships with an aggregate capacity of 5.0 million TEU were on order, representing 39.1% of the total fleet capacity as of December 31, 2009. The size of the orderbook is large relative to historical levels and will result in the increase in the size of the world containership fleet over the next few years. 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.

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 a recent increase 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 and financial condition.

Fuel, or bunker prices, 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 or when our vessels trade in the spot market. Fuel is also a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries (OPEC) and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns.

 

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Further, 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 cause disruption of our container shipping business.

International container shipping 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.

Since the events of September 11, 2001, U.S. authorities have significantly increased the levels of inspection for all imported containers. Government investment in non-intrusive container scanning technology has grown, and there is interest in electronic monitoring technology, including so-called “e-seals” and “smart” containers that would enable remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation.

It is unclear what changes, if any, to the existing security procedures will ultimately be proposed or implemented, or how any such changes will affect the container shipping industry. These changes 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.

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 Safety of Life at Sea Convention.

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. This 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 will be materially affected by environmental regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which our containerships operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, water discharges and ballast water management. 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 resale price or useful life of any containership that we will acquire.

 

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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. 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.

In addition, we are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. Many environmental requirements are designed to reduce the risk of pollution, such as oil spills, and our compliance with these requirements can be costly.

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 cleanup obligations and natural resource damages, in the event that there is a release of petroleum or other hazardous materials 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 materials 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.

The operation of our containerships will also be affected by the requirements set forth in the International Maritime Organization’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires shipowners and bareboat charterers, which are charterers under a bareboat charter agreement 2 whereby no crew or provisions are included as part of the charter agreement, to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Failure to comply with the ISM Code may subject us to increased liability, may decrease available insurance coverage for the affected ships and may result in denial of access to, or detention in, certain ports.

In addition, in complying with existing environmental laws and regulations and those that may be adopted, we may incur significant costs in meeting new maintenance and inspection requirements and new restrictions on air emissions from our containerships, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. Substantial violations of applicable requirements or a catastrophic release of bunker fuel from one of our containerships could have a material adverse impact on our financial condition and results of operations.

We may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.

Our success will depend in large part on the ability of our Manager and us 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

 

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

 

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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, 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, 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 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.

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

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 the frequency of piracy incidents increased significantly, and continued at a relatively high level during 2009, particularly in the Gulf of Aden off the coast of Somalia, with drybulk vessels and tankers particularly vulnerable to such attacks. In November 2008, the Sirius Star , a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million, and was released in January 2009 upon a ransom payment of $3 million. In April 2009, the “Maersk Alabama,” a 17,000-ton containership not affiliated with us, was seized by Somali pirates. The ship was later released. If these piracy attacks result in regions in which our vessels are deployed being characterized as “war risk” zones by insurers, as the Gulf of Aden temporarily was in May 2008, 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, including 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, any detention hijacking as a result of an act of piracy against the vessels we plan to acquire, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.

 

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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 the vessels we plan to acquire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition 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. 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.

Maritime claimants could arrest the vessels we plan to acquire, which would interrupt our business.

Crew members, suppliers of goods and services to a vessel, shippers of cargo 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 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 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 which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in the fleet we plan to acquire for claims relating to another of our ships.

There is a lack of historical operating history provided with vessels 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 has obtained the historical operating data for the vessels we have acquired 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, in the future we may 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

 

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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 affect on our financial condition, results of operations and cash flows.

Company Specific Risk Factors

We are a recently organized corporation with no operating history and accordingly you will not have any basis on which to evaluate our ability to achieve our business objectives.

We are a recently organized corporation with no operating results to date. Therefore, our ability to execute our business strategy is dependent upon the success of our management team and obtaining financing through debt or an offering of our securities. Because we do not have an operating history, you will have no basis upon which to evaluate our ability to operate our vessels profitably and acquire or make new investments, including but not limited to acquisitions of containerships. If we are unable to employ our vessels, we may not generate any operating revenues, and you could lose all or part of your investment.

Diana Shipping currently owns approximately 55% of our outstanding common shares, which may limit your ability to influence our actions.

Diana Shipping currently owns approximately 55% of our outstanding common stock. Accordingly, Diana Shipping has 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 Diana Shipping continues to own a significant amount of our equity, even if such amount represents less than 50% of our voting power, it will continue to be able to exercise considerable influence over our decisions.

We are a recently organized corporation and 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 55% 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.

We may not be able to establish our operations or implement our growth successfully.

Our business plan is to identify and acquire suitable vessels at favorable prices and trade these vessels in the spot market or on short-term or long-term charters, or temporarily cease the use of, or lay-up, the vessels until we can obtain sufficient charter rates so as to profitably employ our vessels and expand our operations. Our business plan will therefore depend upon our ability to identify and acquire suitable vessels to grow our fleet in the future, successfully employ our vessels, locate sites to lay up vessels, maintain our business without any or limited operating income while vessels are laid-up, and charter our vessels in the future at rates that will compensate for the lack of return while our vessels were not in use.

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 do we, may reduce our acquisition opportunities or cause us to pay higher prices. We cannot

 

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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 additional debt to finance acquisitions; or

 

   

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

We may be unable to locate suitable vessels 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.

If we cannot successfully employ our vessels, we may incur net losses.

Our business plan is to identify and acquire suitable vessels at favorable prices and, as market conditions warrant, employ such vessels in the spot market or on short-term or long-term time charters. Given the current depressed conditions of the containership market, it is possible that we may acquire a vessel without having a chartering agreement in place or without having a profitable charter in place for such vessel, and we may not find a suitable employment for a substantial period of time after taking delivery of such vessel. We have incurred costs related to administrative costs, vessel maintenance and general business expenses before being able to generate income and we may not operate our vessels profitably. If we are unable to obtain suitable employment for our vessels while incurring operating expenses, our business would be adversely affected.

If, on April 6, 2012, we have not completed an initial public offering, nor have we applied at least 90% of the net proceeds of the private offering to certain vessel related and other purposes, we may be required to distribute the net proceeds of the private offering that have not been used for such purposes to our shareholders.

Pursuant to our amended and restated bylaws, we have agreed that, upon April 6, 2012, we will either complete an initial public offering of common stock pursuant to an effective registration statement under the Securities Act, or use at least ninety percent (90%) of the net proceeds of the private offering (i) to fund containership acquisitions; (ii) for capital expenditures relating to our vessels; (iii) for vessel operating expenses, which may include expenses incurred in the lay-up of our vessels, and reasonable reserves established by our board of directors for any such operating or lay-up expenses; (iv) general and administrative expenses; and (v) other expenses related to the ownership, operation, management and maintenance of our containerships (the

 

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items set forth in clauses (i) to (v) above are referred to collectively as a “Permitted Purpose”). It is our intention that no more than ten percent (10%) of the net proceeds of the private offering shall be used for general corporate purposes other than Permitted Purposes.

In the event that on April 6, 2012 (i) we have not completed an initial public offering of common stock pursuant to an effective registration statement under the Securities Act, and (ii) we have not applied at least ninety percent (90%) of the net proceeds of the private offering to a Permitted Purpose then our Board of Directors shall call within 60 days of such date a special meeting of shareholders in accordance with our amended and restated by-laws to consider and vote upon a proposal to distribute to our shareholders the amount of net proceeds of the private offering that has not been expended by the Company for a Permitted Purpose as of such date. Diana Shipping has agreed to vote its shares in accordance with the majority of the votes cast by shareholders that are not affiliated with Diana Shipping at such special meeting. The Exchange Offer does not satisfy the requirement to complete an initial public offering of common stock pursuant to an effective registration statement under the Securities Act for purposes of this provision contained in our amended and restated by-laws. No assurance can be given that the Company will be continuing operations on such date or that any proceeds of the private offering will be available for distribution on such date. In addition, the U.S. federal income tax consequences of any distribution may vary depending on the form of such distribution, if any.

Following the completion of the acquisition of the two vessels in our initial fleet and the drawdown of $20.0 million under our secured loan facility, we have applied approximately 85% of the net proceeds of the private offering to a Permitted Purpose.

Our purchasing and operating previously owned 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 previously owned 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 previously owned vessels, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.

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. 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.

We have recently acquired two newbuilding vessels 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 recently acquired two newbuilding vessels. 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;

 

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bankruptcy of or other financial crisis involving the shipyard;

 

   

a backlog of orders at the shipyard;

 

   

political, social or economic disturbances;

 

   

weather interference or a catastrophic event, such as a major earthquake or fire;

 

   

requests for changes to the original vessel specifications;

 

   

shortages of or delays in the receipt of necessary construction materials, such as steel;

 

   

an inability to finance the constructions of the vessels; or

 

   

an inability to obtain requisite permits or approvals.

If the seller of any newbuilding vessel we have contracted to purchase is not able to deliver the vessel to us as agreed, or if we cancel a purchase agreement because a seller has not met his obligations, it may result in a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.

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.

We have entered into a time charter for one of the vessels in our initial fleet for a minimum period of nine months and a maximum period of 12 months. We entered into a time charter for the other vessel in our initial fleet for a minimum of 30 days to a maximum 60 days, and thereafter the vessel has been chartered for a period of 24 months plus or minus 45 days. We intend to selectively employ our vessels in the spot market, under short-term or long-term time charters, or lay-up vessels as market conditions warrant. 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.

Our growth in the future depends on our ability to successfully charter our vessels, for which we will face substantial competition.

One of our business strategies is to initially employ our vessels in the spot market or under short-term or long-term time charters, or refrain from operating the vessels we acquire in the current unfavorable market and to secure favorable charter rates when market conditions improve. 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. Container shipping 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;

 

   

container shipping 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;

 

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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 to establish our operations and implement our growth successfully.

Increased competition in technological innovation could reduce the demand for the vessels we plan to acquire 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. Physical life is related to the original design and construction, 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 will not devote all of their time to our business, which may hinder our ability to operate successfully.

Our executive officers and directors will be involved in other business activities, such as the operation of Diana Shipping with which four of them have certain employment and consulting agreements, which may result in their spending less time than is appropriate or necessary to manage our business successfully. This could have a material adverse effect on our business, results of operations, cash flows and financial condition.

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, 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 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 drybulk carrier sector, which limits our ability to expand our operations.

We are dependent on our Manager to assist us in operating our business, and our business will be harmed if our Manager fails to assist us effectively.

We have entered into an Administrative Services Agreement with Diana Shipping Services, a wholly-owned subsidiary of Diana Shipping, whom we refer to as DSS or the Manager, whereby DSS provides us with administrative services, commercial and technical vessel management services, including chartering, vessel

 

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maintenance, crewing, purchasing, shipyard supervision, insurance and financial services. Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance of these services. Our business will be harmed if our Manager fails to perform these services satisfactorily, if it stops providing these services to us for any reason or if it terminates the Administrative Services Agreement, as it is entitled to do under certain circumstances. While we are able to terminate the Administrative Services Agreement upon the approval of our board of directors, upon any termination of the Administrative Services Agreement, we may lose our ability to benefit from economies of scale in purchasing supplies and other advantages that we believe our relationship with DSS will provide.

If DSS suffers material damage to its reputation or relationships, it may harm our ability to:

 

   

acquire new vessels;

 

   

enter into new charters for our vessels;

 

   

obtain financing on commercially acceptable terms; or

 

   

maintain satisfactory relationships with charterers, suppliers and other third parties.

If our ability to do any of the things described above is impaired, it would undermine our ability to establish our operations and implement our growth successfully.

If our insurance is insufficient to cover losses that may occur to the vessels we plan to acquire 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 the vessel management agreements, 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’ purchase price. 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

 

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Arabian Gulf, have included attacks on ships and mining of waterways. In addition, terrorist attacks outside this region, such as the attacks that occurred against targets in the United States on September 11, 2001, Spain on March 11, 2004, London on July 7, 2005, Mumbai on November 26, 2008 and continuing hostilities in Iraq and Afghanistan and elsewhere 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 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 dollars and incur a portion of our expenses in currencies other than the dollar. This difference could lead to fluctuations in net income due to changes in the value of the dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the 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.

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 and the applicable Treasury Regulations promulgated thereunder.

Both before and after the Exchange Offer, we will qualify for this exemption if more than 50% of our stock (by value) is owned by one or more “qualified shareholders,” which include individual residents of a foreign country which grants an equivalent exemption from tax to United States domestic corporations and certain publicly-traded corporations organized in a foreign country. 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

 

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of stock in a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their stock in the PFIC.

We may be treated as a PFIC either before or after we acquire vessels. For the first taxable year which we earn gross income (which we expect to be 2010), we may be able to rely upon the “start-up year” exception to the PFIC rules. Under this exception, we will not be treated as a PFIC for such taxable year if (1) no predecessor of ours was a PFIC; (2) we satisfy the United States Internal Revenue Service, or IRS, that we will not be a PFIC for either of the first two taxable years following the start-up year; and (3) we are not in fact a PFIC for either of these years. However, depending upon the circumstances, there is no assurance that we will be able to qualify for the “start-up year” exception. For example, we may be treated as a PFIC for one of the two taxable years following our start-up year if we are unable to complete our acquisitions of vessels in a timely manner.

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 derive or are 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 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, as discussed below under “Taxation”), 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 units, common stock or warrants, as the case may be, as if the excess distribution or gain had been recognized ratably over such U.S. holder’s holding period for such common stock, as the case may be. See “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.

 

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Risks Related to Our Common Stock

There is currently no market for our common stock and a market for our common stock may not develop, which could adversely affect the liquidity and price of our common stock.

There is currently no established trading market for our common stock. The Exchange Shares are new securities with no established trading market. Stockholders therefore have no access to information about prior market history on which to base their investment decision.

While we are conducting a registered exchange offer for the Original Shares, and we are obligated under certain conditions, to register the resale of the Original Shares, we cannot assure you as to:

 

   

the likelihood that an active market will develop for the Exchange Shares;

 

   

the liquidity of any such market;

 

   

the ability of our stockholders to sell their Exchange Shares; or

 

   

the price that our stockholders may obtain for their Exchange Shares.

Even if an active trading market develops, the market value for our common stock may be highly volatile and could be subject to wide fluctuations after this offering. Some of the factors that could negatively affect our share price include:

 

   

actual or anticipated variations in our operating results;

 

   

changes in our cash flow, Earnings Before Income Taxes Depreciation and Amortization (EBITDA) or earnings estimates;

 

   

publication of research reports about us or the industry in which we operate;

 

   

increases in market interest rates that may lead purchasers of common stock to demand a higher expected yield which, if our distributions are not expected to rise, will mean our share price will fall;

 

   

changes in applicable laws or regulations, court rulings and enforcement and legal actions;

 

   

changes in market valuations of similar companies;

 

   

adverse market reaction to any increased indebtedness we incur in the future;

 

   

additions or departures of key personnel;

 

   

actions by institutional stockholders;

 

   

speculation in the press or investment community; and

 

   

general market and economic conditions.

Certain beneficiaries of the registration rights agreement that we entered into in connection with the private offering are prohibited from selling shares of our common stock for a period of time after the effective date of any registration statement filed in connection with an initial public offering of common stock by us, and we cannot assure you that the market price of our common stock will not fluctuate or decline significantly during such restricted selling period.

In the event we conduct an initial public offering, holders of the common stock sold in the private offering will have certain “piggy-back” registration rights. Pursuant to the provisions of the registration rights agreement, upon an initial public offering of our common stock, the holders of our common stock purchased in the private offering who elect, pursuant to the registration rights agreement, to include their shares of our common stock for resale in an initial public offering will not be able to sell shares of our common stock for a period of up to 30 days before and 180 days following the effective date of the registration statement filed in connection with the initial public offering of our common stock. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly during such, or any, restricted selling period. The inability of the beneficiaries of the registration rights agreement to sell their shares of our common stock during any restricted selling period may result in a lost opportunity to sell shares at favorable prices.

 

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The shares of our common stock may not be approved for listing on the New York Stock Exchange, Nasdaq Global Market or another national exchange and even if approved, we may be unable to maintain our listing on such an exchange, which would adversely affect the value of our common stock and make it more difficult for you to monetize your investment.

Under the registration rights agreement, we have agreed to use our commercially reasonable efforts to list our common stock on the New York Stock Exchange, Inc., or NYSE, the Nasdaq Global Market, or Nasdaq, or another national exchange as soon as practicable after filing the applicable registration statement, and thereafter to maintain the listing on such exchange. Each exchange has initial listing criteria, including criteria related to minimum bid price, public float, market makers, minimum number of round lot holders and board independence requirements, which we can give no assurance that we will meet. Our inability to list our common stock on the NYSE, Nasdaq or another national exchange could affect the ability of our shareholders to sell their shares of common stock subsequent to the declaration of effectiveness of a registration statement, and consequently adversely affect the value of such shares. In such case, our shareholders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, we would have more difficulty attracting coverage by market research analysts.

If our common stock is approved for listing on the NYSE, Nasdaq or another national exchange, we will have no prior trading history, and thus there is no way to determine the prices or volumes at which our common stock will trade. We can give no assurance as to the development of liquidity or any trading market for our common stock. Holders of shares of our common stock may not be able to resell the shares at or near their original acquisition price, or at all.

Additionally, the NYSE, the Nasdaq and each national securities exchange has certain corporate governance requirements that must be met in order for us to maintain our listing. If we qualify for listing and subsequently fail to meet the relevant corporate governance requirements, shares of our common stock could be delisted, which would make it harder for you to monetize your investment in our common stock and would cause the value of your investment to decline.

If we do not become publicly-traded, our access to the capital markets may be limited.

Although we are conducting a registered exchange offer for the Original Shares and, under certain conditions, we are obligated to file a registration statement covering the resale of the Original Shares, there is no guarantee that we will complete such exchange offer, registration or any public offering of our common stock. If we are unable to complete a public offering of our common stock or to have our stock listed with a stock exchange, our access to capital markets will be limited and we will have to rely on funding from private sources. Such limited access to the capital markets could impair our ability to finance our operations and any potential acquisitions and could have a material adverse effect on our business, operating results and financial condition.

We will incur increased costs as a result of being public company.

As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a publicly traded company. Following the effectiveness of the registration statement of which this prospectus is a part, we will be a public reporting company. As a public company, we will incur significant legal, accounting, investor relations and other expenses that we do not currently incur. In addition, we will be subject to the provisions of the Sarbanes-Oxley Act of 2002, Securities and Exchange Commission rules as well as stock exchange requirements. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We estimate that we will have increased costs of approximately $1.0 million per year as a public company.

 

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Investor confidence may be adversely impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

As a public reporting company, we will become subject to Section 404 of the Sarbanes-Oxley Act of 2002, which will require us to include in our annual report on Form 20-F our management’s report on, and assessment of, the effectiveness of our internal controls over financial reporting. In addition, our independent registered public accounting firm will be required to attest to and report on the effectiveness of our internal controls over financial reporting, which requirement we expect will first apply to our annual report on Form 20-F for the year ended December 31, 2011. Because we outsource accounting and other services to our Manager, our management and our independent registered public accounting firm will be required to also assess the design and operating effectiveness of our Manager’s internal controls over financial reporting. If we or our Manager fail to maintain the adequacy of our internal controls over financial reporting, we will not be in compliance with all of the requirements imposed by Section 404. Any failure to comply with Section 404 could result in an adverse perception of the Company in the financial marketplace.

Future offerings of debt securities, 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 common stock.

In the future, we may attempt to increase our capital resources by 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 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. Our 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 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 offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market value of our common stock and diluting their share holdings in us.

Future sales of our common stock could have an adverse effect on our share price.

As of the date of this prospectus, we have 6,106,161 shares of common stock outstanding. Additionally, we may in the future issue additional securities. We may also issue additional shares of common stock or securities convertible into common stock, in connection with the hiring of personnel, future acquisitions, future private placements of our securities or other business purposes. The potential issuance of such additional shares of common stock will result in the dilution of the ownership interests of our existing shareholders and may create downward pressure on the trading price, if any, of our common stock.

In addition, Diana Shipping has entered into a one-year lock-up agreement with respect to its common stock. Such common stock will also be deemed to be “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be transferred unless such common stock has been registered under the Securities Act or an exemption from registration is available. Upon satisfaction of certain conditions, Rule 144 permits the sale of certain amounts of restricted securities one year following the date of acquisition of the restricted securities from us. As shares of common stock become eligible for sale under Rule 144, the volume of sales of common stock on applicable securities markets may increase, which could reduce the market value of our common stock. FBR Capital Markets & Co., at any time and without notice, may waive the provisions of the foregoing lock-up agreement. If the restrictions under the lock-up agreement are waived, such common stock will be available for sale into the market, which could reduce the market value for common stock.

In addition, we are conducting a registered exchange offer for the Original Shares pursuant to the registration rights agreement. Upon exchange, all of the Original Shares exchanged for Exchange Shares will be eligible for sale

 

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and the sales of substantial amounts of our common stock, or the perception that these sales may occur, could cause the market price of our common stock, if any, to decline and/or impair our ability to raise capital. We also may grant additional registration rights in connection with any future issuance of our common stock.

Because we are a foreign corporation, you may not have the same rights or protections that a shareholder in a United States 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 United States jurisdiction.

It may not be possible for our investors to enforce U.S. judgments 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 United States shareholders to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in United States 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 United States courts obtained in actions against us based upon the civil liability provisions of applicable United States federal and state securities laws or (2) would enforce, in original actions, liabilities against us based upon these laws.

Anti-takeover provisions in our organizational documents could make it difficult for our shareholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the value of our securities.

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

These provisions include:

 

   

authorizing our board of directors to issue “blank check” preferred stock without shareholder approval;

 

   

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

 

   

prohibiting cumulative voting in the election of directors;

 

   

authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of two-thirds of the outstanding common shares entitled to vote generally in the election of directors;

 

   

limiting the persons who may call special meetings of shareholders; and

 

   

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings.

 

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In addition, we have entered into a 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.

Your failure to tender your Original Shares in the Exchange Offer may affect their marketability.

If you do not exchange your Original Shares for Exchange Shares in the Exchange Offer, you will continue to be subject to existing restrictions on transfers of the Original Shares. If the Exchange Offer is completed and you do not exchange your shares, we have agreed to register the resale of Original Shares under certain circumstances. After we complete the Exchange Offer, if you continue to hold Original Shares and you seek to liquidate your investment, you will have to rely on an exemption from the registration requirements under applicable securities laws, including the Securities Act, regarding any sale or other disposition of the Original Shares unless and until the Original Shares are registered for resale.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” All statements in this document that are not statements of historical fact or present facts or conditions are forward-looking statements. These forward looking statements may be identified by the use of predictive, future-tense or forward-looking terminology, such as “anticipate,” “estimate,” “intend,” “project,” “forecast,” “plan,” “potential,” “may,” “should,” “expect” or similar terms and includes assumptions, expectations, projections, intentions and beliefs about future events.

Forward-looking statements include, but are not limited to, such matters as:

 

   

our future operating or financial results;

 

   

statements about pending or recent acquisitions, business strategy and expected capital spending or operating expenses;

 

   

statements about shipping industry trends, including charter hire rates and factors affecting supply and demand;

 

   

our ability to obtain additional financing;

 

   

expectations regarding the availability of vessel acquisitions; and

 

   

anticipating developments with respect to litigation.

Forward-looking statements are based upon assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in the forward-looking statements included herein. The reasons for this include the risks, uncertainties and factors described under the section of this prospectus entitled “Risk Factors.”

ENFORCEABILITY OF CIVIL LIABILITIES

We are a Marshall Islands company and our principal administrative offices are located outside the United States in Athens, Greece. A majority of our directors, officers and the experts named in this prospectus reside outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against us or these persons in any action, including actions based upon the civil liability provisions of United States federal or state securities laws.

Furthermore, there is substantial doubt that the courts of the Marshall Islands or Greece would enter judgments in original actions brought in those courts predicated on United States federal or state securities laws.

 

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SELECTED FINANCIAL DATA

We were incorporated on January 7, 2010. The following table sets forth our selected financial data. The selected financial data as of January 7, 2010 (date of inception) are derived from our audited financial statements included elsewhere in this prospectus. We refer you to the notes to our audited financial statements for a discussion of the basis on which our financial statements are presented. The information provided below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, related notes and other financial information included herein.

 

     As of
January 7,
2010
     As of and for
the period ended
June 30, 2010
 

Income Statement Data:

     

Voyage and time charter revenues

     —           1,322   

Voyage expenses

     —           (25,114

Vessel operating expenses

     —           (375,549

Depreciation

     —           (7,886

Management fees

     —           (23,000

General administrative expenses

     —           (1,789,977

Foreign currency gains

     —           242,490   
           

Operating loss

     —           (1,977,714

Interest income

     —           42,638   
           

Net loss

     —           (1,935,076
           

Loss per common share, basic and diluted

     —           (0.67

Weighted average number of common shares, basic

     500         2,875,722   

Weighted average number of common shares, diluted

     500         2,880,006   

Balance Sheet Data:

     

Cash and cash equivalents

     500         34,583,321   

Total fixed assets

     —           50,460,808   

Total assets

     500         85,914,144   

Total current liabilities

     —           1,639,424   

Total shareholder’s equity

     500         84,274,720   

Cash Flow Data:

     

Net cash used in operating activities

     —           (470,970

Net cash used in investing activities

     —           (50,468,694

Net cash from financing activities

     —           85,281,396   

Effect of exchange rate changes on cash

     —           241,589   

 

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USE OF PROCEEDS

We will not receive any proceeds from the Exchange Offer. In exchange for issuing Exchange Shares as contemplated in this prospectus, we will receive Original Shares which are identical to the Exchange Shares except that the Exchange Shares are registered under the Securities Act, and, therefore, will not bear legends restricting their transfer, and the Exchange Shares include the related preferred stock purchase rights. The Original Shares surrendered in exchange for Exchange Shares will be cancelled.

We received net proceeds from the private offering of approximately $85.3 million after deducting the initial purchaser’s discount and placement fee and related offering expenses payable by us. We used these proceeds to fund a portion of the aggregate purchase price of the two newbuilding containerships in our initial fleet and general corporate purposes, including working capital.

Of the net proceeds of the private offering, we intend to use at least ninety percent (90%) (i) to fund containership acquisitions; (ii) for capital expenditures relating to our vessels; (iii) for vessel operating expenses, which may include expenses incurred in the lay-up of our vessels, and reasonable reserves established by our board of directors for any such operating or lay-up expenses; (iv) general and administrative expenses; and (v) other expenses related to the ownership, operation, management and maintenance of our containerships (the items set forth in clauses (i) to (v) above are referred to collectively as a “Permitted Purpose”). It is our intention that no more than ten percent (10%) of the net proceeds of the private offering shall be used for general corporate purposes other than Permitted Purposes.

In the event that on April 6, 2012 (i) we have not completed an initial public offering of common stock pursuant to an effective registration statement under the Securities Act, and (ii) we have not applied at least ninety percent (90%) of the net proceeds of the private offering to a Permitted Purpose then our Board of Directors shall call within 60 days of such date a special meeting of shareholders in accordance with our amended and restated by-laws to consider and vote upon a proposal to distribute to our shareholders the amount of net proceeds of the private offering that has not been expended by the Company for a Permitted Purpose as of such date. Diana Shipping has agreed to vote its shares in accordance with the majority of the votes cast by shareholders that are not affiliated with Diana Shipping at such special meeting. No assurance can be given that the Company will be continuing operations on such date or that any proceeds of the private offering will be available for distribution on such date.

The U.S. federal income tax consequences of any distribution may vary depending on the form of such distribution, if any.

Prior to such use, the proceeds held by us will be invested only in cash or in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act with a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act.

Following the acquisition of the two vessels in our initial fleet and the drawdown of $20.0 million under our secured loan facility, we have applied approximately 85% of the net proceeds of the private offering to a Permitted Purpose.

 

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CAPITALIZATION

The following unaudited table sets forth our capitalization at June 30, 2010, on an actual basis and as adjusted to give effect to:

 

   

the payment of Euro 33,570,000 or $42,697,430 representing the final installment to the yard for the acquisition of the vessel Centaurus, delivered on July 9, 2010, from the net proceeds of the private offering and the drawdown under our loan agreement with DnB NOR Bank ASA.

 

   

The drawdown on July 9, 2010 of $20,000,000 under our loan agreement with DnB NOR Bank ASA to partly finance the acquisition cost of vessels Sagitta and Centaurus.

 

     As of June 30, 2010  
     Actual     As Adjusted  
     (in U.S. dollars)  

Cash and cash equivalents

     34,583,321        11,885,891   
                

Debt

     —          20,000,000   
                

Shareholders’ equity

    

Preferred Stock, $0.01 par value; 25,000,000 shares authorized, none issued actual and as adjusted

     —          —     

Common shares, $0.01 par value; 500,000,000 shares authorized; 6,106,161 shares issued and outstanding actual and as adjusted

     61,062        61,062   

Additional paid-in capital

     86,148,734        86,148,734   

Accumulated Deficit

     (1,935,076     (1,935,076
                

Total shareholders’ equity

     84,274,720        84,274,720   
                

Total capitalization

     84,274,720        104,274,720   
                

Except as disclosed herein, there have been no material changes to our consolidated capitalization since June 30, 2010.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our financial statements and related notes included elsewhere in this prospectus. This discussion includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. For a discussion of some of those risks and uncertainties, read the sections entitled “Forward Looking Statements” and “Risk Factors.”

Overview

We are a newly formed development stage company that was incorporated on January 7, 2010 under the laws of the Republic of the Marshall Islands. We were formed to acquire containerships engaged in the seaborne transportation of finished consumer and industrial products. We received net proceeds from the private offering of approximately $85.3 million. Following the acquisition of the two vessels in our initial fleet and the drawdown of $20.0 million under our secured loan facility, we have applied approximately 85% of the net proceeds of the private offering to a Permitted Purpose, as defined in our amended and restated by-laws. We intend to employ our vessels in the spot market or on short-term or long-term time charters or lay-up vessels as market conditions warrant. Both vessels in our initial fleet are employed on time charter with a remaining duration of about 6 to 9 months for the vessel Sagitta and about 23 months plus or minus 45 days for the Centaurus as of October 1, 2010. We expect to grow our fleet primarily through the acquisition of containerships ranging from 2,500 TEU to 7,500 TEU in size; however, we will consider acquisitions of all sizes of containerships if the returns associated with these acquisitions are deemed appropriate by our board of directors and management team. We believe that depressed charter rates and vessel values in the containership sector have created opportunities to acquire containerships at attractive prices. Please read “Summary—Industry Review & Trends” and “Business Strategy.”

Vessel Management

DSS, a wholly-owned subsidiary of Diana Shipping, provides commercial and technical management services for our vessels under separate vessel management agreements with our vessel owning subsidiaries. Commercial management includes, among other things, negotiating charters for vessels, monitoring the performance of vessels under charter, and managing our relationships with charterers, obtaining insurance coverage for our vessels, as well as supervision of the technical management of the vessels. Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging the hire of qualified officers and crew, arranging and supervising drydocking and repairs, arranging for the purchase of supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. Our Manager also provides to us accounting, administrative, financial reporting and other services necessary for the operation of our business.

Results of Operations

Our revenues consist of revenues from our spot charters or time charters. We believe that the important measures for analyzing our future results of the 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

 

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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.

 

   

Operating days.  We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

 

   

Fleet utilization.  We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.

 

   

Time Charter Equivalent (TCE) rates.  We define TCE rates as our voyage and time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate, a non-GAAP measure, 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 and other miscellaneous expenses divided by total ownership days.

We believe these metrics will be helpful in comparing our future operating performance from period to period as well as to that of our competitors; however, other shipping companies may not define the above metrics in the same manner.

Recent Developments

In April 2010, we completed the sale of an aggregate of 5,892,330 common shares in a private offering under Rule 144A, Regulation S and Regulation D under the Securities Act pursuant to the initial purchaser/placement agreement, dated March 29, 2010, by and between us and FBR Capital Markets & Co., including 290,000 common shares issued pursuant to the exercise of FBR Capital Markets & Co.’s option to purchase additional shares, with aggregate net proceeds of $85.3 million.

In May 2010, we issued a total of 213,331 restricted common shares to our executive officers pursuant to our 2010 Equity Incentive Plan and related restricted stock grant award agreements. Of these shares, 25% have become vested and the remaining shares vest ratably over three years by one-third each year.

On June 1, 2010, we terminated our existing Consultancy Agreements with companies controlled by each of the executive officers and the services that were previously provided to the Company by the consultants are provided by DSS under the Administrative Services Agreement. DSS has appointed Diana Enterprises Inc., a related party, as broker to assist it in providing services to the Company pursuant to the Broker Services Agreement, dated June 1, 2010.

On June 8, 2010, we, through our wholly-owned subsidiaries, entered into memoranda of agreement to purchase two newbuilding containerships, identified as Hull 558 (named Sagitta) and Hull 559 (named Centaurus), from a third-party seller, each with a carrying capacity of approximately 3,400 TEU for a purchase price of Euro 37,300,000 per ship (or $45.7 million and $47.2 million, respectively, excluding any predelivery expenses). We took delivery of the vessel Sagitta on June 29, 2010 following which the vessel commenced time

 

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charter employment with A.P. Møller-Maersk A/S for a minimum period of nine months and a maximum period of 12 months at a gross daily rate of $16,000. We took delivery of the Centaurus on July 9, 2010 following which the vessel commenced time charter employment with Hapag Lloyd AG, Hamburg for a minimum period of 30 days and a maximum period of 60 days at a gross daily rate of $8,400, and on September 4, 2010 following the expiration of this time charter the vessel was chartered to CSAV, Valparaiso for a period of 24 months plus or minus 45 days at a gross daily rate of $20,000.

On July 7, 2010, we entered into a new secured term loan facility with DnB NOR Bank ASA for up to $40.0 million. We have drawn down $10.0 million per vessel in connection with the acquisition of the two newbuilding containerships and expect that the remaining $20.0 million will be available to draw down within one year from the entry into the loan agreement. Please see “—Liquidity and Capital Resources,” below.

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 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 the following steps before the vessel will be ready to commence operations:

 

   

obtain the charterer’s consent to us as the new owner;

 

   

obtain the charterer’s consent to a new technical manager;

 

   

obtain the charterer’s consent to a new flag for the vessel;

 

   

arrange for a new crew for the vessel;

 

   

replace all hired equipment on board, such as gas cylinders and communication equipment;

 

   

negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;

 

   

register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;

 

   

implement a new planned maintenance program for the vessel; and

 

   

ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.

 

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The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.

Our business is comprised of the following main 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 require the following main 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, which is provided to us pursuant to our Administrative Services Agreement with DSS, requires the following main components:

 

   

management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;

 

   

management of our accounting system and records and financial reporting;

 

   

administration of the legal and regulatory requirements affecting our business and assets; and

 

   

management of the relationships with our service providers and customers.

The principal factors that may affect our profitability, cash flows and shareholders’ return on investment include:

 

   

rates and periods of charterhire;

 

   

levels of vessel operating expenses;

 

   

depreciation expenses;

 

   

financing costs; and

 

   

fluctuations in foreign exchange rates.

See “Risk Factors” for additional factors that may affect our business.

 

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Revenues

Voyage Revenues

Voyage 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.

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.

Time Charter Equivalent (TCE)

A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of available days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels.

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 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.

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 residual scrap values, calculated at $200 per lightweight ton.

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 Administrative Services Agreement with DSS and the Broker Services Agreement between DSS and Diana Enterprises. We expect general and administrative expenses to reflect 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 increased legal and accounting costs related to our compliance with public reporting obligations and the Sarbanes-Oxley Act of 2002.

 

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Results of Operations

Period ended June 30, 2010

Net Loss. Net loss for the period from inception to June 30, 2010 amounted to $1.9 million and resulted from the expenses for starting up and running the Company. Revenues from vessels for the period were insignificant, as our first newbuilding containership Sagitta was delivered to us on June 29, 2010.

Voyage and Time Charter Revenues. Voyage and time charter revenues for the period from inception to June 30, 2010 amounted to $1,322, representing revenues from the hire of our containership Sagitta from the time of delivery to the charterers.

Voyage Expenses. Voyage expenses for the period from inception to June 30, 2010 amounted to $25,114, mainly representing losses due to changes in bunker prices during the period between the delivery of the Sagitta and the delivery of the vessel to the charterers.

Vessel Operating Expenses. Vessel operating expenses for the period from inception to June 30, 2010 amounted to $375,549 and mainly consist of expenses for the initial supply of our newbuilding containerships Sagitta and Centaurus, consisting of stores and other consumables.

Depreciation . Depreciation for the period from inception to June 30, 2010 amounted to $7,886 and represents the depreciation expense of the Sagitta.

Management Fees . Management fees amounted to $23,000 and consist of fees payable to DSS pursuant to the vessel management agreements that we, through our vessel-owning subsidiaries, entered into on June 8, 2010 for the provision of commercial and technical management services for the vessels in our fleet.

General and Administrative Expenses. General and administrative expenses for the period from inception to June 30, 2010 amounted to $1.8 million and consist mainly of consultancy fees, broker services fees, compensation cost on restricted stock, legal fees and audit fees.

Foreign Currency Gain. Foreign currency gain for the period from inception to June 30, 2010 amounted to $242,490 and mainly consists of unrealized gains from the valuation of the cash account that is maintained in Euros.

Liquidity and Capital Resources

Our working capital requirements relate to the acquisition and operation of our fleet. We applied a portion of the net proceeds of the private offering of approximately $85.3 million, which includes consideration of $50 million from Diana Shipping’s investment in our common shares and approximately $20.0 million of indebtedness under our new secured loan agreement for up to $40.0 million, which we entered into with DnB NOR Bank ASA on July 7, 2010, to fund the acquisition of the two newbuilding containerships in our initial fleet. Our operating cash flow is generated from charters on our vessels, through our subsidiaries. We expect that our proceeds from operations will be sufficient to fund our working capital requirements. We intend to finance our future growth with future debt and equity offerings as deemed appropriate by our management and board of directors.

Credit Facility

On July 7, 2010, we entered into a new secured term loan facility with DnB NOR Bank ASA for up to $40.0 million to partially finance the acquisition of the two vessels in our initial fleet. The loan is available in two advances for each vessel with each advance not exceeding the lower of $10.0 million and 25% of the market value of the relevant ship and is available until July 31, 2011. Each advance is repayable in 24 quarterly installments of $165,000 plus one final balloon installment of $6.04 million to be paid together with the last

 

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installment. The loan bears interest at LIBOR plus a margin of 2.40% per annum plus any mandatory additional cost of funds. We also pay commitment fees of 0.96% per annum on any undrawn portion. The loan is secured by a first preferred mortgage over the two vessels and first priority assignment over interest bearing accounts with DnB Nor Bank ASA for each vessel.

As of the date of this prospectus, we have drawn down $20.0 million in connection with the acquisition of the two newbuilding containerships and under the loan agreement and we are permitted to draw down one more advance for each of our two vessels up to the lower of (a) $10.0 million and (b) 25% of the market value of the relevant ship.

Cash Flow

Net Cash Used in Operating Activities

Net cash used in operating activities amounted to $470,970 and represents payments of operating and general and administrative expenses for starting up and running the Company.

Net Cash Used in Investing Activities

Net cash used in investing activities was $50.5 million and consists of $4.5 million paid for the 10% advance of the purchase price for the acquisition of our newbuilding containership Centaurus and $45.9 million paid for the acquisition of our newbuilding containership Sagitta including pre-delivery expenses.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $85.3 million and consists of the net proceeds received from the offering of 5,892,330 common shares in a private transaction, of which $50.0 million was invested by Diana Shipping.

Quantitative and Qualitative Disclosure of Market Risk

Interest Rate Risk

We have $20.0 million of indebtedness under our new secured loan agreement for up to $40.0 million, which we entered into on July 7, 2010, in connection with the acquisition of the two vessels in our initial fleet and are subject to interest rate fluctuations. When determined appropriate by our management team based on prevailing conditions and our outlook for the container market, we will consider incurring additional indebtedness in the future to enhance returns to our shareholders.

Foreign Exchange Rate Risk

We generate all of our revenues in dollars. However, we incur some of our expenses in other currencies, primarily the Euro. The amount and frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. In addition, the purchase price of the two newbuilding containerships is in Euros. On June 4, 2010 we converted $50.0 million of cash available to Euro (an approximate Euro value of 41.0 million). Since approximately 2002, the 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.

Capital Expenditures

Our future capital expenditures relate to the purchase of containerships. We acquired two newbuilding containerships, Hull 558 (named Sagitta) and Hull 559 (named Centaurus), for a purchase price of Euro 37,300,000 per ship (or $45.7 million and $47.2 million, respectively, excluding any predelivery expenses). We

 

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financed approximately $20.0 million of the aggregate purchase price for the two vessels with our new secured loan agreement, which we entered into with DnB NOR Bank ASA on July 7, 2010 and the remaining amount with the net proceeds of the private offering.

Inflation

Our management does not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.

Off-balance Sheet Arrangements

As of the date of this prospectus, we do not have any off-balance sheet arrangements.

Contractual Obligations

The following table presents our contractual obligations as of June 30, 2010, as adjusted to reflect our entry into the loan agreement with DnB NOR Bank ASA.

 

     Payments due by period  

Obligations

   Total
Amount
     1 year      2-3 years      4-5 years      More than
5 years
 
     (in thousands of dollars)  

Administrative Services Agreement(1)

     5,205         1,132         2,080        1,993         —     

Memorandum of Agreement(2)

     42,697         42,697         —           —           —     

Long Term Debt(3)

     20,000         990         2,640         2,640         13,730   
                                            

Total

     67,902         44,819         4,720         4,633         13,730   
                                            

 

(1) On June 1, 2010, we terminated our existing Consultancy Agreements with companies controlled by our executive officers and the services that were previously provided to the Company by the consultants are provided by DSS under the Administrative Services Agreement. Under the Administrative Services Agreement, we pay DSS a monthly fee of $10,000 for administrative services. DSS has appointed Diana Enterprises Inc., a related party controlled by our Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist it in providing services to the Company pursuant to the Broker Services Agreement, dated June 1, 2010. We expect the fees paid under the Broker Services Agreement to increase to $1.3 million after the completion of an initial public offering. We reimburse this cost to DSS pursuant to the Administrative Services Agreement. We have also issued an aggregate of 213,331 restricted common shares of a fair value of $3.2 million, pursuant to our 2010 Equity Incentive Plan and related restricted stock grant award agreements, of which 25% (fair value of $0.8 million) have become vested and the remaining shares will vest ratably over three years by one-third each year. Following the completion of an initial public offering of our common stock, we expect to issue an additional 53,333 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan, 25% of which will vest upon the grant of such shares, and the remainder of which will vest ratably over three years from their date of grant.
(2) We, through our wholly owned subsidiary Orangina, entered into a memorandum of agreement for the purchase of a newbuilding containership identified as Hull 559 (named Centaurus) delivered on July 9, 2010, for a purchase price of Euro 37,300,000. We paid $47.2 million to acquire the vessel (excluding any additional predelivery costs of $0.3 million) with proceeds of the private offering and $10.0 million borrowings under our new secured loan facility for up to $40.0 million ($20.0 million for each vessel).
(3) On July 7, 2010, we, through our wholly owned subsidiaries, entered into a loan agreement with DnB NOR Bank ASA to finance part of the acquisition cost of the vessels Sagitta and Centaurus, for an amount of up to $40.0 million. On July 9, 2010, we drew down two advances of $10.0 million each. The table does not include interest we pay under the loan facility with DnB NOR, which is at LIBOR plus a margin and any mandatory loan cost.

 

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The table above does not include any amounts relating to the vessel management agreements which we have entered into with DSS, discussed under section “Business—Vessel management agreements,” on the basis that such agreements are for a non-specific term and may be terminated by either party at no cost with three months’ notice.

Critical Accounting Policies

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

Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe will be our most critical accounting policies when we acquire and operate vessels, because they generally involve a comparatively higher degree of judgment in their application.

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 will be assessed individually for purposes of determining the appropriate provision for doubtful accounts.

Accounting for Revenues and Expenses

Revenues are generated from charter agreements that we have entered into for our vessels and may enter into in the future. Charter agreements with the same charterer are accounted for as separate agreements according to the terms and conditions of each agreement. Revenues are recorded when they become fixed and determinable. Revenues from time charter agreements providing for varying annual rates over their term will be 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 will be recognized in the period earned. Deferred revenue will include 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 will be accounted for on a straight line basis. Deferred revenue also may include the unamortized balance of liabilities associated with the acquisition of second hand vessels with time charters attached, acquired at values below fair 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 earned as revenues are earned.

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 its 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

 

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remaining estimated useful life. Depreciation is based on costs less the estimated residual scrap value. Furthermore, we estimate the residual values of our vessels will be $200 per light-weight ton which we believe is common in the containership shipping industry. A decrease in the useful life of a containership or in its residual 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 will be adjusted at the date such regulations are adopted.

Deferred Drydock Cost

Our vessels are required to be drydocked approximately every 30 to 36 months for major repairs and maintenance that cannot be performed while the vessels are operating. We will capitalize the costs associated with drydockings consisting of the actual costs incurred at the yard and parts used in the drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Unamortized drydocking costs of vessels that are sold will be 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 will 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 undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. We determine the fair value of our assets based on management estimates and assumptions and by making use of available market data and taking into consideration third party valuations. In evaluating useful lives and carrying values of long-lived assets, management reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. The current economic and market conditions, including the significant disruptions in the global credit markets, are having broad effects on participants in a wide variety of industries.

We determine undiscounted projected 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 charter revenues from existing charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days (based on the most recent ten-year blended (for modern and older vessels) average historical one-year time charter rates available for each type of vessel) 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 2.5%. Effective fleet utilization will be assumed at 98%, taking into account the period(s) each vessel is expected to undergo her scheduled maintenance (drydocking and special surveys), as well as an estimate of 1% off hire days each year, assumptions in line with our expectations for future fleet utilization under our current fleet deployment strategy.

Share Based Payment

According to Code 718 “Compensation—Stock Compensation” of the Accounting Standards Codification, we are required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (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

 

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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.

 

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THE INTERNATIONAL CONTAINERSHIP INDUSTRY

The information and data in this section relating to the international containership industry has been provided by Drewry Shipping Consultants (Drewry) and is taken from Drewry databases and other sources available in the public domain. Drewry has advised us that it accurately describes the international containership industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented. Drewry’s methodologies for collecting information and data, and therefore the information discussed in this section, may differ from those of other sources, and do not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the containership industry.

Overview

The seaborne transportation industry is an important link in international trade, with ocean-going vessels representing an efficient, and often the only, method of transporting large volumes of basic commodities and finished products. Dry cargo includes drybulk cargo, container cargo and non-container cargo. Drybulk cargo is cargo that is shipped in large quantities and can easily be stowed in a single hold with little risk of cargo damage. Drybulk cargo is generally categorized as either major drybulk or minor drybulk. Major drybulk cargo constitutes the vast majority of drybulk cargo by weight, and includes, among other things, iron ore, coal and grain. Minor drybulk cargo includes products such as agricultural products (other than grain), mineral cargos, cement, forest products and steel products and represents the balance of the drybulk industry. Container cargo is shipped in 20- or 40-foot containers and includes a wide variety of finished products. Non-container cargo includes other dry cargos which cannot be shipped in a container due to size, weight or handling requirements, such as large manufacturing equipment or large industrial vehicles. The balance of seaborne trade involves the transport of liquids or gases in tanker vessels and includes products such as oil, refined oil products and chemicals.

The following table presents the breakdown of global seaborne trade by type of cargo in 2000 and 2009.

World Seaborne Trade: 2000 & 2009

 

     Trade - Tons      CAGR(1)
2000-09
%
    % Total Trade  
       
     2000      2009        2000      2009  

Dry Bulk Cargo

             

Major Bulks

     1,249         1,890         4.71     21.2         23.9   

Minor Bulks

     901         1,076         1.98     15.3         13.6   

Total Drybulk

     2,151         2,966         3.64     36.5         37.5   

Container Cargo

     620         1,205         7.65     10.5         15.2   

Non-container/General Cargo

     720         590         -2.19     12.2         7.5   

Total Dry Cargo

     3,491         4,761         3.51     59.2         60.2   

Liquid Cargo

     2,408         3,145         3.01     40.8         39.8   

Total Seaborne Trade

     5,899         7,905         3.31     100.0         100.0   

 

(1) Compound annual growth rate.

Source: Drewry

 

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In 2009, approximately 7.9 billion tons of cargo of all types was transported by sea, of which 4.8 billion tons were dry cargo and 3.1 billion tons were liquids. Collectively, in the period 2000 to 2009 the compound average annual growth rate (CAGR) in world seaborne trade was 3.3%. However, as the figures in the table below indicate, there is considerable variation by sector in the rate of growth, with containers being the fastest growing sector by a significant margin during this period (although global container volumes declined by over 9% year-on-year in 2009).

Seaborne Trade Growth Rates: 2000 to 2009

(CAGR – %)

LOGO

Source: Drewry

Container Shipping

Container shipping was first introduced in the 1950s and since the late 1960s has become the most common method for transporting many industrial and consumer products by sea. Container shipping is performed by container shipping companies who operate frequent scheduled or liner services, similar to a passenger airline, with pre-determined port calls, using a number of owned or chartered vessels of a particular size in each service to achieve an appropriate frequency and utilization level.

Container shipping occupies an increasingly important position in world trade and it is the fastest growing sector of international shipping, benefiting from a shift in cargo transport towards unitization as well as from changes in world trade. Historically, this growth has been sustained by general increases in world trade, increased global sourcing and manufacturing and continuing penetration of the general cargo market. Some major container shipping companies have also shown a trend to charter an increased percentage of their fleets from third party owners on competitive long-term charters as opposed to purchasing vessels outright.

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.

 

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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. A sophisticated port and intermodal industry has developed to support container transportation.

Reduced Shipping Time . Containerships can travel at speeds of up to 25 knots per hour, even in rough seas, thereby transporting cargo over long distances in relatively short periods of time. This 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 are deploying more ships on single voyages which has ultimately increased overall round voyage times and changed shippers’ supply chains. Many post-Panamax vessels are now sailing at under 20 knots on backhaul routes as part of global slow-steaming strategies to reduce costs.

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. A 40-foot long container is equivalent to two TEU. 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. 40 ft high cube containers have become much more prevalent in recent years since shippers can load more lightweight consumer goods from Asia in a single container, thus reducing overall costs.

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 trans-shipment. When the container arrives at its destination port, it is off-loaded and delivered to the receiver’s premises by truck, rail or barge.

Containership Demand

In 2009, approximately 1.21 billion tons of containerized cargo was transported by sea, comprising 15.2% of all seaborne trade by weight. However, as the chart below indicates, the rate of growth slowed tremendously in 2008 as the world economy weakened.

World Container Cargo (Million Tons): 1997 to 2009

LOGO

Source: Drewry

 

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In 2009 the volume of container trade contracted for the first time in history, due to the severity of the worldwide recession. For the year as a whole the volume of global container trade was about 9.5% below that of the corresponding period in 2008, which was itself low by historical standards. As a result of declining volume and falling rates global carrier revenues for 2009 were approximately 35% below those of 2008. However, based on the evidence of the first half of 2010, global container trade is starting to recover in the wake of renewed growth in the world economy.

Global container trade has increased every year since the introduction of long-haul containerized shipping routes in the late 1960s, with the likely exception of 2009. This momentum is primarily driven by the growth of economic output and consumption, increases in global sourcing and changes in patterns of world trade. Therefore, container trade growth is in part dependent on levels of economic growth and regional/national gross domestic product, or GDP. GDP serves as the best indicator of prospective container volumes, although the drastic events of 2008 and 2009 prove that the link between GDP growth and container growth is not as strong as it was.

Inexpensive and reliable containerized transport has facilitated manufacturing and distribution processes that have accompanied globalization, allowing manufacturing to move away from traditionally high-cost production areas, such as Japan, Western Europe and North America, to lower-cost production areas, such as China, Vietnam and other parts of South East Asia. There has been little or no impact on the quality of the distribution process to the primary consumer markets. As an illustration of the relative low cost of containerized transportation, many technologically advanced countries are exporting component parts for assembly in other countries and re-importing the finished products. Manufacturers have also focused more on “just-in-time” delivery methods, which are facilitated by the fast transit times and frequent, reliable services offered by container line operators and the intermodal industry. However, the increased incidence of slow steaming has meant that reliability has become more important than speed to market.

In addition to the effect of general economic conditions, there are several structural factors that also impact global container trade, including:

 

   

increases in world trade;

 

   

increases in global sourcing and manufacturing; and

 

   

continuing penetration by containerization of traditional shipping sectors, such as bulk and refrigerated cargo markets.

Operators have shifted away from traditional methods of transporting general cargo and refrigerated perishables towards containerization, as more ports around the world introduce container handling technology and as container shipping productivity becomes more widely recognized. More traditional bulk cargos such as grains and soya bean gravitate towards containerization modes when pricing differentials dictate.

The high growth rate in the container market has outpaced investment in port and canal infrastructure with the consequence that there is congestion in some parts of the transportation chain. Congestion increases ships’ time in transit and reduces overall efficiency. Finally, as the largest containerships are deployed in the major trade routes, incremental tonnage is required to feed cargo to these mother ships from ports that either do not have the volume or the infrastructure to serve very large vessels directly. Congestion and increasing trans-shipment absorbs additional ship capacity but does not add any growth to the overall container market.

World container port throughput, a measure of the level of activity of the container shipping industry, is made up of three different traffic streams: loaded containers, empty containers and trans-shipment containers (full and empty). The following chart shows world container trade in terms of both loaded and empty container movements through ports globally.

 

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In the period from 2000 to 2009, port movements of loaded containers almost doubled from just over 200 million TEU in 2000 to just under 500 million TEU in 2009.

World Container Port Throughput Including Empty Containers

and Trans-shipments 2000 to 2009

(Million TEU):

LOGO

Source: Drewry

Regional trends in container port throughput in the period from 2000 to 2009 are shown in the table below.

Regionally, the Far East and South East Asia markets accounted for 49% of global port throughput in 2008, compared with the other major markets of Western Europe and North America. Collectively, these four regions accounted for 78% of all container port throughput in 2009.

 

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Containership Port Throughput including Empty Containers

and Trans-shipments (Million TEU): 2000 to 2009

 

     2000    2001    2002    2003    2004    2005    2006    2007    2008    2009

North America

   30.9    31.2    34.2    37.5    40.8    44.6    47.0    47.9    45.8    39.2

Western Europe

   51.7    52.8    57.7    63.4    70.7    75.6    81.4    91.1    91.7    78.8

North Europe

   31.7    32.0    34.5    37.5    41.9    46.0    50.0    55.7    56.4    47.3

South Europe

   19.9    20.8    23.3    25.9    28.8    29.6    31.5    35.3    35.4    31.5

Asia

   71.7    75.2    87.6    105.4    124.7    138.0    157.3    180.3    193.7    178.2

South East Asia

   34.4    36.9    41.1    45.7    51.6    54.9    59.9    67.4    71.1    65.4

Mid-East

   11.1    12.3    13.7    16.0    19.8    22.4    24.5    28.4    31.9    30.4

Latin America

   17.9    18.8    19.2    21.4    24.7    28.0    31.8    35.3    37.6    33.0

Caribbean/Central America

   9.9    10.4    10.4    11.5    12.9    14.2    16.1    18.1    19.2    16.9

South America

   8.0    8.4    8.8    9.9    11.8    13.8    15.8    17.1    18.4    16.2

Oceania

   5.0    5.3    6.0    6.5    7.3    7.5    7.9    8.6    9.4    8.8

South Asia

   5.5    5.9    6.6    7.3    8.5    9.8    11.5    13.6    14.7    13.9

Africa

   7.4    7.6    8.5    10.3    11.4    13.9    15.8    17.9    20.6    19.9

Eastern Europe

   1.1    1.5    1.9    2.4    3.2    4.3    5.4    7.2    8.0    5.1
                                                 

World

   236.6    247.5    276.6    316.0    363.0    399.0    442.6    497.6    524.5    472.7
                                                 

Source: Drewry

Main Container Routes

There are three core, or arterial, trade routes in the container shipping industry: the Transpacific, Transatlantic and Asia-Europe routes. These routes are often referred to as the East/West trades. Trade along these routes is primarily driven by United States and European consumer demand for products made in Asia. The size of trade between Asia and the Mid-East is also nearly s large as that on the transatlantic and should be considered as a major east-west route on which carriers can deploy post-Panamax vessels. Supporting these core routes are the North/South routes and a network of regional routes, of which the largest is the Intra-Asia market. Other regional routes include the Europe/Mediterranean, Caribbean/United States, Europe/South America, Asia/Australia and North America/South America routes.

LOGO

Source: Drewry

Different routes are usually served by vessels of different sizes as determined by the size of the trade, required service frequency and physical constraints of the ports visited.

 

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The East/West routes are higher volume and longer than the regional routes and, as a result, are generally served by the larger containerships known as panamax, post-panamax and large/very large. The North/South trade routes are generally served by the smaller handysize, intermediate and panamax containerships. However, in recent years where capacity has out-stripped demand, carriers have deployed much larger vessels in some of these smaller or regional trades. Regional routes are generally served by feeder and handysize containerships. The following table shows the trade routes on which different sizes of containerships are likely to be suitable to trade:

Containerships (Typical Deployment by Size Category)

 

TRADE ROUTE

   FEEDER      HANDYSIZE      INTERMEDIATE      PANAMAX      POST-
PANAMAX
     LARGE/VERY
LARGE
 

TEU

   <1,000      1,000-1,999      2,000-2,999      3,000-4,999      5,000-7,999      8,000+  

East/West Routes

           X         X         X         X   

Intra-Asia

     X         X         X         X         

North/South Routes

     X         X         X         X         

Intra-Regional Routes

     X         X         X            

Source: Drewry

The chart below shows the growth, in volume, of the three East/West trades from 2001 to 2009. These trades constitute approximately 30% of global volume.

East/West Container Trade Routes: 2001 to 2009

(Thousand TEU)

LOGO

Source: Drewry

The process of globalization, China’s entry into the World Trade Organization in 2001 and the subsequent boom in cheap manufacturing have fueled global economic development and demand. As a result, almost all trade routes with the Far East have experienced significant annual growth in container traffic since 2001.

There are difference in volumes between the headhaul and backhaul trades, meaning the volume moved eastbound and westbound to and from its point of origin, with the imbalance being as much as three-to-one in the dominant direction. For the backhaul Mid-East to Asia route, this can reach as high as four–to-one. Container traffic is unbalanced on many global trade routes and in some cases the gap is widening. While continued growth in the headhaul direction is encouraging, the imbalance impacts supply, the level and pace of newbuilding and ocean freight rates in the backhaul trades. Empty re-postioning costs of containers for ocean carriers are also considerable. The reason for the imbalance in backhaul trades is the divide between export-dominated and import-dominant countries for containerized goods, which is largely related to the shift of manufacturing to low cost countries.

 

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Containership Supply

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 and multipurpose ships which can carry a variety of cargo including containers. Containerships may be “geared,” which means they are equipped with cranes for loading and unloading containers, and thus do not need to rely on port cranes. Geared containerships are typically 2,500 TEU and smaller. All large containerships are fully cellular and call at ports with adequate shore-based loading and unloading equipment and facilities. Ships range in size from vessels able to carry less than 500 TEU, to those with capacity in excess of 12,000 TEU. The main categories of ship are broadly as follows:

 

   

Large & Very Large: Ships with a capacity of 8,000 TEU or greater, which are restricted to employment on a small number of routes.

 

   

Post Panamax: Ships with a capacity of 5,000 to 7,999 TEU, so-called because of their inability to trade through the existing Panama Canal due to dimension restrictions. However, there are plans to widen the existing Panama Canal, with completion scheduled in 2014, which will allow ships up to 12,000 TEU to transit the waterway.

 

   

Panamax: Ships with a capacity between 4,000 to 4,999 TEU, which is the maximum size that the Panama Canal can currently handle.

 

   

Intermediate : In this category the ships range in size between 2,000 and 3,999 TEU and are generally able to trade on all routes.

 

   

Handysize : Smaller ships with capacities ranging in size from 1,000 to 1,999 TEU, for use in regional trades.

 

   

Feeder : Ships of less than 1,000 TEU, which are normally employed as feeder vessels for trades to and from hub ports.

While new investment in the container shipping industry has tended to concentrate on building gearless vessels for the larger trade routes as port infrastructure improves, geared vessels are still very important for regional trade lanes and areas such as West Africa, the eastern coast of South America and certain Asian regions, including Indonesia, where port infrastructure may be poor or, in some cases, non-existent.

In July 2010 the world fleet of fully cellular containerships consisted of 4,652 vessels totaling 13.32 million TEU in nominal capacity. These figures exclude multipurpose and ro-ro vessels with container carrying capability.

World Cellular Containership Fleet by Size (as of July 30, 2010)

 

     Size      No.      TEU  
     (TEU)             (Thousand)  

Feeder

     <1,000         1,067         637   

Handy-size

     1,000-1,999         1,198         1,719   

Intermediate

     2,000-2,999         718         1,820   

Panamax

     3,000-4,999         883         3,595   

Post Panamax

     5,000-7,999         507         3,021   

Large

     8,000-9,999         240         2,051   

Very Large

     10,000+         39         479   
     Total         4,652         13,323   

Source: Drewry

 

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The fleet has grown rapidly to meet the increases in trade rising from just under 5 million TEU at the end of 2000 to 13.3 million TEU at the beginning of July 2010.

Development of World Container Fleet Capacity: 2000 to 2010

(Million TEU – End Year)

LOGO

Source: Drewry

The non-weighted average age of containerships currently in service is 10 years, as of July 30 2010.

Container Fleet Age Profile: July 30, 2010

LOGO

Source: Drewry

 

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In tandem with the growth in size of the overall fleet there have also been steady increases in ship size. The average size of containerships in service in 1997 was 1,590 TEU, but by July 2010 the average size had increased to 2,864 TEU. It will continue to rise due to the number of large-sized containerships on order. Indeed, the average size of containership on order as of July 2010 was 5,521 TEU.

The Containership Fleet – Changes in Average Ship Size

(TEU)

LOGO

Source: Drewry

Furthermore, in the last couple of years there has been a dramatic jump in the size of the largest vessel in service, as the following chart indicates.

The Containership Fleet – Single Largest Vessel in Service

(TEU)

LOGO

Source: Drewry

 

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In July 2010, the containership newbuilding orderbook in terms of TEU size was 3.97 million TEU, equivalent to 29.8% of the existing cellular containership fleet.

Containership Orderbook by Size (as of July 30, 2010)

 

Size Category

   TEU      Number
of
Vessels
     Capacity      Orderbook
Per cent.
Existing
Fleet
 
                   (Thousand TEU)         

Very Large

     10,000+         6         1,768         369.1   

Large

     8,000-9,999         74         712         34.7   

Post Panamax

     5,000-7,999         128         579         19.2   

Panamax

     4,000-4,999         164         626         17.4   

Intermediate

     2,000-3,999         63         162         8.9   

Handy-size

     1,000-1,999         132         75         4.4   

Feeder

     < 1,000         158         53         8.2   

Total

        725         3,974         29.8   

Source: Drewry

The size of the orderbook built up rapidly in the period 2006 to 2008, when strong freight rates and robust demand on the key arterial east-west routes encouraged high levels of new ordering. Since then, however, with a combination of deliveries, orderbook cancellations and conversions, and a total absence of new orders in 2009, the size of the total orderbook has substantially contracted. In the last few months a few major operators have started to come back into the market and placed orders with Asian yards.

Most major containership operators have concentrated on investments in large and very large containerships (8,000+ TEU) and this sector alone currently accounts for a third of all current containership orders, measured by capacity. After Maersk deployed the first 10,000+ TEU vessels in the Far East/Europe trade in 2006, further orders for vessels of similar size followed from some of the other largest container operators.

Since reaching a peak in late 2008, almost no new orders have been placed and the containership orderbook has declined somewhat in size due to a combination of deliveries of vessels and cancellations. It is impossible to determine exactly how many vessels have been cancelled since the downturn in the market, although it would appear that perhaps as much as 15% of the orderbook at its peak has already been cancelled. It is evident that the original peak for deliveries which was scheduled for 2010-11 is being flattened out and extended out towards 2012-14 as owners have negotiated considerable delays with Asian yards. As such, deliveries from the current orderbook will be spread out over a much longer period of time.

 

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Containership Orderbook by Size and Scheduled Delivery Year – July 2010

LOGO

Source: Drewry

Most of the large and very large containerships are being built in South Korean shipyards, which currently account for nearly two-thirds of the containerships on order.

Containership Orderbook by Country of Build – July 2010

(Based on TEU)

LOGO

Source: Drewry

Not all of the vessels on order, especially those for delivery in 2011 and beyond, will have financing in place and in the current climate securing funding is proving difficult for many shipowners. Delays in accessing funding may contribute to ships being delayed beyond scheduled delivery dates.

Apart for the lack of funding, some of the orders which have been placed have been at “greenfield” yards—that is, shipyard facilities which have yet to be constructed and become operational. Some of these yards are also finding it difficult to secure funds to commence the construction of the actual shipyard, another possible cause of delays in the delivery of new ships.

 

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The extent to which delays in deliveries have already occurred can be seen by comparing scheduled and actual deliveries in the years 2008 and 2009. As can be seen in the chart below, delays in delivery increased dramatically in 2009, with only 1.0 million TEU of the 2.0 million TEU due to be delivered in 2009 being delivered by the end of the year. Although late reports will no doubt increase the volume of tonnage delivered in 2009, it is clear that delays or slippage rates increased in 2009.

Containerships: Scheduled vs. Actual Deliveries (‘000 TEU)

LOGO

Scheduled deliveries based on the orderbook as of January 1, 2008 and 2009

2009 actual deliveries may be subject to late reports

Source: Drewry

Slow Steaming

Excess shipping capacity and rising fuel prices have prompted operators in the container sector to reduce vessel operating speeds and thus reduce fuel costs, while at the same time requiring more ships to provide the same level of shipping capacity on a particular route. The impact of reducing sailing speeds on the number of days required to complete a round voyage on the three main routes is shown below.

Vessel Sailing Times

(Sailing Days – Round Voyage)

 

     Vessel Speed  

Route

   24.0
Knots
     20.1
Knots
     23.0
Knots
     17.7
Knots
 

Asia-Europe

     36.5         43.5         —           —     

Trans-Pacific

     —           —           23.4         30.4   

Trans-Atlantic

     —           —           23.4         30.4   

Typical No of Vessels Deployed

     8         9         5         6   

Source: Drewry

 

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A typical Asia—Europe string would comprise eight 8,000 TEU vessels operating at design speeds of 24 knots. By reducing the sailing speed of the vessels to 20 knots a further ship would be required to provide the same level of service. While this has the effect of absorbing additional shipping capacity, it also reduces fuel costs, as ships use less fuel when sailing at slower speeds. The exact savings will depend on the level of speed reduction and the prevailing fuel price, but based on current fuel prices, an 8,000 TEU vessel operating Asia- Europe would reduce the round trip fuel cost by approximately 30 %, if it reduced sailing speeds from 24 to 20 knots

Ship Operating Costs

The costs of operating a ship comprise five main elements—manning, insurance, repairs and maintenance, stores and supplies and administration. The trend in these costs for a range of containerships in the period 2000 to 2009 is shown below.

Containership Operating Costs: 2000 to 2009

(US$ Per Day)

 

     Ship Size (TEU)  

Year

   500-750      1-2,000      2-3,000      3-4,000      5-6,000      8-9,000      10-12,000  

2000

     3,100         3,620         4,590         5,910         7,100         n/a         n/a   

2001

     3,140         3,670         4,670         6,020         7,240         n/a         n/a   

2002

     3,150         3,700         4,700         6,060         7,290         n/a         n/a   

2003

     3,120         3,660         4,650         6,020         7,250         n/a         n/a   

2004

     3,200         3,780         4,840         6,250         7,630         8,430         n/a   

2005

     3,470         4,100         5,280         6,840         8,480         9,400         n/a   

2006

     3,770         4,460         5,720         7,470         9,290         10,310         n/a   

2007

     4,040         4,770         6,140         8,010         9,950         11,030         12,240   

2008

     4,450         5,270         6,750         8,800         10,650         11,820         13,110   

2009

     4,310         5,060         6,480         8,440         10,190         11,300         12,530   

 

n/a = not applicable

Source: Drewry

In general most operators experienced rising ship operating costs in the period 2000 to 2008, due to increases in manning and insurance costs. However, the downturn in shipping markets in the second half of 2008 has halted the rise in costs and it would appear that for the first time in the decade costs fell in 2009.

Ship Lay-Up Costs

Most carriers regard lay-up as the last resort and prefer to keep ships trading even when conditions are such that cargo is not fully compensating direct costs.

For tramp or charter ships the decision to lay-up is relatively straightforward: if charter rates do not cover operating costs, and show no sign of any pick-up, then the lowest-cost option is to lay-up, slash crew overheads as far as possible and wait out the downturn.

For liner operators, the decision is more difficult as earnings from container services are far more complex than a simple daily income figure. This makes assessment of the right mix of tonnage and services to be kept operating and to be suspended (and assessment of whether that suspension should be temporary or permanent) much more difficult. This may encourage deferment of the lay-up decision beyond the point where it is economically optimal.

 

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When the decision to lay-up is taken there are a number of operational factors to consider, including:

Condition of lay-up. Wet lay-up keeps the vessel close to its likely sphere of operation and ready to be re-activated within a relatively short period, whereas dry lay-up is a much more complex (and permanent) process which indicates that owners have judged the prospects for re-activation to be bleak.

Place of lay-up. In the past, popular lay-up locations, included Fujairah, the Philippines, Borneo, Piraeus, the River Fal (UK), Blackwater (UK) and the US Gulf. The chosen site should be relatively free from severe weather (e.g. hurricanes and storms) and, most importantly, approved by the vessel’s insurance company.

Availability of caretaker facilities. In Piraeus, for example, ships have previously been laid-up four to six abreast, with local caretakers providing security and care services to the group of ships.

Proximity of shiprepair yards on reactivation. Costs vary by location and company, but as a general estimate the one-off costs of putting a Panamax containership into dry lay-up might be around $350,000, which would include:

 

   

Blanking of sea-grids and exhaust pipes;

 

   

Suspending anodes at propeller;

 

   

Dehumidifiers in engine room;

 

   

Desiccators;

 

   

Portable generator;

 

   

Fuel;

 

   

Insurance;

 

   

Port entry;

 

   

Mooring fee; and

 

   

Crew repatriation.

The final cost will depend on a variety of factors including, but not limited to, whether the owner retains two or three of his own crew as caretakers or hires locally, but assuming (1) the use of two Filipino crew; (2) a portable generator is run for about eight hours a day; and (3) ship’s engines are turned daily, the monthly costs might be:

 

   

Hire of equipment (portable lights, fridge, freezer, cooking gas, dehumidifiers etc): $800;

 

   

Crew wages and victualling: $3,720; and

 

   

Portable generator fuel cost: $3,900.

The costs in wet lay-up are naturally greater, as the vessel is kept at a higher level of operational intensity and would tend to be located close to a main port where employment might be obtained. In Hong Kong, for instance, there is a requirement for a laid-up ship to retain sufficient crew to respond to any emergency situation and, during the typhoon season, to man sufficiently to be able to manoeuvre the vessel for safe-keeping. This means minimum manning of five to eight crew, which should constitute a minimum 50% saving (wherever a ship is laid-up an agent is appointed and usually some assurance is given that the agent can arrange for additional crew at short notice). Other savings in wet lay-up would be expected to include:

 

   

Lube oil: on a Panamax vessel, about $1,500/day;

 

   

Stores/R&M: (unless the owner takes the opportunity to catch up on maintenance);

 

   

Administrative costs: no savings would be realized; and

 

   

Insurance: if lay-up is at an approved anchorage, significant savings would be realized.

 

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Before returning to active service, costs might include hull cleaning, at a cost of approximately $15,000 (assuming the ship had not been idle for a significant period), and the costs of returning the remainder of the crew. Assuming the ship had not been idle for too long, it could be ready for operations as soon as the owner is able to provide the required crew complement, which could be a short period later.

The biggest cost saving on a vessel in lay-up is in the reduction in crew numbers, and savings depend on the terms of the crew contracts. For ships operating under an open register, it is standard that when the crew leaves the ship the “contract” with the owner is also terminated, but in the recent past—when manpower shortages have been more common—many owners, in order to retain quality staff, have committed to paying crew salary while on leave. However, in the case of a long-term lay-up, employers could attempt to cancel this provision. Thus, manning costs can be saved almost in full, except for the caretaker costs itemized above.

Owners operating under less flexible national registers might have union agreements to contend with and may be liable for employment agreement compensation. This is a key issue and may well affect the decision-making process of some carriers when contemplating lay-up, as the financial incentives will differ if full or near-full manning costs continue to apply.

A full saving of the costs associated with lube oils, stores, R&M, and spares would also be expected, totaling around $3,200/day for a Panamax vessel. Insurance costs could be cut substantially: P&I (protection and indemnity) by perhaps 50%, H&M (hull & machinery) might be negotiable, and War Risk, Freight, Demurrage and Defence insurances might also be suspended, although lay-up insurance cover is required even in an approved lay-up location.

Ship management savings might also be achievable in dry lay-up. Owners’ administration costs could be expected to continue more or less at normal levels (unless office staff are let go), but the fee for a vessel under third-party ship management might be negotiable.

Reactivation from dry lay-up would mean a major dry docking (approximately $800,000 for a Panamax laid-up for one year), so that even if there is a nearby shipyard to which it can be towed and immediate dock availability, there would be a likely minimum 14-day delay in the vessel becoming operational.

Given this level of fixed costs, carriers are reluctant to choose dry lay-up unless the vessel will spend a long time out of service. With full daily operating expenses for a Panamax containership at around $6,000/day, it generally does not make economic sense to put a vessel into dry lay-up for less than six months. For short periods, wet lay-up is likely a much more cost-effective option, with a daily operating expense of approximately $2,000/day and more modest reactivation costs.

The table below presents a summary of indicative dry lay-up costs for a Panamax containership by both length of lay-up and the type of cost incurred.

Estimated Long-Term Dry Lay-Up Costs for a Panamax Containership

($’000)

 

     Entering Lay-Up      In Lay-Up      Reactivation      Total      Cost per Day
($)
 

6 Months

     350         143         500         993         5,456   

9 Months

     350         213         600         1,163         4,260   

1 Year

     350         286         800         1,436         3,934   

2 Years

     350         572         800         1,722         2,359   

3 Years

     350         858         800         2,008         1,834   

Including $500/day for Ship Management and Insurance. Excludes capital costs.

Source: Drewry

 

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Global Alliances

Alliances are generally agreements that cover vessel sharing and operational matters such as the use of certain terminals, where carriers can take advantage of favorable terms for berthing. Often the alliance will implement a best ship policy, whereby members pool vessel resources to deploy the best appropriately-sized vessels in the same service. There are currently three main global alliances:

 

   

Grand Alliance . This alliance comprises Orient Overseas Container Line (OOCL), Hapag-Lloyd, and Nippon Yusen Kaisha (NYK).

 

   

New World Alliance . This alliance comprises Mitsui OSK Lines (MOL), Hyundai Merchant Marine and American President Line (APL). It operates within the Trans-Pacific, Trans-Atlantic and Asia-Europe trades.

 

   

CKYH Alliance . This alliance comprises Cosco, K Line, Yang Ming and Hanjin. It also operates within the Trans-Pacific, Trans-Atlantic and Asia-Europe trades.

While these are official alliances, there are now more agreements, if not necessarily formal alliances, between carriers who were once independent. For example, Evergreen has recently coordinated certain services with China Shipping, and MSC/CMA CGM and Maersk operate a number of joint string voyages in the Trans-Pacific. Also, there may be instances where outsiders cooperate with a more formal alliance. For example, Zim has contributed services to certain Grand Alliance loop voyages. Such cooperative agreements are often motivated by a desire to share costs and jointly fill cargo capacity to more efficiently operate single string voyages.

Container Freight Rates

The following chart shows the average container freight rate per TEU on the core East/West trade lanes: Trans-Pacific, Trans-Atlantic, and Asia-Europe. Terminal handling charges and intermodal rates, where applicable, are included.

Container Rates for East/West Routes: 2000 to 2009

($/TEU)

LOGO

 

* Based on rated January to July 2010

Source: Drewry

 

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Freight rates for specialized cargo, including refrigerated products, normally carry a premium due to increased costs of transportation and more expensive equipment such as temperature-controlled containers. Many surcharges, including fuel, congestion, currency adjustment, peak-season and heavyweight are standard practice in the industry and these are normally paid in addition to the basic port-to-port ocean freight.

Average Container Rates for East/West Routes: 2000 to 2010

 

     $/TEU      Change yoy  

2000

     1,421         2.6

2001

     1,269         -10.7

2002

     1,155         -9

2003

     1,352         17.1

2004

     ,456         7.5

2005

     1,495         2.7

2006

     1,405         -6.0

2007

     1,435         2.1

2008

     1,580         10.1

2009

     1,146         -27.5

2010*

     1,499         30.8

 

* Janary to July, 2010

Source: Drewry

Container Time Charter Rates

The same factors that drive freight rates also affect charter rates. The growth in demand for container shipping and the increasing trend among major container operators to charter-in tonnage have generally increased demand pressure and over time have caused an increase in time charter rates. The following chart indicates annual average charter rates for representative containerships from 2000 to the July 2010.

One Year Time Charter Rates for Geared/Gearless Containerships (US$ per Day): 2000 to 2010

LOGO

Source: Drewry

 

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Period Averages of One Year Containership Time Charter Rates ($ per Day): 2000 to 2010

 

TEU

   1,500
Geared
     2,500
Geared
     3,500
Gearless
 

2000

     11,625         17,869         24,025   

2001

     9,475         13,938         19,325   

2002

     7,188         10,326         14,431   

2003

     11,741         17,833         23,666   

2004

     20,200         26,500         31,575   

2005

     25,125         35,250         38,875   

2006

     15,400         22,700         27,125   

2007

     14,175         25,325         29,975   

2008

     12,950         20,400         26,750   

2009

     4,760         5,786         6,552   

July 2010

     7,000         9,900         17,000   

Source: Drewry

With some exceptions, time charter rates for all vessel 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 farther due to rising supply and very weak demand. Certain analysts believe that the containership shipping sector is likely to remain volatile, but with demand increasing in the first half of 2010, operators have gone back to the charter market for more vessels and indeed many vessels have come out of lay-up. As a result, charter rates across most sizes have significantly improved from the lows of 2009, although in historical context they remain poor. For shipowners this is good news as demand for ships has improved their earnings and has increased fixture periods.

 

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Containership Newbuilding Prices

Newbuilding prices have risen steadily since 2002, due to a shortage in newbuilding capacity during a period of high ordering and increased shipbuilders’ costs as a result of rising raw material prices, mainly steel. However, since the second half of 2008 weak market conditions significantly slowed new ordering to the point that virtually no new orders were placed for containerships in 2009. Given the lack of new orders it is very difficult to assess the trend in newbuilding although all the evidence suggests that prices weakened substantially in 2009, as indicated by the figures in the table below.

Containership Newbuilding Prices: 2000 to 2010

(End Period US Millions)

 

TEU

   500      1,000      1,500      2,000      2,500      3,500      5,500      6,500  

DWT

   8,000      13,500      22,000      29,000      35,000      40-45,000      65-70,000      75,000  

TYPE

   GEARED      GEARED      GEARED      GEARLESS      GEARLESS      GEARLESS      GEARLESS      GEARLESS  

2000

     9.4         17.6         23.1         28.5         33.5         39.0         57.0         67.1   

2001

     9.9         17.6         23.0         29.4         34.9         41.0         60.3         69.9   

2002

     9.5         15.6         20.8         25.6         29.3         33.8         52.3         63.5   

2003

     12.9         17.0         22.6         28.1         32.5         36.9         55.8         66.5   

2004

     18.0         22.0         31.1         34.9         43.4         50.3         74.3         86.0   

2005

     18.5         24.5         36.4         41.9         49.5         55.9         87.4         101.1   

2006

     15.8         22.6         34.4         40.3         47.3         54.4         85.0         97.6   

2007

     16.0         23.8         34.0         40.0         44.9         57.9         85.0         97.4   

2008

     16.0         27.3         34.0         40.0         55.0         63.8         76.0         97.0   

2009

     10.0         15.4         23.5         31.5         35.0         38.0         71.0         76.0   

2010*

     10.0         16.0         23.5         31.5         34.0         37.0         68.0         74.0   

 

* July 2010

Source: Drewry

Containership Newbuilding Prices 2000 to 2010

(US$ Millions):

LOGO

Source: Drewry

 

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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, vessel values tend to appreciate and vice versa. However, vessel values are also influenced by age and specification and by the replacement cost (newbuilding price) in the case of vessels up to five years old. The following chart indicates average secondhand prices for containerships in the period from 2000 to July 2010.

Containership Secondhand Prices: 2000 to 2010

(US$ Millions)

LOGO

Source: Drewry

Values for younger vessels tend to fluctuate on a percentage, if not on a nominal, basis less than values for older vessels. This is attributed to the finite life of vessels which makes the price of younger vessels with a commensurably longer remaining economic life less susceptible to the level of prevailing and expected charter rates, while prices of older vessels are influenced more since their remaining economic life is limited.

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 therefore transparent and liquid, with a large number of vessels changing hands on an annual basis.

With the rise in freight rates in the period 2005-2008 secondhand values for containerships also increased for all major ship sizes. However, when demand fell in 2008 rates and values went into a steep decline. Since then there have been very few reported secondhand sales and the estimation of secondhand value is very difficult. The number of vessels sold so far in 2010 indicates that the market has picked up, and owners not usually prevalent in this sector have bought ships at relatively low prices, attracted by decent charter rates in an improving market. With asset prices now stabilizing and even increasing, buyers can look to sell in the future at a profit.

 

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BUSINESS

Overview

Diana Containerships Inc. is a corporation formed under the laws of the Republic of the Marshall Islands on January 7, 2010, founded to pursue vessel acquisitions in the container shipping industry. Diana Shipping, a global provider of drybulk transportation services, purchased $50.0 million of our common shares in the private offering. On June 8, 2010, we, through our wholly owned subsidiaries, entered into memoranda of agreement to purchase two newbuilding containerships, identified as Hull 558 (named Sagitta) and Hull 559 (named Centaurus), from a third-party seller, each with a carrying capacity of approximately 3,426 TEU, for a purchase price of Euro 37,300,000 per ship (or $45.7 million and $47.2 million, respectively, excluding any predelivery expenses). We took delivery of the vessel Sagitta on June 29, 2010 following which the vessel commenced time charter employment with A.P. Møller-Maersk A/S for a minimum period of nine months and a maximum period of 12 months at a gross daily rate of $16,000. We took delivery of the Centaurus on July 9, 2010 following which the vessel commenced time charter employment with Hapag Lloyd AG, Hamburg for a minimum period of 30 days and a maximum period of 60 days at a gross daily rate of $8,400, and on September 4, 2010 following the expiration of this time charter the vessel was delivered to CSAV, Valparaiso for a period of 24 months plus or minus 45 days at a gross daily rate of $20,000. On July 7, 2010, we entered into a new secured term loan facility with DnB NOR Bank ASA for up to $40.0 million. We have drawn down $10.0 million per vessel in connection with the acquisition of the two newbuilding containerships and under the loan agreement, we are permitted to draw down up to the lower of (a) $20 million and (b) 50% of the market value of the vessels. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Our Fleet

Set forth below is summary information concerning our fleet as of October 1, 2010.

 

Vessel Name

   Size      Built      Delivery Date(1)      Charter Expiration(2)     Gross Daily Rate  

Sagitta

     3,426 TEU         June 2010         June 30, 2010         Mar. 30, 2011 – Jun. 30, 2011 (3)    $ 16,000   

Centaurus

     3,426 TEU         July 2010         Sept. 4, 2010         Jul. 21, 2012 – Oct. 19, 2012      $ 20,000   
                   

Total

     6,852 TEU              

 

(1) Date delivered from the owners to the charterers.
(2) Dates reflect the charterer’s optional period to re-deliver the vessel.
(3) Charterers have the right to add the off hire days to the duration of the charter, if any, and therefore the optional period may be extended.

We intend to grow our fleet by capitalizing on the current investment opportunities in the containership market by purchasing containerships in the secondhand market, from shipyards and lending institutions. We may also enter into newbuilding contracts with shipyards for new containerships. We expect to build our fleet primarily through the acquisition of vessels ranging from 2,500 TEU to 7,500 TEU in size; however, we will consider acquisitions of all sizes of containerships if the returns associated with these acquisitions are deemed appropriate by our management team and board of directors. We believe that our acquisition strategy will enable us to capture low points in vessel values within our industry and acquire a fleet that will result in attractive returns. We further believe that by maintaining the flexibility to invest in all sizes of containerships, we will be able to capitalize on dislocations in various segments within the containership market.

We actively monitor charter rates and intend to employ our vessels in the spot market or on short-term or long-term charters if market conditions warrant or we may have to temporarily cease the use of, or lay-up, vessels until our management team determines that charter rates reach a level where the economics of chartering more favorably outweigh the total operating and asset carrying costs present in the current rate environment. We

 

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have incurred costs related to administrative costs, vessel maintenance and general business expenses before we were able to generate income and we may not operate our vessels profitably once we employ them.

Our Management Team

Our management team is responsible for the strategic management of our company, including the development of our business plan and overall vision for our operations. Strategic management also involves, among other things, locating, purchasing, financing and selling vessels. We believe that our management team’s experience, expertise and reputation within the international shipping industry will enhance shareholder value for our investors by providing sourcing opportunities for vessel purchases and sales, newbuilding acquisitions, chartering and financing arrangements. We have entered into an Administrative Services Agreement with a wholly-owned subsidiary of Diana Shipping, Diana Shipping Services S.A., whom we refer to as DSS or the Manager, pursuant to which the Manager provides administrative services to us. DSS also provides commercial and technical vessel management services to us through separate vessel management agreements between the Manager and each of our vessel-owning subsidiaries.

We and Diana Shipping have entered into a non-competition agreement whereby we have agreed that, during the term of the Administrative Services Agreement and any vessel management agreements we enter into with DSS, 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.

Our management team is comprised of four executive officers of Diana Shipping who together have an aggregate of over 87 years of experience in the shipping industry and have demonstrated ability in managing the commercial, technical and financial aspects of an international shipping company. Our management team is led by our Chairman and Chief Executive Officer Mr. Symeon Palios, who has served as the Chairman and Chief Executive Officer of Diana Shipping since 2005 and as a director since 1999. Mr. Palios is a qualified naval architect and engineer who has 40 years of experience in the shipping industry and expertise in technical and operational matters. Mr. Anastasios Margaronis, our President and a director, also serves as President and as a director of Diana Shipping and has been employed by the Diana Shipping group of companies since 1979. Mr. Ioannis Zafirakis, our Chief Operating Officer, Secretary and a director, serves as Executive Vice President and Secretary of Diana Shipping 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 since 2006. Our management team has experience in multiple sectors of the international shipping industry, including in 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.

Our Manager

DSS performs commercial and technical management services for our vessels. DSS also manages Diana Shipping’s drybulk carrier fleet with a combined cargo carrying capacity of approximately 2.9 million dwt, including two vessels under construction with deliveries expected in the second and third quarter of 2012. Commercial management includes, among other things, negotiating charters for vessels, monitoring the performance of vessels under charter, managing our relationships with charterers, obtaining insurance coverage for our vessels, as well as supervision of the technical management of the vessels. Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging the hire of qualified officers and crew, arranging and supervising drydocking and repairs, arranging for the purchase of supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. Our Manager also provides to us accounting, administrative, financial reporting and

 

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other services necessary for the operation of our business. We actively monitor the performance of our Manager. Pursuant to the Administrative Services Agreement, we have agreed to pay our Manager a monthly fee of $10,000 for administrative services. We, through our vessel-owning subsidiaries, have entered into vessel management agreements with DSS for the provision of commercial and technical management services. Pursuant to each vessel management agreement, DSS receives a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and will receive $20,000 per vessel per month for laid-up vessels, if any. Pursuant to the Broker Services Agreement, dated June 1, 2010, the Manager has appointed Diana Enterprises Inc., or Diana Enterprises, a related party controlled by our Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist the Manager in providing services to the Company. Under the Broker Services Agreement, the Manager pays a commission of $1,040,000 per year to Diana Enterprises. We reimburse this cost to the Manager pursuant to the Administrative Services Agreement. We believe that the above management fees and commissions are consistent with fees and commissions charged by third party managers and are consistent with fees and commissions charged by DSS to Diana Shipping. Please see “—Administrative Services Agreement,” “—Broker Services Agreement” and “—Vessel Management Agreements.”

Our Arrangements with our Affiliates

We were formed on January 7, 2010 as a wholly-owned subsidiary of Diana Shipping and on that date, we issued 500 common shares to Diana Shipping at par value. We sold 3,333,333 common shares to Diana Shipping in the private offering for consideration of $50.0 million. Pursuant to the registration rights agreement, dated April 6, 2010, we have agreed to register the resale of the common shares owned by Diana Shipping. See “Exchange Offer—Registration Rights Agreement.” As of the date of this prospectus, Diana Shipping owns approximately 55% of our common shares. Under the Administrative Services Agreement with the Manager, a wholly-owned subsidiary of Diana Shipping, we pay the Manager a monthly fee of $10,000 for administrative services. We, through our vessel-owning subsidiaries, have entered into vessel management agreements with the Manager for the provision of commercial and technical management services. Pursuant to each vessel management agreement, the Manager receives a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and $20,000 per vessel per month for laid-up vessels. Pursuant to the Broker Services Agreement, dated June 1, 2010, the Manager has appointed Diana Enterprises Inc., or Diana Enterprises, a related party controlled by our Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist the Manager in providing services to the Company. Under the Broker Services Agreement, the Manager pays a commission of $1,040,000 per year to Diana Enterprises. We reimburse this cost to the Manager pursuant to the Administrative Services Agreement. Please see “—Administrative Services Agreement,” “—Broker Services Agreement” and “—Vessel Management Agreements.” We have issued an aggregate of 213,331 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan. Of these shares, 25% have vested and the remaining shares vest ratably over three years by one-third each year. Following the completion of an initial public offering, we expect to issue an additional 53,333 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan of which 25% will vest upon the grant of such shares, and the remainder will vest ratably over three years from their date of grant. See “Management—2010 Equity Incentive Plan.”

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 the board of directors of us and 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,

 

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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.

Our Competitive Strengths

We believe that our prospects for success are enhanced by the following aspects of our business:

Experienced management team with established relationships within the international shipping industry and extensive evaluation capabilities

One of our key strengths is our experienced management team comprised of four executive officers of Diana Shipping who have experience in multiple sectors of the international shipping industry, including in the containership sector. We believe that we will be able to capitalize on the industry experience and reputation of our management team who have successfully developed the business of Diana Shipping, a leading provider of seaborne transportation services, from the formation of the Diana Shipping group of companies in 1972, to a fleet of nine vessels at the time of Diana Shipping’s initial public offering in 2005. As of the date of this prospectus, Diana Shipping owns a fleet of 24 vessels, including two newbuilding vessels with deliveries expected in the second and third quarters of 2012. As a result of decades of experience, we believe our management team has developed strong relationships with major international charterers, shipbuilders and financial institutions that reflect the quality of Diana Shipping’s operations and the strength of its management team.

Collectively, over the last 38 years, our management team has purchased and sold numerous vessels, including transactions involving secondhand and newbuilding containerships and multi-purpose vessels that were modified to transport containers. Accordingly, we believe our management team has developed strong target evaluation capabilities that will give us an advantage in analyzing potential acquisitions.

We believe that our capitalization, combined with our management team’s established reputation within the shipping industry and network of relationships will cause us to be viewed as an attractive purchaser of containerships by ship brokers, financial institutions and shipyards. As a result, we believe that we will be afforded the opportunity to evaluate a breadth of potential acquisition opportunities in the containership market, and thus be positioned to acquire vessels that we believe will maximize shareholder returns.

Diana Shipping has invested significant cash in us and therefore Diana Shipping’s interests are aligned with those of our shareholders

Diana Shipping purchased from us $50.0 million of our common shares in the private offering, or 3,333,333 common shares, thereby aligning the interests of Diana Shipping with our shareholders. We believe we will benefit not only from the established reputation of Diana Shipping from enhanced credibility and access to shipping and financial industry participants over our competitors, but also from the incentive for our management team, comprised of executive officers of Diana Shipping, to enhance shareholder value by virtue of Diana Shipping’s $50.0 million investment.

Highly successful and reputable fleet manager

DSS performs commercial and technical management services for the vessels in our fleet. DSS currently manages a modern, high quality fleet of 22 Panamax and Capesize drybulk carriers and two Newcastlemax newbuildings with expected deliveries in the second and third quarter of 2012 for which DSS provides supervisory services, and maintains the quality of its vessels by carrying out regular inspections, both while in port and at sea, and adopting a preventative maintenance program for each vessel. DSS currently employs approximately 60 shore-based personnel in Athens, Greece and 460 offshore employees and, including its predecessors, has, since 1972 managed more than 100 vessels, including nine vessels that were containerships or multi-purpose vessels that were modified to transport containers. DSS provides comprehensive ship management services including technical supervision, such as repairs, maintenance and inspections, safety and quality,

 

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crewing and training, as well as supply provisioning. We believe that the resources and reputation of our Manager as a safe and reliable technical manager will provide us with favorable charter opportunities with well established charterers, many of whom consider the reputation of the vessel manager when seeking vessels. DSS will supervise the construction of any newbuilding vessels that we may agree to acquire as well as provide administrative services to us such as accounting and financial reporting services.

We believe that DSS has established a reputation in the international shipping industry for operating and maintaining a fleet with high standards of performance, reliability and safety. DSS has obtained documents of compliance for its office and safety management certificates for the vessels it manages for us. We believe that employing DSS as our technical manager provides us with a competitive advantage over other containership operators by allowing us to more closely monitor our operations and to offer higher quality performance, reliability and efficiency in the maintenance of our vessels. Additionally, we expect to benefit from economies of scale in maintenance, supply and crewing of our vessels, as well in purchasing bunkers and spare parts. We further expect that the experience of DSS in providing administrative services such as office space and equipment, accounting and financial reporting services will result in lower administrative costs to us than if we performed these services in-house or employed a third party service provider.

Business Strategy

Acquire high quality containerships at low valuations

We will seek to provide attractive returns to our investors by purchasing modern containerships in the secondhand market, including from shipyards and lending institutions. We believe that, currently, the container shipping industry is in a period of reduced demand and increased supply, leading to historically low asset values and charter rates, which we expect will provide us with attractive acquisition opportunities. Members of our senior management team have navigated previous market cycles and we believe have the experience and discipline to capitalize on market rebounds. We may also enter into newbuilding contracts with shipyards on terms that meet our acquisition criteria.

Capitalize on the extensive experience of our management team

Our management team and board of directors have extensive experience in the shipping industry with a strong track record in vessel sale and purchase transactions and chartering. We believe that our management team has developed strong relationships with shipyards, ship finance banks and vessel owners from whom we expect to source acquisition opportunities. Collectively, over the last 38 years, our management team has purchased and sold numerous vessels, including transactions involving secondhand and newbuilding containerships and multi-purpose vessels that were modified to transport containers. We believe we will benefit from the extensive experience of our management team by having access to high quality charterers and international financing institutions and gain a competitive advantage over other containership operators.

Maximize total returns by employing vessels in the spot market or on short-term or long-term charters, or by laying-up vessels as market conditions warrant

We intend to actively monitor market conditions, charter rates and vessel operating expenses, as well as the cost of laying-up vessels, in order to selectively employ vessels as market conditions warrant. In market conditions where charter rates may or may not cover the operating costs of a vessel, we may choose to lay-up the vessel with the aim of extending the useful life of the vessel and securing more favorable charter rates when vessel supply and demand are more in balance within the containership market.

Maintain a strong balance sheet

We intend to finance future acquisitions with a combination of equity and debt while maintaining an appropriate leverage profile as determined by our management and board of directors. We believe that maintaining a strong balance sheet will provide us with the flexibility to capitalize on vessel purchase

 

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opportunities as they arise, as well as attract potential investors and customers. When determined appropriate by our management team based on prevailing conditions and our outlook for the container market, we will consider incurring further indebtedness in the future to enhance returns to our shareholders.

Maintain low cost, highly efficient and reliable operations

We operate as an efficient and reliable owner of containerships as a result of the experience of our Manager. DSS currently manages a modern fleet of 22 Panamax and Capesize drybulk carriers and two Newcastlemax newbuildings with deliveries expected in the second and third quarter of 2012 for which DSS provides supervisory services. We believe we can build on the reputation of our Manager for safe vessel operations and intend to comply with rigorous health, safety and environmental protection regulation. We further believe we will benefit from economies of scale in maintenance, supply and crewing of our vessels, as well in purchasing bunkers and spare parts.

Corporate Structure

Diana Containerships Inc. is a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. Each of our vessels is owned by separate wholly-owned subsidiaries. Diana Containerships Inc. is the owner of all the issued and outstanding shares of the subsidiaries listed in Exhibit 21.1 to the Registration Statement of which this prospectus is a part. We maintain our principal executive offices at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at that address is 011 30 210 947 0000. Our office space is provided to us by DSS pursuant to our Administrative Services Agreement with DSS.

Administrative Services Agreement

We have entered into an Administrative Services Agreement with DSS, a wholly-owned subsidiary of Diana Shipping, whereby DSS provides to us accounting, administrative, financial reporting and other services necessary for the operation of our business. We actively monitor the performance of our Manager. We have agreed to pay our Manager, commencing upon the closing of the private offering, a monthly fee of $10,000 for these administrative services. The initial term of the agreement is for a period of one year and will automatically renew for successive twelve month periods unless the agreement is terminated as provided therein. The agreement may be terminated by the Company (i) upon thirty days’ written notice to the Manager; (ii) if the Manager materially breaches the agreement and such breach is not resolved within ninety days; (iii) if the Manager has been convicted of or entered a plea of guilty or nolo contendere with respect to a crime and such occurrence is materially injurious to the Company; (iv) if the holders of a majority of the Company’s outstanding common shares elect to terminate the agreement; (v) if the Manager commits fraud, gross negligence or commits an act of willful misconduct, and the Company is materially injured thereby; (vi) if the Manager becomes insolvent; or (vi) if there is a “change of control” (as defined therein) of the Manager. The Administrative Services Agreement may be terminated by the Manager (i) after the expiration of the initial term, with six months’ notice to the Company; (ii) if the Company materially breaches the agreement and such breach is not resolved within ninety days; or (iii) at any time upon the earlier to occur of (a) the occurrence of a change of control of the Company; (b) the Manager’s receipt of written notice from the Company that a change of control will occur until sixty (60) days after the later of (1) the occurrence of such a change of control or (2) the Manager’s receipt of the written notice in the preceding clause (b). If the Company has knowledge that a change of control of the Company will occur, the Company is required to give prompt written notice thereof to the Manager.

Broker Services Agreement

On June 1, 2010, we terminated our existing Consultancy Agreements with companies controlled by each of the executive officers and that services that were previously provided to the Company by the consultants are provided by DSS under the Administrative Services Agreement. DSS has appointed Diana Enterprises Inc., a

 

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related party controlled by our Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist it in providing these services to the Company pursuant to the Broker Services Agreement, dated June 1, 2010. Pursuant to the agreement, DSS is obligated to pay a commission to Diana Enterprises in the amount of $1,040,000 per year for a term of five years. The commission shall increase to $1,300,000 following the completion of an initial public offering. DSS may pay additional commissions with respect to a transaction as the same may be agreed in writing. In the event that Diana Enterprises terminates the agreement within six months following a Change of Control (as defined in the agreement), Diana Enterprises shall be entitled to a lump sum payment equal to three years’ annual commission.

Vessel Management Agreements

DSS also provides commercial and technical management services for our vessels under separate vessel management agreements with our vessel owning subsidiaries. The vessel management agreements continue unless terminated by either party giving three months’ written notice; provided that we may terminate the agreement without such notice upon payment to the Manager of a fee equal to the average management fees paid to the Manager over during the last three full months immediately preceding such termination. Commercial management includes, among other things, negotiating charters for vessels, monitoring the performance of vessels under charter, and managing our relationships with charterers, obtaining insurance coverage for our vessels, as well as supervision of the technical management of the vessels. Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging the hire of qualified officers and crew, arranging and supervising drydocking and repairs, arranging for the purchase of supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. Pursuant to each vessel management agreement, DSS receives a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and will receive $20,000 per vessel per month for laid-up vessels, if any. We do not expect to pay management fees for vessels that may be employed under bareboat charters in the future. We may, from time to time, request additional services offered by our Manager, in which case we expect we will pay fees in accordance with industry practice for these services.

Crewing and Employees

We currently have no employees. DSS, through the Broker Services Agreement with Diana Enterprises and through the Administrative Services Agreement is responsible to provide services to us and through the Vessel Management Agreements is responsible for recruiting, either directly or through a technical manager or a crew manager, the senior officers and all other crew members for the vessels in our fleet. DSS has the responsibility to ensure that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that the vessels are manned by experienced and competent and trained personnel. DSS is also responsible for ensuring that seafarers’ wages and terms of employment conform to international standards or to general collective bargaining agreement to allow unrestricted worldwide trading of the vessels.

Competition

We operate in markets that are highly competitive and based primarily on supply and demand. Generally, we compete for charters based upon price, customer relationships, operating expertise, professional reputation and size, age and condition of the vessel. Competition for providing containership services comes from a number of experienced shipping companies.

The containership sector of the international shipping industry is characterized by the significant time necessary to develop the operating expertise and professional reputation necessary to obtain and retain customers and, in the past a relative scarcity of secondhand containerships, which necessitated reliance on newbuildings which can take a number of years to complete. We intend to focus on larger TEU capacity containerships, which we believe have fared better than smaller vessels during global downturns in the containership sector. We believe

 

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larger containerships, even older containerships if well maintained, provide us with increased flexibility and more stable cash flows than smaller TEU capacity containerships.

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 U.S. Coast Guard 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 or approvals 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 resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.

International Maritime Organization (IMO)

The IMO, the United Nations agency for maritime safety and the prevention of pollution, has adopted the International Convention for the Prevention of Pollution from Ships, or MARPOL, which has been updated through various amendments. MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. For example, Annex III of MARPOL regulates the transportation of packaged dangerous goods (marine pollutants) and includes standards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention.

Air Emissions

In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits deliberate emissions of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and adversely affect our business, cash flows, results of operations and financial condition. In October 2008, the IMO

 

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adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone-depleting substances, which amendments are expected to enter into force on July 1, 2010. The amended Annex VI will reduce air pollution from vessels by, among other things, (i) implementing a progressive reduction of sulfur oxide, emissions from ships, by reducing the sulfur fuel cap with the global sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective from January 1, 2012, then progressively to 0.50%, effective from January 1, 2020, subject to a feasibility review to be completed no later than 2018; and (ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The United States ratified the Annex VI amendments in October 2008, requiring the United States to promulgate emissions standards equivalent to IMO requirements, which standards are still in the process of being finalized. Once these amendments become effective, we may incur costs to comply with the revised standards.

In March 2010, the IMO accepted the proposal by the United States and Canada to designate the area extending 200 nautical miles from the Atlantic/Gulf and Pacific coasts of the United States and Canada and the Hawaiian Islands as Emission Control Areas under the MARPOL Annex VI amendments, which will subject ocean-going vessels in these areas to stringent emissions controls and may cause us to incur additional costs. We cannot assure you that the jurisdictions in which our vessels operate will not adopt more stringent emissions standards independent of the IMO.

Safety Management System Requirements

The IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS, and the International Convention on Load Lines, or LL, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL standards.

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

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 unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. 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. The U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports, as the case may be.

Pollution Control and Liability Requirements

IMO has negotiated international conventions that impose liability for pollution 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

 

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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. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless conduct. Vessels trading with states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the CLC. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO.

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

In addition, IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or BWM, in February 2004. BWM’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. BWM will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. To date, there has not been sufficient adoption of this standard for it to take force.

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

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in 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, whether on land or at sea. 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, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:

 

   

natural resources damage and related assessment costs;

 

   

real and personal property damage;

 

   

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

 

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

 

   

net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for non-tank vessels to the greater of $1,000 per gross ton or $0.85 million per non-tank vessel that is over 3,000 gross tons (subject to possible adjustment for inflation), and we expect our fleet will be composed of such vessels. CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel. These OPA and CERCLA limits of liability do not apply if an incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.

OPA and the U.S. Coast Guard also require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential liability under OPA and CERCLA.

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 U.S. Environmental Protection Agency, or the EPA, regulates the discharge of ballast water and other substances in U.S. waters under the CWA. Effective February 6, 2009, EPA regulations require vessels 79 feet in length or longer (other than commercial fishing and recreational vessels) to comply with a Vessel General Permit authorizing ballast water discharges and other discharges incidental to the operation of vessels. The Vessel General Permit 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. U.S. Coast Guard 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, and the Coast Guard recently proposed new ballast water management standards and practices, including limits regarding ballast water releases. Compliance with the EPA and the U.S. Coast Guard 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, and/or otherwise restrict our vessels from entering U.S. waters.

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. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.

 

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Greenhouse Gas Regulation

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or UNFCC, which we refer to as the Kyoto Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming. Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. However, a new treaty may be adopted at the United Nations climate change conference in Copenhagen in December 2009 or at subsequent conferences, and restrictions on shipping may be included. The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from vessels, if such emissions are not regulated through the IMO or the UNFCC by December 31, 2010. In the United States, the EPA has issued a proposed finding that greenhouse gases threaten public health and safety and has been petitioned by the California Attorney General to regulate greenhouse gas emissions from ocean-going vessels. Other federal regulations relating to the control of greenhouse gas emissions may follow, including the climate change initiatives that are being considered in the U.S. Congress and by the EPA. In addition, the IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, including market-based instruments. Any passage of climate control legislation or other regulatory initiatives by the EU, the U.S., IMO or other countries where we operate that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.

Vessel Security Regulations

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

 

   

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

 

   

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

 

   

the development of vessel security plans;

 

   

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

 

   

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

 

   

compliance with flag state security certification requirements.

 

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

Inspection by Classification Societies

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

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

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

 

   

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

 

   

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

 

   

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

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.

Vessels have their underwater parts inspected every 30 to 36 months. Depending on the vessel’s age and other factors, this inspection can often be done afloat with minimal disruption to the vessel’s commercial deployment. However, vessels are required to be drydocked, meaning physically removed from the water, for inspection and related repairs at least once every five years from delivery. If any defects are found, the classification surveyor will issue a recommendation which must be rectified by the ship owner within prescribed time limits.

 

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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

The United States signed into law the 9/11 Commission Act on August 3, 2007. The Act requires that all containers destined to the United States be scanned by x-ray machines before leaving port. This new requirement for 100% scanning is set to take effect in 2014. Ports that ship to the United States will likely have 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 plan to maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, increased value insurance and freight, demurrage and defense cover for our vessels that we acquire 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 plan to 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 & Machinery and War Risks Insurance

We plan to maintain for any vessels we acquire marine hull and machinery and war risks insurance, which would cover the risk of actual or constructive total loss. We expect that any vessels we acquire would be covered up to at least fair market value with deductibles which vary according to the size and value of the vessel. We also plan to maintain increased value coverage for any vessels we acquire. Under this increased value coverage, in the event of total loss of a vessel, we would be entitled to recover amounts not recoverable under our hull and machinery policy due to under-insurance.

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 other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”

 

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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 a P&I Association which is a member of the International Group, we are subject to calls payable to the associations based on the group’s claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group. Supplemental calls are made by the P&I Association 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 Association until the closing of the relevant policy year, which generally occurs within three years from the end of the policy year. The Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited, the P&I Association in which the Company’s vessels are entered, did not charge any supplemental calls for the 2007/08, 2008/09, or 2009/10 policy years. The Company does not know whether any supplemental calls will be charged in respect of 2010/11, which is the first year in which the Company’s vessels were entered with the P&I Association. To the extent we experience supplemental calls, our policy is to expense such amounts.

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.

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.

 

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MANAGEMENT

Directors and Senior Management

Set forth below are the names 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. Our officers are appointed from time to time by the respective board of directors and hold office until a successor is elected.

All of our executive officers are also executive officers of Diana Shipping.

 

Name

  

Age

  

Position

Symeon Palios

   68    Class III Director, Chief Executive Officer and Chairman

Anastasios Margaronis

   54    Class II Director and President

Ioannis Zafirakis

   38    Class I Director, Chief Operating Officer and Secretary

Andreas Michalopoulos

   39    Chief Financial Officer and Treasurer

Konstantinos Fotiadis

   59    Class III Director

Antonios Karavias

   67    Class I Director

Nikolaos Petmezas

   60    Class III Director

Reidar Brekke

   48    Class II Director

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 since January 13, 2010 and has served as Chief Executive Officer and Chairman of Diana Shipping since February 21, 2005 and as a Director of that company since March 9, 1999. Mr. Palios also serves as an employee of DSS. Prior to November 12, 2004, Mr. Palios was the Managing Director of Diana Shipping Agencies S.A. and performed on our behalf the services he now performs as Chief Executive Officer. Since 1972, when he formed Diana Shipping Agencies, Mr. Palios has had the overall responsibility of our activities. Mr. Palios has 40 years experience in the shipping industry 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 since February 21, 2005. Mr. Margaronis also serves as an employee of DSS. Prior to February 21, 2005, Mr. Margaronis was employed by Diana Shipping Agencies S.A. and performed on our behalf 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 and war risks cover. Mr. Margaronis has 27 years of experience in shipping, including in ship finance and insurance. He is a member of the Governing Council of the Greek Shipowner’s Union and a member of the board of directors of the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) 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 has served as our Director, Chief Operating Officer and Secretary since January 13, 2010 and has served as Director and Executive Vice President and Secretary of Diana Shipping since February 14, 2008, as the Vice President and Secretary of that company since February 21, 2005 and as a director of that company since March 9, 1999. Mr. Zafirakis also serves as an employee of DSS. Prior to February 21, 2005, Mr. Zafirakis was employed by Diana Shipping Agencies S.A. and performed on the behalf of Diana Shipping the services he now performs as Executive Vice President of that company. He joined Diana Shipping Agencies S.A. in 1997 where he held a number of positions in its finance and accounting department. 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.

 

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Andreas Michalopoulos has served as our Chief Financial Officer and Treasurer since January 13, 2010 and has served in these positions with Diana Shipping since March 8, 2006. Mr. Michalopoulos started his career in 1993 where 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 from 2002 to 2005, a major Greek Pharmaceutical Group with U.S. R&D activity as a Vice President International Business Development, Member of the Executive Committee. From 2005 to 2006, he joined Diana Shipping Agencies as a Project Manager. Mr. Michalopoulos has graduated from Paris IX Dauphine University with Honours in 1993 obtaining a 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.

Konstantinos Fotiadis has served as an independent Director and as the Chairman of our Audit Committee since the completion of the private offering. From 1990 until 1994 Mr. Fotiadis served as the President and Managing Director of Reckitt & Colman (Greece), part of the British multinational Reckitt & Colman plc, manufacturers of cosmetics and health care products. From 1981 until its acquisition in 1989 by Reckitt & Colman plc, Mr. Fotiadis was a General Manager at Dr. Michalis S.A., a Greek company manufacturing and marketing cosmetics and health care products. From 1978 until 1981 Mr. Fotiadis held positions with Esso Chemicals Ltd. and Avrassoglou S.A. Mr. Fotiadis has also been active as a business consultant and real estate developer. Mr. Fotiadis holds a degree in Economics from Technische Universitaet Berlin and in Business Administration from Freie Universitaet Berlin.

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.

Nikolaos Petmezas has served as an independent Director and as a member of our Compensation Committee since the completion of the private offering. Mr. Petmezas has served since 2001 as the C.E.O. of Maersk-Svitzer-Wijsmuller B.V. and, prior to its acquisition by Maersk, as a Partner and as C.E.O. of Wijsmuller Shipping Company B.V. He has also served since 1989 as the C.E.O. of N.G. Petmezas Shipping and Trading, S.A., and since 1984 as the C.E.O. of Shipcare Technical Services Shipping Co. LTD. Since 1995 Mr. Petmezas has served as well 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 sales positions at Austin & Pickersgill Ltd. and British Shipbuilders Corporation until 1983. Mr. Petmezas has been an Advisor at Westinghouse Electric and Northop 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 an advisor and deal-maker in the international energy and transportation sector for the last 15 years. He founded Energy Capital Services Inc. in March 2008 which provides strategic and financial advisory services to international shipping and energy related companies. In addition, he served as President of ECS Inc., a shipping and energy industry consulting and advisory services company, from March 2008 to December 2009. Previously, he served as Manager of Poten Capital Services LLC, a registered broker-dealer specializing in the maritime sector, from 2003 to January 2008. 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

 

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senior positions with American Marin 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 & 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 three privately-held companies involved in container logistics, container leasing and drybulk shipping.

Actions by our Board of Directors

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.

Compensation of Directors and Senior Management

The members of our senior management are compensated through their affiliation with Diana Enterprises and its respective Broker Services Agreement with DSS. We expect that the commission payable by our Manager to Diana Enterprises (for which we reimburse our Manager) will be approximately $1.04 million prior to the completion of an initial public offering and that such amount will increase to approximately $1.3 million following the completion of an initial public offering. Until the second anniversary of the completion of the private offering, any increase in these amounts is subject to the approval of the independent members of our Board of Directors. Diana Enterprises is a related party controlled by our Chief Executive Officer and Chairman Mr. Symeon Palios.

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. We do not have a retirement plan for our officers or directors.

Committees of the Board of Directors

We have established an audit committee comprised of two independent members of our board of directors, who are responsible for reviewing our accounting controls and recommending to the board of directors the engagement of our outside auditors. Our audit committee is responsible for reviewing all related party transactions for potential conflicts of interest and all related party transactions will be subject to the approval of the audit committee. Mr. Konstantinos Fotiadis serves as the Chairman of the audit committee and we believe that he qualifies as an audit committee financial expert; as such term is defined under Securities and Exchange Commission rules. We have established a compensation committee comprised of two independent directors which 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, Mr. Anastassis Margaronis and Mr. Ioannis Zafirakis. The executive committee is responsible for the overall management of our business.

2010 Equity Incentive Plan

We have adopted an equity incentive plan, which we refer to as the plan, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates will be eligible to receive options to acquire common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We have reserved a total of 392,198 common shares for issuance under the plan,

 

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subject to adjustment for changes in capitalization as provided in the plan. The plan will be 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. We have issued a total of 213,331 restricted shares under the plan to our executive officers.

Following the completion of an initial public offering of our common stock, we expect to issue an additional 53,333 restricted common shares to our executive officers pursuant to the 2010 Equity Incentive Plan, of which 25%will vest upon the grant of such shares, and the remainder of which will vest ratably over three years from their date of grant.

Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise price per common share equal to the fair 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 fair 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. Upon the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of restricted stock units that then vest multiplied by the fair 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 plan will expire ten years from the date the plan is 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.

 

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RELATED PARTY TRANSACTIONS

In April 2010, we issued in the private offering an aggregate of 3,333,333 common shares to Diana Shipping, which amounts to approximately 55% of our outstanding common shares, in exchange for $50.0 million.

For a description of our Administrative Services Agreement with Diana Shipping Services S.A., relating to the provision of administrative services to us, please see “Business—Administrative Services Agreement.”

For a description of the Vessel Management Agreements between our wholly owned subsidiaries and Diana Shipping Services S.A. relating to the provision of management services for our vessels, please see “Business—Vessel Management Agreements.”

For a description of the Broker Services Agreement by and between DSS and Diana Enterprises Inc., a related party controlled by our Chief Executive Officer and Chairman Mr. Symeon Palios, please see “Business—Broker Services Agreement.”

For a description of our registration rights agreement between us, FBR Capital Markets & Co. and Diana Shipping, please see “Exchange Offer—Registration Rights.”

 

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PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial owners of more than five percent of our common shares and of our officers and directors as a group as of the date of this prospectus. 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 the Securities and Exchange Commission’s 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 prospectus, 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.

 

Identity of person or group

   Shares
beneficially
owned
    Percentage
of class
beneficially
owned
 

Diana Shipping Inc.

     3,333,833        54.6

FBR Capital Markets Corp.PT, Inc.

     709,220        11.6

Barclays Bank Plc

     554,500        9.1

FBR Capital Markets & Co.

     364,610        6.0

Symeon Palios

     76,190 (1)(2)      1.2

Anastasios Margaronis

     66,165 (1)(3)      1.1

Ioannis Zafirakis

     34,886 (1)(4)      *   

Andreas Michalopoulos

     36,090 (1)(5)      *   

Directors and officers as a group

     213,331        3.5

 

(1) Of these shares, 25% have become vested and the remaining shares vest ratably over a three year period.
(2) Mr. Palios may be deemed to beneficially own 76,190 of these common shares through Taracan Investments S.A., a company of which he is the controlling person.
(3) Mr. Margaronis may be deemed to beneficially own 66,165 of these common shares through Weever S.A., a company of which he is the controlling person.
(4) Mr. Zafirakis may be deemed to beneficially own 34,886 of these common shares through D&G S.A., a company of which he is the controlling person.
(5) Mr. Michalopoulos may be deemed to beneficially own 36,090 of these common shares through Love Boat S.A., a company of which he is the controlling person.
 * Less than 1%.

 

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THE EXCHANGE OFFER

This section describes the Exchange Offer and the material provisions of the registration rights agreement, but it may not contain all of the information that is important to you. We refer you to the complete provisions of the registration rights agreement, which is incorporated herein by reference and is filed as an exhibit to the registration statement on Form F-4.

Purpose and Effect of this Exchange Offer

General

We sold the Original Shares in a private transaction pursuant to a purchase/placement agent agreement, dated March 29, 2010, by and between us and FBR Capital Markets & Co. In connection with the offering of the Original Shares, we also entered into a registration rights agreement with FBR Capital Markets & Co. and Diana Shipping Inc., which governs our obligation to file a registration statement with the Securities and Exchange Commission and commence the Exchange Offer to exchange the Exchange Shares for the Original Shares. The Exchange Offer is intended to satisfy certain of our obligations under the registration rights agreement.

The registration rights agreement further provides that if we do not complete the Exchange Offer within a certain period of time or under certain other circumstances, we will be obligated to register the resale of the Original Shares. Affiliates of ours (within the meaning of Rule 405 of the Securities Act) may not participate in the Exchange Offer.

Representations upon Tender of Original Shares

To participate in the Exchange Offer, you must execute or agree to be bound by the letter of transmittal, through which you will represent to us, among other things, that:

 

   

any Exchange Shares received by you will be, and the Original Shares you are tendering in anticipation of receiving the Exchange Shares were, acquired in the ordinary course of business;

 

   

you do not have any arrangement or understanding with any person to participate in, are not engaged in, and do not intend to engage in, the distribution (within the meaning of the Securities Act) of the Exchange Shares in violation of the provisions of the Securities Act;

 

   

you are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act;

 

   

you are not acting on behalf of any person who could not truthfully make the foregoing representations; and

 

   

if you are a broker-dealer, (i) you will receive Exchange Shares for your own account in exchange for Original Shares that were acquired as a result of market-making activities or other trading activities and (ii) you will deliver a prospectus (or, to the extent permitted by law, make available a prospectus to purchasers) meeting the requirements of the Securities Act in connection with any resale of those Exchange Shares to the extent required by applicable law or regulation or Securities and Exchange Commission pronouncement.

Resale of the Exchange Shares

Based on existing interpretations of the Securities and Exchange Commission staff with respect to similar transactions, we believe that the Exchange Shares issued pursuant to this exchange offer in exchange for Original Shares may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act if:

 

   

such Exchange Shares are acquired in the ordinary course of the holder’s business;

 

   

such holder is not engaged in, has no arrangement with any person to participate in, and does not intend to engage in, any public distribution of the Exchange Shares;

 

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such holder is not our “affiliate,” as defined in Rule 405 of the Securities Act; and

 

   

if such holder is a broker-dealer that receives Exchange Shares for its own account in exchange for Original Shares that were acquired as a result of market-making activities, that it will deliver a prospectus, as required by law, in any resale of such Exchange Shares.

Any holder who tenders in this Exchange Offer with the intention of participating in any manner in a distribution of the Exchange Shares:

 

   

cannot rely on the position of the staff of the Securities and Exchange Commission set forth in “Exxon Capital Holdings Corporation” or similar interpretive letters; and

 

   

must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

This prospectus, as it may be amended or supplemented from time to time, may be used for an offer to resell or other transfer of Exchange Shares only as specified in this prospectus. We have agreed to cause the Registration Statement of which this prospectus is a part to remain effective until the earlier of (A) 120 days after the closing of the Exchange Offer and (B) such time as all participating broker-dealers no longer own any Registrable Shares (as defined in the registration rights agreement). Only broker-dealers that acquired the Original Shares as a result of market-making activities or other trading activities may participate in this Exchange Offer. Each participating broker-dealer who receives Exchange Shares for its own account in exchange for Original Shares that were acquired by such broker-dealer as a result of market-making or other trading activities will be required to acknowledge that it will deliver a prospectus (or, to the extent permitted by law, make available a prospectus to purchasers) in connection with any resale by it of Exchange Shares to the extent required by applicable law or regulation or Securities and Exchange Commission pronouncement. The letter of transmittal that accompanies this prospectus states that by acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

This Exchange Offer is not being made to, nor will we accept tenders for exchange from, holders of Original Shares in any jurisdiction in which the Exchange Offer or the acceptance of it would not be in compliance with the securities or blue sky laws of such jurisdiction.

Consequences of Failure to Exchange

Original Shares that are not tendered or that are tendered but not accepted by us will, following completion of the Exchange Offer, continue to be subject to the following restrictions on transfer:

 

   

holders may resell Original Shares only if an exemption from registration under the Securities Act and applicable state securities laws is available or, outside of the United States, to non-U.S. persons in accordance with the requirements of Regulation S under the Securities Act; and

 

   

The remaining Original Shares will bear a legend restricting transfer in the absence of registration or an exemption from registration.

Pursuant to the registration rights agreement, we have agreed, under certain circumstances, to register the resale of any Original Shares not tendered in exchange for Exchange Shares in the Exchange Offer. See “— Resale Registration Statement” below.

Based on interpretations of the Securities and Exchange Commission staff, Exchange Shares issued pursuant to this Exchange Offer may be offered for resale, resold or otherwise transferred by their holders (other than any such holder that is our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquired the Exchange Shares in the ordinary course of business and the holders are not engaged in, have no arrangement

 

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with any person to participate in, and do not intend to engage in, any public distribution of the Exchange Shares to be acquired in this Exchange Offer. Any holder who tenders in this Exchange Offer and is engaged in, has an arrangement with any person to participate in, or intends to engage in, any public distribution of the Exchange Shares (i) may not rely on the applicable interpretations of the Securities and Exchange Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

Terms of the Exchange Offer

Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept for exchange any and all Original Shares validly tendered and not properly withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer will remain open for at least 20 full business days (as required by Exchange Act Rule 14e-1(a)) and will expire at 5:00 p.m., New York City time, on , 2010, or such later date and time to which we extend it. Holders may tender some or all of their Original Shares pursuant to the Exchange Offer. The date of acceptance for exchange of the Original Shares, and completion of the Exchange Offer, will be the exchange date, which will be the first business day following the Expiration Date (unless such period is extended as described in this prospectus). The Exchange Shares issued in connection with this Exchange Offer will be delivered promptly following the exchange date.

The form of the Exchange Shares will be substantially the same as the form of the Original Shares except that the Exchange Shares will have been registered under the Securities Act and will not bear legends restricting the transfer thereof.

As of the date of this prospectus, we have 6,106,161 shares of common stock outstanding, of which 3,333,833 common shares are owned by Diana Shipping. Diana Shipping is subject to a one-year lock up agreement with respect to its shares. We have agreed to register the resale of shares owned by Diana Shipping pursuant to the registration rights agreement following the expiration of the lock up period. This prospectus and the letter of transmittal are being sent to all registered holders of Original Shares other than our affiliates.

We intend to conduct this Exchange Offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations of the Securities and Exchange Commission. Original Shares that are not tendered for exchange in this Exchange Offer will remain outstanding.

We shall be deemed to have accepted validly tendered Original Shares when, as and if we have given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Shares from us and delivering the Exchange Shares to the tendering holders.

Holders who tender Original Shares in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Original Shares pursuant to the Exchange Offer. We will pay all charges and expenses, other than certain applicable taxes in certain circumstances, in connection with the Exchange Offer. See “—Fees and Expenses.”

If any tendered Original Shares are not accepted for exchange because of an invalid tender, the occurrence of certain other events described in this prospectus or otherwise, we will return the Original Shares, without expense, to the tendering holder promptly after the Expiration Date.

 

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Expiration Date; Extensions; Amendments; Termination

The term “expiration date” means 5:00 p.m., New York City time, on , 2010, unless we, in our sole discretion, extend the Exchange Offer, in which case the term “Expiration Date” means the latest date and time to which we extend the Exchange Offer. To extend the Expiration Date, we will notify the Exchange Agent of any extension by written notice. We will notify holders of the Original Shares of any extension by press release or other public announcement.

We reserve the right to amend the terms of the Exchange Offer in any manner. In the event of any material change in the Exchange Offer, including the waiver of any material condition of the Exchange Offer, we will extend the offer period for at least five business days following notice of the material change. In addition, if we determine that any of the events set forth under “—Conditions of the Exchange Offer” has occurred, we also reserve the right, in our sole discretion, to:

 

   

delay acceptance of any Original Shares as may be permitted under Securities and Exchange Commission rules;

 

   

extend the Exchange Offer and retain all Original Shares tendered before the expiration date of the Exchange Offer, subject to the rights of the holders of tendered Original Shares to withdraw their tendered Original Shares;

 

   

terminate the Exchange Offer and refuse to accept any Original Shares; or

 

   

waive the termination event with respect to the Exchange Offer and accept all properly tendered Original Shares that have not been withdrawn.

If we do so, we will give written notice of this delay in acceptance, extension, termination or waiver to the Exchange Agent. If the amendment constitutes a material change to the Exchange Offer, we will promptly disclose such amendment by giving written notice to the holders of Original Shares, by press release or other public announcement.

Procedures for Tendering

To participate in the Exchange Offer, you must properly tender your Original Shares to the Exchange Agent as described below. We will only issue Exchange Shares in exchange for Original Shares that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the Original Shares, and you should follow carefully the instructions on how to tender your Original Shares. It is your responsibility to properly tender your Original Shares. We have the right to waive any defects in your tender. However, we are not required to waive any defects, and neither we nor the Exchange Agent is required to notify you of defects in your tender.

If you have any questions or need help in exchanging your Original Shares, please contact the Exchange Agent at the address or telephone number described below.

Except as stated below under “—Book-Entry Transfer,” to tender in the exchange offer:

 

   

if you do not hold your position through DTC, Euroclear or Clearstream, Luxembourg, you must, on or before the expiration date, deliver a duly completed letter of transmittal to the Exchange Agent at its address specified in the letter of transmittal, and certificates for your Original Shares must be received by the Exchange Agent along with the letter of transmittal;

 

   

if you hold your position through DTC, you must instruct DTC and a DTC participant by completing the form “ Instructions with respect to the Offer to Exchange unregistered shares of Common Stock of Diana Containerships Inc. for registered shares of Diana Containerships Inc. ” accompanying this

 

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prospectus of your intention whether or not you wish to tender your Original Shares for Exchange Shares, and you must in turn follow the procedures for book-entry transfer as set forth below under “— Book-Entry Transfer” and in the letter of transmittal; or

 

   

if you hold your position through Euroclear or Clearstream, Luxembourg, the form “ Instructions with respect to the Offer to Exchange unregistered shares of Common Stock of Diana Containerships Inc. for registered shares of Diana Containerships Inc. ” with respect to Original Shares held through Euroclear or Clearstream, Luxembourg must be completed by a direct accountholder in Euroclear or Clearstream, Luxembourg, and the Original Shares must be tendered in compliance with procedures established by Euroclear or Clearstream, Luxembourg.

If you intend to use the guaranteed delivery procedures, you must comply with the guaranteed delivery procedures described below.

Neither we nor the Exchange Agent will be responsible for the communication of tenders by holders to the accountholders in DTC, Euroclear or Clearstream, Luxembourg through which they hold Original Shares or by such accountholders to the Exchange Agent, DTC, Euroclear or Clearstream, Luxembourg.

Holders will not be responsible for the payment of any fees or commissions to the Exchange Agent for the Original Shares.

In no event should a holder submitting a tender for exchange send a letter of transmittal or Original Shares to any agent of ours other than the Exchange Agent, or to DTC, Euroclear or Clearstream, Luxembourg.

Holders may contact the Exchange Agent for assistance in filling out and delivering letters of transmittal and for additional copies of the Exchange Offer materials.

To be tendered effectively, a letter of transmittal or, as described below under “—Book-Entry Transfer,” an “agent’s message” and other required documents must be received by the Exchange Agent at its address set forth under “—Exchange Agent” below prior to the Expiration Date.

If you do not withdraw your tender before the Expiration Date, your tender will constitute an agreement between you and us in accordance with the terms and conditions in this prospectus and in the letter of transmittal.

The method of delivery of your Original Shares, the letter of transmittal and all other required documents to be delivered to the Exchange Agent is at your election and risk. Instead of delivery by mail, it is recommended that you use an overnight or hand delivery service. In all cases, you should allow sufficient time to ensure delivery to the Exchange Agent before the Expiration Date. No letter of transmittal or Original Shares should be sent to us. You may request your brokers, dealers, commercial banks, trust companies or nominees to effect these transactions on your behalf.

Procedure if the Original Shares Are Not Registered in Your Name

If your Original Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Original Shares, then you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on behalf of a registered owner, you must, prior to completing and executing a letter of transmittal and delivering the registered owner’s Original Shares, either make appropriate arrangements to register ownership of the Original Shares in your name or obtain a properly completed power of attorney or other proper endorsement from the registered holder. We strongly urge you to act immediately since the transfer of registered ownership may take considerable time.

 

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Signature Requirements and Signature Guarantees

Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Exchange Act, referred to as an “eligible institution,” that is a member of specified signature guarantee programs. Signatures on a letter of transmittal or a notice of withdrawal will not be required to be guaranteed if the Original Shares are tendered:

 

   

by a registered holder that has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

 

   

for the account of an eligible institution.

If a letter of transmittal or any notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Evidence satisfactory to us of their authority to so act must be submitted with such letter of transmittal unless.

Book-Entry Transfer

We expect that the Exchange Agent will establish a new account or utilize an existing account promptly after the date of this prospectus with respect to the Original Shares at DTC for the purpose of facilitating the Exchange Offer. Any financial institution that is a participant in DTC’s system may make book-entry delivery of Original Shares by causing DTC, Euroclear or Clearstream, Luxembourg, as the case may be, to transfer such Original Shares into the Exchange Agent’s DTC account in accordance with DTC’s electronic Automated Tender Offer Program procedures for such transfer. The exchange of Exchange Shares for tendered Original Shares will only be made after timely:

 

   

confirmation of book-entry transfer of the Original Shares into the Exchange Agent’s account; and

 

   

receipt by the Exchange Agent of an executed and properly completed letter of transmittal or an “agent’s message” and all other required documents specified in the letter of transmittal.

The confirmation, letter of transmittal or agent’s message and any other required documents must be received at the Exchange Agent’s address listed below under “—Exchange Agent” on or before 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer or, if the guaranteed delivery procedures described below are complied with, within the time period provided under those procedures.

As indicated above, delivery of documents to any of DTC, Euroclear or Clearstream, Luxembourg in accordance with its procedures does not constitute delivery to the Exchange Agent.

The term “agent’s message” means a message, transmitted by DTC and received by the Exchange Agent and forming part of the confirmation of a book-entry transfer, which states that DTC has received an express acknowledgment from a participant in DTC tendering Original Shares stating:

 

   

the aggregate amount of Original Shares that have been tendered by the participant;

 

   

that such participant has received an appropriate letter of transmittal and agrees to be bound by the terms of the letter of transmittal and the terms of the Exchange Offer; and

 

   

that we may enforce such agreement against the participant.

Delivery of an agent’s message will also constitute an acknowledgment from the tendering DTC participant that the representations contained in the letter of transmittal are true and correct.

 

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Guaranteed Delivery Procedures

If you wish to tender your Original Shares and the Original Shares are not immediately available, or time will not permit your Original Shares or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:

 

   

the tender is made through an eligible institution;

 

   

before the Expiration Date, the Exchange Agent has received from such eligible institution a properly completed and duly executed letter of transmittal, or a facsimile thereof, and notice of guaranteed delivery substantially in the form provided by us, by facsimile transmission, mail or hand delivery; such notice of guaranteed delivery shall state your name and address and the amount of the Original Shares tendered, shall state that the tender is being made thereby and shall guarantee that, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered Original Shares, in proper form for transfer, or a confirmation from DTC of book-entry transfer, the letter of transmittal, or a manually executed facsimile thereof, properly completed and duly executed, and any other documents required by the applicable letter of transmittal will be deposited by the eligible institution with the Exchange Agent; and

 

   

the certificates for all physically tendered Original Shares, in proper form for transfer, or a confirmation from DTC of book-entry transfer, the properly completed and duly executed letter of transmittal, or a manually executed facsimile thereof, and all other documents required by the applicable letter of transmittal are received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.

Withdrawal Rights

You may withdraw your tender of Original Shares at any time prior to the Expiration Date.

For a withdrawal of tendered Original Shares to be effective, a written, or for a DTC participant, electronic, notice of withdrawal must be received by the Exchange Agent, at its address set forth in the section of this prospectus entitled “—Exchange Agent,” prior to the Expiration Date.

Any such notice of withdrawal must:

 

   

specify the name of the person who tendered the Original Shares to be withdrawn;

 

   

identify the Original Shares to be withdrawn, including the certificate number or numbers shown on the particular certificates evidencing such shares (unless such shares were tendered by book-entry transfer), and

 

   

be signed by the holder of such Original Shares in the same manner as the original signature on the Letter of Transmittal by which such Original Shares were tendered (including any required signature guarantees), or be accompanied by (i) documents of transfer sufficient to have the transfer agent of the Company register the transfer of the Original Shares into the name of the person withdrawing such Original Shares, and (ii) a properly completed irrevocable proxy authorizing such person to effect such withdrawal on behalf of such holder. If the Original Shares to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed notice of withdrawal is effective immediately upon written or facsimile notice of such withdrawal even if physical release is not yet effected.

All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us, and our determination shall be final and binding on all parties. Any Original Shares withdrawn will be considered not to have been validly tendered for exchange for the purposes of the Exchange Offer. Any

 

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Original Shares that have been tendered for exchange but that are not exchanged for any reason will be returned to you without cost promptly after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Shares may be re-tendered by following one of the procedures described above in “—Procedures for Tendering” at any time on or prior to the Expiration Date.

Transfer Taxes

If you tender Original Shares for exchange, you will not be obligated to pay any transfer taxes unless you instruct us to register your Exchange Shares in a different name or if a transfer tax is imposed for a reason other than the exchange of Original Shares pursuant to this Exchange Offer. If you request that your Original Shares not tendered or not accepted in the Exchange Offer be returned to a different person, you will be responsible for the payment of any applicable transfer tax.

Conditions of the Exchange Offer

Notwithstanding any other provisions of the Exchange Offer, we will not be required to accept for exchange, or to issue Exchange Shares in exchange for, any Original Shares and may terminate or amend the Exchange Offer, if at any time before the Expiration Date, that acceptance or issuance would violate applicable law or any interpretation of the staff of the Securities and Exchange Commission.

That condition is for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to that condition. Our failure at any time to exercise the foregoing rights shall not be considered a waiver by us of that right. Our rights described in the prior paragraph are ongoing rights, which we may assert at any time and from time to time.

In addition, we will not accept for exchange any Original Shares tendered, and no Exchange Shares will be issued in exchange for any Original Shares, if at any time before the Expiration Date any stop order shall be threatened or in effect with respect to the registration statement to which this prospectus relates. In any of those events we are required to use every reasonable effort to obtain the withdrawal of any stop order as promptly as practicable.

Exchange Agent

We have appointed BNY Mellon Shareowner Services as Exchange Agent for the Exchange Offer. All executed letters of transmittal should be directed to the Exchange Agent at its address provided below.

 

By Mail:

  By Hand or Overnight Courier:

BNY Mellon Shareowner Services

Corporate Action Department

PO Box 3301

South Hackensack, NJ 07606

 

BNY Mellon Shareowner Services

Corporate Action Department

480 Washington Blvd., 27th Fl

Jersey City, NJ 07310

Fees and Expenses

We will bear the expenses of soliciting tenders in the Exchange Offer. The principal solicitation for tenders in the Exchange Offer is being made by mail. Additional solicitations may be made by our officers and regular employees in person, by facsimile or by telephone.

We have not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. We will, however, pay the Exchange Agent reasonable and customary fees for their services and reimburse them for their reasonable

 

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and documented out-of-pocket expenses in connection with these services. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable and documented out-of-pocket expenses they incur in forwarding copies of the prospectus, letters of transmittal and related documents to the beneficial owners of the Original Shares and in handling or forwarding tenders for exchange.

We will pay the expenses to be incurred in connection with the Exchange Offer, including fees and expenses of the Exchange Agent, printing, accounting and legal fees.

Registration Rights Agreement

We have entered into a registration rights agreement, dated April 6, 2010, with FBR Capital Markets & Co. and Diana Shipping Inc. The registration rights agreement covers the shares sold in the private offering, including shares purchased by Diana Shipping Inc., plus any additional shares of common stock issued in respect thereof whether by stock dividend, stock distribution, stock split, or otherwise. This exchange offer is intended to satisfy certain of our obligations under the registration rights agreement. Pursuant to the registration rights agreement, we have agreed to maintain the effectiveness of this exchange offer registration statement until the earlier of (a) 120 days after the closing of the Exchange Offer and (b) such time as all Participating Broker-Dealers (as defined in the agreement) no longer own any Registrable Shares (as defined in the agreement). We have further agreed to use our reasonable best efforts to complete the Exchange Offer not later than 60 days after the effective date of the Exchange Offer registration statement.

Resale Registration Statement

Under the registration rights agreement, in the event that (i) we determine that the Exchange Offer registration is not permitted or may not be completed as soon as practicable after the last Exchange Date (as defined therein) because it would violate any applicable law or applicable interpretations of the Staff of the Securities and Exchange Commission, or because the Exchange Shares received by holders are not or would not be, upon receipt, transferable by each such holder without need for further compliance with Section 5 of the Securities Act (except for the requirements to deliver a prospectus in connection with any resale by a Participating Broker-Dealer), (ii) the Exchange Offer is not for any other reason completed by December 1, 2010 or (iii) upon completion of the Exchange Offer any of the holders shall so request in connection with any offering or sale of the Registrable Shares (as defined therein), we have agreed to cause to be filed with the Securities and Exchange Commission as soon as practicable after such determination, date or request, as the case may be (but in no event later than the date that is 60 days after the date of the earlier of such determination, date or request), one resale Registration Statement on Form F-1 or such other form under the Securities Act then available to the Company providing for the resale of the outstanding Registrable Shares pursuant to Rule 415 from time to time by the holders. We have agreed to use our reasonable efforts to cause such resale registration statement to be declared effective by the Securities and Exchange Commission as soon as practicable after the initial filing thereof and to remain effective, subject to applicable black-out provisions, until the earlier of (A) such time as all Registrable Shares covered thereby have been sold in accordance with the intended distribution of such Registrable Shares, (B) there are no Registrable Shares outstanding or (C) the first anniversary of the effective date of such resale registration statement (subject to extension under certain circumstances) and the condition that the Registrable Shares have been transferred to an unrestricted CUSIP and are listed on the New York Stock Exchange or the Nasdaq Global Market, or on an alternative trading system with the Registrable Shares qualified under the applicable state securities or “blue sky” laws of all fifty (50) states); provided, however, that if we have an effective resale registration statement on Form F-1 (or other form then available to the Company) under the Securities Act and becomes eligible to use Form F-3 or such other short-form registration statement form under the Securities Act, we may, upon thirty (30) business days’ prior written notice to all holders, register any Registrable Shares registered but not yet distributed under the effective resale registration statement on such a short-form shelf registration statement and, once the short-form shelf registration statement is declared effective, withdraw the previous registration statement and, if permitted, transfer the filing fees from the previous registration statement (such transfer pursuant to Rule 429, if applicable) unless any holder registered under the

 

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initial resale registration statement notifies the Company within fifteen (15) business days of receipt of the Company notice that it intends to file a new registration statement that withdrawal of the initial resale registration statement would interfere with its distribution of Registrable Shares already in progress, in which case, the Company shall delay the effectiveness of the shelf registration statement and termination of the then-effective initial resale registration statement for a period of not less than thirty (30) days from the date that the Company receives the notice from such holders requesting a delay. Any shelf registration statement shall provide for the resale from time to time, subject to certain conditions, and pursuant to any method or combination of methods legally available (including, without limitation, an underwritten offering, a direct sale to purchasers or a sale through brokers or agents, which may include sales over the internet) by the holders of any and all Registrable Shares. We are not obligated to maintain the effectiveness of any shelf registration statement beyond the first anniversary of the effective date of the initial resale registration statement (subject to extension as provided in the agreement and the condition that the Registrable Shares have been transferred to an unrestricted CUSIP and are listed on the New York Stock Exchange or the Nasdaq Global Market, or on an alternative trading system with the Registrable Shares qualified under the applicable state securities or “blue sky” laws of all fifty (50) states).

In addition, under the registration rights agreement, we propose to file a registration statement on Form F-1 or such other form under the Securities Act providing for the initial public offering of shares of our common stock before the later of (A) April 6, 2011 and (B) the earlier of (i) the completion of the Exchange Offer or (ii) the effectiveness of a resale registration statement, then holders of the Registrable Shares have certain “piggy-back” registration rights.

The registration rights agreement is governed by, and shall be construed in accordance with, the laws of the State of New York. The summary herein of certain provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, which is attached as an exhibit to the registration statement on Form F-4.

Other

Participation in this Exchange Offer is voluntary, and you should carefully consider whether to participate. You are urged to consult your financial and tax advisors in making your own decision as to what action to take.

 

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DESCRIPTION OF EXCHANGE SHARES

Exchange Shares are identical to Original Shares except that Exchange Shares include preferred stock purchase rights and are registered under the Securities Act and, therefore, will not bear legends restricting their transfer.

 

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DESCRIPTION OF CAPITAL STOCK

The following is a description of the material terms of our amended and restated articles of incorporation and bylaws. Please see our amended and restated articles of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part.

Purpose

Our purpose, as stated in our amended and restated articles of incorporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Business Corporations Act of the Marshall Islands (the “BCA”). Our amended and restated articles of incorporation and bylaws do not impose any limitations on the ownership rights of our shareholders.

Authorized Capitalization

Under our amended and restated articles of incorporation, our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.01 per share, of which 6,106,161 shares are issued and outstanding, and 25.0 million shares of preferred stock, par value $0.01 per share, of which no shares are issued and outstanding.

Common Stock

Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares of common stock are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common stock will be entitled to receive pro rata our remaining assets available for distribution. Except as provided below, holders of common stock do not have conversion, exchange, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any shares of preferred stock which we may issue in the future.

Preferred Stock

Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the terms and rights of that series, including:

 

   

the designation of the series;

 

   

the number of shares of the series;

 

   

the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and

 

   

the voting rights, if any, of the holders of the series.

Preferred Stock Purchase Rights

We have entered into a stockholders rights agreement dated August 2, 2010, or the Stockholders Rights Agreement, with Mellon Investor Services LLC as Rights Agent. Pursuant to this Stockholders 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 preferred stock at an exercise price specified in the Stockholders Rights Agreement, subject to specified adjustments. Until a Right is exercised, the holder of a Right will have no rights to vote or receive dividends or any other stockholder rights.

 

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The Rights may have anti-takeover effects. The Rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our board of directors. As a result, the overall effect of the Rights may be to render more difficult or discourage any attempt to acquire us. Because our board of directors can approve a redemption of the Rights or a permitted offer, the Rights should not interfere with a merger or other business combination approved by our board of directors.

We have summarized the material terms and conditions of the Stockholders Rights Agreement and the related Rights below.

Detachment of the Rights

The Rights are attached to all certificates representing our currently outstanding common stock and will attach to all common stock certificates we issue prior to the Rights distribution date that we describe below. The Rights are not exercisable until after the Rights distribution date and will expire at the close of business on the tenth anniversary date of the adoption of the Rights plan, unless we redeem or exchange them earlier as we describe below. The Rights will separate from the common stock and a Rights distribution date would occur, subject to specified exceptions, on the earlier of the following two dates:

 

   

the 10th day after public announcement that a person or group has acquired ownership of 15% or more of the Company’s common stock or

 

   

the 10th business day (or such later date as determined by the Company’s board of directors) after a person or group announces a tender or exchange offer which would result in that person or group holding 15% or more of the Company’s common stock.

“Acquiring person” is generally defined in the Stockholders Rights Agreement as any person, together with all affiliates or associates, who beneficially owns 15% or more of the Company’s common stock. However, Diana Shipping Inc. is excluded from the definition of “acquiring person.” In addition, persons who beneficially own 15% or more of the Company’s common stock on the effective date of the Stockholders Rights Agreement are excluded from the definition of “acquiring person” until such time as they acquire additional shares in excess of 1% of the Company’s then outstanding common stock as specified in the Stockholders Rights Agreement for purposes of the Rights, and therefore until such time, their ownership cannot trigger the Rights. Specified “inadvertent” owners that would otherwise become an acquiring person, including those who would have this designation as a result of repurchases of common stock by us, will not become acquiring persons as a result of those transactions.

Our board of directors may defer the Rights distribution date in some circumstances, and some inadvertent acquisitions will not result in a person becoming an acquiring person if the person promptly divests itself of a sufficient number of shares of common stock.

Until the Rights distribution date:

 

   

our common stock certificates will evidence the Rights, and the Rights will be transferable only with those certificates; and

 

   

any new common stock will be issued with Rights and new certificates will contain a notation incorporating the Stockholders Rights Agreement by reference.

As soon as practicable after the Rights distribution date, the Rights Agent will mail certificates representing the Rights to holders of record of common stock at the close of business on that date. After the Rights distribution date, only separate Rights certificates will represent the Rights.

We will not issue Rights with any shares of common stock we issue after the Rights distribution date, except as our board of directors may otherwise determine.

 

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Flip-In Event

A “flip-in event” will occur under the Stockholders Rights Agreement when a person becomes an acquiring person other than pursuant to certain kinds of permitted offers. An offer is permitted under the Stockholders Rights Agreement if a person will become an acquiring person pursuant to a merger or other acquisition agreement that has been approved by our board of directors prior to that person becoming an acquiring person.

If a flip-in event occurs and we have not previously redeemed the Rights as described under the heading “Redemption of Rights” below or, if the acquiring person acquires less than 50% of our outstanding common stock and we do not exchange the Rights as described under the heading “Exchange of Rights” below, each Right, other than any Right that has become void, as we describe below, will become exercisable at the time it is no longer redeemable for the number of shares of common stock, or, in some cases, cash, property or other of our securities, having a current market price equal to two times the exercise price of such Right.

When a flip-in event occurs, all Rights that then are, or in some circumstances that were, beneficially owned by or transferred to an acquiring person or specified related parties will become void in the circumstances the Stockholders Rights Agreement specifies.

Flip-Over Event

A “flip-over event” will occur under the Stockholders Rights Agreement when, at any time after a person has become an acquiring person:

 

   

we are acquired in a merger or other business combination transaction, other than specified mergers that follow a permitted offer of the type we describe above; or

 

   

50% or more of our assets or earning power is sold or transferred.

If a flip-over event occurs, each holder of a Right, other than any Right that has become void as we describe under the heading “Flip-In Event” above, will have the right to receive the number of shares of common stock of the acquiring company which has a current market price equal to two times the exercise price of such Right.

Antidilution

The number of outstanding Rights associated with our common stock is subject to adjustment for any stock split, stock dividend or subdivision, combination or reclassification of our common stock occurring prior to the Rights distribution date. With some exceptions, the Stockholders Rights Agreement will not require us to adjust the exercise price of the Rights until cumulative adjustments amount to at least 1% of the exercise price. It also will not require us to issue fractional shares of our preferred stock that are not integral multiples of one-thousandth of a share, and, instead we may make a cash adjustment based on the market price of the common stock on the last trading date prior to the date of exercise.

Redemption of Rights

At any time until the date on which the occurrence of a flip-in event is first publicly announced, we may order redemption of the Rights in whole, but not in part, at a redemption price of $0.01 per Right. The redemption price is subject to adjustment for any stock split, stock dividend or similar transaction occurring before the date of redemption. At our option, we may pay that redemption price in cash or shares of common stock. The Rights are not exercisable after a flip-in event if they are timely redeemed by us or until ten days following the first public announcement of a flip-in event. If our board of directors timely orders the redemption of the Rights, the Rights will terminate on the effectiveness of that action.

 

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Exchange of Rights

We may, at our option, exchange the Rights (other than Rights owned by an acquiring person or an affiliate or an associate of an acquiring person, which have become void), in whole or in part. The exchange will be at an exchange ratio of one share of common stock per Right, subject to specified adjustments at any time after the occurrence of a flip-in event and prior to any person other than us or our existing stockholders becoming the beneficial owner of 50% or more of our outstanding common stock for the purposes of the Stockholders Rights Agreement.

Amendment of Terms of Rights

During the time the Rights are redeemable, we may amend any of the provisions of the Stockholders Rights Agreement, other than by decreasing the redemption price. Once the Rights cease to be redeemable, we generally may amend the provisions of the Stockholders Rights Agreement, other than to decrease the redemption price, only as follows:

 

   

to cure any ambiguity, defect or inconsistency;

 

   

to make changes that do not materially adversely affect the interests of holders of Rights, excluding the interests of any acquiring person; or

 

   

to shorten or lengthen any time period under the Stockholders Rights Agreement, except that we cannot lengthen the time period governing redemption or lengthen any time period that protects, enhances or clarifies the benefits of holders of Rights other than an acquiring person.

Pre-emptive Rights

Under our amended and restated articles of incorporation, our shareholders have the right, including Diana Shipping, to purchase, at the same price per share as new investors, such additional shares of our common stock in order to maintain their respective beneficial ownership percentages in the event we issue further equity, other than pursuant to the 2010 Equity Incentive Plan, prior to the completion of an initial public offering.

Directors

Our directors are elected by a plurality of the votes cast by shareholders entitled to vote. There is no provision for cumulative voting.

Our board of directors must consist of at least three members. Our amended and restated articles of incorporation provide that the board of directors may only change the number of directors by a vote of not less than two-thirds of the entire board. Directors are elected annually on a staggered basis, and each shall serve for a three year term and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Our board of directors has the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us.

Shareholder Meetings

Under our amended and restated bylaws annual shareholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called for any purpose or purposes at any time by a majority of our board of directors, the chairman of our board of directors or an officer of the Company who is also a director. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting. Shareholders of record holding at least one-third of the shares issued and outstanding and entitled to vote at such meetings, present in person or by proxy, will constitute a quorum at all meetings of shareholders.

 

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Dissenters’ Rights of Appraisal and Payment

Under the BCA, our shareholders have the right to dissent from various corporate actions, including any merger or consolidation sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation a shareholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the company’s shares are primarily traded on a local or national securities exchange.

Shareholders’ Derivative Actions

Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates.

Limitations on Liability and Indemnification of Officers and Directors

The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties.

Our amended and restated bylaws provide that certain individuals, including our directors and officers, are entitled to be indemnified by us to the extent authorized by the BCA, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. We shall have the power to pay in advance expenses a director or officer incurred while defending a civil or criminal proceeding, subject to certain conditions. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and bylaws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Anti-takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Bylaws

Several provisions of our amended and restated articles of incorporation and bylaws may have anti-takeover effects. These provisions, which are summarized below, are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.

 

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Blank Check Preferred Stock

Under the terms of our amended and restated articles of incorporation, our board of directors has authority, without any further vote or action by our shareholders, to issue up to 25 million shares of blank check preferred stock. Our board of directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.

Classified Board of Directors

Our amended and restated articles of incorporation provide for the division of our board of directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for two years.

Election and Removal of Directors

Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our amended and restated bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our amended and restated articles of incorporation also provide that our directors may be removed only for cause and only upon the affirmative vote of two-thirds of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.

Limited Actions by Shareholders

Under the BCA, our amended and restated articles of incorporation and bylaws any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our amended and restated articles of incorporation and bylaws provide that, unless otherwise prescribed by law, only a majority of our board of directors, the chairman of our board of directors or an officer of the Company who is also a director may call special meetings of our shareholders, and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may be prevented from calling a special meeting for shareholder consideration of a proposal over the opposition of our board of directors and shareholder consideration of a proposal may be delayed until the next annual meeting.

Advance Notice Requirements for Shareholder Proposals and Director Nominations

Our amended and restated bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 150 days nor more than 180 days prior to the one-year anniversary of the preceding year’s annual meeting. Our amended and restated bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede shareholders’ ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.

Transfer Agent

The registrar and transfer agent for the common stock is BNY Mellon Shareowner Services.

 

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REPUBLIC OF THE MARSHALL ISLANDS COMPANY CONSIDERATIONS

Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. While the BCA also provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Republic of The Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as courts in the United States. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction which has developed a substantial body of case law. The following table provides a comparison between the statutory provisions of the BCA and the Delaware General Corporation Law relating to shareholders’ rights.

 

Marshall Islands

  

Delaware

Shareholder Meetings
Held at a time and place as designated in the bylaws.    May be held at such time or place as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the board of directors.
Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the articles of incorporation or by the bylaws.    Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws.
May be held within or without the Marshall Islands.    May be held within or without Delaware.
Notice:    Notice:

Whenever shareholders are required to take any action at a meeting, written notice of the meeting shall be given which shall state the place, date and hour of the meeting and, unless it is an annual meeting, indicate that it is being issued by or at the direction of the person calling the meeting.

  

Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any.

A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting.

  

Written notice shall be given not less than 10 nor more than 60 days before the meeting.

Shareholders’ Voting Rights
Any action required to be taken by a meeting of shareholders may be taken without meeting if consent is in writing and is signed by all the shareholders entitled to vote.    Any action required to be taken at a meeting of shareholders may be taken without a meeting if a consent for such action is in writing and is signed by shareholders having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Any person authorized to vote may authorize another person or persons to act for him by proxy.    Any person authorized to vote may authorize another person or persons to act for him by proxy.

 

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Marshall Islands

  

Delaware

Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote constitutes a quorum. In no event shall a quorum consist of fewer than one-third of the shares entitled to vote at a meeting.    For stock corporations, the certificate of incorporation or bylaws may specify the number of shares required to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum.
When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.    When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.
The articles of incorporation may provide for cumulative voting in the election of directors.    The certificate of incorporation may provide for cumulative voting in the election of directors.
Any two or more domestic corporations may merge into a single corporation if approved by the board and if authorized by a majority vote of the holders of outstanding shares at a shareholder meeting.    Any two or more corporations existing under the laws of the state may merge into a single corporation pursuant to a board resolution and upon the majority vote by shareholders of each constituent corporation at an annual or special meeting.
Any sale, lease, exchange or other disposition of all or substantially all the assets of a corporation, if not made in the corporation’s usual or regular course of business, once approved by the board, shall be authorized by the affirmative vote of two-thirds of the shares of those entitled to vote at a shareholder meeting.    Every corporation may at any meeting of the board sell, lease or exchange all or substantially all of its property and assets as its board deems expedient and for the best interests of the corporation when so authorized by a resolution adopted by the holders of a majority of the outstanding stock of the corporation entitled to vote.
Any domestic corporation owning at least 90% of the outstanding shares of each class of another domestic corporation may merge such other corporation into itself without the authorization of the shareholders of any corporation.    Any corporation owning at least 90% of the outstanding shares of each class of another corporation may merge the other corporation into itself and assume all of its obligations without the vote or consent of shareholders; however, in case the parent corporation is not the surviving corporation, the proposed merger shall be approved by a majority of the outstanding stock of the parent corporation entitled to vote at a duly called shareholder meeting.
Any mortgage, pledge of or creation of a security interest in all or any part of the corporate property may be authorized without the vote or consent of the shareholders, unless otherwise provided for in the articles of incorporation.    Any mortgage or pledge of a corporation’s property and assets may be authorized without the vote or consent of shareholders, except to the extent that the certificate of incorporation otherwise provides.
Directors
The board of directors must consist of at least one member.    The board of directors must consist of at least one member.
The number of board members may be changed by an amendment to the bylaws, by the shareholders, or by action of the board under the specific provisions of a bylaw.    The number of board members shall be fixed by, or in a manner provided by, the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by an amendment to the certificate of incorporation.

 

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Marshall Islands

  

Delaware

If the board is authorized to change the number of directors, it can only do so by a majority of the entire board and so long as no decrease in the number shall shorten the term of any incumbent director.    If the number of directors is fixed by the certificate of incorporation, a change in the number shall be made only by an amendment of the certificate.
Removal:    Removal:

Any or all of the directors may be removed for cause by vote of the shareholders.

  

Any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares entitled to vote unless the certificate of incorporation otherwise provides.

If the articles of incorporation or the bylaws so provide, any or all of the directors may be removed without cause by vote of the shareholders.

  

In the case of a classified board, shareholders may effect removal of any or all directors only for cause.

Dissenters’ Rights of Appraisal
Shareholders have a right to dissent from any plan of merger, consolidation or sale of all or substantially all assets not made in the usual course of business, and receive payment of the fair value of their shares.    Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation, subject to limited exceptions, such as a merger or consolidation of corporations listed on a national securities exchange in which listed stock is the offered consideration.
A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to dissent and to receive payment for such shares if the amendment:   

Alters or abolishes any preferential right of any outstanding shares having preference; or

  

Creates, alters, or abolishes any provision or right in respect to the redemption of any outstanding shares; or

  

Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or

  

Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class.

  
Shareholder’s Derivative Actions
An action may be brought in the right of a corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law.    In any derivative suit instituted by a shareholder of a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder’s stock thereafter devolved upon such shareholder by operation of law.

 

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Marshall Islands

  

Delaware

A complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort.    Other requirements regarding derivative suits have been created by judicial decision, including that a shareholder may not bring a derivative suit unless he or she first demands that the corporation sue on its own behalf and that demand is refused (unless it is shown that such demand would have been futile).
Such action shall not be discontinued, compromised or settled, without the approval of the High Court of the Republic of The Marshall Islands.   
Reasonable expenses including attorney’s fees may be awarded if the action is successful.   
A corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the shares have a value of less than $50,000.   

 

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CERTAIN ERISA CONSIDERATIONS

The following is a summary of certain considerations associated with an investment in our common stock by employee benefit plans that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plans, individual retirement accounts (“IRAs”) and other arrangements that are subject to Section 4975 of the United States Internal Revenue Code of 1986, as amended (the “Code”), or provisions under any other federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of ERISA or the Code (collectively, “Similar Laws”), and entities whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement (each, a “Plan”).

General Fiduciary Matters

ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code (an “ERISA Plan”) and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of an ERISA Plan or the management or disposition of the assets of an ERISA Plan, or who renders investment advice for a fee or other compensation to an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.

In considering an investment by a Plan in our common stock, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan, including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.

Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code. The acquisition and/or ownership of our common stock by an ERISA Plan with respect to which we are considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the United States Department of Labor has issued prohibited transaction class exemptions, or “PTCEs,” that may apply to the acquisition and holding of our common stock. These class exemptions include, without limitation, PTCE 84-14 regarding transactions determined by independent qualified professional asset managers (“QPAMs”), PTCE 90-1 regarding insurance company pooled separate accounts, PTCE 91-38 regarding bank collective investment funds, PTCE 95-60 regarding life insurance company general accounts and PTCE 96-23 regarding transactions determined by in-house asset managers. In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide limited relief from the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any ERISA Plan involved in the transaction and provided further that the ERISA Plan pays no more than adequate consideration in connection with the transaction. There can be no assurance that all of the conditions of any such exemptions will be satisfied.

Plan Assets

Under ERISA and the regulations promulgated thereunder (the “Plan Asset Regulation”), when an ERISA Plan acquires an equity interest in an entity that is neither a “publicly-offered security” nor a security issued by an investment company registered under the Investment Company Act, the ERISA Plan’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless it is established that either (i) less than 25% of the total value of each class of equity interest in the entity is held by “benefit plan

 

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investors” as defined in Section 3(42) of ERISA (the “25% Test”) or (ii) the entity is an “operating company” as defined in the Plan Asset Regulation. It is not anticipated that we will register as an investment company under the Investment Company Act.

For purposes of the Plan Asset Regulation, a “publicly-offered security” is a security that is (a) “freely transferable”, (b) part of a class of securities that is “widely held,” and (c) (i) sold to the plan as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the class of securities to which such security is a part is registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering of such securities to the public has occurred, or (ii) is part of a class of securities that is registered under Section 12 of the Exchange Act. While our common stock will be offered to the public pursuant to an effective registration statement under the Securities Act, it has not yet been registered under the Exchange Act, and while we intend to effect a registration under the Exchange Act within 120 days after the end of our current fiscal year, no assurance can be given in this regard.

The Plan Asset Regulation provides that a security is “widely held” only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and one another. A security will not fail to be “widely held” because the number of independent investors falls below 100 subsequent to the initial offering thereof as a result of events beyond the control of the issuer. Our common stock may be “widely held” within the meaning of the Plan Asset Regulation following the Exchange Offer and it is anticipated that our common stock will be “widely held” following the intended registration of our common stock under the Exchange Act, although no assurance can be given in this regard. The Plan Asset Regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all the relevant facts and circumstances. It is anticipated that our common stock will be “freely transferable” within the meaning of the Plan Asset Regulation following the Exchange Offer, although no assurance can be given in this regard.

Because of the nature of our business, it is anticipated that we will qualify as an “operating company” within the meaning of the Plan Asset Regulation, although no assurance can be given in this regard. Furthermore, no assurance can be given that less than 25% or more of the value of any class of our equity interests will be held by “benefit plan investors” within the meaning of the Plan Asset Regulation.

Plan Asset Consequences

If our assets were deemed to be “plan assets” under ERISA, this would result, among other things, in (i) the application of the prudence and other fiduciary responsibility standards of ERISA to investments made by us and (ii) the possibility that certain transactions in which we might seek to engage could constitute “prohibited transactions” under ERISA and the Code. If a prohibited transaction occurs for which no exemption is available, any fiduciary that has engaged in the prohibited transaction could be required to restore to the ERISA Plan any losses suffered by the ERISA Plan as a result of the investment. In addition, each disqualified person (within the meaning of Section 4975 of the Code) involved could be subject to an excise tax equal to 15% of the amount involved in the prohibited transaction for each year the transaction continues and, unless the transaction is corrected within statutorily required periods, to a tax of 100%. ERISA Plan fiduciaries who decide to invest in our common stock could, under certain circumstances, be liable for prohibited transactions or other violations as a result of their investment in our common stock. With respect to an IRA that invests in our common stock, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiaries, would cause the IRA to lose its tax-exempt status.

Each purchaser and subsequent transferee of our common stock will be deemed, by its acquisition of our common stock, to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold the common stock constitutes assets of any Plan or (ii) the purchase and holding of the common stock by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a similar violation under any applicable Similar Laws.

 

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The foregoing discussion is general in nature and is not intended to be all-inclusive. Each Plan fiduciary should consult with its legal advisor concerning the considerations discussed above before making an investment in our common stock. As indicated above, Similar Laws governing the investment and management of the assets of governmental or non-U.S. plans may contain fiduciary and prohibited transaction requirements similar to those under ERISA and the Code. Accordingly, fiduciaries of such governmental or non-U.S. plans, in consultation with their advisors, should consider the impact of their respective laws and regulations on an investment in our common stock and the considerations discussed above, if applicable.

 

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TAXATION

The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations relevant to an investment decision by a U.S. Holder and a Non-U.S. Holder, each as defined below, with respect to the common stock and the Exchange Offer. This discussion does not purport to deal with the tax consequences of owning common stock or participation in the Exchange Offer to all categories of investors, some of which, such as dealers in securities, 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 exchange their unregistered common stock for registered common stock in connection with this exchange offer and 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 its shareholders of the common stock. 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.”

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.

 

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In the absence of exemption from tax under Section 883 of the Code, we anticipate that our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.

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

Under Section 883 of the Code, 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 (“United States corporations”); and

 

   

either:

 

   

more than 50% of the value of our common stock is owned, directly or indirectly, by “qualified shareholders,” as described in more detail below, 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 United States 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 United States corporations. We anticipate that any of our shipholding subsidiaries will be incorporated in a jurisdiction that provides an “equivalent exemption” to United States 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.

In order for us to satisfy the 50% Ownership Test, more than 50% of the value of our common stock would have to be owned, directly or indirectly, by one or more “qualified shareholders.” Qualified shareholders include (i) individuals who are “residents” of a “qualified foreign country,” which is a foreign country that grants an “equivalent exemption” from taxation of shipping income to United States corporations, (ii) certain publicly-traded corporations organized in a qualified foreign country, (iii) the government of a qualified foreign country and (iv) certain charitable organizations organized in a qualified foreign country.

In addition, we would have to substantiate our ownership by such “qualified shareholders” by obtaining ownership statements from each such qualified shareholder and each intermediary entity between ourselves and such qualified shareholder in the chain of ownership. Such statements would be required to be signed under penalties of perjury and meet certain other requirements specified under applicable Treasury Regulations. These substantiation requirements are onerous and we may be unable to satisfy them. As a result, it may be difficult for us to satisfy the 50% Ownership Test.

Immediately after the Exchange Offer, we do not expect to satisfy the Publicly-Traded Test because, as discussed in more detail below, we do not anticipate that our common stock will be traded on an established securities market. However, after the filing of a registration statement with the Securities and Exchange Commission, our common stock may come to be traded on an established securities market.

The regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of shares that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country.

The regulations define an “established securities market” to include a national securities exchange that is registered under section 6 of the Securities Act of 1934, a “United States over-the-counter market,” and certain foreign securities exchanges. We do not believe that the FBR PLUS TM System qualifies as an “established

 

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securities market” for this purpose. Therefore, prior to the filing of a registration statement with the Securities and Exchange Commission, we will not satisfy the Publicly-Traded Test for any taxable year during which our stock is solely traded on the FBR PLUS TM System for more than half the days of the taxable year.

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.”

It is further required that with respect to each class of shares relied upon to meet the listing threshold, (i) such class of shares is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year; and (ii) the aggregate number of shares of such class of shares traded on such market during the taxable year is at least 10% of the average number of shares of such class of shares outstanding during such year or as appropriately adjusted in the case of a short taxable year. Even if these tests are not satisfied, the regulations provide that such trading frequency and trading volume tests will be deemed satisfied if such class of shares 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.

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

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 Securities and Exchange Commission, 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 5 Percent Override Rule is triggered, the regulations provide that the 5 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.

As noted above, both before and immediately after the Exchange Offer, in the opinion of Seward & Kissel LLP, we will not satisfy the Publicly-Traded Test since our common stock will not be traded on an established securities market. However, after the filing of a registration statement with the Securities and Exchange Commission, our common stock may come to be traded on an established securities market in the United States. We can provide no assurance whether, even after our common stock comes to be publicly traded, we will be able to satisfy the Publicly-Traded Test.

Taxation In Absence of Exemption

To the extent the benefits of Section 883 of the Code 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. 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.

 

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To the extent the benefits of the Section 883 of the Code exemption are unavailable and 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%. 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 our 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 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 United States citizen or resident, a United States 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.

Taxation of the Exchange of Original Shares for Exchange Shares Pursuant to the Exchange Offer

A U.S. Holder who exchanges Original Shares for Exchange Shares pursuant to the Exchange Offer will not recognize gain or loss for U.S. federal income tax purposes. The U.S. Holder’s holding period for U.S. federal income tax purposes in the Exchange Shares received in the Exchange Offer will include the U.S. Holder’s holding period of the Original Shares. The U.S. Holder’s tax basis in the Exchange Shares received in the exchange offer will be equal to the U.S. Holder’s tax basis in the Original Shares.

 

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Distributions

Subject to the discussion of the passive foreign investment company (“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 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 (through taxable years beginning on or before December 31, 2010) provided that (1) the common stock is readily tradable on an established securities market in the United States (which we do not expect to initially be the case); (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.

Until our common stock becomes publicly traded on an established securities market in the United States, we do not expect that any of our dividends will qualify for this preferential tax rate. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary dividend 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.

 

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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:

 

   

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.

Because we have no current active business, we believe that it is likely that we will satisfy the asset test or the income test for our initial taxable year. However, the PFIC rules contain an exception pursuant to which a foreign corporation will not be treated as a PFIC during its “start-up year.” Under this exception, a foreign corporation will not be treated as a PFIC for the first taxable year the corporation has gross income (the “start-up year”) if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies the IRS that it will not be a PFIC for either of the first two taxable years following the start-up year; and (3) the corporation is not in fact a PFIC for either of these years. We may be able to rely upon the start-up year exception to avoid being treated as a PFIC for our initial taxable year. However, there is no assurance that we will be able to do so. For example, we may still satisfy either the income test or the asset test for a subsequent taxable year depending on the timing of the acquisition of vessels or other active assets during such taxable year. In addition, any assets which we acquire may be treated as a predecessor corporation of us for purposes of the start-up year exception. If this predecessor corporation has previously been a PFIC, then we would not qualify for the “start-up year” exception.

After our acquisition of vessels, our status as a PFIC will depend upon the operations of those 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 the performance of 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.” For taxable years beginning on or

 

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after March 18, 2010, a U.S. Holder of shares in a PFIC will be required to file an annual information return containing information regarding the PFIC as required by applicable Treasury Regulations. For so long as our common stock is traded on the FBR PLUS TM System, a U.S. Holder will not be able to make a “mark-to-market” election with respect to our common stock.

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 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 Not Making a Timely QEF 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 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 deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

These adverse tax consequence 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 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.”

Taxation of the Exchange of Original Shares for Exchange Shares Pursuant to the Exchange Offer

A Non-U.S. Holder who exchanges Original Shares for Exchange Shares pursuant to the Exchange Offer will not recognize gain or loss for U.S. federal income tax purposes.

 

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Dividends on Common Stock

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.

Sale, Exchange or Other Disposition of Common Stock

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 United States 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 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 backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.

If you sell your common stock through a United States office or 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.

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.

 

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DIVIDEND POLICY

We currently do not intend to pay dividends to our shareholders. Our board of directors from time to time will re-evaluate our dividend policy in light of various factors including, among others, available distributable cash from operating revenue, present vessel acquisition opportunities and vessel prices, current charter rates, market trends and restrictions contained in any loan agreements. Marshall Islands law generally prohibits the payment of dividends other than from surplus or when a company is insolvent or if the payment of the dividend would render the company insolvent.

In connection with its review of our dividend policy from time to time, our Board of Directors will consider the distribution of up to the full amount of the Company’s free cash flow, as determined by our Board of Directors in its discretion, at such time as market conditions improve significantly and the net proceeds of the private offering have been invested in a Permitted Purpose, as defined in the section of this prospectus entitled “Use of Proceeds.”

Please see the section of this prospectus entitled “Taxation—Tax Considerations—United States Federal Income Taxation of U.S. Holders” for additional information relating to the tax treatment of our dividend payments, if any.

 

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PLAN OF DISTRIBUTION

The following requirements apply only to broker-dealers. If you are not a broker-dealer as defined in Section 3(a)(4) and Section 3(a)(5) of the Exchange Act, these requirements do not affect you.

Each broker-dealer that receives Exchange Shares for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Shares. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Shares received in exchange for Original Shares where such Original Shares were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of up to 120 days from the last date on which Original Shares are accepted for exchange, we will amend or supplement this prospectus, if requested by any broker-dealer for use in connection with any resale of Exchange Shares received in exchange for Original Shares.

We will not receive any proceeds from any sale of Exchange Shares by broker-dealers.

Exchange Shares received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Shares or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any Exchange Shares.

Any broker-dealer that resells Exchange Shares that were received by it for its own account in the Exchange Offer and any broker or dealer that participates in a distribution of those Exchange Shares may be deemed to be an “underwriter” within the meaning of the Securities Act. Any profit on any resale of Exchange Shares and any commissions or concessions received by any of those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of up to 120 days from the last date on which Original Shares are accepted for exchange, we will promptly send additional copies of this prospectus and any amendment or supplement to the prospectus to any broker-dealer that requests those documents. We have agreed to pay all expenses incident to the Exchange Offer, other than commissions or concessions of any brokers or dealers.

LEGAL MATTERS

The validity of the Exchange Shares offered hereby and other matters relating to Marshall Islands and United States law will be passed upon for us by Seward & Kissel LLP, One Battery Park Plaza, New York, New York 10004.

EXPERTS

The balance sheet of Diana Containerships Inc. as of January 7, 2010 included in the Registration Statement of which this prospectus is a part has been audited by Ernst & Young (Hellas) Certified Auditors Accountants S.A., Athens, Greece, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The sections in this prospectus titled “Prospectus Summary—Industry Trends” and “The International Containership Industry” have been reviewed by Drewry Shipping Consultants Ltd. which has confirmed to us that such sections accurately describe the international containership market, subject to the availability and reliability of the data supporting the statistical information presented in this prospectus.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form F-4 under the Securities Act with respect to the Exchange Shares offered hereby. For the purposes of this section, the term registration statement means the original registration statement and any and all amendments including the schedules and exhibits to the original registration statement or any amendment. This prospectus does not contain all of the information set forth in the registration statement we filed. Each statement made in this prospectus concerning a document filed as an exhibit to the registration statement is qualified by reference to that exhibit for a complete statement of its provisions. The registration statement, including its exhibits and schedules, may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) Securities and Exchange Commission-0330, and you may obtain copies at prescribed rates from the Public Reference Section of the Securities and Exchange Commission at its principal office in Washington, D.C. 20549. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.

Information Provided by the Company

We will furnish holders of our common shares with annual reports containing audited financial statements and a report by our independent registered public accounting firm. The audited financial statements will be prepared in accordance with U.S. generally accepted accounting principles. As a “foreign private issuer,” we are exempt from the rules under the Securities Exchange Act prescribing the furnishing and content of proxy statements to shareholders. While we furnish proxy statements to shareholders in accordance with the rules of any stock exchange on which our common shares may be listed in the future, those proxy statements will not conform to Schedule 14A of the proxy rules promulgated under the Securities Exchange Act. In addition, as a “foreign private issuer,” our officers and directors are exempt from the rules under the Securities Exchange Act relating to short swing profit reporting and liability.

Commission Position on Indemnification for Securities Act Liabilities

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

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DIANA CONTAINERSHIPS INC.

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2   

Opening Balance Sheet as of January 7, 2010*

     F-3   

Notes to Opening Balance Sheet as of January 7, 2010*

     F-4   

Balance Sheet as at June 30, 2010 (unaudited)

     F-7   

Unaudited Statement of Income for the period from January  7, 2010 (date of inception) through June 30, 2010

     F-8   

Unaudited Statement of Shareholders’ Equity for the period from January  7, 2010 (date of inception) through June 30, 2010

     F-9   

Unaudited Statement of Cash Flows for the period from January  7, 2010 (date of inception) through June 30, 2010

     F-10   

Notes to Unaudited Interim Financial Statements

     F-11   

 

* These financial statements as of January 7, 2010 (date of incorporation) do not include statements of operations, cash flows and statement of changes in shareholder’s equity as the Company had not commenced operations. Refer to Note 1 to the accompanying notes to the Opening Balance sheet.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholder of DIANA CONTAINERSHIPS INC.

We have audited the accompanying balance sheet of Diana Containerships Inc. as of January 7, 2010. This balance sheet is the responsibility of the Company’s management. Our responsibility is to express an opinion on this balance sheet 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 the balance sheet is free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Diana Containerships Inc. at January 7, 2010, in conformity with U.S. generally accepted accounting principles.

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

Athens, Greece

January 13, 2010

(except for Notes 4 (a) through 4(e), as to which the date is May 6, 2010; Note 4(f), as to which the date is June 28, 2010; Note 4(h), as to which the date is August 2, 2010; and Notes 4(g) and 4(i), as to which the date is September 7, 2010)

 

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Diana Containerships Inc.

(a development stage enterprise)

Balance Sheet January 7, 2010 (inception date)

(Expressed in U.S. Dollars)

 

ASSETS

  

Cash

   $ 500   
        

Total assets

   $ 500   
        

SHAREHOLDER’S EQUITY:

  

Common shares, $0.01 par value; 500 shares authorized, issued and outstanding.

   $ 5   

Additional paid-in capital

     495   
        

Total shareholder’s equity

   $ 500   
        

The accompanying notes are an integral part of this balance sheet.

 

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Diana Containerships Inc.

(a development stage enterprise)

Notes to Balance Sheet January 7, 2010 (inception date)

(Expressed in United States Dollars)

1. General Information:

Diana Containerships Inc. (the “Company”), a development stage enterprise, 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 and until the date of its initial funding by its sole stockholder as discussed in Note 3 had no activities. The Company plans to engage in the seaborne transportation industry, initially, through the ownership and operation of containerships. The Company has not commenced operations, and therefore other than the capital contribution of $500 made by Diana Shipping Inc. has no assets and liabilities and has not generated any revenues from its planned principal operations since inception and, accordingly, is considered to be in the development stage as defined in Statement of Financial Accounting Standards Codification 915 “Development Stage Companies”. The Company’s expected fiscal year end will be on December 31.

2. Significant Accounting Policies:

The accompanying balance sheet has been prepared in accordance with U.S. generally accepted accounting principles. As the Company has not commenced its planned principal operations, significant accounting policies have not been selected as of the balance sheet date, except for:

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

3. Common Shares:

The Company’s authorized share capital consists of 500 common shares, par value $0.01 per share. On January 7, 2010, the Company issued 500 common shares at their par value to one shareholder.

4. Subsequent Events:

 

  (a) On April 6, 2010, the Company sold 5,892,330 shares of common stock in a private offering pursuant to Rule 144A and Regulation S and Regulation D of the Securities Act of 1933, as amended (the “Offering”), of which 3,333,333 common shares were acquired by Diana Shipping Inc., a related party and controlling shareholder of the Company. The net proceeds of the private offering amounted to $85,280,896 of which $50,000,000 were invested by Diana Shipping Inc.

 

  (b) Effective upon the closing of the private offering discussed under (a) above, the Company’s Articles of Incorporation and By-laws were amended and restated and its authorized share capital increased to 500,000,000 shares of common stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par value $0.01 per share.

 

  (c) In March 2010, the Company entered into Consultancy Agreements with companies controlled by its executive officers for the services to be provided by them, with an effective date of January 7, 2010. The aggregate annual consulting fee for the executive officers is $1,040,000 and will increase to $1,300,000 following the completion of an initial public offering.

 

  (d) On April 6, 2010, the Company adopted an equity incentive plan and reserved a total of 392,198 common shares for issuance thereunder, of which 213,331 common shares of restricted stock with a grant date fair value of $3,199,965 were issued to the Company’s executive officers, subject to applicable vesting as follows: (i) 25% vested on May 6, 2010; and (ii) the remaining shares vest ratably over three years by one-third each year.

 

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Diana Containerships Inc.

(a development stage enterprise)

Notes to Balance Sheet January 7, 2010 (inception date)—(Continued)

(Expressed in United States Dollars)

 

 

  (e) On April 6, 2010, the Company entered into an Administrative Services Agreement with Diana Shipping Services S.A. for a monthly fee of $10,000 and intends to enter into a Vessel Management Agreement with Diana Shipping Services S.A. for any vessel the Company agrees to acquire. The Company will pay a commission of 1% of the gross charterhire and freight earned by the vessel and a technical management fee of $15,000 per vessel per month for employed vessels and $20,000 per vessel per month for laid-up vessels.

 

  (f) On June 1, 2010, the Company terminated the Consultancy Agreements it had entered into with companies controlled by its executives and the services that were previously provided to the Company by the consultants are provided by DSS under the Administrative Services Agreement. DSS has appointed Diana Enterprises Inc., a related party controlled by the Company’s Chief Executive Officer and Chairman, Mr. Symeon Palios, as broker to assist it in providing services to the Company for the same amount ($1,040,000 per year to increase to $1,300,000 following the completion of an initial public offering).

 

  (g) On June 8, 2010, the Company, through its newly established wholly owned subsidiaries Likiep Shipping Company Inc., and Orangina Inc., entered into two Memoranda of Agreement for the purchase of two newbuilding containership vessels, Hull 558 (named Sagitta) and Hull 559 (named Centaurus) from a third-party seller, each with a carrying capacity of approximately 3,400 TEU, for a purchase price of Euro 37,300,000 per ship (or $44.5 million based on the Euro/Dollar exchange rate on June 8, 2010). On the same date the newly established subsidiaries entered into Vessel Management Agreements with DSS. On June 11, 2010, the Company paid a deposit of Euro 3,730,000 (or $4.5 million) for each vessel. The remaining purchase price of vessel Sagitta of Euro 33,570,000 or $41,123,075 (by using the exchange rate of Euro/US$ on the date of payment) was paid on June 29, 2010, when the vessel was delivered. On July 9, 2010 vessel Centaurus was delivered and the Company paid the remaining purchase price of Euro 33,570,000 or $42,697,430 (by using the exchange rate of Euro/US$ on the date of payment). The Company has entered into a charter for Sagitta with A.P. Møller-Maersk A/S for a minimum period of nine months and a maximum period of 12 months at a gross daily rate of $16,000. The Company has entered into a time charter for Centaurus with Hapag Lloyd AG, Hamburg for a minimum period of 30 days and a maximum period of 60 days at a gross daily rate of $8,400, and upon expiration of this time-charter the vessel was chartered to CSAV, Valparaiso for a period of 24 months plus or minus 45 days at a gross daily rate of $20,000.

 

  (h) On July 7, 2010, the Company, through Likiep and Orangina, entered into a loan agreement with DnB NOR Bank ASA to finance part of the acquisition cost of the vessels Sagitta and Centaurus, for an amount of up to $40,000,000. The loan is available till July 31, 2011 in two advances for each vessel with each advance not exceeding the lower of $10m and the 25% of the market value of the ship relevant to it. The repayment of the loan will be made in 24 quarterly installments of $165,000 for each advance and a balloon of $6,040,000 payable together with the last installment. The loan bears interest at LIBOR plus a margin of 2.40% per annum. An arrangement fee of $400,000 was paid on signing the facility agreement. The loan bears also commitment fees of 0.96% per annum, on any undrawn portion.

The loan is secured by a first preferred ship mortgage on the vessels, general assignments, charter assignments, operating account assignments, a corporate guarantee, manager’s undertakings and a swap assignment. The lender may also require additional security in the future in the event the Company is in breach of certain covenants including restrictions as to changes in management and ownership of the vessel, additional indebtedness, a consolidated leverage ratio of not more than 70%, as well as minimum requirements regarding hull cover ratio (vessels’ market values at least 125% of

 

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Diana Containerships Inc.

(a development stage enterprise)

Notes to Balance Sheet January 7, 2010 (inception date)—(Continued)

(Expressed in United States Dollars)

 

the aggregate of the loan) and minimum liquidity of 4% of the funded debt. Furthermore, the Company is not permitted to pay any dividends that would result to an event of default.

On July 9, 2010, the Company drew down two advances of $10,000,000 each under the loan agreement with DnB, to partly finance the acquisition cost of Sagitta and Centaurus.

 

  (i) On August 2, 2010, we entered into a stockholders rights agreement (the “Stockholders Rights Agreement”), with Mellon Investor Services LLC as Rights Agent. Pursuant to this Stockholders Rights Agreement, each share of our common stock includes one right (the “Right”) that will entitle the holder to purchase from us a unit consisting of one one-thousandth of a share of our preferred stock at an exercise price specified in the Stockholders Rights Agreement, subject to specified adjustments. Until a Right is exercised, the holder of a Right will have no rights to vote or receive dividends or any other stockholder rights.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Consolidated Balance Sheet as at June 30, 2010 (Unaudited)

(Expressed in U.S. Dollars)

 

ASSETS

  

CURRENT ASSETS:

  

Cash and cash equivalents (Note 2)

   $ 34,583,321  

Accounts receivable, trade, net

     342,343  

Inventories

     297,379  

Prepaid expenses

     230,293  
        

Total current assets

     35,453,336  
        

FIXED ASSETS:

  

Advances for vessel acquisitions and other vessel costs (Note 4)

     4,531,915  
        

Vessels (Note 5)

     45,936,779  

Accumulated depreciation (Note 5)

     (7,886
        

Net book value

     45,928,893  
        

Total fixed assets

     50,460,808  
        

Total assets

   $ 85,914,144  
        

LIABILITIES AND SHAREHOLDER’S EQUITY

  

CURRENT LIABILITIES:

  

Accounts payable trade and other

   $ 1,000,724  

Accrued liabilities

     382,953  

Due to related parties (Note 3)

     255,747  
        

Total current liabilities

     1,639,424  
        

SHAREHOLDERS’ EQUITY:

  

Common shares, $0.01 par value; 500,000,000 shares authorized; 6,106,161 issued and outstanding (Note 8)

     61,062  

Additional paid-in capital (Note 8)

     86,148,734  

Accumulated Deficit

     (1,935,076
        

Total shareholder’s equity

     84,274,720  
        

Total liabilities and shareholder’s equity

   $ 85,914,144  
        

The accompanying notes are an integral part of these financial statements.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Unaudited Consolidated Statement of Income for the period from January 7, 2010 (date of inception) through June 30, 2010

(Expressed in U.S. Dollars)

 

REVENUES:

  

Voyage and time charter revenues

   $ 1,322  

EXPENSES:

  

Voyage expenses

     (25,114

Vessel operating expenses

     (375,549 )

Depreciation

     (7,886 )

Management fees

     (23,000

General administrative expenses (Notes 3 and 7)

     (1,789,977 )

Foreign currency gains

     242,490   
        

Operating loss

   $ (1,977,714
        

OTHER INCOME

  

Interest income

     42,638  
        

Net loss

   $ (1,935,076
        

Loss per common share, basic and diluted

   $ (0.67
        

Weighted average number of common shares, basic and diluted

     2,875,722  
        

The accompanying notes are an integral part of these financial statements.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Unaudited Consolidated Statement of Shareholders’ Equity for the period from January 7, 2010

(date of inception) through June 30, 2010

(Expressed in U.S. Dollars)

 

    Comprehensive
Loss
    Common Stock     Additional
Paid-in
Capital
    Accumulated
Deficit
    Total  
      # of
Shares
    Par
Value
       

-Net loss

    (1,935,076     —          —          —          (1,935,076     (1,935,076

-Issuance of common stock at $1.0 per share

      500       5       495       —          500  

-Issuance of common stock at $15.0 per share, net of issuance costs

      5,892,330       58,924       85,221,972       —          85,280,896  

-Issuance of restricted common stock, at $15.0 per share

      213,331       2,133       926,267       —          928,400  
                 

Comprehensive Loss

  $ (1,935,076          
                                               

BALANCE, June 30, 2010

      6,106,161     $ 61,062     $ 86,148,734     $ (1,935,076   $ 84,274,720  
                                         

The accompanying notes are an integral part of these financial statements.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Unaudited Consolidated Statement of Cash Flows for the period from January 7, 2010 (date of inception) through June 30, 2010

(Expressed in U.S. Dollars)

 

Net loss

   $ (1,935,076

Adjustments to reconcile net income to net cash from operating activities:

  

Depreciation

     7,886  

Effect of exchange rate changes on cash

     (241,589

Issuance of restricted common stock at $15.0 per share

     928,400  

(Increase) Decrease in:

  

Accounts receivable, trade

     (342,343

Inventories

     (297,379

Prepaid Expenses

     (230,293

Increase (Decrease) in:

  

Accounts payable, trade and other

     1,000,724  

Accrued liabilities

     382,953  

Due to related parties

     255,747  
        

Net Cash used in Operating Activities

     (470,970
        

Cash Flows used in Investing Activities:

  

Advances for vessel acquisitions and other vessel costs

     (4,531,915

Vessel acquisitions and other vessel costs

     (45,936,779
        

Net Cash used in Investing Activities

     (50,468,694
        

Cash Flows from Financing Activities:

  

Issuance of common stock, net of issuance costs

     85,281,396  
        

Net Cash from Financing Activities

     85,281,396  
        

Effect of exchange rate changes on cash

     241,589  
        

Net increase in cash and cash equivalents

     34,583,321  
        

Cash and cash equivalents at end of period

   $ 34,583,321  
        

The accompanying notes are an integral part of these financial statements.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements

June 30, 2010

(Expressed in US Dollars)

1. General Information

Diana Containerships Inc. (the “Company”), a development stage enterprise, 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. In April 2010, the Company’s articles of incorporation and bylaws were amended. Under the amended articles of incorporation, the Company’s authorized share capital increased from 500 common shares to 500.0 million of common shares at par value $0.01 and 25.0 million of preferred shares at par value $0.01. On April 6, 2010, the Company completed a private offering under rule 144A and Regulation S and Regulation D of the Securities Act of 1933, as amended, the net proceeds of which amounted to $85,280,896.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the period presented. Operating results for the period from January 7, 2010 (date of inception) through June 30, 2010 are not necessarily indicative of the results that might be expected for the period ending December 31, 2010.

As at June 30, 2010, the Company had commenced operations and had started to generate revenues from its planned principal operations. The Company is considered to be in the development stage as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 “Development Stage Companies”, as revenues generated from its planned principal operations are insignificant.

The Company is engaged in the seaborne transportation industry through the ownership and operation of containerships and is the sole owner of all outstanding shares of the following subsidiaries, each incorporated in the Marshall Islands:

 

  (a) Likiep Shipping Company Inc. (“Likiep”), owner of the Marshall Islands flag, 3,426 TEU capacity container vessel, “Sagitta”, which was built and delivered on June 29, 2010 (Note 5).

 

  (b) Orangina Inc. (“Orangina”), in June 2010, entered into a memorandum of agreement with a third party company for the acquisition of a 3,426 TEU capacity, newbuilding container vessel Hull 559, “Centaurus”, which was delivered on July 9, 2010 (Notes 4 and 11).

2. Significant Accounting Policies

 

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

 

  (b) Use of Estimates: The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

  (c) Other Comprehensive Income: 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 has no such transactions which affect comprehensive income/(loss) and, accordingly for the period ended June 30, 2010 comprehensive loss equals net loss.

 

  (d) Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar because the Company intends to operate its vessels in international shipping markets, and therefore primarily transact business in U.S. Dollars. The Company’s books of accounts are maintained in U.S. Dollars. Transactions involving other currencies during the period presented are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet date, 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 statement of income.

 

  (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) Accounts Receivable, Trade, net: 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.

 

  (g) 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 cut-off date a vessel has been redelivered by its previous charterers and / or has not yet been delivered to the new ones, 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.

 

  (h) 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 (initial repairs, improvements, delivery expenses, interest and on-site supervision costs incurred during the construction periods). 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.

 

  (i) Vessel Depreciation: The Company depreciates 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 the Company believes is also consistent with that of other shipping companies. Second-hand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Depreciation is based on costs less the estimated residual scrap value. Furthermore, the residual values of the vessels is $200 per light-weight ton. A decrease in the useful life of a containership or in its residual 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 will be adjusted at the date such regulations are adopted.

 

  (j)

Impairment of Long-Lived Assets: The Company reviews vessels for impairment whenever events or changes in circumstances indicate that the currying amount of a vessel may not be recoverable. In evaluating useful lives and carrying values of long-lived assets, management reviews certain indicators of

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. The current economic and market conditions, including the significant disruptions in the global credit markets, are having broad effects on participants in a wide variety of industries. When the estimate of future undiscounted net operating cash flows, excluding interest charges, expected to be generated by the use of the vessel over its remaining useful life and its eventual disposition is less than its 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 taking into consideration third party valuations.

When testing for impairment the Company determines future undiscounted net operating cash flows for each vessel and compares them to the vessel’s carrying value. The future undiscounted net operating cash flows are determined by considering the charter revenues from existing charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days (based on the most recent ten-year blended (for modern and older vessels) average historical one-year time charter rates available for each type of vessel) 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 2.5%. Effective fleet utilization is assumed at 98%, taking into account the period(s) each vessel is expected to undergo her scheduled maintenance (drydocking and special surveys), as well as an estimate of 1% off hire days each year, assumptions in line with the Company’s expectations for future fleet utilization under its current fleet deployment strategy.

 

  (k) Accounting for Revenues and Expenses: Revenues are generated from charter agreements. Charter agreements with the same charterer are accounted for as separate agreements according to the terms and conditions of each agreement. Revenues are recorded when they become fixed and determinable at the reporting date. Revenues from time charter agreements providing for varying annual rates over their term will be 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 will be recognized in the period earned. Deferred revenue will include 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 will be accounted for on a straight line basis. Deferred revenue also may include the unamortized balance of liabilities associated with the acquisition of second hand vessels with time charters attached, acquired at values below fair 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 has been deferred since commissions are earned as revenues are earned.

 

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

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

  (m) Accounting for Dry-Docking Costs : The Company will follow the deferral method of accounting for dry-docking costs whereby actual costs incurred will be 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 will be written off and included in the calculation of the resulting gain or loss in the year of the vessel’s sale.

 

  (n) 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 will 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 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 will be 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.

 

  (o) Variable Interest Entities: ASC 850-10-50 “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.

3. Transactions with Related Parties

Diana Shipping Services S.A. (“DSS” or the “Manager”): DSS, a wholly owned subsidiary of Diana Shipping Inc. (or “DSI”), the Company’s principal shareholder, provides (i) administrative services under an Administrative Services Agreement, for a monthly fee of $10,000; (ii) brokerage services pursuant to a Broker Services Agreement that DSS has entered into with Diana Enterprises Inc., a related party controlled by the Company’s Chief Executive Officer and Chairman Mr. Symeon Palios, for annual fees of $1,040,000 (to increase to $1,300,000 following the completion of an initial public offering); (iii) commercial and technical services pursuant to Vessel Management Agreements, signed between each shipowning company and DSS, under which

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

the Company pays a commission of 1% of the gross charterhire and freight earned by each vessel and a technical management fee of $15,000 per vessel per month for employed vessels and $20,000 per vessel per month for laid-up vessels.

For the period from January 7, 2010 (date of inception) through June 30, 2010, management fees under the Vessel Management Agreements amounted to $23,000 and are included in Management fees in the accompanying consolidated statement of income.

For the period from January 7, 2010 (date of inception) through June 30, 2010, administrative expenses and brokerage services amounted to $28,000 and $86,667, respectively, and are included in General and administrative expenses in the accompanying consolidated statement of income. As at June 30, 2010, an amount of $209,911 was due to DSS, for payments made by DSS on behalf of the Company, and is included in Due to related parties in the accompanying consolidated balance sheet while an amount of $173,333, representing a prepayment made to Diana Enterprises for brokerage services, is included in prepaid expenses in the accompanying consolidated balance sheet.

4. Advances for Vessels Construction and Acquisition and Other Vessel Costs

On June 8, 2010 the Company, through its wholly owned subsidiary Orangina Inc., entered into a memorandum of agreement with a third party company, to acquire Hull 559, named Centaurus, for the purchase price of Euro 37,300,000. On June 11, 2010, the Company paid Euro 3.73 million, or $4,528,238 (by using the exchange rate of Euro/US$ on the date of payment), representing an advance of 10% of the purchase price. The balance of the purchase price was paid on July 9, 2010 when the vessel was delivered (Note 11). Other related costs included in the accompanying consolidated balance sheet amount to $3,678.

5. Vessels

On June 8, 2010 the Company, through its wholly owned subsidiary Likiep Shipping Company Inc., entered into a memorandum of agreement with a third party company, to acquire Hull 558, named Sagitta for the purchase price of Euro 37,300,000. On June 11, 2010, the Company paid Euro 3.73 million, or $4,528,238 (by using the exchange rate of Euro/US$ on the date of payment), representing an advance of 10% of the purchase price as per the relevant agreement. The balance of the acquisition cost of Euro 33,570,000, or $41,123,075 (by using the exchange rate of Euro/US$ on the date of payment) was paid on June 29, 2010, when the vessel was delivered. The total cost of the vessel was $45,936,779 including $285,466 of additional costs incurred to bring the vessel to operating condition.

 

     Vessel Cost      Accumulated
Depreciation
    Net Book
Value
 
       

-Acquisition and other vessel costs

     45,936,779        —          45,936,779  

-Depreciation for the year

     —           (7,886     (7,886
                         

Balance, June 30, 2010

     45,936,779        (7,886     45,928,893  
                         

As of June 30, 2010, the vessel was operating under a time charter agreement expiring between April and July 2011 at a gross daily rate of $16,000.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

6. Contingencies

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. Up to $1 billion of the liabilities associated with the individual vessels’ actions, mainly for sea pollution, are covered by the Protection and Indemnity (P&I) Club insurance.

7. Consultancy Agreements

On March 29, 2010, the Company entered into consultancy agreements with companies controlled by its executive officers for the services to be provided by them, with an effective date of January 7, 2010. The aggregate annual consulting fee for the executive officers was $1,040,000 (to increase to $1,300,000 following the completion of an initial public offering).

On June 1, 2010, the Company terminated the Consultancy Agreements it had entered into with companies controlled by its executives and the services that were previously provided to the Company by the consultants are provided by DSS under the Administrative Services Agreement. For the period from January 7, 2010 (date of inception) through June 1, 2010, consultancy fees amounted $418,889, and are included in General and administrative expenses in the accompanying consolidated statement of income.

8. Change in capital accounts

 

  (a) On April 6, 2010, the Company sold 5,892,330 shares of common stock in a private offering pursuant to Rule 144A and Regulation S and Regulation D of the Securities Act of 1933, as amended (the “Offering”), of which 3,333,333 common shares were acquired by Diana Shipping Inc., a related party and controlling shareholder of the Company. The net proceeds of the private offering amounted to $85,280,896 of which $50,000,000 related to purchases of the Company’s shares by Diana Shipping Inc. Effective upon the closing of the private offering, the Company’s Articles of Incorporation and By-laws were amended and restated, and its authorized share capital increased to 500,000,000 shares of common stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par value $0.01 per share.

 

  (b) On April 6, 2010, the Company adopted an equity incentive plan and reserved a total of 392,198 common shares for issuance, of which 213,331 common shares of restricted stock with a grant date fair value of $3,199,965 were issued to the Company’s executive officers, subject to applicable vesting as follows: (i) 25% vested on May 6, 2010; and (ii) the remaining shares vest ratably over three years by one-third each year.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

The aggregate compensation cost is being recognized ratably in the consolidated statement of income over the respective vesting periods. During the period from January 7, 2010 (date of inception) through June 30, 2010, an amount of $928,400 was recognized in General and administrative expenses. At June 30, 2010, the total unrecognized cost relating to restricted share awards was $2,271,565; 53,335 were vested, and the weighted-average period over which the total compensation cost related to non-vested awards not yet recognized is expected to be recognized is 3 years.

9. Loss per Share

All shares issued (including the restricted shares issued under the Company’s equity incentive plan) are the Company’s common stock and have equal rights to vote and participate in dividends, subject to forfeiture provisions set forth in the applicable award agreement. The calculation of basic earnings/loss per share does not consider the non-vested shares as outstanding until the time-based vesting restriction has lapsed. The Company has not declared any dividends through the period ended June 30, 2010.

For the period ended June 30, 2010, the weighted average number of diluted shares outstanding would have included 4,284 shares, being the incremental shares assumed issued under the treasury stock method weighted for the period the non-vested shares were outstanding. However, as the Company incurred losses from continuing operations in the period, the effect of such incremental shares would be anti-dilutive and therefore, basic and diluted losses per share are the same amount.

10. 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.

11. Subsequent Events

 

  (a) Loan agreement : On July 7, 2010, the Company, through Likiep and Orangina, entered into a loan agreement with DnB NOR Bank ASA to finance part of the acquisition cost of the vessels Sagitta and Centaurus, for an amount of up to $40,000,000. The loan is available till July 31, 2011 in two advances for each vessel with each advance not exceeding the lower of $10m and the 25% of the market value of the ship relevant to it. The repayment of the loan will be made in 24 quarterly instalments of $165,000 for each advance and a balloon of $6,040,000 payable together with the last instalment. The loan bears interest at LIBOR plus a margin of 2.40% per annum. An arrangement fee of $400,000 was paid on signing the facility agreement. The loan bears also commitment fees of 0.96% per annum, on any undrawn portion.

The loan is secured by a first preferred ship mortgage on the vessels, general assignments, charter assignments, operating account assignments, a corporate guarantee, manager’s undertakings and a swap assignment. The lender may also require additional security in the future in the event the Company is in breach of certain covenants including restrictions as to changes in management and ownership of the vessel, additional indebtedness, a consolidated leverage ratio of not more than 70%, as well as minimum requirements regarding hull cover ratio (vessels’ market values at least 125% of the aggregate of the loan) and minimum liquidity of 4% of the funded debt. Furthermore, the Company is not permitted to pay any dividends that would result to an event of default.

 

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DIANA CONTAINERSHIPS INC.

(a development stage enterprise)

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2010

(Expressed in US Dollars)

 

 

  (b) Vessel delivery and loan drawdown : On July 9, 2010, the Company took delivery of Hull 599, or Centaurus, for a total cost of $47,225,667. On the same date, the Company drew down two advances of $10,000,000 each from the loan facility described in (a) above, to partly finance the acquisition cost of Sagitta and Centaurus.

 

  (c) Stockholders Rights Agreement : On August 2, 2010, we entered into a stockholders rights agreement (the “Stockholders Rights Agreement”) with Mellon Investor Services LLC as Rights Agent. Pursuant to this Stockholders Rights Agreement, each share of our common stock includes one right (the “Right”) that will entitle the holder to purchase from us a unit consisting of one one-thousandth of a share of our preferred stock at an exercise price specified in the Stockholders Rights Agreement, subject to specified adjustments. Until a Right is exercised, the holder of a Right will have no rights to vote or receive dividends or any other stockholder rights.

 

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Table of Contents

 

 

ISSUER

Diana Containerships Inc.

Pendelis 16, 175 64 Palaio Faliro

Athens, Greece

EXCHANGE AGENT AND TRANSFER AGENT

BNY Mellon Shareowner Services

By Facsimile Transmission (for Eligible Institutions only): 201-680-4626

Confirm by Telephone: 201-680-4860

 

By Mail:    By Hand or Overnight Courier:

BNY Mellon Shareowner Services

Corporate Action Department

PO Box 3301

South Hackensack, NJ 07606

  

BNY Mellon Shareowner Services

Corporate Action Department

480 Washington Blvd., 27th Fl

Jersey City, NJ 07310

For Information Call:

1-800-777-3674 for calls within the U.S., Canada and Puerto Rico or

201-680-6579 for calls outside of the U.S., Canada and Puerto Rico

Until                     , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

 


Table of Contents

 

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 20. Indemnification of Directors and Officers

 

I. Article VIII of the Amended and Restated Bylaws of the of the Registrant provides as follows:

 

  1. Any person who is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another, partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by the Corporation upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the BCA, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Corporation shall have the power to pay in advance expenses a director or officer incurred while defending a civil or criminal proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that he or she is not entitled to indemnification under this section.

 

  2. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of these Bylaws.

 

II. Section 60 of the Associations Law of the Republic of the Marshall Islands provides as follows:

 

  1. Actions not by or in right of the corporation . A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of no contest, or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the bests interests of the corporation, and, with respect to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful.

 

  2.

Actions by or in right of the corporation . A corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claims, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the

 

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adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

 

  3. When director or officer successful . To the extent that a director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (1) or (2) of this section, or in the defense of a claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

 

  4. Payment of expenses in advance . Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section.

 

  5. Indemnification pursuant to other rights . The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

 

  6. Continuation of indemnification . The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

  7. Insurance . A corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer against any liability asserted against him and incurred by him in such capacity whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section.

 

Item 21. Exhibits and Financial Statement Schedules

 

(a) Exhibits

The exhibits filed as part of this registration statement are listed in the index to exhibits immediately preceding such exhibits, which index to exhibits is incorporated herein by reference.

 

(b) Financial Statements

The financial statements filed as part of this registration statement are listed in the index to the financial statements immediately preceding such financial statements, which index to the financial statements is incorporated herein by reference.

 

Item 22. Undertakings

The undersigned registrant hereby undertakes:

 

  (a) Under Rule 415 of the Securities Act,

 

  (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

  (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

  (ii)

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which,

 

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individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

  (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

  (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

  (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

  (4) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided , that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Securities Act of 1933 or Rule 3-19 under the Securities Act of 1933 if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.

 

  (b)-(g) Not applicable.

 

  (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

  (i)-(l) Not applicable.

The undersigned registrant hereby undertakes: (i) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means, and (ii) to arrange or provide for a facility in the United States for the purpose of responding to such

 

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requests. The undertaking in subparagraph (i) above includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of post-effective amendment all information concerning a transaction and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Athens, Greece, on October 15, 2010.

 

DIANA CONTAINERSHIPS INC.
By:  

/ S /    S YMEON P ALIOS        

Name:     Symeon Palios
Title:   Director, Chief Executive Officer and Chairman of the Board

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Gary J. Wolfe, Robert E. Lustrin and Edward S. Horton his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and any related registration statement filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Name

  

Position

 

Date

/ S /    S YMEON P ALIOS        

Symeon Palios

  

Chief Executive Officer, Chairman and Director (principal executive officer)

  October 15, 2010

/ S /     A NDREAS M ICHALOPOULOS        

Andreas Michalopoulos

  

Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)

  October 15, 2010

/ S /    A NASTASIOS M ARGARONIS        

Anastasios Margaronis

  

Director and President

  October 15, 2010

/ S /    I OANNIS Z AFIRAKIS        

Ioannis Zafirakis

  

Director, Chief Operating Officer and Secretary

  October 15, 2010

/ S /    K ONSTANTINOS F OTIADIS        

Konstantinos Fotiadis

  

Director

  October 15, 2010

/ S /    A NTONIOS K ARAVIAS        

Antonios Karavias

  

Director

  October 15, 2010

/ S /    N IKOLAOS P ETMEZAS        

Nikolaos Petmezas

  

Director

  October 15, 2010

/ S /    R EIDAR B REKKE        

Reidar Brekke

  

Director

  October 15, 2010

 

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AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative of the Registrant in the United States, has signed this registration statement in the City of Athens, Country of Greece, October 15, 2010.

 

BULK CARRIERS (USA) LLC

BY:

  Diana Shipping Inc., its Sole Member

By:

 

/s/    I OANNIS Z AFIRAKIS        

  Ioannis Zafirakis
  Director, Executive Vice President and Secretary Authorized Representative in the United States

 

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EXHIBIT INDEX

 

Number

  

Description of Exhibit

  3.1    Amended and Restated Articles of Incorporation of the Company
  3.2    Amended and Restated Bylaws of the Company
  4.1    Form of Share Certificate
  4.2    Registration Rights Agreement dated April 6, 2010 by and among the Company, FBR Capital Markets & Co. and Diana Shipping Inc.
  4.3    Stockholders Rights Agreement, dated August 2, 2010 by and between the Company and Mellon Investor Services LLC
  4.4    Statement of Designations of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Diana Containerships Inc., dated August 2, 2010.
  5.1    Form of Legality Opinion of Seward & Kissel LLP
  8.1    Tax Opinion of Seward & Kissel LLP
10.1    2010 Equity Incentive Plan
10.2    Administrative Services Agreement
10.3    Broker Services Agreement
10.4    Form of Vessel Management Agreement
10.5    Non-competition Agreement with Diana Shipping Inc.
10.6    Loan Agreement, dated July 7, 2010, by and between Likiep Shipping Company Inc. and Orangina Inc., as Borrowers, and DnB NOR Bank ASA
21.1    List of Subsidiaries
23.1    Consent of Independent Registered Public Accounting Firm (Ernst & Young (Hellas))
23.2    Consent of Drewry Shipping Consultants Ltd.
24    Power of Attorney(1)
99.1    Form of Letter of Transmittal
99.2    Form of Notice of Guaranteed Delivery
99.3    Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
99.4    Form of Letter to Clients

 

(1) Contained on the signature page hereto.

 

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EXHIBIT 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

DIANA CONTAINERSHIPS INC.

UNDER SECTION 93 OF THE

THE MARSHALL ISLANDS BUSINESS CORPORATIONS ACT

The undersigned, Symeon Palios, as the Chief Executive Officer of Diana Containerships Inc., a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010 (the “Corporation”), for the purpose of amending and restating the Articles of Incorporation of said Corporation pursuant to section 93 of the Business Corporations Act, as amended, hereby certifies that:

 

  1. The name of the Corporation is: Diana Containerships Inc.

 

  2.

The Articles of Incorporation were filed with the Registrar of Corporations on the 7 th day of January, 2010.

 

  3.

The Articles of Incorporation were amended and restated in their entirety and filed with the Registrar of Corporations on the 19th day of February, 2010 and further amended and restated in their entirety and filed with the Registrar of Corporations on the 4 th of March, 2010.

 

  4. The Corporation’s total capital stock issued and outstanding is 500 registered shares, par value $0.01.

 

  5. The Articles of Incorporation are amended and restated in their entirety and are replaced by the Amended and Restated Articles of Incorporation attached hereto.

 

  6. These Amended and Restated Articles of Incorporation were authorized by actions of the Board of Directors and Shareholders of the Corporation.

IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated Articles of Incorporation this 1st day of April, 2010.

 

/s/ Symeon Palios

Authorized Person
Name:   Symeon Palios
Title:   Chief Executive Officer


 

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

DIANA CONTAINERSHIPS INC.

PURSUANT TO THE MARSHALL ISLANDS BUSINESS CORPORATION ACT

 

  A. The name of the Corporation shall be:

DIANA CONTAINERSHIPS INC.

 

  B. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act (the “BCA”) and without in any way limiting the generality of the foregoing, the corporation shall have the power:

(1) To purchase or otherwise acquire, own, use, operate, pledge, hypothecate, mortgage, lease, charter, sub-charter, sell, build, and repair steamships, motorships, tankers, whaling vessels, sailing vessels, tugs, lighters, barges, and all other vessels and craft of any and all motive power whatsoever, including landcraft, and any and all means of conveyance and transportation by land or water, together with engines, boilers, machinery equipment and appurtenances of all kinds, including masts, sails, boats, anchors, cables, tackle, furniture and all other necessities thereunto appertaining and belonging, together with all materials, articles, tools, equipment and appliances necessary, suitable or convenient for the construction, equipment, use and operation thereof; and to equip, furnish, and outfit such vessels and ships.

(2) To engage in ocean, coastwise and inland commerce, and generally in the carriage of freight, goods, cargo in bulk, passengers, mail and personal effects by water between the various ports of the world and to engage generally in waterborne commerce.

(3) To purchase or otherwise acquire, own, use, operate, lease, build, repair, sell or in any manner dispose of docks, piers, quays, wharves, dry docks, warehouses and storage facilities of all kinds, and any property, real, personal and mixed, in connection therewith.

(4) To act as charterers, or chartering brokers, or shipbuilding/shiprepairing brokers or ship’s sale and purchase brokers, ship’s husband, customhouse brokers, ship’s agents, manager of shipping property, freight contractors, forwarding agents, warehousemen, wharfingers, ship chandlers, and general traders.

 

  C.

The registered address of the Corporation in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960. The name of the Corporation’s registered agent at such address is The Trust ` Company of the Marshall Islands, Inc.

 

  D. The aggregate number of shares of stock that the Corporation is authorized to issue is Five Hundred Twenty-Five Million (525,000,000) registered shares, of which Five Hundred Million (500,000,000) shall be designated common shares with a par value of one United States cent (US $0.01) per share, and Twenty Five Million (25,000,000) shall be designated preferred shares with a par value of one United States cent (US $0.01) per share. The Board of Directors shall have the authority to authorize the issuance from time to time of one or more classes of preferred shares with one or more series within any class thereof, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or special rights and qualifications, limitations or restrictions thereon as shall be set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such preferred shares.

 

  E. The Corporation shall have every power which a corporation now or hereafter organized under the BCA may have.


 

  F. The name and address of the incorporator is:

 

Name    Post Office Address
Majuro Nominees Ltd.    P.O. Box 1405
   Majuro
   Marshall Islands

 

  G. Following the completion of the offering and sale of the Corporation’s common shares pursuant to Rule 144A, Regulation S and Regulation D to be completed on or around April 6, 2010 and prior to the completion of an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, in the event that the Corporation shall issue common shares, other than pursuant to the Corporation’s 2010 Equity Incentive Plan (such transaction, a “New Issuance”), shareholders shall have the right, but not the obligation, to purchase a number of shares of common stock such that such holder’s beneficial ownership percentage of the Corporation’s common stock prior to such New Issuance shall be equal to such holder’s beneficial ownership percentage of the Corporation’s common stock following such New Issuance, at the same purchase price per share to be paid by purchasers in the New Issuance. Except as provided above, no holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive rights to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. For purposes of this Article G, “beneficial ownership” shall be calculated in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended.

 

  H. Corporate existence commenced on January 7, 2010 and shall continue upon filing these Amended and Restated Articles of Incorporation with the Registrar of Corporations as of the filing date stated herein.

 

  I. (a) The number of directors constituting the entire Board of Directors shall be not less than three, as fixed from time to time by the vote of not less than two-thirds of the entire Board of Directors; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. The phrase “two-thirds of the entire Board of Directors” as used in these Articles of Incorporation shall be deemed to refer to two-thirds of the number of directors constituting the Board of Directors as provided in or pursuant to this Section (a) of this Article I, without regard to any vacancies then existing.

(b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board of Directors permits, with the term of office of one or another of the three classes expiring each year. As soon as practicable after the filing of these Amended and Restated Articles of Incorporation with the Registrar of Corporations responsible for non-resident corporations, the shareholders of the Corporation shall divide the Board of Directors into three classes, with the term of office of the first class to expire at the 2011 Annual Meeting of Shareholders, the term of office of the second class to expire at the 2012 Annual Meeting of Shareholders and the term of office of the third class to expire at the 2013 Annual Meeting of Shareholders. Commencing with the 2011 Annual Meeting of Shareholders, the directors elected at an annual meeting of shareholders to succeed those whose terms then expire shall be identified as being directors of the same class as the directors whom they succeed, and each of them shall hold office until the third succeeding annual meeting of shareholders and until such director’s successor is elected and has qualified. Any vacancies in the Board of Directors for any reason, and any created directorships resulting from any increase in the number of directors, may be filled by the vote of not less than a majority of the members of the Board of Directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next


election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of preferred stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the then authorized number of directors shall be increased by the number of directors so to be elected, and the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of shareholders.

(c) Except as provided in Article III Section 13 of the bylaws of the Corporation, notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of two-thirds or more of the issued and outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of preferred stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of this Section (c) of this Article I shall not apply with respect to the director or directors elected by such holders of preferred stock.

(d) Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Cumulative voting, as defined in Division 7, Section 71(2) of the BCA, shall not be used to elect directors.

(e) Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the affirmative vote of the holders of two-thirds or more of the outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article I.

 

  J. The bylaws of the Corporation may not be amended by shareholders and may be amended only in accordance with the amendment provisions of the bylaws. The affirmative vote of the holders of two-thirds or more of the outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article J.

 

  K. (a) The Corporation may not engage in any Business Combination with any Interested Shareholder for a period of three years following the time of the transaction in which the person became an Interested Shareholder, unless:

(1) prior to such time, the Board of Directors of the Corporation approved either the Business Combination or the transaction which resulted in the shareholder becoming an Interested Shareholder;

(2) upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, the Interested Shareholder owned at least 85% of the voting stock of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

(3) at or subsequent to such time, the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested shareholder; or


 

(4) the shareholder became an Interested Shareholder prior to the consummation of the initial public offering of the Corporation’s common stock under the United States Securities Act of 1933, as amended.

 

  (b) The restrictions contained in this section shall not apply if:

(1) A shareholder becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the shareholder ceases to be an Interested Shareholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between the Corporation and such shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or

(2) The Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an Interested Shareholder during the previous three years or who became an Interested Shareholder with the approval of the Board; and (iii) is approved or not opposed by a majority of the members of the Board then in office (but not less than one) who were Directors prior to any person becoming an Interested Shareholder during the previous three years or were recommended for election or elected to succeed such Directors by a majority of such Directors. The proposed transactions referred to in the preceding sentence are limited to:

(i) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to the BCA, no vote of the shareholders of the Corporation is required);

(ii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly-owned subsidiary or to the Corporation) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding shares; or

(iii) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of the Corporation.

The Corporation shall give not less than 20 days notice to all Interested Shareholders prior to the consummation of any of the transactions described in clause (i) or (ii) of the second sentence of this paragraph.

 

  (c) For the purpose of this Article K only, the term:

(1) “Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.

(2) “Associate,” when used to indicate a relationship with any person, means: (i) Any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 15% or more of any class of voting shares; (ii) any trust or other estate in which such person has at least a 15% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.


 

(3) “Business Combination,” when used in reference to the Corporation and any Interested Shareholder of the Corporation, means:

(i) Any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation with (A) the Interested Shareholder or any of its affiliates, or (B) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder.

(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of the Corporation, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding shares;

(iii) Any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any shares, or any share of such subsidiary, to the Interested Shareholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which securities were outstanding prior to the time that the Interested Shareholder became such; (B) pursuant to a merger with a direct or indirect wholly-owned subsidiary of the Corporation solely for purposes of forming a holding company; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which security is distributed, pro rata to all holders of a class or series of shares subsequent to the time the Interested Shareholder became such; (D) pursuant to an exchange offer by the Corporation to purchase shares made on the same terms to all holders of said shares; or (E) any issuance or transfer of shares by the Corporation; provided however, that in no case under items (C)-(E) of this subparagraph shall there be an increase in the Interested Shareholder’s proportionate share of the any class or series of shares;

(iv) Any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, or shares of any such subsidiary, or securities convertible into such shares, which is owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the Interested Shareholder; or

(v) Any receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of the Corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subparagraphs (i)-(iv) of this paragraph) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.

(4) “Control,” including the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract or otherwise. A person who is the owner of 15% or more of the outstanding voting shares of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting shares, in good faith and not for the purpose of circumventing this provision, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.

(5) “Interested Shareholder” means any person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of 15% or more of the outstanding voting shares of the Corporation, or (ii) is an affiliate or associate of the Corporation and was the owner of 15% or more of the outstanding voting shares of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Shareholder; and the affiliates and associates of such person; provided, however, that the term “Interested Shareholder” shall not include (i) any person whose ownership of shares in excess of the 15%


limitation set forth herein is the result of action taken solely by the Corporation; provided that such person shall be an Interested Shareholder if thereafter such person acquires additional shares of voting shares of the Corporation, except as a result of further Company action not caused, directly or indirectly, by such person and (ii) Diana Shipping Inc. For the purpose of determining whether a person is an Interested Shareholder, the voting shares of the Corporation deemed to be outstanding shall include voting shares deemed to be owned by the person through application of paragraph (8) below, but shall not include any other unissued shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

(6) “Person” means any individual, corporation, partnership, unincorporated association or other entity.

(7) “Voting stock” means, with respect to any corporation, shares of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity.

(8) “Owner,” including the terms “own” and “owned,” when used with respect to any shares, means a person that individually or with or through any of its affiliates or associates:

(i) Beneficially owns such shares, directly or indirectly; or

(ii) Has (A) the right to acquire such shares (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the owner of shares tendered pursuant to a tender or exchange offer made by such person or any of such person’s affiliates or associates until such tendered shares is accepted for purchase or exchange; or (B) the right to vote such shares pursuant to any agreement, arrangement or understanding; provided, however, that a person shall not be deemed the owner of any shares because of such person’s right to vote such shares if the agreement, arrangement or understanding to vote such shares arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more persons; or

(iii) Has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (B) of subparagraph (ii) of this paragraph), or disposing of such shares with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such shares.

(d) Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the affirmative vote of the holders of two-thirds or more of the outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article K.

L. At all meetings of shareholders of the Corporation, except as otherwise expressly provided by law, there must be present either in person or by proxy shareholders of record holding at least one-third of the shares issued and outstanding and entitled to vote at such meetings in order to constitute a quorum, but if less than a quorum is present, a majority of those shares present either in person or by proxy shall have power to adjourn any meeting until a quorum shall be present.

 

Exhibit 3.2

DIANA CONTAINERSHIPS INC.

(the “Corporation”)

AMENDED AND RESTATED BYLAWS

As Adopted April 1, 2010

ARTICLE I

OFFICES

The principal place of business of the Corporation shall be at such place or places as the Directors shall from time to time determine. The Corporation may also have an office or offices at such other places within or without the Marshall Islands as the Board of Directors (the “Board”) may from time to time appoint or the business of the Corporation may require.

ARTICLE II

SHAREHOLDERS

Section 1.  Annual Meeting : The annual meeting of shareholders of the Corporation shall be held on such day and at such time and place within or without the Marshall Islands as the Board of Directors may determine for the purpose of electing Directors and of transacting such other business as may properly be brought before the meeting. The Chairman of the Board (the “Chairman”) or, in the Chairman’s absence, another person designated by the Board shall act as the Chairman of all annual meetings of shareholders.

Section 2. Nature of Business at Annual Meetings of Shareholders : No business may be transacted at an annual meeting of shareholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board (or any duly authorized committee thereof); (b) otherwise properly brought before the annual meeting by or at the direction of the Board (or any duly authorized committee thereof); or (c) otherwise properly brought before the annual meeting by any shareholder of the Corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in Section 2 of this Article II and has remained a shareholder of record through the record date for the determination of shareholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in Section 2 of this Article II.

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the “Secretary”).

To be timely a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred fifty (150) days nor more than one-hundred eighty (180) days prior to the one-year anniversary of the immediately preceding annual meeting of shareholders. In no event shall the public disclosure of any adjournment of an annual meeting of the shareholders commence a new time period for the giving of the shareholder’s notice described herein.

To be in proper written form, a shareholder’s notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such shareholder along with such shareholder’s tax identification number, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to


appear in person or by proxy at the annual meeting to bring such business before the meeting. In addition, notwithstanding anything in Section 2 of this Article II to the contrary, a shareholder intending to nominate one or more persons for election as a Director at an annual meeting must comply with Article III Section 3 of these Bylaws for such nomination or nominations to be properly brought before such meeting.

No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting in accordance with the procedures set forth in Section 2 of this Article II; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in Section 2 of this Article II shall be deemed to preclude discussion by any shareholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman of the meeting shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Section 3.  Special Meeting :

(a) Generally . Special meetings of shareholders, unless otherwise prescribed by law, may be called for any purpose or purposes at any time by the Chairman, a majority of the Board, or any officer of the Corporation who is also a Director. No other person or persons are permitted to call a special meeting, unless otherwise prescribed by law. No business may be conducted at the special meeting other than business brought before the meeting by the Board. Such meetings shall be held at such place and on a date and at such time as may be designated in the notice thereof by the officer of the Corporation designated by the Board of Directors to deliver the notice of such meeting. The business transacted at any special meeting shall be limited to the purposes stated in the notice.

(b) Special Provisions Relating to Second Anniversary of Offering . Notwithstanding any other provisions of these bylaws, including without limitation Article II Sections 3(a) and 4, and Article XI, and except as prescribed by law, the following terms shall apply to the Corporation. In the event that on April 6, 2012, (i) the Company has not completed an initial public offering of common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); and (ii) an officer of the Corporation is unable to certify, by officer’s certificate (the “Officer’s Certificate”), that the Corporation has applied ninety percent (90%) of the net proceeds of the offering and sale of the Corporation’s common shares pursuant to Rule 144A, Regulation S and Regulation D completed on April 6, 2010 (the “Offering”) to a Permitted Purpose (as defined below), then there shall be held, on a date to be determined by the Board of Directors but not later than June 5, 2012, a special meeting of shareholders in accordance with our amended and restated by-laws, as in effect at such time, to consider and vote upon a proposal to distribute to our shareholders the amount of net proceeds of the Offering that has not been expended by the Corporation for a Permitted Purpose by April 6, 2012. For purposes of this Section 3, a Permitted Purpose shall mean (i) to fund containership acquisitions; (ii) for capital expenditures relating to the Corporation’s vessels; (iii) for vessel operating expenses, which may include expenses in the lay-up of the Corporation’s vessels, and reasonable reserves established by our Board of Directors for any such operating or lay-up expenses; (iv) general and administrative expenses; and (v) other expenses related to the ownership, operation, management and maintainence of the Corporation’s containerships.

This Section 3(b) shall not be amended until the earlier of (i) the delivery of the Officer’s Certificate or (ii) the closing of any special meeting held pursuant to this Section 3(b).

Section 4.  Notice of Meetings : Notice of every annual and special meeting of shareholders, other than any meeting the giving of notice of which is otherwise prescribed by law, stating the date, time, place and purpose thereof, and in the case of special meetings, the name of the person or persons at whose direction the notice is being issued, shall be given personally or sent by mail, telefax, telegraph, cablegram, telex, or teleprinter at least fifteen (15) but not more than sixty (60) days before such meeting, to each shareholder of record entitled to vote thereat and to each shareholder of record who, by reason of any action proposed at such meeting would be entitled to have his shares appraised if such action were taken, and the notice shall include a statement of that purpose and to that effect. If mailed, notice shall be deemed to have been given when deposited in the mail, directed to the shareholder at his address as the same appears on the record of shareholders of the Corporation or at such address as to which the shareholder has given notice to the Secretary. Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior to the conclusion thereof the lack of notice to him. If the Corporation shall issue any class of bearer shares, notice for all meetings shall be given in the manner proved in the Articles of Incorporation.

 

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Section 5. Adjournments : Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the meeting is adjourned for lack of quorum, notice of the new meeting shall be given to each shareholder of record entitled to vote at the meeting. If after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice in Section 4 of this Article II.

Section 6.  Quorum : At all meetings of shareholders for the transaction of business, the number of shares of capital stock issued and outstanding and entitled to vote thereat, present either in person or represented by proxy, which is provided in the Articles of Incorporation or, if not in the Articles of Incorporation, by statute, shall be requisite and shall constitute a quorum. If less than a quorum is present, a majority of those shares present either in person or by proxy shall have power to adjourn any meeting until a quorum shall be present.

Section 7.  Voting : If a quorum is present, and except as otherwise expressly provided by law, the Corporation’s Articles of Incorporation then in effect or these bylaws, the affirmative vote of a majority of the votes cast by holders of shares of stock represented at the meeting shall be the act of the shareholders. At any meeting of shareholders each shareholder entitled to vote any shares on any matter to be voted upon as such meeting shall be entitled to one vote on such matter for each such share, and may exercise such voting right either in person or by proxy. Any action required to be permitted to be taken at a meeting, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof.

Section 8.  Fixing of Record Date : The Board of Directors may fix a time not more than sixty (60) nor less than fifteen (15) days prior to the date of any meeting of shareholders, or more than sixty (60) days prior to the last day on which the consent or dissent of shareholders may be expressed for any purpose without a meeting, as the time as of which shareholders entitled to notice of and to vote at such a meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and all persons who were holders of record of voting shares at such time and no others shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be. The Board of Directors may fix a time not exceeding sixty days preceding the date fixed for the payment of any dividend, the making of any distribution, the allotment of any rights or the taking of any other action, as a record time for the determination of the shareholders entitled to receive any such dividend, distribution, or allotment or for the purpose of such other action.

ARTICLE III

DIRECTORS

Section 1.  Number : The affairs, business and property of the Corporation shall be managed by its Board of Directors. The number of Directors is determined according to the Articles of Incorporation. The Directors need not be residents of the Marshall Islands nor shareholders of the Corporation. Corporations may, to the extent permitted by law, be elected Directors.

Section 2.  How Elected : The Board of Directors shall be elected as specified in the Articles of Incorporation.

Section 3. Nomination of Directors : (a) Except as set forth in this Section 3, Article III, only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors of the Corporation, except as may be otherwise provided in the Articles of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board may be made at any annual meeting of shareholders (a) by or at the direction of the Board (or any duly authorized committee thereof) or (b) by any shareholders of the

 

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Corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in Section 3 of this Article III and on the record date for the determination of shareholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in Section 3 of this Article III.

In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary.

To be timely, a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred fifty (150) days nor more than one-hundred eighty (180) days prior to the one-year anniversary date of the immediately preceding annual meeting of shareholders.

To be in proper written form, a shareholder’s notice to the Secretary must set forth; (a) as to each person whom the shareholder proposes to nominate for election as a Director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder applicable to issuers that are not foreign private issuers and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder along with such shareholder’s tax identification number, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder, (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person and persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons named in its notice and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors of companies other than foreign private issuers pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Director if elected.

No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in Section 3 of this Article III. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

(b) Notwithstanding any other provisions of the Articles of Incorporation or these bylaws (and notwithstanding the fact that some lesser percentage may be specified by law, the Articles of Incorporation or these bylaws), the vote of not less than two-thirds of the entire Board of Directors shall be required to amend, alter, change or repeal this Article III Section 3.

Section 4.  Removal : Removal of Directors is governed by Articles of Incorporation Section I.

No proposal by a shareholder to remove a Director shall be voted upon at a meeting of the shareholders unless such shareholder has given timely notice thereof in proper written form to the Secretary. To be timely, a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred and fifty (150) days nor more than one hundred eighty (180) days prior to the one-year anniversary date of the immediately preceding annual meeting of the shareholders. To be in proper written form, a shareholder’s notice must set forth: (a) a statement of the grounds, if any, on which such Director is proposed to be removed, (b) evidence reasonably satisfactory to the Secretary of such shareholder’s status as such and of the number of shares of each class of capital stock of the Corporation beneficially owned by such shareholder, and (c) a list of the names and addresses of other shareholders of the Corporation, if any, with whom such shareholder is acting in concert, and the number of shares of each class of capital stock of the Corporation beneficially owned by each such shareholder.

 

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No shareholder proposal to remove a Director shall be voted upon at an annual meeting of the shareholders unless proposed in accordance with the procedures set forth in Section 4 of this Article III. If the Chairman of the meeting determines, based on the facts, that a shareholder proposal to remove a Director was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that a proposal to remove a Director of the Corporation was not made in accordance with the procedures prescribed by these Bylaws, and such defective proposal shall be disregarded.

Section 5.  Vacancies : Any vacancies in the Board of Directors shall be governed by the Articles of Incorporation.

Section 6.   Regular Meetings : Regular meetings of the Board of Directors may be held at such time and place as may be determined by resolution of the Board of Directors and no notice shall be required for any regular meeting. Except as otherwise provided by law, any business may be transacted at any regular meeting.

Section 7.  Special Meetings : Special meetings of the Board of Directors may, unless otherwise prescribed by law, be called from time to time by the Chairman, a majority of the Board, or any officer of the Corporation who is also a Director. The President or the Secretary shall call a special meeting of the Board upon written request directed to either of them by any two Directors stating the time, place, and purpose of such special meeting. Special meetings of the Board shall be held on a date and at such time and at such place as may be designated in the notice thereof by the officer calling the meeting.

Section 8.  Notice of Special Meetings : Notice of the date, time and place of each special meeting of the Board of Directors shall be given to each Director at least forty-eight (48) hours prior to such meeting, unless the notice is given orally or delivered in person, in which case it shall be given at least twenty-four (24) hours prior to such meeting. For the purpose of this section, notice shall be deemed to be duly given to a Director if given to him personally (including by telephone) or if such notice be delivered to such Director by mail, telegraph, telefax, cablegram, telex, or teleprinter to his last known address. Notice of a meeting need not be given to any Director who submits a signed waiver of notice, whether before or after the meeting or who attends the meeting without protesting, prior to the conclusion thereof, the lack of notice to him.

Section 9.  Quorum : A majority of the Directors at the time in office, present in person or by proxy or by conference telephone, shall constitute a quorum for the transaction of business.

Section 10.  Interested Directors . No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, or, if the votes of the disinterested Directors are insufficient to constitute an act of the Board of Directors as defined in Section 55 of the BCA, by unanimous vote of the disinterested Directors; or (ii) the material facts as to his relationship or interest and as to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Section 11.  Voting : (a) Except as set forth in this Section 11, Article III, the vote of the majority of the Directors, present in person, by proxy, or by conference telephone, at a meeting at which a quorum is present shall be the act of the Directors. Any action required or permitted to be taken at a meeting may be taken without a meeting if all members of the Board consent thereto in writing.

 

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(b) Notwithstanding anything to the contrary contained herein, the following transactions with a related party shall require the unanimous vote of the independent members of the Board of Directors : (1) any vessel acquisition or disposal; and (2) long term time charter employment for any vessel in the Company’s fleet.

(c) Notwithstanding anything to the contrary contained herein, any material transaction with a related party other than those set forth in (b) above shall require the vote of a majority of the independent members of the Board of Directors.

(d) Notwithstanding anything to the contrary contained herein, until April 6, 2012, (i) any increase in the aggregate annual compensation of senior management from $1.04 million, excluding equity compensation, other than an increase to aggregate annual compensation to $1.3 million, excluding equity compensation, following the completion of an initial public offering under the Securities Act, and (ii) awards of equity compensation to senior management other than an aggregate of 213,331 restricted common shares to be issued following the Offering and the issuance of an aggregate of 53,333 restricted common shares to senior management following the completion of an initial public offering under the Securities Act, shall require the unanimous vote of the independent members of the Board of Directors.

Section 12.  Compensation of Directors and Members of Committees : Subject to the provisions of Section 11(b), the Board may from time to time, in its discretion, fix the amounts which shall be payable to members of the Board of Directors and to members of any committee, for attendance at the meetings of the Board or of such committee and for services rendered to the Corporation.

Section 13. Special Provisions Relating to the Filing of a Registration Statement : Notwithstanding any other provisions of these bylaws, including without limitation Article II Sections 3 and 4, Article III Sections 3 and 4, and Article XI, and except as prescribed by law, the following terms shall apply to the Corporation, and any capitalized terms below within this Section 13 not otherwise defined within these Bylaws shall have the meaning ascribed to them in a registration rights agreement to be entered into by and between the Corporation and the initial purchaser/placement agent identified therein, in or around March 2010, and attached hereto as Exhibit I. This Section 13 shall not be amended until the earlier of (i) such time as a Registration Statement registering the exchange or the resale of the Registrable Shares has been declared effective by the Commission or (ii) the closing of any special meeting held pursuant to this Section 13.

(a) If a Registration Statement registering the exchange or the resale of the Registrable Shares has not been declared effective by the Commission on a date not later than eighteen (18) months after the Closing Date (the “ Trigger Date ”), a special meeting of shareholders (the “ Special Election Meeting ”) shall be called in accordance with Article II, Section 13 of these Bylaws. The Special Election Meeting shall occur as soon as possible following the Trigger Date but in no event more than thirty (30) days after the Trigger Date.

(b) Purposes of Meeting . The Special Election Meeting shall be called solely for the purposes of: (i) considering and voting upon proposals to remove each then-serving Director of the Corporation; and (ii) electing such number of Directors as there are then vacancies on the Board of Directors of the Corporation (including any vacancies created by the removal of any Director pursuant to this Section 13(b). The removal of any Director pursuant to Section 13(b)(i) hereof shall be effective immediately upon the receipt of the final report of the Inspector of Elections for the Special Election Meeting that reports the receipt of the requisite vote to approve the proposal to remove such Director.

(c) Nominations . Nominations of individuals for election to the Board of Directors of the Corporation at the Special Election Meeting may only be made (i) by or at the direction of the Board of Directors, or (ii) upon receipt by the Corporation of written notice of shareholders entitled to cast, or direct the casting of, not less than 20% of all the votes entitled to be cast at the Special Election Meeting and containing the information specified by Section 13(d) hereof. Each individual whose nomination is made in accordance with this Section 13(c) is hereinafter referred to as a “Nominee.”

(d) Procedure for Stockholder Nominations . For nominations of individuals for election to the Board of Directors to be properly brought before the Special Election Meeting by shareholders pursuant to Section 13(c)(iii) hereof, the shareholders must have given notice thereof in writing to the Secretary of the Corporation not later than 5:00 p.m., Eastern Time, on the 10 th day after the Trigger Date. Such notice shall include each such proposed Nominee’s written consent to serve as a Director, if elected, and shall specify:

(i) as to each proposed Nominee, the name, age, business address and residence address of such proposed Nominee and all other information relating to such proposed Nominee that would be required, pursuant to Regulation 14A promulgated under the Exchange Act (or any successor provision), to be disclosed in a contested solicitation of proxies with respect to the election of such individual as a Director of a company other than a foreign private issuer; and

 

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(ii) as to each shareholder giving the notice, the class, series and number of all shares of capital stock of the Corporation that are owned by such shareholder, beneficially or of record.

(e) Notice . Not less than fifteen (15) nor more than twenty-five (25) days before the Special Election Meeting, the Secretary of the Corporation shall give to each stockholder entitled to vote at, or to receive notice of, such meeting at such stockholder’s address as it appears in the share transfer records of the Corporation, notice in writing setting forth (i) the time and place of the Special Election Meeting, (ii) the purposes for which the Special Election Meeting has been called and (iii) the name of each Nominee.

ARTICLE IV

COMMITTEES

The Board of Directors may, by resolution or resolutions passed by a majority of the entire Board, designate from among its members an executive committee to consist of one or more of the Directors of the Corporation, which, to the extent provided in said resolution or resolutions, or in these Bylaws, shall have and may exercise, to the extent permitted by law, the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it, provided, however, that no committee shall have the power or authority to (i) fill a vacancy in the Board or in a committee thereof, (ii) amend or repeal any Bylaw or adopt any new Bylaw, (iii) amend or repeal any resolution of the entire Board, (iv) or increase the number of Directors on the Board, or (v) remove any Director. In addition, the Board of Directors may, by resolution or resolutions passed by a majority of the entire Board designate from among its members other committees to consist of one or more of the Directors of the Corporation, each of which shall perform such function and have such authority and powers as shall be delegated to it by said resolutions or as provided for in these Bylaws, except that only the executive committee may have and exercise the powers of the Board of Directors. Members of the executive committee and any other committee shall hold office for such period as may be prescribed by the vote of a majority of the entire Board of Directors. Vacancies in membership of such committees shall be filled by vote of the board of Directors. Committees may adopt their own rules of procedure and may meet at stated times or on such notice as they may determine. Each committee shall keep a record of its proceedings and report the same to the Board when requested.

ARTICLE V

OFFICERS

Section 1.  Number of Designation : The Board of Directors shall appoint a President, Secretary and Treasurer and such other officers with such duties as it may deem necessary. Officers may be of any nationality, need not be residents of the Marshall Islands and may be, but are not required to be, Directors. Officers of the Corporation shall be natural persons except the secretary may be a corporate entity. Any two or more offices may be held by the same natural person.

The salaries of the officers and any other compensation paid to them shall be fixed from time to time by the Board of Directors. The Board of Directors may at any meeting appoint additional officers. Each officer shall hold office until his successor shall have been duly appointed and qualified, except in the event of the earlier termination of his term of office, through death, resignation, removal or otherwise. Any officer may be removed by the Board at any time with or without cause. Any vacancy in an office may be filled for the unexpired portion of the term of such office by the Board of Directors at any regular or special meeting.

 

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Section 2 President : The President shall have general management of the affairs of the Corporation together with the powers and duties usually incident to the office of President, except as specifically limited by appropriate written resolution of the Board of Directors and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. The President shall preside at all meetings of shareholders at which he is present and, if he is a Director, at all meetings of the Directors.

Section 3.  Treasurer : The Treasurer shall be the chief financial officer of the Corporation and shall have general supervision over the care and custody of the funds, securities, and other valuable effects of the Corporation and shall deposit the same or cause the same to be deposited in the name of the Corporation in such depositories as the Board of Directors may designate, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall have supervision over the accounts of all receipts and disbursements of the Corporation, shall, whenever required by the Board, render or cause to be rendered financial statements of the Corporation, shall have the power and perform the duties usually incident to the office of Treasurer, and shall have such powers and perform such other duties as may be assigned to him by the Board of Directors or the President.

Section 4.  Secretary : The Secretary shall act as Secretary of all meetings of the shareholders and of the Board of Directors at which he is present, shall have supervision over the giving and serving of notices of the Corporation, shall be the custodian of the corporate records and of the corporate seal of the Corporation, shall be empowered to affix the corporate seal to those documents, the execution of which, on behalf of the Corporation under its seal, is duly authorized and when so affixed may attest the same, and shall exercise the powers and perform such other duties as may be assigned to him by the Board of Directors or the President. If the Secretary is a corporation, the duties of the Secretary may be carried out by any authorized representative of such corporation.

Section 5.  Other Officers : Officers other than those treated in Sections 2 through 4 of this Article shall exercise such powers and perform such duties as may be assigned to them by the Board of Directors or the President.

Section 6. Bond : The Board of Directors shall have power to the extent permitted by law, to require any officer, agent or employee of the Corporation to give bond for the faithful discharge of his duties in such form and with such surety or sureties as the Board of Directors may deem advisable.

ARTICLE VI

CERTIFICATES FOR SHARES

Section 1.  Form and Issuance : The shares of the Corporation shall be represented by certificates in a form meeting the requirements of law and approved by the Board of Directors. Certificates shall be signed by (i) the President or a Vice President and by (ii) the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer. These signatures may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employees. Shares may also be represented in uncertificated form, and, specifically, the Corporation may issue shares to be represented in any manner permitted or required by the rules of the stock exchange on which the Corporation may be listed.

Section 2.  Transfer : The Board of Directors shall have power and authority to make such rules and regulations as they may deem expedient concerning the issuance, registration and transfer of shares of the Corporation’s stock, and may appoint transfer agents and registrars thereof.

Section 3.  Loss of Stock Certificates : The Board of Directors may direct a new certificate or certificates of stock to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

 

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ARTICLE VII

DIVIDENDS

Dividends may be declared in conformity with law by, and at the discretion of, the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock, or other property of the Corporation.

ARTICLE VIII

INDEMNIFICATION

Section 1. Indemnification . Any person who is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another, partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by the Corporation upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the BCA, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Corporation shall have the power to pay in advance expenses a director or officer incurred while defending a civil or criminal proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that he or she is not entitled to indemnification under this section.

Section 2. Insurance . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of these Bylaws.

ARTICLE IX

CORPORATE SEAL

The seal of the Corporation, if any, shall be circular in form, with the name of the Corporation in the circumference and such other appropriate legend as the Board of Directors may from time to time determine.

ARTICLE X

FISCAL YEAR

The fiscal year of the Corporation shall be such period of twelve consecutive months as the Board of Directors may by resolution designate.

ARTICLE XI

AMENDMENTS

The Board of Directors of the Corporation are expressly authorized to make, alter or repeal these bylaws of the Corporation by a vote of not less than a majority of the entire Board of Directors, unless otherwise provided in these bylaws, including without limitation, Section 3 and Section 13, Article III.

 

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Exhibit 4.1

LOGO


LOGO

Exhibit 4.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of April 6, 2010 , among Diana Containerships Inc., a Marshall Islands corporation (together with any successor entity thereto, the “ Company ”), Diana Shipping Inc., a Marshall Islands corporation (“ Diana ”) and FBR Capital Markets & Co., a Delaware corporation, as the initial purchaser/placement agent (“ FBR ”) for the benefit of FBR, the purchasers of the Company’s common stock, $0.01 par value per share (“ Common Stock ”), as participants (together with Diana, the “ Participants ”) in the private placement by the Company of shares of its Common Stock, and the direct and indirect transferees of FBR, and each of the Participants.

This Agreement is made pursuant to the Purchase/Placement Agreement (the “ Purchase/Placement Agreement ”), dated as of March 29, 2010, between the Company and FBR in connection with the purchase and sale or placement of an aggregate of 5,602,330 shares of Common Stock (plus an additional 840,350 shares to cover additional allotments, if any). In order to induce FBR to enter into the Purchase/Placement Agreement, the Company has agreed to provide the registration rights provided for in this Agreement to FBR, the Participants, and their respective direct and indirect transferees. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase/Placement Agreement.

The parties hereby agree as follows:

 

1. Definitions

As used in this Agreement, the following terms shall have the following meanings:

Accredited Investor Shares : Shares initially sold by the Company to “accredited investors” (within the meaning of Rule 501 (a) promulgated under the Securities Act) as Participants.

Affiliate : As to any specified Person, (i) any Person directly or indirectly owning, controlling or holding, with power to vote, ten percent or more of the outstanding voting securities of such other Person, (ii) any Person directly or indirectly controlling, controlled by or under common control with such other Person, (iii) any executive officer, director, trustee or general partner of such Person and (iv) any legal entity for which such Person acts as an executive officer, director, trustee or general partner. An indirect relationship shall include circumstances in which a Person’s spouse, children, parents, siblings or mother, father, sister- or brother-in-law share the same household with such Person.

Agreement : As defined in the preamble.

Board of Directors: As defined in Section 6(a) hereof.

Business Day: With respect to any act to be performed hereunder, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York,

 

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New York or other applicable places where such act is to occur are authorized or obligated by applicable law, regulation or executive order to close.

Closing Date: April 6, 2010 or such other time or such other date as FBR and the Company may agree.

Commission: The Securities and Exchange Commission.

Common Stock: As defined in the preamble.

Company: As defined in the preamble.

Controlling Person: As defined in Section 8(a) hereof.

End of Suspension Notice: As defined in Section 6(b) hereof.

Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission pursuant thereto.

Exchange Date: As defined in Section 2(a)(i)(2) hereof.

Exchange Offer: The exchange offer by the Company of Exchange Shares for Registrable Shares pursuant to Section 2(a) hereof.

Exchange Offer Registration: A registration under the Securities Act effected pursuant to Section 2(a) hereof.

Exchange Offer Registration Statement: An exchange offer registration statement on Form F-4 (or if applicable on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

Exchange Shares: $0.01 par value common stock issued by the Company containing terms substantially identical to the Common Stock (except that the transfer restrictions and legends relating to restrictions on ownership and transfer thereof as a result of the issuance of the common stock without registration under the Securities Act shall be eliminated) to be offered to Holders of Registrable Shares in exchange for Registrable Shares pursuant to the Exchange Offer.

FBR: As defined in the preamble.

FINRA: The Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers, Inc.

Holder: Each record owner of any Registrable Shares from time to time, including FBR and its Affiliates to the extent FBR or any such Affiliate holds any Registrable Shares; provided that for purposes of Section 7 and Section 8 hereof, the term “Holders” shall include each

 

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Participating Broker-Dealer that holds Exchange Shares for so long as such Participating Broker-Dealer is required to deliver a Prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Shares.

Indemnified Party: As defined in Section 8(c) hereof.

Indemnifying Party: As defined in Section 8(c) hereof.

IPO Registration Statement: As defined in Section 2(c) hereof.

Issuer Free Writing Prospectus: As defined in Section 2(d) hereof.

Liabilities: As defined in Section 8(a) hereof.

No Objections Letter: As defined in Section 5(t) hereof.

Nominee: As defined in Section 3(c) hereof.

Participants: As defined in the preamble.

Participating Broker-Dealer: As defined in section 7(a) hereof.

Person: An individual, partnership, corporation, trust, limited liability company, unincorporated organization, government or agency or political subdivision thereof, or any other legal entity.

Proceeding: An action, claim, suit or proceeding (including without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or, to the knowledge of the Person subject thereto, threatened.

Prospectus: The prospectus included in any Registration Statement, including any preliminary prospectus at the “time of sale” within the meaning of Rule 159 under the Securities Act and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus.

Purchase/Placement Agreement: As defined in the preamble.

Purchaser Indemnitee: As defined in Section 8(a) hereof.

Registrable Shares: The Rule 144A Shares, the Accredited Investor Shares, the Regulation S Shares and Common Stock held by Diana on the Closing Date (the “Diana Shares”), upon original issuance thereof, and at all times subsequent thereto, including upon the transfer thereof by the original holder or any subsequent holder and any shares or other securities issued in respect of such Registrable Shares by reason of or in connection with any stock dividend, stock distribution, stock split, purchase in any rights offering or in connection with any exchange for or

 

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replacement of such Registrable Shares or any combination of shares, recapitalization, merger or consolidation, or any other equity securities issued pursuant to any other pro rata distribution with respect to the Common Stock, until, in the case of any such Rule 144A Share, Accredited Investor Share, Regulation S Share or Diana Share, the earliest to occur of (i) the date on which the resale of such share has been registered pursuant to the Securities Act and it has been disposed of in accordance with the Registration Statement relating to it, (ii) in the event the Company is subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the date on which it has been transferred pursuant to Rule 144 (or any similar provision then in effect), (iii) the date on which it is sold to the Company or ceases to be outstanding or (iv) such shares have been exchanged for Exchange Shares which have been registered pursuant to the Exchange Offer Registration Statement upon consummation of the Exchange Offer unless, in the case of any Exchange Shares, such Shares are held by a Participating Broker-Dealer or otherwise are not freely tradable without any limitations or restrictions under the Securities Act (in which case such Exchange Shares will be deemed to be Registrable Shares until such Exchange Shares are sold to a purchaser who received from the Participating Broker-Dealer on or prior to the date of sale a copy of the Prospectus contained in the Exchange Offer Registration Statement).

Registration Default: As defined in Section 2(g) hereof.

Registration Expenses: Any and all expenses incident to the performance of or compliance with this Agreement, including, without limitation: (i) all Commission, securities exchange, and FINRA registration, listing and filing fees; (ii) all fees and expenses incurred in connection with compliance with international, federal or state securities or blue sky laws (including, without limitation, any registration, listing and filing fees and fees and disbursements of counsel in connection with blue sky qualification of any of the Exchange Shares or Registrable Shares and the preparation of a blue sky memorandum and compliance with the rules of FINRA); (iii) all expenses in preparing or assisting in preparing, word processing, duplicating, printing, delivering and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates and any other documents relating to the performance under and compliance with this Agreement; (iv) all fees and expenses incurred in connection with the listing of any of the Exchange Shares or Registrable Shares on any securities exchange pursuant to Section 5(n) of this Agreement; (v) the fees and disbursements of counsel for the Company and of the independent registered public accounting firm of the Company (including, without limitation, the expenses of any special audit and “cold comfort” letters required by or incident to the performance of this Agreement); (vi) reasonable fees and disbursements of Simpson Thacher & Bartlett LLP, or one such other counsel, and, if applicable, one Marshall Islands counsel, reasonably acceptable to the Company, for FBR and the Holders, selected by FBR (such counsel, “Selling Holders’ Counsel” ), provided that if such counsel is prevented from representing both FBR and the Holders, separate counsel shall be provided, and (vii) any fees and disbursements customarily paid in issues and sales of securities (including the fees and expenses of any experts retained by the Company in connection with any Registration Statement); provided, however, that Registration Expenses shall exclude brokers’ or underwriters’ discounts and commissions, if any, relating to the sale or disposition of Registrable Shares or Exchange Shares by a Holder.

 

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Registration Statement: Any registration statement of the Company that covers the exchange or resale of Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement.

Regulation S: Regulation S (Rules 901-905) promulgated by the Commission under the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such regulation.

Regulation S Shares: Shares initially resold by FBR pursuant to the Purchase/Placement Agreement to “non-U.S. persons” (in accordance with Regulation S) in an “offshore transaction” (in accordance with Regulation S).

Resale Registration Statement. As defined in Section 2(b) hereof.

Rule 144: Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 144A: Rule 144A promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 144A Shares: Shares initially resold by FBR pursuant to the Purchase/Placement Agreement to “qualified institutional buyers” (as such term is defined in Rule 144A).

Rule 158: Rule 158 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 159: Rule 159 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 405: Rule 405 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 415: Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

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Rule 424 : Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 429 : Rule 429 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Rule 433 : Rule 433 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

Securities Act : The Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder.

Selling Holders’ Counsel : As defined in paragraph (vi) of the definition for Registration Expenses.

Shares : The shares of Common Stock being offered and sold pursuant to the terms and conditions of the Purchase/Placement Agreement.

Shelf Registration Statement : As defined in Section 2(b) hereof.

Special Election Meeting : As defined in Section 3(a) hereof.

Staff : The staff of the Commission.

Suspension Event : As defined in Section 6(b) hereof.

Suspension Notice : As defined in Section 6(b) hereof.

Trigger Date : As defined in Section 3(a) hereof.

Underwritten Offering : A sale of securities of the Company to an underwriter or underwriters for re-offering to the public.

 

2 . Registration Rights

(a) Exchange Offer . To the extent not prohibited by any applicable law or applicable interpretations of the Staff and except in the circumstances contemplated by Section 2(b)(i) hereof, the Company shall use its best efforts to (i) cause to be filed (for the avoidance of doubt filing shall include submission on a confidential basis pursuant to the procedures of the Commission available to foreign private issuers) with the Commission an Exchange Offer Registration Statement covering an offer to the Holders to exchange all the Registrable Shares for Exchange Shares within thirty (30) days after the date of this Agreement), (ii) cause such Exchange Offer Registration

 

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Statement to become effective under the Securities Act as soon as practicable following filing with the Commission, and (iii) have such Registration Statement remain effective until the earlier of (A) one hundred twenty (120) days after the closing of the Exchange Offer and (B) such time as all Participating Broker-Dealers no longer own any Registrable Shares. The Company shall use its reasonable best efforts to commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the Commission and to complete the Exchange Offer not later than 60 days after such effective date. For purposes of this Agreement, the Exchange Offer shall be deemed completed upon the date that the Company exchanges, pursuant to the Exchange Offer, Exchange Shares for all Registrable Shares that have been properly tendered and not withdrawn before the expiration of the Exchange Offer; provided, however, that the Company may, in its discretion, accept tenders of Registrable Shares for Exchange Shares subsequent to the date the Company consummates the Exchange Offer with respect to Registrable Shares tendered as of the date of initial consummation, and the Exchange Offer shall be deemed to have been consummated notwithstanding any such extension of the tender period.

(i) Commencement of Exchange Offer . The Company shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law:

 

  (1) that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Shares validly tendered and not properly withdrawn will be accepted for exchange;

 

  (2) the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “Exchange Dates”);

 

  (3) that any Registrable Share not tendered will remain outstanding;

 

  (4) that any Holder electing to have a Registrable Share exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Share, together with the appropriate letters of transmittal, in the manner specified in the notice and to the institution and at the address (located in New York City) or through such procedures of the relevant depositary specified in such notice prior to the close of business on the last Exchange Date; and

 

  (5) that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, in the manner specified in such notice.

(ii) Condition to Participation . As a condition to participating in the Exchange Offer, a Holder will be required to represent to the Company that (a) any Exchange Shares to be received by it will be acquired in the ordinary course of its business, (b) at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within

 

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the meaning of the Securities Act) of the Exchange Shares in violation of the provisions of the Securities Act, (c) it is not an “affiliate” (within the meaning of Rule 405 under Securities Act) of the Company and (d) if such Holder is a broker-dealer, that it will receive Exchange Shares for its own account in exchange for Registrable Shares that were acquired as a result of market-making or other trading activities, and that it will deliver, to the extent required by applicable law or regulation or Commission pronouncement, a Prospectus in connection with any resale of such Exchange Shares.

(iii) Obligations after Exchange Date . As soon as practicable after the last Exchange Date, the Company shall:

 

  (1) accept for exchange Registrable Shares validly tendered and not properly withdrawn pursuant to the Exchange Offer; and

 

  (2) instruct the transfer agent to deliver, or cause to be delivered for cancellation all Registrable Shares so accepted for exchange by the Company and issue, and instruct the transfer agent to promptly deliver to each Holder, Exchange Shares equal to the number of the Registrable Shares surrendered by such Holder.

 

  (3) Reasonable Best Efforts . The Company shall use its reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer.

(b) Mandatory Resale Registration . In the event that (i) the Company determines that the Exchange Offer Registration provided for in Section 2(a) hereof is not permitted or may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations of the Staff, or because the Exchange Shares received by Holders are not or would not be, upon receipt, transferable by each such Holder without need for further compliance with Section 5 of the Securities Act (except for the requirements to deliver a Prospectus in connection with any resale by a Participating Broker-Dealer), (ii) the Exchange Offer is not for any other reason completed by December 1, 2010 or (iii) upon completion of the Exchange Offer any of the Participants above shall so request in connection with any offering or sale of Registrable Shares initially purchased by it pursuant to the Purchase/Placement Agreement, the Company agrees, as set forth in Section 5 hereof, to cause to be filed with the Commission as soon as practicable after such determination, date or request, as the case may be (but in no event later than the date that is 60 days after the date of the earlier of such determination, date or request), one resale Registration Statement on Form F-l or such other form under the Securities Act then available to the Company providing for the resale of the outstanding Registrable Shares pursuant to Rule 415 from time to time by the Holders (a “Resale Registration Statement” ). The Company shall use its reasonable efforts to cause such Resale Registration Statement to be declared effective by the Commission as soon as practicable after the initial filing thereof and to remain effective, subject to Section 6 hereof, until the earlier of (A) such time as all Registrable Shares covered thereby have been sold in accordance with the intended distribution of such Registrable Shares, (B) there are no Registrable Shares outstanding or (C) the first anniversary of

 

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the effective date of such Resale Registration Statement (subject to extension as provided in Section 6(c) hereof and the condition that the Registrable Shares have been transferred to an unrestricted CUSIP and are listed on the New York Stock Exchange or the Nasdaq Global Market, pursuant to Section 5(n) of this Agreement, or on an alternative trading system with the Registrable Shares qualified under the applicable state securities or “blue sky” laws of all fifty (50) states); provided, however , that if the Company has an effective Resale Registration Statement on Form F-1 (or other form then available to the Company) under the Securities Act and becomes eligible to use Form F-3 or such other short-form registration statement form under the Securities Act, the Company may, upon thirty (30) Business Days prior written notice to all Holders, register any Registrable Shares registered but not yet distributed under the effective Resale Registration Statement on such a short-form shelf registration statement (a “Shelf Registration Statement”) and, once the short-form Shelf Registration Statement is declared effective, withdraw the previous Registration Statement and, if permitted, transfer the filing fees from the previous Registration Statement (such transfer pursuant to Rule 429, if applicable) unless any Holder registered under the initial Resale Registration Statement notifies the Company within fifteen (15) Business Days of receipt of the Company notice that it intends to file a new Registration Statement that withdrawal of the initial Resale Registration Statement would interfere with its distribution of Registrable Shares already in progress, in which case, the Company shall delay the effectiveness of the Shelf Registration Statement and termination of the then-effective initial Resale Registration Statement for a period of not less than thirty (30) days from the date that the Company receives the notice from such Holders requesting a delay. Any Shelf Registration Statement shall provide for the resale from time to time, subject to Section 5(a), and pursuant to any method or combination of methods legally available (including, without limitation, an Underwritten Offering, a direct sale to purchasers or a sale through brokers or agents, which may include sales over the internet) by the Holders of any and all Registrable Shares. The Company shall not be obligated to maintain the effectiveness of any Shelf Registration Statement beyond the first anniversary of the effective date of the Initial Resale Registration Statement (subject to extension as provided in Section 6(c) hereof and the condition that the Registrable Shares have been transferred to an unrestricted CUSIP and are listed on the New York Stock Exchange or the Nasdaq Global Market, pursuant to Section 5(n) of this Agreement, or on an alternative trading system with the Registrable Shares qualified under the applicable state securities or “blue sky” laws of all fifty (50) states).

If the Company receives reasonable advance notice that it will be required to file a Resale Registration Statement pursuant to clause (iii) of the preceding paragraph, the Company shall use its reasonable best efforts to file and have become effective under the Securities Act both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect to all Registrable Shares that may be exchanged pursuant to the Exchange Offer and a Resale Registration Statement (which may be a combined Resale Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Shares held by the Participants after completion of the Exchange Offer.

(c) IPO Registration . If the Company proposes to file a registration statement on Form F-1 or such other form under the Securities Act providing for the initial public offering of shares of Common Stock (the “IPO Registration Statement” ) before the later of (A) the first anniversary of the Closing Date and (B) the earlier of (i) the completion of the Exchange Offering or (ii) the effectiveness of the Resale Registration Statement, the Company will notify in writing

 

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each Holder of the filing within five (5) Business Days after the initial filing and afford each Holder an opportunity to include in the IPO Registration Statement all or any part of the Registrable Shares then held by such Holder. Each Holder desiring to include in the IPO Registration Statement all or part of the Registrable Shares held by such Holder shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Shares such Holder wishes to include in the IPO Registration Statement. Any election by any Holder to include any Registrable Shares in the IPO Registration Statement will not affect the inclusion of such Registrable Shares in the Resale Registration Statement until such Registrable Shares have been sold.

(i) Right to Terminate IPO Registration . The Company shall have the right to terminate or withdraw the IPO Registration Statement initiated by it and referred to in this Section 2(c) prior to the effectiveness of such registration whether or not any Holder has elected to include Registrable Shares in such registration; provided, however , the Company must provide each Holder that elected to include any Registrable Shares in such IPO Registration Statement prompt written notice of such termination or withdrawal. Furthermore, in the event the IPO Registration Statement is not declared effective within one hundred fifty (150) days following the initial filing of the IPO Registration Statement, unless a road show for the Underwritten Offering pursuant to the IPO Registration Statement is actually in progress at such time, the Company shall promptly provide a new written notice to all Holders giving them another opportunity to elect to include Registrable Shares in the pending IPO Registration Statement. Each Holder receiving such notice shall have the same election rights afforded such Holder as described in clause (c) above.

(ii) Selection of Underwriter . The Company shall have the sole right to select the managing underwriter(s) for its initial public offering, regardless of whether any Registrable Shares are included in the IPO Registration Statement or otherwise.

(iii) Exchange Offer Registration and Resale Registration not Impacted by IPO Registration Statement . The Company’s obligation to file the Exchange Offer Registration Statement pursuant to Section 2(a) or the Resale Registration Statement pursuant to Section 2(b) hereof shall not be affected by the filing or effectiveness of the IPO Registration Statement. In addition, the Company’s obligation to file and use its reasonable efforts to cause to become and keep effective the Exchange Offer Registration Statement pursuant to Section 2(a) and the Resale Registration Statement pursuant to Section 2(b) hereof shall not be affected by the filing or effectiveness of an IPO Registration Statement; provided, however , if the Company files an IPO Registration Statement before the effective date of the Exchange Offer Registration Statement or the Resale Registration Statement and the Company has used reasonable efforts to pursue the completion of such initial public offering, the Company shall have the right to defer causing the Commission to declare such Exchange Offer Registration Statement or Resale Registration Statement, as applicable, effective until up to 60 days after the closing date of its initial public offering pursuant to the IPO Registration Statement.

 

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(d) Issuer Free Writing Prospectus . The Company represents and agrees that, unless it obtains the prior consent of Holders of a majority of the Registrable Shares that are registered under, or exchangeable pursuant to, a Registration Statement at such time or the consent of the managing underwriter in connection with any Underwritten Offering of Registrable Shares, and each Holder represents and agrees that, unless it obtains the prior consent of the Company and any such underwriter, it will not make any offer relating to the Shares that would constitute an “issuer free writing prospectus,” as defined in Rule 433 (an “ Issuer Free Writing Prospectus ”), or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission. The Company represents that any Issuer Free Writing Prospectus will not include any information that conflicts with the information contained in any Registration Statement or the related Prospectus, and any Issuer Free Writing Prospectus, when taken together with the information in such Registration Statement and the related Prospectus, will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e) Underwriting . The Company shall advise all Holders of the lead managing underwriter for the Underwritten Offering proposed under the IPO Registration Statement. The right of any such Holder’s Registrable Shares to be included in the IPO Registration Statement pursuant to Section 2(c) shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Shares in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Shares through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter(s) selected for such underwriting and complete and execute any questionnaires, powers of attorney, indemnities, custody agreements, securities escrow agreements and other documents, including opinions of counsel, reasonably required under the terms of such underwriting, and furnish to the Company such information as the Company may reasonably request in writing for inclusion in the Registration Statement; provided, however , that no Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder and such Holder’s intended method of distribution and any other representation required by law or reasonably requested by the underwriters. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation on the number of shares to be included, then the managing underwriter(s) may exclude shares (including Registrable Shares) from the IPO Registration Statement and Underwritten Offering, and any shares included in such IPO Registration Statement and Underwritten Offering shall be allocated first , to the Company, and second , to each of the Holders requesting inclusion of their Registrable Shares in such IPO Registration Statement (on a pro rata basis based on the total number of Registrable Shares then held by each such Holder who is requesting inclusion); provided, however , that the number of Registrable Shares to be included in the IPO Registration Statement shall not be reduced unless all other securities of the Company held by (i) officers, directors, other employees of the Company and consultants and (ii) other holders of the Company’s capital stock with registration rights that are inferior (with respect to such reduction) to the registration rights of the Holders set forth herein, are first entirely excluded from the underwriting and registration; provided, further, however , that Holders of Registrable Shares shall be permitted to include Registrable Shares comprising at least 25% of the total securities included in the Underwritten Offering proposed under the IPO Registration Statement.

 

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By electing to include the Registrable Shares in the IPO Registration Statement, the Holder of such Registrable Shares shall be deemed to have agreed not to effect any public sale or distribution of securities of the Company of the same or similar class or classes of the securities included in the IPO Registration Statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during such periods as reasonably requested (but in no event for a period longer than thirty (30) days prior to and one hundred eighty (180) days following the effective date of the IPO Registration Statement) by the representatives of the underwriters, if an Underwritten Offering, or by the Company in any other registration.

If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the IPO Registration Statement. Any Registrable Shares excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.

(f) Expenses . The Company shall pay all Registration Expenses in connection with the registration of the Registrable Shares or the exchange thereof for Exchange Shares pursuant to this Agreement. Each Holder participating in a registration pursuant to this Section 2 shall bear such Holder’s proportionate share (based on the total number of Registrable Shares sold in such registration or exchanged pursuant to this Agreement) of all discounts and commissions payable to underwriters or brokers and all transfer taxes and transfer fees in connection with a registration of Registrable Shares or exchange thereof, as applicable, pursuant to this Agreement.

(g) Executive Compensation . If the Company does not file a Registration Statement registering the exchange or resale of the Registrable Shares within ninety (90) days after the Closing Date, other than as a result of the Commission being unable to accept such filings (a “ Registration Default ”), then, for each day the Registration Default continues, Mr. Symeon Palios, the Chief Executive Officer of the Company, Mr. Anastasios Margaronis, President of the Company, Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary of the Company and Mr. Andreas Michalopoulos, Chief Financial Officer of the Company, shall each forfeit to the Company 1.0% of the restricted stock grant that was made reasonably contemporaneously with the Closing Date that would otherwise become payable, as the case may be, to him in the 2010 fiscal year after the date of this Agreement. No bonuses, compensation, awards, restricted stock, equity compensation or other amounts shall be payable or granted in lieu of or to make such Chief Executive Officer, Chief Operating Officer and Secretary, President or Chief Financial Officer whole for any such forfeited amounts.

 

3. Special Election Meeting.

(a) If a Registration Statement registering the exchange or the resale of the Registrable Shares has not been declared effective by the Commission on a date not later than eighteen (18) months after the Closing Date (the “ Trigger Date ”), a special meeting of stockholders (the “ Special Election Meeting ”) shall be called in accordance with the Bylaws of the Company. The Special

 

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Election Meeting shall occur as soon as possible following the Trigger Date but in no event more than thirty (30) days after the Trigger Date.

(b) Purposes of Meeting . The Special Election Meeting shall be called solely for the purposes of: (i) considering and voting upon proposals to remove each then-serving director of the Company; and (ii) electing such number of directors as there are then vacancies on the Board of Directors of the Company (including any vacancies created by the removal of any director pursuant to this Section 3(b). The removal of any director pursuant to Section 3(b)(i) hereof shall be effective immediately upon the receipt of the final report of the Inspector of Elections for the Special Election Meeting that reports the receipt of the requisite vote to approve the proposal to remove such director.

(c) Nominations . Nominations of individuals for election to the Board of Directors of the Company at the Special Election Meeting may only be made (i) by or at the direction of the Board of Directors or (ii) upon receipt by the Company of written notice of Holders entitled to cast, or direct the casting of, not less than 20% of all the votes entitled to be cast at the Special Election Meeting and containing the information specified by Section 3(d) hereof. Each individual whose nomination is made in accordance with this Section 3(c) is hereinafter referred to as a “Nominee.”

(d) Procedure for Stockholder Nominations . For nominations of individuals for election to the Board of Directors to be properly brought before the Special Election Meeting by Holders pursuant to Section 3(c) hereof, the Holders must have given notice thereof in writing to the Secretary of the Company not later than 5:00 p.m., Eastern Time, on the 10 th day after the Trigger Date. Such notice shall include each such proposed Nominee’s written consent to serve as a director, if elected, and shall specify:

(i) as to each proposed Nominee, the name, age, business address and residence address of such proposed Nominee and all other information relating to such proposed Nominee that would be required, pursuant to Regulation 14A promulgated under the Exchange Act (or any successor provision), to be disclosed in a contested solicitation of proxies with respect to the election of such individual as a director; and

(ii) as to each Holder giving the notice, the class, series and number of all shares of capital stock of the Company that are owned by such Holder, beneficially or of record.

(e) Notice . Not less than fifteen (15) nor more than twenty-five (25) days before the Special Election Meeting, the Secretary of the Company shall give to each stockholder entitled to vote at, or to receive notice of, such meeting at such stockholder’s address as it appears in the share transfer records of the Company, notice in writing setting forth (i) the time and place of the Special Election Meeting, (ii) the purposes for which the Special Election Meeting has been called and (iii) the name of each Nominee.

(f) This Section 3 shall be incorporated into the Company’s by-laws.

 

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4. Rules 144 and 144A Reporting

With a view to making available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Registrable Shares to the public without registration, the Company agrees to:

(a) make and keep current public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration statement under the Securities Act filed by the Company for an offering of its securities to the general public for so long as the making and keeping available of current public information is required for the resale of the Registrable Shares pursuant to Rule 144;

(b) to file with the Commission in a timely manner all reports and other documents required to be filed by the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements) for so long as the making and keeping available of current public information is required for the resale of the Registrable Shares pursuant to Rule 144;

(c) so long as a Holder owns any Registrable Shares, if the Company is not required to file reports and other documents under the Securities Act and the Exchange Act, it will make available other information as required by, and so long as necessary to permit sales of Registrable Shares pursuant to, Rule 144 or Rule 144 A, and in any event shall make available (either by mailing a copy thereof, by posting on the Company’s website, or by press release) to each Holder a copy of:

(i) the Company’s annual consolidated financial statements (including at least balance sheets, statements of profit and loss, statements of stockholders’ equity and statements of cash flows) prepared in accordance with U.S. generally accepted accounting principles in the United States, accompanied by an audit report of the Company’s independent accountants, no later than one hundred twenty (120) days after the end of each fiscal year of the Company; and

(ii) the Company’s unaudited quarterly financial statements (including at least balance sheets, statements of profit and loss, statements of stockholders’ equity and statements of cash flows) prepared in a manner consistent with the preparation of the Company’s annual financial statements, no later than sixty (60) days after the end of each of the first three fiscal quarters of the Company;

(d) Until the Company’s common shares have become registered under the Exchange Act, the Company shall hold, a reasonable time after the availability of such financial statements and upon reasonable notice to the Holders and FBR (either by mail, by posting on the Company’s website, or by press release), a quarterly investor conference call to discuss such financial statements, which call will also include an opportunity for the Holders to ask questions of management with regard to such financial statements, and will also cooperate with, and make management reasonably available to, FBR personnel in connection with making Company information available to investors; and

 

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(e) so long as a Holder owns any Registrable Shares and so long as the making and keeping available of current public information is required for the resale of the Registrable Shares pursuant to Rule 144, to furnish to the Holder promptly upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after its has become subject to the reporting requirements of the Exchange Act), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company, and take such further actions, as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such Registrable Shares without registration

 

5. Registration Procedures

In connection with the obligations of the Company with respect to any registration pursuant to this Agreement, the Company shall use its reasonable best efforts to effect or cause to be effected the registration of the Registrable Shares or the exchange thereof for Exchange Shares under the Securities Act to permit the sale of such Registrable Shares or Exchange Shares by the Holder or Holders in accordance with the Holder’s or Holders’ intended method or methods of distribution, and the Company shall:

(a) notify FBR and Selling Holders’ Counsel, in writing, promptly prior to filing a Registration Statement, of its intention to file a Registration Statement with the Commission and, promptly prior to filing, provide a copy of the Registration Statement to Selling Holders’ Counsel for review and comment; prepare and file with the Commission, as specified in this Agreement, a Registration Statement(s), which Registration Statement(s) shall (x) comply as to form in all material respects with the requirements of the Securities Act and the applicable form and include all financial statements required by the Commission to be filed therewith and (y) be reasonably acceptable to Selling Holders’ Counsel; notify FBR and Selling Holders’ Counsel in writing, promptly prior to filing of any amendment or supplement to such Registration Statement and, promptly prior to filing, provide a copy of such amendment or supplement to Selling Holders’ Counsel for review and comment; promptly following receipt from the Commission, provide to Selling Holders’ Counsel copies of any comments made by the Staff relating to such Registration Statement and of the Company’s responses thereto for review and comment; and use its reasonable efforts to cause such Registration Statement to become effective as soon as practicable after filing and to remain effective, subject to Section 6 hereof, pursuant to Section 2(a), (b) or (c), as applicable.

(b) subject to Section 5(i) hereof, (i) prepare and file with the Commission such amendments and post-effective amendments to each such Registration Statement as may be necessary to keep such Registration Statement effective for the period described in Section 5(a) hereof; (ii) cause each Prospectus contained therein to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 or any similar rule that may be adopted under the Securities Act; and (iii) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof;

 

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(c) furnish to the Holders, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Shares; the Company consents, subject to Section 6 hereof, to the use of such Prospectus, including each preliminary Prospectus, by the Holders, if any, in connection with the offering and sale of the Registrable Shares covered by any such Prospectus;

(d) use its reasonable efforts to register or qualify, or obtain exemption from registration or qualification for, all Registrable Shares and Exchange Shares by the time the applicable Registration Statement is declared effective by the Commission under all applicable state securities or “blue sky” laws of such jurisdictions as FBR or any Holder of Registrable Shares covered by a Registration Statement shall reasonably request in writing, keep each such registration or qualification or exemption effective during the period such Registration Statement is required to be kept effective pursuant to Section 5(a) and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Shares and Exchange Shares owned by such Holder; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction or to register as a broker or dealer in such jurisdiction where it would not otherwise be required to qualify but for this Section 5(d) and except as may be required by the Securities Act, (ii) subject itself to taxation in any such jurisdiction, or (iii) submit to the general service of process in any such jurisdiction;

(e) use its reasonable efforts to cause all Registrable Shares and Exchange Shares covered by such Registration Statement to be registered and approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition or exchange, as applicable, of such Registrable Shares (or exchange of Exchange Shares, as the case may be);

(f) notify FBR and each Holder promptly and, if requested by FBR or any Holder, confirm such advice in writing (1) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (2) of the issuance by the Commission or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any Proceeding for that purpose, (3) of any request by the Commission or any other federal, state or foreign governmental authority for (A) amendments or supplements to a Registration Statement or related Prospectus or (B) additional information and (4) of the happening of any event during the period a Registration Statement is effective as a result of which such Registration Statement or the related Prospectus or any document incorporated by reference therein contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading (which information shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) and (5) at the request of any such Holder, promptly to furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchaser of such securities,

 

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such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

(g) use its reasonable efforts to avoid the issuance of, or if issued, to obtain the withdrawal of, any order enjoining or suspending the use or effectiveness of a Registration Statement or suspending the qualification of (or exemption from qualification of) any of the Registrable Shares and Exchange Shares for sale in any jurisdiction, as promptly as practicable;

(h) upon request, furnish to each requesting Holder of Registrable Shares covered by a Registration Statement, without charge, one conformed copy of such Registration Statement and any post-effective amendment or supplement thereto (without documents incorporated therein by reference or exhibits thereto, unless requested);

(i) except as provided in Section 6 hereof, upon the occurrence of any event contemplated by Section 5(f)(4) hereof, use its reasonable efforts to promptly prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(j) if requested by the representative of the underwriters, if any, or any Holders of Registrable Shares being sold in connection with such offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the representative of the underwriters, if any, or such Holders indicate relates to them and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

(k) in the case of an Underwritten Offering, use its reasonable efforts to furnish to the underwriters a signed counterpart, addressed to the underwriters, of: (i) an opinion of counsel for the Company, dated the date of each closing under the underwriting agreement, reasonably satisfactory to the underwriters; and (ii) a “comfort” letter, dated the effective date of such Registration Statement and the date of each closing under the underwriting agreement, signed by the independent public accountants who have certified the Company’s financial statements included in such Registration Statement, covering substantially the same matters with respect to such Registration Statement (and the Prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants’ letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as the underwriters may reasonably request;

(l) enter into customary agreements (including in the case of an Underwritten Offering, an underwriting agreement in customary form and reasonably satisfactory to the Company) and take all other reasonable action in connection therewith in order to expedite or facilitate the distribution of the Registrable Shares included in such Registration Statement and, in the case of an

 

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Underwritten Offering, make representations and warranties to the underwriters in such form and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same to the extent customary if and when requested;

(m) make available for inspection by representatives of any underwriters participating in any disposition pursuant to a Registration Statement and any special counsel or accountants retained by such underwriters, all financial and other records, pertinent corporate documents and properties of the Company and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such representatives, the representative of the underwriters, counsel thereto or accountants in connection with a Registration Statement; provided, however, that such records, documents or information that the Company determines, in good faith, to be confidential and notifies such representatives, representative of the underwriters, counsel thereto or accountants are confidential shall not be disclosed by such representatives, representative of the underwriters, counsel thereto or accountants unless (i) the disclosure of such records, documents or information is necessary to avoid or correct a misstatement or omission in a Registration Statement or Prospectus, (ii) the release of such records, documents or information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) such records, documents or information have been generally made available to the public; provided, further, that the representatives of the underwriters will use reasonable efforts, to the extent practicable, to coordinate the foregoing inspection and information gathering and not materially disrupt the Company’s business operations;

(n) use its reasonable efforts (including, without limitation, seeking to cure any deficiencies cited by the exchange or market in the Company’s listing application) to list all Registrable Shares and Exchange Shares on the New York Stock Exchange or the Nasdaq Global Market;

(o) prepare and file in a timely manner all documents and reports required by the Exchange Act and, to the extent the Company’s obligation to file such reports pursuant to Section 15(d) of the Exchange Act expires prior to the expiration of the effectiveness period of the Registration Statement as required by Section 5(a) hereof, the Company shall register the Registrable Shares under the Exchange Act and shall maintain such registration through the effectiveness period required by Section 5(a) hereof;

(p) provide a CUSIP number for all Registrable Shares and Exchange Shares, not later than the effective date of the Registration Statement;

(q) (i) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission and (ii) make generally available to its Holders, as soon as reasonably practicable, earnings statements covering at least twelve (12) months beginning after the effective date of the Registration Statement that satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, but in no event later than one hundred twenty (120) days after the end of each fiscal year of the Company;

 

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(r) provide and cause to be maintained a registrar and transfer agent for all Registrable Shares and Exchange Shares covered by any Registration Statement from and after a date not later than the effective date of such Registration Statement;

(s) in connection with any sale, exchange, or transfer of the Registrable Shares (whether or not pursuant to a Registration Statement) that will result in the securities being delivered no longer being Registrable Shares, cooperate with the Holders and the representative of the underwriters, if any, to facilitate the timely, in the case of beneficial interests in Shares held through a depositary, transfer of such equivalent Registrable Shares or Exchange Shares with an unrestricted CUSIP, or in the case of certificated shares, preparation and delivery of certificates representing the applicable Registrable Shares or Exchange Shares, which certificates shall not bear any restrictive transfer legends; provided that each Holder and its counsel have provided the transfer agent, if it will accept an opinion of such Holder’s counsel, and the Company such certificates and opinions as reasonably requested by the transfer agent and in a form reasonably satisfactory to the Company and to enable such Registrable Shares or Exchange Shares, as applicable, to be in such denominations and registered in such names as the representative of the underwriters, if any, or the Holders may request at least three (3) Business Days prior to any sale, exchange or transfer of the Registrable Shares or within three (3) Business Days after such exchange, as applicable;

(t) in connection with the initial filing of an Exchange Offer Registration Statement or a Resale Registration Statement and each amendment thereto with the Commission pursuant to Section 2(a) or 2(b) hereof, cooperate in connection with the filing with FINRA of all forms and information required or requested by FINRA in order to obtain written confirmation from FINRA that FINRA does not object to the fairness and reasonableness of the underwriting terms and arrangements (or any deemed underwriting terms and arrangements) (each such written confirmation, a “ No Objections Letter ”) relating to the resale of Registrable Shares pursuant to the Resale Registration Statement or issuance of Exchange Shares pursuant to an Exchange Offer Registration Statement, including, without limitation, information provided to FINRA through its COBRADesk system, and pay all costs, fees and expenses incident to FINRA’s review of the Resale Registration Statement or Exchange Offer Registration Statement, as applicable, and the related underwriting terms and arrangements, including, without limitation, all filing fees associated with any filings or submissions to FINRA;

(u) in connection with the initial filing of an Exchange Offer Registration Statement or a Shelf Registration Statement and each amendment thereto with the Commission pursuant to Section 2(a) or 2(b) hereof, provide to FBR and its representatives, the opportunity to conduct due diligence, including, without limitation, an inquiry of the Company’s financial and other records, and make available members of its management for questions regarding information which FBR may request in order to fulfill any due diligence obligation on its part;

(v) upon effectiveness of the first Registration Statement filed under this Agreement, take such actions and make such filings as are necessary to effect the registration of the Common Stock under the Exchange Act simultaneously with or immediately following the effectiveness of the Registration Statement; and

 

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(w) in the case of an Underwritten Offering, use its reasonable efforts to cooperate and assist in any filings required to be made with FINRA and in the performance of any due diligence investigation by any underwriter and its counsel (including any “qualified independent underwriter,” if applicable) that is required to be retained in accordance with the rules and regulations of FINRA.

The Company may require the Holders to furnish (and each Holder shall furnish) to the Company such information regarding the proposed distribution by such Holder of such Registrable Shares as the Company may from time to time reasonably request in writing or as shall be required to effect the registration of the Registrable Shares, and no Holder shall be entitled to be named as a selling shareholder in any Registration Statement and no Holder shall be entitled to use the Prospectus forming a part thereof if such Holder does not provide such information to the Company. Any Holder that sells Registrable Shares pursuant to a Registration Statement or as a selling security holder pursuant to an Underwritten Offering shall be required to be named as a selling shareholder in the related prospectus and to deliver a prospectus to purchasers. Each Holder further agrees to furnish promptly to the Company in writing all information required from time to time to make the information previously furnished by such Holder not misleading.

Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(f)(2), 5 (f)(3) or 5(f)(4) hereof, such Holder will immediately discontinue disposition of Registrable Shares pursuant to a Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus. If so directed by the Company, such Holder will deliver to the Company (at the expense of the Company) all copies in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Shares current at the time of receipt of such notice.

 

6. Black-Out Period

(a) Subject to the provisions of this Section 6 and a good faith determination by a majority of the independent members of the board of directors of the Company (the “ Board of Directors ”) that it is in the best interests of the Company to suspend the use of the Registration Statement, following the effectiveness of a Registration Statement (and the filings with any international, federal or state securities commissions), the Company, by written notice to FBR and the Holders, may direct the Holders to suspend sales of the Registrable Shares pursuant to a Registration Statement for such times as the Company reasonably may determine is necessary and advisable (but in no event for more than an aggregate of ninety (90) days in any rolling twelve (12) month period commencing on the Closing Date or more than sixty (60) days in any rolling ninety (90) day period), if any of the following events shall occur: (i) the representative of the underwriters of an Underwritten Offering of primary shares by the Company has advised the Company that the sale of Registrable Shares pursuant to the Registration Statement would have a material adverse effect on the Company’s primary Underwritten Offering; (ii) the majority of the independent members of the Board of Directors of the Company shall have determined in good faith that (A) the offer or sale of any Registrable Shares would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, merger, tender offer,

 

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business combination, corporate reorganization or other significant transaction involving the Company, (B) after the advice of counsel, the sale of Registrable Shares pursuant to the Registration Statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law, and (C) (x) the Company has a bona fide business purpose for preserving the confidentiality of such transaction, (y) disclosure would have a material adverse effect on the Company or the Company’s ability to consummate such transaction, or (z) renders the Company unable to comply with Commission requirements, in each case under circumstances that would make it impractical or inadvisable to cause the Registration Statement (or such filings) to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis, as applicable; or (iii) the majority of the independent members of the Board of Directors of the Company shall have determined in good faith, after the advice of counsel, that it is required by law, rule or regulation or that it is in the best interests of the Company to supplement the Registration Statement or file a post-effective amendment to the Registration Statement in order to incorporate information into the Registration Statement for the purpose of (1) including in the Registration Statement any prospectus required under Section 10(a)(3) of the Securities Act; (2) reflecting in the prospectus included in the Registration Statement any facts or events arising after the effective date of the Registration Statement (or of the most recent post-effective amendment) that, individually or in the aggregate, represent a fundamental change in the information set forth therein; or (3) including in the prospectus included in the Registration Statement any material information with respect to the plan of distribution not disclosed in the Registration Statement or any material change to such information. Upon the occurrence of any such suspension, the Company shall use its best efforts to cause the Registration Statement to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis or to take such action as is necessary to make resumed use of the Registration Statement compatible with the Company’s best interests, as applicable, so as to permit the Holders to resume sales of the Registrable Shares as soon as possible.

(b) In the case of an event that causes the Company to suspend the use of a Registration Statement (a “ Suspension Event ”), the Company shall give written notice (a “ Suspension Notice ”) to FBR and the Holders to suspend sales of the Registrable Shares and such notice shall state generally the basis for the notice and that such suspension shall continue only for so long as the Suspension Event or its effect is continuing and the Company is using its best efforts and taking all reasonable steps to terminate suspension of the use of the Registration Statement as promptly as possible. The Holders shall not effect any sales of the Registrable Shares pursuant to such Registration Statement (or such filings) at any time after it has received a Suspension Notice from the Company and prior to receipt of an End of Suspension Notice (as defined below). If so directed by the Company, each Holder will deliver to the Company (at the expense of the Company) all copies other than permanent file copies then in such Holder’s possession of the Prospectus covering the Registrable Shares at the time of receipt of the Suspension Notice. The Holders may recommence effecting sales of the Registrable Shares pursuant to the Registration Statement (or such filings) following further notice to such effect (an “ End of Suspension Notice ”) from the Company, which End of Suspension Notice shall be given by the Company to the Holders and FBR in the manner described above promptly following the conclusion of any Suspension Event and its effect.

 

21


(c) Notwithstanding any provision herein to the contrary, if the Company shall give a Suspension Notice pursuant to this Section 6, the Company agrees that it shall extend the period of time during which the applicable Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from the date of receipt by the Holders of the Suspension Notice to and including the date of receipt by the Holders of the End of Suspension Notice and copies of the supplemented or amended Prospectus necessary to resume sales.

 

7. Participation of Broker-Dealers in Exchange Offer.

(a) The Staff has taken the position that any broker-dealer that receives Exchange Shares for its own account in the Exchange Offer in exchange for Common Shares that were acquired by such broker-dealer as a result of market-making or other trading activities (a “Participating Broker-Dealer”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Shares.

(b) The Company understands that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Shares, without naming the Participating Broker-Dealers or specifying the amount of Exchange Shares owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the Securities Act in connection with resales of Exchange Shares for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.

(c) In light of the above, and notwithstanding the other provisions of this Agreement, the Company agrees to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Section 5(i) hereof, for a period of up to 120 days after the last Exchange Date (as such period may be extended pursuant to Section 6 hereof), if requested by the Participants or by one or more Participating Broker-Dealers, in order to expedite or facilitate the disposition of any Exchange Shares by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 7(a) hereof. The Company further agrees that Participating Broker-Dealers shall be authorized to deliver such Prospectus during such period in connection with the resales contemplated by this Section 7.

(d) The Participants shall have no liability to the Company or any Holder with respect to any request that they may make pursuant to Section 7(c) hereof.

 

8. Indemnification and Contribution

(a) The Company agrees to indemnify and hold harmless (i) each Holder of Registrable Shares and any underwriter (as determined in the Securities Act) for such Holder (including, if applicable, FBR), (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) any such Person described in clause (i) (any

 

22


of the Persons referred to in this clause (ii) being hereinafter referred to as a “Controlling Person” ), and (iii) the respective officers, directors, partners, members, employees, representatives and agents of any such Person or any Controlling Person (any Person referred to in clause (i), (ii) or (iii) above may hereinafter be referred to as a “Purchaser Indemnitee” ), to the fullest extent lawful, from and against any and all losses, claims, damages, judgments, actions, out-of-pocket expenses, and other liabilities (the “Liabilities” ), including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or Proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Purchaser Indemnitee, joint or several, based upon or arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), any Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus (or any amendment or supplement thereto), or any preliminary Prospectus or any other document used to sell the Shares, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such Liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Purchaser Indemnitee furnished to the Company, or any underwriter in writing by such Purchaser Indemnitee expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any claim, Proceeding (including any governmental investigation), or litigation of which it shall have become aware in connection with the matters addressed by this Agreement which involves the Company or a Purchaser Indemnitee. The indemnity provided for herein shall remain in full force and effect regardless of any investigation made by or on behalf of any Purchaser Indemnitee.

(b) In connection with any Registration Statement in which a Holder of Registrable Shares is participating, and as a condition to such participation, such Holder agrees, severally and not jointly, to indemnify and hold harmless the Company and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and their respective officers, directors, partners, members, employees, representatives and agents of such Person or Controlling Person to the same extent as the foregoing indemnity from the Company to each Purchaser Indemnitee, but only with reference to untrue statements or omissions or alleged untrue statements or omissions made in reliance upon and in strict conformity with information relating to such Holder furnished to the Company in writing by such Holder expressly for use in such Registration Statement (or any amendment thereto), Prospectus (or any amendment or supplement thereto), Issuer Free Writing Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. Absent gross negligence or willful misconduct, the liability of any Holder pursuant to this paragraph shall in no event exceed the net proceeds received by such Holder from sales of Registrable Shares pursuant to such Registration Statement (or any amendment thereto), Prospectus (or any amendment or supplement thereto), Issuer Free Writing Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus.

(c) If any suit, action, Proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to paragraph (a) or (b) above, such Person (the “Indemnified Party” ) shall promptly notify the Person against whom such indemnity may be sought (the

 

23


Indemnifying Party ”) in writing of the commencement thereof (but the failure to so notify an Indemnifying Party shall not relieve it from any liability which it may have under this Section 8, except to the extent the Indemnifying Party is materially prejudiced by the failure to give notice), and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Indemnifying Party may reasonably designate in such Proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such Proceeding. Notwithstanding the foregoing, in any such Proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Party failed within a reasonable time after notice of commencement of the action to assume the defense and employ counsel reasonably satisfactory to the Indemnified Party, (iii) the Indemnifying Party and its counsel, in the reasonable judgment of the Indemnified Party, do not actively and vigorously pursue the defense of such action or (iv) the named parties to any such action (including any impleaded parties) include both such Indemnified Party and Indemnifying Party, or any Affiliate of the Indemnifying Party, and such Indemnified Party shall have been reasonably advised by counsel that, either (x) there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party or such Affiliate of the Indemnifying Party or (y) a conflict may exist between such Indemnified Party and the Indemnifying Party or such Affiliate of the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume nor direct the defense of such action on behalf of such Indemnified Party; it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Parties, which firm shall be designated in writing by those Indemnified Parties who sold a majority of the Registrable Shares sold by all such Indemnified Parties and any such separate firm for the Company, the directors, the officers and such control Persons of the Company as shall be designated in writing by the Company). The Indemnifying Party shall not be liable for any settlement of any Proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent or if there is a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify any Indemnified Party from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement (i) includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and (ii) does not include a statement as to or an admission of, fault, culpability or a failure to act by or on behalf of the Indemnified Party.

(d) If the indemnification provided for in paragraphs (a) and (b) of this Section 8 is for any reason held to be unavailable to an Indemnified Party in respect of any Liabilities referred to therein (other than by reason of the exceptions provided therein) or is insufficient to hold harmless a party indemnified thereunder, then each Indemnifying Party under such paragraphs, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities (i) in such proportion as is appropriate to

 

24


reflect the relative benefits of the Indemnified Party on the one hand and the Indemnifying Party(ies) on the other in connection with the statements or omissions that resulted in such Liabilities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party(ies) and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and any Purchaser Indemnitees on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by such Purchaser Indemnitees and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if such Indemnified Parties were treated as one entity for such purpose), or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d) above. The amount paid or payable by an Indemnified Party as a result of any Liabilities referred to in Section 8(d) above shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, in no event shall a Purchaser Indemnitee be required to contribute any amount in excess of the amount by which the net proceeds received by such Purchaser Indemnitee from sales of Registrable Shares exceeds the amount of any damages that such Purchaser Indemnitee has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) FBR or a Holder of Registrable Shares shall have the same rights to contribution as FBR or such Holder, as the case may be, and each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) the Company, and each officer, director, partner, employee, representative, agent or manager of the Company shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or Proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise, except to the extent that any party is materially prejudiced by the failure to give notice. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(f) The indemnity and contribution agreements contained in this Section 8 will be in addition to any liability which the Indemnifying Parties may otherwise have to the Indemnified Parties referred to above. The Purchaser Indemnitee’s obligations to contribute pursuant to this Section 8 are several in proportion to the respective number of Registrable Shares sold by each of the Purchaser Indemnitees hereunder and not joint.

 

25


 

9. Market Stand-off Agreement

In no way limiting the requirements of Section 2(e), each Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, directly or indirectly sell, offer to sell (including without limitation any short sale), grant any option or otherwise transfer or dispose of any Registrable Shares or other shares of Common Stock of the Company or any securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for a period of sixty (60) days following the effective date of an IPO Registration Statement of the Company filed under the Securities Act; provided, however, that:

(a) the restrictions above shall not apply to Registrable Shares sold pursuant to the IPO Registration Statement;

(b) all executive officers and directors of the Company then holding shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company enter into agreements that are no less restrictive;

(c) the Holders shall be allowed any concession or proportionate release allowed to any officer or director that entered into agreements that are no less restrictive (with such proportion being determined by dividing the number of shares being released with respect to such officer or director by the total number of issued and outstanding shares held by such officer or director); provided, that nothing in this Section 9(c) shall be construed as a right to proportionate release for the executive officers and directors of the Company upon the expiration of the sixty (60) day period applicable to all Holders other than the executive officers and directors of the Company; and

(d) this Section 9 shall not be applicable if a Resale Registration Statement or Exchange Registration Statement of the Company filed under the Securities Act has been declared effective prior to the filing of an IPO Registration Statement.

In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the securities subject to this Section 9 and to impose stop transfer instructions with respect to the Registrable Shares and such other securities of each Holder (and the securities of every other Person subject to the foregoing restriction) until the end of such period.

 

10. Termination of the Company’s Obligation

The Company shall have no obligation pursuant to this Agreement with respect to any Registrable Shares proposed to be sold or exchanged by a Holder in a registration pursuant to this Agreement if, in the opinion of counsel to the Company, (i) all such Registrable Shares proposed to be sold by a Holder may be sold in a single transaction without registration under the Securities

 

26


Act pursuant to Rule 144, (ii) the Company has become subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for a period of at least ninety (90) days and is current in the filing of all such required reports, and (iii) the Registrable Shares have been listed for trading on a national securities exchange.

 

11. Limitations on Subsequent Registration Rights

From and after the date of this Agreement, the Company shall not, without the prior written consent of Holders beneficially owning not less than a majority of the then outstanding Registrable Shares ( provided, however , that for purposes of this Section 11, Registrable Shares that are owned, directly or indirectly, by an Affiliate of the Company shall not be deemed to be outstanding), enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any Registration Statement filed pursuant to the terms hereof, unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of Registrable Shares of the Holders that is included, or (b) to have its securities registered on a registration statement that could be declared effective prior to, or within one hundred eighty (180) days of, the effective date of any registration statement filed pursuant to this Agreement.

 

12. Miscellaneous

(a) Remedies. In the event of a breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein or, in the case of FBR, in the Purchase/Placement Agreement, or granted by law, including the rights granted in Section 2(g) hereof and recovery of damages, will be entitled to specific performance of its rights under this Agreement. Subject to Section 8, the Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, without the written consent of the Company and Holders beneficially owning not less than a majority of the then outstanding Registrable Shares; provided, however , that for purposes of this Section 12(b), Registrable Shares that are owned, directly or indirectly, by an Affiliate of the Company shall not be deemed to be outstanding. No amendment shall be deemed effective unless it applies uniformly to all Holders. Notwithstanding the foregoing, a waiver or consent to or departure from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders may be given by such Holder; provided that the provisions

 

27


of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the first and second sentences of this paragraph.

(c) Notices . All notices and other communications, provided for or permitted hereunder, shall be made in writing and delivered by facsimile (with receipt confirmed), overnight courier or registered or certified mail, return receipt requested, or by telegram:

(i) if to a Holder, at the most current address given by the transfer agent and registrar of the Shares to the Company; and

(ii) if to the Company, at the offices of the Company at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece, Attention: Ioannis Zafirakis (facsimile: +30 210 947 0101); and

(iii) if to FBR, at the offices of FBR at 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention: William Ginivan, Esq. (facsimile 703-469-1140).

(d) Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including, without limitation and without the need for an express assignment or assumption, subsequent Holders. The Company agrees that the Holders shall be third party beneficiaries to the agreements made hereunder by FBR and the Company, and each Holder shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder; provided, however , that such Holder fulfills all of its obligations hereunder.

(e) Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(f) Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(g) Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES OTHER THAN 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER STATE. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE COURT IN THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING IN NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY

 

28


EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(h) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties hereto that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(i) Entire Agreement. This Agreement, together with the Purchase/Placement Agreement, is intended by the parties hereto as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.

(j) Registrable Shares Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Shares is required hereunder, Registrable Shares held by the Company or its Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(k) Adjustment for Stock Splits, etc. Wherever in this Agreement there is a reference to a specific number of shares, then upon the occurrence of any subdivision, combination, or stock dividend of such shares, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination, or stock dividend.

(l) Survival. This Agreement is intended to survive the consummation of the transactions contemplated by the Purchase/Placement Agreement. The indemnification and contribution obligations under Section 8 of this Agreement shall survive the termination of the Company’s obligations under Section 2 of this Agreement.

[Signature page follows]

 

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IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

 

DIANA CONTAINERSHIPS INC.
By:   LOGO
  Name:    Symeon Palios
  Title:      Director, Chief Executive Officer                and Chairman

 

DIANA SHIPPING INC.
By:    
  Name:    Anastasios Margaronis
  Title:      Director and President

 

FBR CAPITAL MARKETS & CO.
By:    
  Name:    
  Title:    

[Signature Page to Registration Rights Agreement]


 

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

 

DIANA CONTAINERSHIPS INC.
By:    
  Name:    Symeon Palios
  Title:      Director, Chief Executive Officer                and Chairman

 

DIANA SHIPPING INC.
By:   LOGO
  Name:    Anastasios Margaronis
  Title:      Director and President

 

FBR CAPITAL MARKETS & CO.
By:    
  Name:    
  Title:    

[Signature Page to Registration Rights Agreement]


 

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

 

DIANA CONTAINERSHIPS INC.
By:    
  Name:    
  Title:    

 

DIANA SHIPPING INC.
By:    
  Name:    
  Title:    

 

FBR CAPITAL MARKETS & CO.
By:   LOGO
  Name:    James R. Kleeblatt
  Title:      Vice Chairman

[Signature Page to Registration Rights Agreement]

 

Exhibit 4.3

EXECUTION COPY

STOCKHOLDERS RIGHTS AGREEMENT

between

DIANA CONTAINERSHIPS INC.

and

MELLON INVESTOR SERVICES LLC,

as Rights Agent

Dated as of August 2, 2010


 

This Stockholders Rights Agreement (this “ Rights Agreement ”) is made and entered into as of August 2, 2010, by and between Diana Containerships Inc., a Marshall Islands corporation (the “ Company ”), and Mellon Investor Services LLC, a New Jersey limited liability company, as Rights Agent (the “Rights Agent”).

WHEREAS, the Board of Directors of the Company (the “ Board ”) has (a) authorized and declared a dividend of one right (the “ Right ”) for each share of the Company’s common stock, par value $0.01 per share (the “Common Stock”) held of record as of the Close of Business (as hereinafter defined) on August 16, 2010 (the “ Record Date ”) and (b) has further authorized the issuance of one Right in respect of each share of Common Stock that shall become outstanding (i) at any time between the Record Date and the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date (as such terms are hereinafter defined) or (ii) upon the exercise or conversion, prior to the earlier of the Redemption Date or the Final Expiration Date, of any option or other security exercisable for or convertible into shares of Common Stock, which option or other such security is outstanding on the Distribution Date; and

WHEREAS, each Right represents the right of the holder thereof to purchase one one-thousandth of a share of Series A Participating Preferred Stock (as such number may hereafter be adjusted pursuant to the provisions hereof), upon the terms and subject to the conditions set forth herein, having the rights, preferences and privileges set forth in the Certificate of Designations of Series A Participating Preferred Stock, attached hereto as Exhibit A .

NOW THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereby agree as follows:

1. Certain Definitions . For purposes of this Rights Agreement, the following terms have the meanings indicated:

Acquiring Person ” shall mean any Person (as hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as hereinafter defined) of 15% or more of the shares of Common Stock then outstanding, but shall not include the Company, any Subsidiary (as hereinafter defined) of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person holding shares of Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring Person if such Person shall become the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding solely as a result of a grant under a Company equity incentive plan, a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock; provided, however, that a Person who (i) becomes the Beneficial Owner of 15% or more of the shares of Common Stock of the Company then outstanding by reason of a grant under a Company equity incentive plan, dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock and (ii) becomes the Beneficial Owner of any additional shares of Common Stock of the Company (other than pursuant to an additional grant under a Company equity incentive plan, dividend or distribution

 

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paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock), shall be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of such additional shares of Common Stock of the Company such Person does not beneficially own 15% or more of the shares of Common Stock of the Company then outstanding. Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring Person as the result of an acquisition of shares of Common Stock by the Company or any subsidiary of the Company or an employee benefit plan of the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the shares of Common Stock of the Company then outstanding; provided, however, that a Person who (i) becomes the Beneficial Owner of 15% or more of the shares of Common Stock of the Company then outstanding by reason of share purchases by the Company or any Subsidiary of the Company or an employee benefit plan of the Company and (ii) after such share purchases, becomes the Beneficial Owner of any additional shares of Common Stock of the Company (other than pursuant to a grant under a Company equity incentive plan, a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock), shall be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of such additional shares of Common Stock of the Company such Person does not beneficially own 15% or more of the shares of Common Stock of the Company then outstanding. Notwithstanding the foregoing, if the Company’s Board of Directors determines in good faith that a Person who would otherwise be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently (including, without limitation, because (A) such Person was unaware that it beneficially owned a percentage of the shares of Common Stock that would otherwise cause such Person to be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph, or (B) such Person was aware of the extent of the shares of Common Stock it beneficially owned but had no actual knowledge of the consequences of such beneficial ownership under this Rights Agreement) and without any intention of changing or influencing control of the Company, and if such Person divested or divests as promptly as practicable a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph, then such Person shall not be deemed to be or have ever been an Acquiring Person for any purposes of this Rights Agreement. Notwithstanding the foregoing, if, as of the date hereof, any Person is the Beneficial Owner of 15% or more of the shares of Common Stock outstanding, such Person shall not be or become an “Acquiring Person,” as defined herein, unless and until such time as such Person shall become the Beneficial Owner of additional shares of Common Stock in an amount in excess of 1% of the Company’s then outstanding common stock, (excluding shares acquired pursuant to a grant under a Company equity incentive plan, a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock), unless upon becoming the Beneficial Owner of such additional shares of Common Stock, such Person is not then the beneficial owner of 15% or more of the shares of Common Stock then outstanding. Notwithstanding the foregoing, Diana Shipping Inc. shall not be considered an Acquiring Person.

Adjustment fraction ” shall have the meaning set forth in Section 11(a)(i) hereof.

 

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Affiliate ” and “ Associate ” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (as hereinafter defined), as in effect on the date of this Rights Agreement.

A Person shall be deemed the “ Beneficial Owner ” of, and shall be deemed to “ Beneficially Own ,” any securities:

 

  (i) which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or successor law or regulation);

 

  (ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to acquire or direct the acquisition of (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided , however , that a Person shall not be deemed pursuant to this subsection (ii)(A) to be the beneficial owner of, or to beneficially own, (1) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (2) securities which a Person or any of such Person’s Affiliates or Associates may be deemed to have the right to acquire pursuant to any merger or other acquisition agreement between the Company and such Person (or one or more of its Affiliates or Associates) if such agreement has been approved by the Board of Directors of the Company prior to there being an Acquiring Person; or (B) the right to vote pursuant to any agreement, arrangement or understanding or otherwise; provided , however , that a Person shall not be deemed the beneficial owner of, or to beneficially own, any security under this subsection (ii)(B) if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

 

  (iii)

which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding, whether or not in writing (other than customary agreements with and between underwriters and selling group members with respect to a bona fide

 

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public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to subsection (ii)(B) above) or disposing of any securities of the Company; provided , however , that in no case shall an officer or director of the Company be deemed (x) the beneficial owner of any securities beneficially owned by another officer or director of the Company solely by reason of actions undertaken by such persons in their capacity as officers or directors of the Company or (y) the beneficial owner of securities held of record by the trustee of any employee benefit plan of the Company or any Subsidiary of the Company for the benefit of any employee of the Company or any Subsidiary of the Company, other than the officer or director, by reason of any influence that such officer or director may have over the voting of the securities held in the plan.

Business Day ” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in New Jersey or New York are authorized or obligated by law or executive order to close.

Close of Business ” on any given date shall mean 5:00 P.M., New York time, on such date; provided , however , that if such date is not a Business Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.

Common Stock ” shall have the meaning set forth in the preamble. Common Stock when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.

Common Stock Equivalents ” shall have the meaning set forth in Section 11(a)(iii) hereof.

Company ” shall have the meaning set forth in the preamble, subject to the terms of Section 13(a)(iii)(C) hereof.

Current Per Share Market Price ” of any security (a “Security” for purposes of this definition), for all computations other than those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the daily closing prices per share of such Security for the thirty (30) consecutive Trading Days immediately prior to but not including such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price of any Security on any date shall be deemed to be the average of the daily closing prices per share of such Security for the ten (10) consecutive Trading Days immediately prior to but not including such date; provided , however , that in the event that the Current Per Share Market Price of the Security is determined during a period following the announcement by the issuer of such Security of (i) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares or (ii) any subdivision, combination or reclassification of such Security, and prior to the expiration of the applicable thirty (30) Trading Day or ten (10)

 

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Trading Day period, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the Current Per Share Market Price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last sale price or, if such last sale price is not reported, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Security, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. If the Preferred Shares are not publicly traded, the Current Per Share Market Price of the Preferred Shares shall be conclusively deemed to be the Current Per Share Market Price of the shares of Common Stock as determined pursuant to this definition, as appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof, multiplied by 1000. If the Security is not publicly held or so listed or traded, Current Per Share Market Price shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

Current Value ” shall have the meaning set forth in Section 11(a)(iii) hereof.

Distribution Date ” shall mean the earlier of (i) the Close of Business on the tenth calendar day after the Shares Acquisition Date (or, if the tenth calendar day after the Shares Acquisition Date occurs before the Record Date, the Close of Business on the Record Date) or (ii) the Close of Business on the tenth Business Day (or such later date as may be determined by action of the Company’s Board of Directors) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if, assuming the successful consummation thereof, such Person would be an Acquiring Person.

Equivalent Shares ” shall mean Preferred Shares and any other class or series of capital stock of the Company which is entitled to the same rights, privileges and preferences as the Preferred Shares.

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

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Exchange Ratio ” shall have the meaning set forth in Section 24(a) hereof.

Exercise Price ” shall have the meaning set forth in Section 4(a) hereof.

Expiration Date ” shall mean the earliest to occur of: (i) the Close of Business on the Final Expiration Date, (ii) the Redemption Date, or (iii) the time at which the Board of Directors orders the exchange of the Rights as provided in Section 24 hereof.

Final Expiration Date ” shall mean August 2, 2020.

Nasdaq ” shall mean the National Association of Securities Dealers, Inc. Automated Quotations System.

Person ” shall mean any individual, firm, corporation, limited liability company, partnership, trust or other entity, and shall include any successor (by merger or otherwise) thereof or thereto.

Post-Event Transferee ” shall have the meaning set forth in Section 7(e) hereof.

Preferred Shares ” shall mean shares of Series A Participating Preferred Stock, $0.01 par value, of the Company having the rights and preferences set forth in the Form of Certificate of Designation, Preferences and Rights included as Exhibit A to this Stockholders’ Rights Plan.

Pre-Event Transferee ” shall have the meaning set forth in Section 7(e) hereof.

Principal Party ” shall have the meaning set forth in Section 13(b) hereof.

Record Date ” shall have the meaning set forth in the recitals at the beginning of this Rights Agreement.

Redemption Date ” shall have the meaning set forth in Section 23(a) hereof.

Redemption Price ” shall have the meaning set forth in Section 23(a) hereof.

Rights Agent ” shall mean Mellon Investor Services LLC, a New Jersey limited liability company, or its successor or replacement as provided in Sections 19 and 21 hereof.

Rights Certificate ” shall mean a certificate substantially in the form attached hereto as Exhibit B .

Section 11(a)(ii) Trigger Date ” shall have the meaning set forth in Section 11(a)(iii) hereof.

Section 13 Event ” shall mean any event described in clause (i), (ii) or (iii) of Section 13(a) hereof.

SEC ” shall mean the U.S. Securities and Exchange Commission or any successor thereto.

 

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Securities Act ” shall mean the Securities Act of 1933, as amended.

Shares Acquisition Date ” shall mean the first date of public announcement (which, for purposes of this definition shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such; provided that, if such Person is determined not to have become an Acquiring Person as defined herein, then no Shares Acquisition Date shall be deemed to have occurred.

Spread ” shall have the meaning set forth in Section 11(a)(iii) hereof.

Subsidiary ” of any Person shall mean any corporation or other entity of which an amount of voting securities sufficient to elect a majority of the directors or Persons having similar authority of such corporation or other entity is Beneficially Owned, directly or indirectly, by such Person, or any corporation or other entity otherwise controlled by such Person.

Substitution Period ” shall have the meaning set forth in Section 11(a)(iii) hereof.

Summary of Rights ” shall mean a summary of this Rights Agreement substantially in the form attached hereto as Exhibit C .

Total Exercise Price ” shall have the meaning set forth in Section 4(a) hereof.

Trading Day ” shall mean a day on which the principal national securities exchange on which a referenced security is listed or admitted to trading is open for the transaction of business or, if a referenced security is not listed or admitted to trading on any national securities exchange, a Business Day.

A “ Triggering Event ” shall be deemed to have occurred upon any Person, becoming an Acquiring Person.

2. Appointment of Rights Agent . The Company hereby appoints the Rights Agent to act as rights agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agent as it may deem necessary or desirable. The Rights Agent shall have no duty to supervise, and in no event shall be liable for, the acts or omissions of any such co-Rights Agent appointed by the Company.

3. Issuance of Rights Certificates .

(a) Until the Distribution Date, (i) the Rights will be evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof) by the certificates for shares of Common Stock registered in the names of the holders thereof (which certificates shall also be deemed to be Rights Certificates) and not by separate Rights Certificates and (ii) the right to receive Rights Certificates will be transferable only in connection with the transfer of shares of Common Stock. Until the earlier of the Distribution Date or the Expiration Date, the surrender for transfer of certificates for shares of Common Stock shall also constitute the surrender for transfer of the Rights associated with the shares of Common Stock represented thereby. As soon as practicable

 

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after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested and provided with all necessary information, send) by first-class, postage-prepaid mail, to each record holder of shares of Common Stock as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, or the transfer agent or registrar for the Common Stock, a Rights Certificate, in substantially the form of Exhibit B hereto, evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11 hereof, then at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of the Distribution Date, the Rights will be evidenced solely by such Rights Certificates and may be transferred by the transfer of the Rights Certificates as permitted hereby, separately and apart from any transfer of shares of Common Stock, and the holders of such Rights Certificates as listed in the records of the Company or any transfer agent or registrar for the Rights shall be the record holders thereof.

The Company shall promptly notify the Rights Agent of the occurrence of the Distribution Date and, if such notification is given orally, the Company shall confirm same in writing on or prior to the next Business Day. Until such notice is received by the Rights Agent, whether written or oral, the Rights Agent may presume conclusively for all purposes that the Distribution Date has not occurred.

(b) On the Record Date or as soon as practicable thereafter, the Company will send a copy of the Summary of Rights by first-class, postage-prepaid mail, to each record holder of shares of Common Stock as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company or the transfer agent or registrar for the Common Stock. With respect to certificates for shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with the Summary of Rights. Until the Distribution Date (or, if earlier, the Expiration Date), the surrender for transfer of any certificate for shares of Common Stock outstanding on the Record Date, with or without a copy of the Summary of Rights, shall also constitute the transfer of the Rights associated with the shares of Common Stock represented thereby.

(c) Unless the Board of Directors by resolution adopted at or before the time of the issuance of any shares of Common Stock specifies to the contrary, Rights shall be issued in respect of all shares of Common Stock that are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date or, in certain circumstances provided in Section 22 hereof, after the Distribution Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear a legend in substantially the following form:

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A STOCKHOLDERS RIGHTS AGREEMENT BETWEEN DIANA CONTAINERSHIPS INC. AND MELLON INVESTOR SERVICES LLC, AS THE RIGHTS AGENT, DATED AS OF AUGUST 2, 2010, (THE “RIGHTS AGREEMENT”), THE TERMS OF WHICH ARE HEREBY

 

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INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF DIANA CONTAINERSHIPS INC. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. DIANA CONTAINERSHIPS INC. WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.

With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the shares of Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the shares of Common Stock represented thereby.

(d) In the event that the Company purchases or acquires any shares of Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such shares of Common Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the shares of Common Stock which are no longer outstanding.

4. Form of Rights Certificates .

(a) The Rights Certificates (and the forms of election to purchase shares of Series A Preferred Stock and of assignment to be printed on the reverse thereof) shall be substantially in the form of Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate (but which do not affect the rights, duties or responsibilities of the Rights Agent) and as are not inconsistent with the provisions of this Rights Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or a national market system, on which the Rights may from time to time be listed or traded, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date (or in the case of Rights issued with respect to shares of Common Stock issued by the Company after the Record Date, as of the date of issuance of such shares of Common Stock) and on their face shall entitle the holders thereof to purchase such number of one one-thousandth of a Preferred Share as shall be set forth therein at the price set forth therein (such exercise price per one one-thousandth of a Preferred Share being hereinafter referred to as the “ Exercise Price ” and the aggregate Exercise Price of all Preferred Shares issuable upon exercise of one Right being hereinafter referred to as the “ Total Exercise Price ”), but the number and type of securities purchasable upon the exercise of each Right and the Exercise Price shall be subject to adjustment as provided herein.

(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or

 

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(iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Company’s Board of Directors has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent the Rights Agent has received written notice thereof and to the extent feasible) a legend in substantially the following form:

THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT

5. Countersignature and Registration .

(a) The Rights Certificates shall be duly executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its Chief Financial Officer, its President or any Vice President, either manually or by facsimile signature, and by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal (if any) or a facsimile thereof. The Rights Certificates shall be either manually or by facsimile signature countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates on behalf of the Company had not ceased to be such officer of the Company; and any Rights Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

(b) Following the Distribution Date, receipt by the Rights Agent of notice to that effect and all other relevant information referred to in Section 3(a), the Rights Agent will keep or cause to be kept, at its office designated for such purposes, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.

 

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6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates .

(a) Subject to the provisions of Sections 7(e), 14 and 24 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the Expiration Date, any Rights Certificate or Rights Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Rights Certificates, entitling the registered holder to purchase a like number of one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or other assets, as the case may be) as the Rights Certificate or Rights Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Rights Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Rights Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose. The Rights Certificates are transferable only on the registry books of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate or Rights Certificates until the registered holder shall have properly completed and duly signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof and of the Rights evidenced thereby and the Affiliates and Associates of such Beneficial Owner (or former Beneficial Owner) as the Company or the Rights Agent shall reasonably request. Thereupon the Rights Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and deliver to the person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates as required by Section 9(e) hereof. The Rights Agent shall forward any such sum collected by it to the Company or to such Persons as the Company shall specify by written notice. The Rights Agent shall have no duty or obligation under any Section of this Agreement requiring the payment of taxes and charges, unless and until it is satisfied that all such taxes and/or charges have been paid.

(b) Upon receipt by the Company and the Rights Agent of evidence satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will make and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered holder in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

7. Exercise of Rights; Exercise Price; Expiration Date of Rights .

(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date and prior to the Close of Business on the Expiration Date by surrender of the Rights Certificate, with the form of election to purchase on the reverse side thereof properly completed and duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Exercise Price for each one one-thousandth of a Preferred Share (or, following a Triggering

 

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Event, other securities, cash or other assets as the case may be) as to which the Rights are exercised, and an amount equal to any tax or charge required to be paid under Section 9(e) hereof, by certified check, cashier’s check, bank draft or money order payable to the order of the Company.

(b) The Exercise Price for each one one-thousandth of a Preferred Share issuable pursuant to the exercise of a Right shall initially be one hundred U.S. Dollars ($100), shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below.

(c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Exercise Price for the number of one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or other assets as the case may be) to be purchased and an amount equal to any applicable tax or charge required to be paid by the holder of such Rights Certificate in accordance with Section 9(e) hereof, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent for the Preferred Shares) a certificate or certificates for the number of one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or other assets as the case may be) to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests or (B) if the Company shall have elected to deposit the total number of one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or other assets as the case may be) issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or other assets as the case may be) as are to be purchased (in which case certificates for the Preferred Shares (or, following a Triggering Event, other securities, cash or other assets as the case may be) represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when necessary to comply with this Rights Agreement, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder and (iv) when necessary to comply with this Rights Agreement, after receipt thereof, deliver such cash to or upon the order of the registered holder of such Rights Certificate. The payment of the Exercise Price (as such amount may be reduced (including to zero) pursuant to Section 11(a)(iii) hereof) and an amount equal to any applicable tax or charge required to be paid by the holder of such Rights Certificate in accordance with Section 9(e) hereof, may be made in cash or by certified bank check, cashier’s check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue securities of the Company other than Preferred Shares, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when necessary to comply with this Rights Agreement.

 

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(d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Rights Certificate or to his or her duly authorized assigns, subject to the provisions of Section 14 hereof.

(e) Notwithstanding anything in this Rights Agreement to the contrary, from and after the first occurrence of a Triggering Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such (a “ Post-Event Transferee ”), (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Company’s Board of Directors has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e) (a “ Pre-Event Transferee ”) or (iv) any subsequent transferee receiving transferred Rights from a Post-Event Transferee or a Pre-Event Transferee, either directly or through one or more intermediate transferees, shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Rights Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but neither the Company nor the Rights Agent shall have any liability to any holder of Rights Certificates or to any other Person as a result of the Company’s failure to make any determinations with respect to an Acquiring Person or any of such Acquiring Person’s Affiliates, Associates or transferees hereunder.

(f) Notwithstanding anything in this Rights Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall, in addition to having complied with the requirements of Section 7(a), have (i) properly completed and duly signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof and of the Rights evidenced thereby or Affiliates and Associates of such Beneficial Owner (or former Beneficial Owner) as the Company or the Rights Agent shall reasonably request.

8. Cancellation and Destruction of Rights Certificates . All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any Rights

 

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Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

9. Reservation and Availability of Preferred Shares .

(a) The Company covenants and agrees that it will use its best efforts to cause to be reserved and kept available out of its authorized and unissued Preferred Shares not reserved for another purpose (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities), the number of Preferred Shares (and, following the occurrence of the Triggering Event, Common Stock and/or other securities) that will be sufficient to permit the exercise in full of all outstanding Rights.

(b) If the Company shall hereafter list any of its Preferred Shares on a national securities exchange, then so long as the Preferred Shares (and, following the occurrence of a Triggering Event, shares of Common Stock and/or other securities) issuable and deliverable upon exercise of the Rights may be listed on such exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.

(c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Triggering Event in which the consideration to be delivered by the Company upon exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Securities Act with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities and (B) the date of expiration of the Rights. The Company may temporarily suspend, for a period not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement and notify the Rights Agent that the exercisability of the Rights has been temporarily suspended, as well as issue a public announcement and notification to the Rights Agent at such time as the suspension is no longer in effect. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. Notwithstanding any provision of this Rights Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction, unless the requisite qualification in such jurisdiction shall have been obtained, or an exemption therefrom shall be available, and until a registration statement has been declared effective.

(d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares (or other securities of the Company) delivered

 

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upon exercise of Rights shall, at the time of delivery of the certificates for such securities (subject to payment of the Exercise Price), be duly and validly authorized and issued and fully paid and non-assessable shares.

(e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes or charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any Preferred Shares (or other securities of the Company) upon the exercise of Rights. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer or delivery of Rights Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares (or other securities of the Company) in a name other than that of, the registered holder of the Rights Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares (or other securities of the Company) upon the exercise of any Rights until any such tax or charge shall have been paid (any such tax or charge being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s or the Rights Agent’s satisfaction that no such tax or charge is due.

10. Record Date . Each Person in whose name any certificate for a number of one one-thousandth of a Preferred Share (or other securities of the Company) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of Preferred Shares (or other securities of the Company) represented thereon, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Total Exercise Price with respect to which the Rights have been exercised (and any applicable taxes) was made; provided , however , that if the date of such surrender and payment is a date upon which the transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a holder of Preferred Shares (or other securities of the Company) for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

11. Adjustment of Exercise Price, Number of Shares or Number of Rights . The Exercise Price, the number and kind of shares or other property covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

(a) (i) Notwithstanding anything in this Rights Agreement to the contrary, in the event the Company shall at any time after the date of this Rights Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares (by reverse stock split or otherwise) into a smaller number of Preferred Shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a

 

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consolidation or merger in which the Company is the continuing or surviving corporation), then, in each such event, except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall be adjusted so that the Exercise Price thereafter shall equal the result obtained by dividing the Exercise Price in effect immediately prior to such time by a fraction (the “ Adjustment Fraction ”), the numerator of which shall be the total number of Preferred Shares (or shares of capital stock issued in such reclassification of the Preferred Shares) outstanding immediately following such time and the denominator of which shall be the total number of Preferred Shares outstanding immediately prior to such time; provided , however , that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of such Right; and (2) the number of one one-thousandth of a Preferred Share (or share of such other capital stock) issuable upon the exercise of each Right shall equal the number of one one-thousandth of a Preferred Share (or share of such other capital stock) as was issuable upon exercise of a Right immediately prior to the occurrence of the event described in clauses (A)-(D) of this Section 11(a)(i), multiplied by the Adjustment Fraction; provided , however , that, no such adjustment shall be made pursuant to this Section 11(a)(i) to the extent that there shall have simultaneously occurred an event described in clause (A), (B), (C) or (D) of Section 11(n) with a proportionate adjustment being made thereunder. Each share of Common Stock that shall become outstanding after an adjustment has been made pursuant to this Section 11(a)(i) shall have associated with it the number of Rights, exercisable at the Exercise Price and for the number of one one-thousandth of a Preferred Share (or shares of such other capital stock) as one share of Common Stock has associated with it immediately following the adjustment made pursuant to this Section 11(a)(i).

(ii) Subject to Section 24 of this Rights Agreement, in the event a Triggering Event shall have occurred, then promptly following such Triggering Event each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive for each Right, upon exercise thereof in accordance with the terms of this Rights Agreement and payment of the Exercise Price in effect immediately prior to the occurrence of the Triggering Event, in lieu of a number of one one-thousandth of a Preferred Share, such number of shares of Common Stock of the Company as shall equal the result obtained by multiplying the Exercise Price in effect immediately prior to the occurrence of the Triggering Event by the number of one one-thousandth of a Preferred Share for which a Right was exercisable (or would have been exercisable if the Distribution Date had occurred) immediately prior to the first occurrence of a Triggering Event, and dividing that product by 50% of the Current Per Share Market Price for shares of Common Stock on the date of occurrence of the Triggering Event; provided , however , that the Exercise Price and the number of shares of Common Stock of the Company so receivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11(e) hereof to reflect any events occurring in respect of the shares of Common Stock of the Company after the occurrence of the Triggering Event.

 

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From and after the occurrence of such event, any Rights that are or were acquired or Beneficially Owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person) shall be null and void without any further action and any holder of such Rights shall thereafter have no right whatsoever with respect to such Rights, under any provision of this Agreement or otherwise. No Rights Certificate shall be issued pursuant to Section 3 that represents Rights Beneficially Owned by an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate or nominee thereof; no Rights Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Rights Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate shall be cancelled. The Company shall give the Rights Agent written notice of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee of any of the foregoing, and the Rights Agent may rely on such notice in carrying out its duties under this Agreement and shall be deemed not to have any knowledge of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee of any of the foregoing unless and until it shall have received such notice.

(iii) In lieu of issuing shares of Common Stock in accordance with Section 11(a)(ii) hereof, the Company may, if the Company’s Board of Directors determines that such action is necessary or appropriate and not contrary to the interest of holders of Rights and, in the event that the number of shares of Common Stock which are authorized by the Company’s Certificate of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights, or if any necessary regulatory approval for such issuance has not been obtained by the Company, the Company shall: (A) determine the excess of (1) the value of the shares of Common Stock issuable upon the exercise of a Right (the “ Current Value ”) over (2) the Exercise Price (such excess, the “ Spread ”) and (B) with respect to each Right, make adequate provision to substitute for such shares of Common Stock, upon exercise of the Rights, (1) cash, (2) a reduction in the Exercise Price, (3) other equity securities of the Company (including, without limitation, shares or units of shares of any series of preferred stock which the Company’s Board of Directors has deemed to have the same value as Common Stock (such shares or units of shares of preferred stock are herein called “ Common Stock Equivalents ”)), except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, (4) debt securities of the Company, except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, (5)

 

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other assets or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Company’s Board of Directors based upon the advice of a nationally recognized investment banking firm selected by the Company’s Board of Directors; provided , however , if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Triggering Event and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the “ Section 11(a)(ii) Trigger Date ”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, Common Stock (to the extent available), except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Company’s Board of Directors shall determine in good faith that it is likely that sufficient additional Common Stock could be authorized for issuance upon exercise in full of the Rights or that any necessary regulatory approval for such issuance will be obtained, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares or take action to obtain such regulatory approval (such period, as it may be extended, the “ Substitution Period ”). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares, to take any action to obtain any required regulatory approval and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement (and provide prompt written notice to the Rights Agent) stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement (and provide prompt written notice to the Rights Agent) at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the Current Per Share Market Price of the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock on such date.

(b) In case the Company shall, at any time after the date of this Rights Agreement, fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling such holders (for a period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Preferred Shares or Equivalent Shares or securities convertible into Preferred Shares or Equivalent Shares at a price per share (or having a conversion price per share, if a security convertible into Preferred Shares or Equivalent Shares) less than the then Current Per Share Market Price of the Preferred Shares or Equivalent Shares

 

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on such record date, then, in each such case, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares and Equivalent Shares (if any) outstanding on such record date, plus the number of Preferred Shares or Equivalent Shares, as the case may be, which the aggregate offering price of the total number of Preferred Shares or Equivalent Shares, as the case may be, to be offered or issued (and/or the aggregate initial conversion price of the convertible securities to be offered or issued) would purchase at such current market price, and the denominator of which shall be the number of Preferred Shares and Equivalent Shares (if any) outstanding on such record date, plus the number of additional Preferred Shares or Equivalent Shares, as the case may be, to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided , however , that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Company’s Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Preferred Shares and Equivalent Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights, options or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed.

(c) In case the Company shall, at any time after the date of this Rights Agreement, fix a record date for the making of a distribution to all holders of the Preferred Shares or of any class or series of Equivalent Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend, if any, or a dividend payable in Preferred Shares) or subscription rights, options or warrants (excluding those referred to in Section 11(b)), then, in each such case, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Per Share Market Price of a Preferred Share or an Equivalent Share on such record date, less the fair market value per Preferred Share or Equivalent Share (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a Preferred Share or Equivalent Share, as the case may be, and the denominator of which shall be such Current Per Share Market Price of a Preferred Share or Equivalent Share on such record date; provided , however , that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price which would have been in effect if such record date had not been fixed.

 

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(d) Notwithstanding anything to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; provided , however , that any adjustments which by reason of this Section 11(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share or one hundred-thousandth of a Preferred Share, as the case may be. Notwithstanding the first sentence of this Section 11(d), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which requires such adjustment or (ii) the Expiration Date.

(e) If as a result of an adjustment made pursuant to Section 11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right and, if required, the Exercise Price thereof, shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall apply on like terms to any such other shares.

(f) All Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of one one-thousandth of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

(g) Unless the Company shall have exercised its election as provided in Section 11(h), upon each adjustment of the Exercise Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Preferred Shares (calculated to the nearest one hundred-thousandth of a share) obtained by (i) multiplying (x) the number of Preferred Shares covered by a Right immediately prior to this adjustment, by (y) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price, and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price.

(h) The Company may elect on or after the date of any adjustment of the Exercise Price as a result of the calculations made in Section 11(b) or (c) to adjust the number of Rights, in substitution for any adjustment in the number of Preferred Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandth of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one hundred-thousandth) obtained by dividing the Exercise Price in effect immediately prior to adjustment of the Exercise Price by the Exercise Price in effect immediately after adjustment of the Exercise Price. The Company shall make a public announcement (with prompt written notice thereof to the Rights Agent) of its election to adjust the number of Rights,

 

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indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(h), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and delivered by the Company, and countersigned and delivered by the Rights Agent, in the manner provided for herein (and may bear, at the option of the Company, the adjusted Exercise Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement.

(i) Irrespective of any adjustment or change in the Exercise Price or the number of Preferred Shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price per one one-thousandth of a Preferred Share and the number of one one-thousandth of a Preferred Share which were expressed in the initial Rights Certificates issued hereunder.

(j) Before taking any action that would cause an adjustment reducing the Exercise Price below the par or stated value, if any, of the number of one one-thousandth of a Preferred Share issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue as fully paid and nonassessable shares such number of one one-thousandth of a Preferred Share at such adjusted Exercise Price.

(k) In any case in which this Section 11 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer (with prompt written notice thereof to the Rights Agent) until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the number of one one-thousandth of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-thousandth of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) upon the occurrence of the event requiring such adjustment.

(l) Notwithstanding anything in this Section 11 to the contrary, prior to the Distribution Date, the Company shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares or Common Stock, (ii) issuance wholly for cash of any

 

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Preferred Shares or Common Stock at less than the current market price, (iii) issuance wholly for cash of Preferred Shares or Common Stock or securities which by their terms are convertible into or exchangeable for Preferred or Common Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Shares or Common Stock shall not be taxable to such stockholders.

(m) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or permit to be taken) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

(n) In the event the Company shall at any time after the date of this Rights Agreement (A) declare a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding Common Stock (by reverse stock split or otherwise) into a smaller number of shares of Common Stock, or (D) issue any shares of its capital stock in a reclassification of the shares of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, in each such event, except as otherwise provided in this Section 11(a) and Section 7(e) hereof: (1) each share of Common Stock (or shares of capital stock issued in such reclassification of the Common Stock) outstanding immediately following such time shall have associated with it the number of Rights as were associated with one share of Common Stock immediately prior to the occurrence of the event described in clauses (A)-(D) above; (2) the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall be adjusted so that the Exercise Price thereafter shall equal the result obtained by multiplying the Exercise Price in effect immediately prior to such time by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the event described in clauses (A)-(D) above, and the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such event; provided , however , that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of such Right; and (3) the number of one one-thousandth of a Preferred Share (or shares of such other capital stock) issuable upon the exercise of each Right outstanding after such event shall equal the number of one one-thousandth of a Preferred Share (or shares of such other capital stock) as were issuable with respect to one Right immediately prior to such event. Each share of Common Stock that shall become outstanding after an adjustment has been made pursuant to this Section 11(n) shall have associated with it the number of Rights, exercisable at the Exercise Price and for the number of one one-thousandth of a Preferred Share (or shares of such other capital stock) as one share of Common Stock has associated with it immediately following the adjustment made pursuant to this Section 11(n). If an event occurs which would require an adjustment under both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

12. Certificate of Adjusted Exercise Price or Number of Shares . Whenever an adjustment is made or any event affecting the Rights or their exercisability (including, without limitation, an event which causes Rights to become null and void) occurs as provided in Sections

 

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11 and 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment or describing such event, and a brief statement of the facts, computations and methodology, to the extent applicable, accounting for any such adjustment, (b) file with the Rights Agent and with each transfer agent for the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Rights Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or give such notice shall not affect the validity of such adjustment or the force or effect of the requirement for such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment or statement contained therein and shall have no duty or liability with respect to, and shall not be deemed to have knowledge of any adjustment or any such event unless and until it shall have received such certificate.

13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power .

(a) In the event that, following a Shares Acquisition Date, directly or indirectly:

(i) the Company shall consolidate with, or merge with or into, any other Person (other than a wholly-owned Subsidiary of the Company in a transaction the principal purpose of which is to change the state of incorporation of the Company and which complies with Section 11(m) hereof);

(ii) any Person shall consolidate with the Company, or merge with or into the Company and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such merger, all or part of the shares of Common Stock shall be changed into or exchanged for stock or other securities of any other person (or the Company); or

(iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries in one or more transactions, each of which individually (and together) complies with Section 11(m) hereof),

then, concurrent with and in each such case:

(a) each holder of a Right (except as provided in Section 7(e) hereof) shall thereafter have the right to receive, upon the exercise thereof, at a price equal to the Total Exercise Price applicable immediately prior to the occurrence of the Section 13 Event in accordance with the terms of this Rights Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable shares of Common Stock of the Principal Party (as hereinafter defined), free of any liens, encumbrances, rights of first

 

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refusal or other adverse claims, as shall be equal to the result obtained by dividing such Total Exercise Price by 50% of the Current Per Share Market Price of the shares of Common Stock of such Principal Party on the date of consummation of such Section 13 Event, provided , however , that the Exercise Price and the number of shares of Common Stock of such Principal Party so receivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11(e) hereof;

(b) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Rights Agreement;

(c) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event;

(d) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Stock) in connection with the consummation of any such transaction as may be necessary to ensure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and

(e) upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Total Exercise Price as provided in this Section 13(a), such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the shares of Common Stock of the Principal Party receivable upon the exercise of such Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property.

 

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(f) For purposes hereof, the “earning power” of the Company and its Subsidiaries shall be determined in good faith by the Company’s Board of Directors on the basis of the operating earnings of each business operated by the Company and its Subsidiaries during the three fiscal years preceding the date of such determination (or, in the case of any business not operated by the Company or any Subsidiary during three full fiscal years preceding such date, during the period such business was operated by the Company or any Subsidiary).

(b) For purposes of this Rights Agreement, the term “ Principal Party ” shall mean:

(i) in the case of any transaction described in clause (i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person resulting from the consolidation; and

(ii) in the case of any transaction described in clause (iii) of Section13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if more than one Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred and each such portion would, were it not for the other equal portions, constitute the greatest portion of the assets or earning power so transferred, or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons is the issuer of shares of Common Stock having the greatest aggregate market value of shares outstanding; provided , however , that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the shares of Common Stock of such Person are not at such time or have not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the shares of Common Stock of which are and have been so registered, the term “Principal Party” shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stock of which are and have been so registered, the term “Principal Party” shall refer to whichever of such Persons is the issuer of shares of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or

 

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indirectly by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests.

(c) The Company shall not consummate any Section 13 Event unless the Principal Party shall have a sufficient number of authorized shares of Common Stock that have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement confirming that such Principal Party shall, upon consummation of such Section 13 Event, assume this Rights Agreement in accordance with Sections 13(a) and 13(b) hereof, that all rights of first refusal or preemptive rights in respect of the issuance of shares of Common Stock of such Principal Party upon exercise of outstanding Rights have been waived, that there are no rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights and that such transaction shall not result in a default by such Principal Party under this Rights Agreement, and further providing that, as soon as practicable after the date of such Section 13 Event, such Principal Party will:

(i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with applicable state securities laws;

(ii) use its best efforts to list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on a national securities exchange or to meet the eligibility requirements for quotation on Nasdaq and list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on Nasdaq; and

(iii) deliver to holders of the Rights historical financial statements for such Principal Party which comply in all respects with the requirements for registration on Form F-1 (or any successor form) under the Exchange Act.

In the event that at any time after the occurrence of a Triggering Event some or all of the Rights shall not have been exercised at the time of a transaction described in this Section 13, the Rights which have not theretofore been exercised shall thereafter be exercisable in the manner described in Section 13(a) (without taking into account any prior adjustment required by Section 11(a)(ii)).

(d) In case the “Principal Party” for purposes of Section 13(b) hereof has provision in any of its authorized securities or in its certificate of incorporation or by-laws or

 

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other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to Section 13 hereof), in connection with, or as a consequence of, the consummation of a Section 13 Event, shares of Common Stock or Equivalent Shares of such Principal Party at less than the then Current Per Share Market Price thereof or securities exercisable for, or convertible into, shares of Common Stock or Equivalent Shares of such Principal Party at less than such then Current Per Share Market Price, or (ii) providing for any special payment, tax or similar provision in connection with the issuance of the shares of Common Stock of such Principal Party pursuant to the provisions of Section 13 hereof, then, in such event, the Company hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been canceled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with or as a consequence of, the consummation of the proposed transaction.

(e) The Company covenants and agrees that it shall not, at any time after the Distribution Date, effect or permit to occur any Section 13 Event, if (i) at the time or immediately after such Section 13 Event there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (ii) prior to, simultaneously with or immediately after such Section 13 Event, the stockholders of the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(b) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (iii) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights.

(f) The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers.

14. Fractional Rights and Fractional Shares .

(a) The Company shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable, as determined pursuant to this Rights Agreement.

(b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Preferred Share). Interests in fractions of Preferred Shares in integral multiples of one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts,

 

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pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-thousandth of a Preferred Share, the Company shall pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a Preferred Share. For purposes of this Section 14(b), the current market value of a Preferred Share shall be one thousand times the closing price of a share of Common Stock (as determined pursuant to the terms hereof) for the Trading Day immediately prior to the date of such exercise.

(c) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock upon the exercise or exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this Section 14(c), the current market value of a share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the terms hereof) for the Trading Day immediately prior to the date of such exercise.

(d) The holder of a Right by the acceptance of the Right expressly waives his or her right to receive any fractional Rights or any fractional shares (other than fractions that are integral multiples of one one-thousandth of a Preferred Share) upon exercise of a Right.

(e) Whenever a payment for fractional Rights or fractional Preferred Shares is to be made by the Rights Agent, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate setting forth in reasonable detail the facts related to such payments and the prices and/or formulas utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in the form of fully collected funds to make such payments. The Rights Agent shall be fully protected in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed to have knowledge of, any payment for fractional Rights or fractional Preferred Shares under any Section of this Rights Agreement relating to the payment of fractional Rights or fractional Preferred Shares unless and until the Rights Agent shall have received such a certificate and sufficient monies.

15. Rights of Action . (a) All rights of action in respect of this Rights Agreement, excepting the rights of action given to the Rights Agent under Section 18 and Section 20 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the shares of Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the shares of Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the shares of Common Stock), may, in his or her own behalf and for his or her own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his or her right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Rights Agreement. Without limiting the foregoing or any remedies

 

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available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach by the Company of this Rights Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations by the Company of the obligations of any Person subject to, this Rights Agreement.

(b) Notwithstanding anything in this Rights Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Rights Agreement by reason of any preliminary or permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final) issued by a court or by a governmental, regulatory, self-regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, that the Company shall use all reasonable efforts to have any such injunction, order, judgment, decree or ruling lifted or otherwise overturned as soon as possible.

16. Agreement of Rights Holders . Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

(a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the shares of Common Stock;

(b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; and

(c) subject to Sections 6(a) and 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.

17. Rights Certificate Holder Not Deemed a Stockholder . No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose to be the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof.

 

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18. The Rights Agent .

(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the preparation, delivery, negotiation, amendment, administration and execution of this Rights Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense (including, without limitation, the reasonable fees and expenses of legal counsel), incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent (which gross negligence, bad faith or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered or omitted to be taken by the Rights Agent in connection with the acceptance, administration, exercise and performance of its duties under this Rights Agreement, including the costs and expenses of defending against any claim of liability in the premises. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. The provisions of this Section 18 and Section 20 below shall survive the termination of this Rights Agreement, the exercise or expiration of the Rights and the resignation, replacement or removal of the Rights Agent.

(b) The Rights Agent shall be authorized and protected and shall incur no liability for, or in respect of any action taken, suffered or omitted to be taken by it in connection with, its acceptance and administration of this Rights Agreement and the exercise and performance of its duties hereunder, in reliance upon any Rights Certificate or certificate for the Preferred Shares or shares of Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. The Rights Agent shall not be deemed to have knowledge of any event of which it was supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no liability for failing to take action in connection therewith unless and until it has received such notice in writing, which shall be sufficiently given or made if sent by facsimile when a confirmation is received by the transmitting person and the transmitting person has also made a telephone call in connection therewith to the telephone number specified in Section 26 hereof, or by first-class mail or overnight delivery service, postage prepaid or hand delivery when received.

19. Merger or Consolidation or Change of Name of Rights Agent .

(a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the shareholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Rights Agreement without

 

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the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such Person would be eligible for appointment as a successor Rights Agent under Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Rights Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Rights Agreement.

(b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Rights Agreement.

20. Rights and Duties of Rights Agent . The Rights Agent undertakes to perform only the duties and obligations expressly imposed by this Rights Agreement (and no implied duties) upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company or an employee of the Rights Agent), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it in accordance with such advice or opinion.

(b) Whenever in the performance of its duties under this Rights Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Per Share Market Price) be proved or established by the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it under the provisions of this Rights Agreement in reliance upon such certificate.

(c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a final, non-appealable

 

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judgment of a court of competent jurisdiction). Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under this Rights Agreement will be limited to an amount equal to the product of (1) the annual fees paid by the Company to the Rights Agent hereunder and (2) ten (10).

(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Rights Agreement or in the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

(e) The Rights Agent shall not have any liability for or be under any responsibility in respect of the validity of this Rights Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Rights Agreement or in any Rights Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming null and void pursuant to Section 11(a)(ii) hereof) or any change or adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt by the Rights Agent of a certificate furnished pursuant to Section 12 hereof, upon which the Rights Agent may rely, describing such change or adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Rights Agreement or any Rights Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable.

(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Rights Agreement.

(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Secretary or any Assistant Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such instructions shall be full authorization and protection to the Rights Agent and the Rights Agent shall not be liable for or in respect of any action taken, suffered or omitted to be taken by it in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. The Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received by any such officer. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken, suffered or omitted to be taken by the Rights Agent under this Rights Agreement and the date on and/or after which such action shall be taken or suffered or such omission shall be

 

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effective. The Rights Agent shall not be liable for any action taken or suffered by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five (5) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken, suffered or omitted to be taken.

(h) The Rights Agent and any stockholder, affiliate, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Rights Agreement. Nothing herein shall preclude the Rights Agent or any such stockholder, affiliate, director, officer or employee from acting in any other capacity for the Company or for any other Person.

(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself (through its directors, officers and employees) or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or any other Person resulting from any such act, default, neglect or misconduct, absent gross negligence or bad faith in the selection and continued employment thereof (which gross negligence, willful misconduct or bad faith must be determined by a final, non-appealable judgment of a court of competent jurisdiction).

(j) No provision of this Rights Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it believes that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been properly completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

21. Change of Rights Agent . The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Rights Agreement upon thirty (30) days’ written notice to the Company and to each transfer agent of the Preferred Shares and the Common Stock known to the Rights Agent and to the holders of the Rights Certificates by public announcement or written notice. In the event the transfer agency relationship in effect between the Company and the Rights Agent terminates, the Rights Agent will be deemed to have resigned automatically and be discharged from its duties under this Agreement as of the effective date of such termination, and the Company shall be responsible for sending any required notice. The Company may remove the Rights Agent or any successor Rights Agent upon written notice to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the

 

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Preferred Shares and the Common Stock and to the holders of the Rights Certificates by public announcement or written notice. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after receiving written notice of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his or her Rights Certificate for inspection by the Company), then the registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a Person organized and doing business under the laws of the United States or of any state of the United States, in good standing, which is authorized under such laws to exercise stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million or (b) an Affiliate of such a Person. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Preferred Shares and the Common Stock, and mail a written notice thereof to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

22. Issuance of New Rights Certificates . Notwithstanding any of the provisions of this Rights Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Exercise Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Rights Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement or upon the exercise, conversion or exchange of other securities of the Company outstanding at the date hereof or upon the exercise, conversion or exchange of securities hereinafter issued by the Company and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided , however , that (i) no such Rights Certificate shall be issued and this sentence shall be null and void ab initio if, and to the extent that, such issuance or this sentence would create a significant risk of or result in material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued or would create a significant risk of or result in such options’ or employee plans’ or arrangements’ failing to qualify for otherwise available special tax treatment and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.

 

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23. Redemption .

(a) The Company may, at its option and with the approval of the Board of Directors, at any time prior to the Close of Business on the earlier of (i) the Distribution Date and (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $0.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being herein referred to as the “ Redemption Price ”) and the Company may, at its option, pay the Redemption Price either in shares of Common Stock (based on the Current Per Share Market Price thereof at the time of redemption) or cash. Such redemption of the Rights by the Company may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. The date on which the Board of Directors elects to make the redemption effective shall be referred to as the “ Redemption Date ”.

(b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, written notice of which shall have been filed with the Rights Agent, and without any further action and without any notice, the right to exercise the Rights shall terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided , however , that the failure to give or any defect in, any such notice shall not affect the legality or validity of such redemption. Within ten (10) days after the action of the Board of Directors ordering the redemption of the Rights, the Company shall promptly mail a notice of such redemption to the Rights Agent and the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of shares of Common Stock prior to the Distribution Date.

24. Exchange .

(a) Subject to applicable laws, rules and regulations, and subject to subsection 24(c) below, the Company may, at its option, by action of the Board of Directors, at any time after the occurrence of a Triggering Event, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions of Section 7(e) hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the “ Exchange Ratio ”). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Stock for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Stock then outstanding.

 

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(b) Immediately upon the action of the Board of Directors ordering the exchange of any Rights pursuant to subsection 24(a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall give public notice of any such exchange; provided , however , that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall promptly mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become null and void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

(c) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with Section 24(a), the Company shall either take such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights or alternatively, at the option of a majority of the Board of Directors, with respect to each Right (i) pay cash in an amount equal to the Current Value (as hereinafter defined), in lieu of issuing shares of Common Stock in exchange therefor, or (ii) issue debt or equity securities or a combination thereof, having a value equal to the Current Value, in lieu of issuing shares of Common Stock in exchange for each such Right, where the value of such securities shall be determined by a nationally recognized investment banking firm selected by majority vote of the Board of Directors, or (iii) deliver any combination of cash, property, shares of Common Stock and/or other securities having a value equal to the Current Value in exchange for each Right. For purposes of this Section 24(c) only, the Current Value shall mean the product of the Current Per Share Market Price of shares of Common Stock on the date of the occurrence of the event described above in subparagraph (a), multiplied by the number of shares of Common Stock for which the Right otherwise would be exchangeable if there were sufficient shares available. To the extent that the Company determines that some action need be taken pursuant to clauses (i), (ii) or (iii) of this Section 24(c), the Board of Directors may temporarily suspend the exercisability of the Rights for a period of up to sixty (60) days following the date on which the event described in Section 24(a) shall have occurred, in order to seek any authorization of additional shares of Common Stock and/or to decide the appropriate form of distribution to be made pursuant to the above provision and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended (with prompt written notice thereof, including a copy of such public announcement, to the Rights Agent).

(d) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock (as determined pursuant to the terms hereof).

 

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(e) The Company may, at its option, by majority vote of the Board of Directors, at any time before the Share Acquisition Date, exchange all or part of the then outstanding Rights for rights of substantially equivalent value, as determined reasonably and with good faith by the Board of Directors, based upon the advice of one or more nationally recognized investment banking firms.

(f) Immediately upon the action of the Board of Directors ordering the exchange of any Rights pursuant to subsection 24(e) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of rights in exchange therefor as has been determined by the Board of Directors in accordance with subsection 24(e) above. The Company shall give public notice of any such exchange; provided , however , that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall promptly mail a notice of any such exchange to the Rights Agent and all of the holders of such Rights at their last addresses as they appear upon the registry books of the transfer agent for the shares of Common Stock of the Company. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Rights will be effected.

25. Notice of Certain Events .

(a) In case the Company shall propose to effect or permit to occur any Triggering Event or Section 13 Event, the Company shall give notice thereof to the Rights Agent and each holder of Rights in accordance with Section 26 hereof at least twenty (20) days prior to occurrence of such Triggering Event or such Section 13 Event.

(b) In case any Triggering Event set forth in Section 11(a)(ii) hereof shall occur, then the Company shall as soon as practicable thereafter give to the Rights Agent and to each holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

 

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26. Notices . Notices or demands authorized by this Rights Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by facsimile when a confirmation is received by the transmitting person, or by first-class mail or overnight delivery service, postage prepaid or hand delivery when received and addressed (until another address is filed in writing with the Rights Agent) as follows:

Diana Containerships Inc.

Pendelis 16, 175 64 Palaio Faliro

Athens, Greece

Attention: Ioannis Zafirakis

Facsimile: 011 30210 947 0101

with a copy to:

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attention: Gary J. Wolfe

Facsimile: 212-480-8421

Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Rights Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by facsimile when a confirmation is received by the transmitting person and the transmitting person has also made a telephone call in connection therewith to the telephone number specified in Section 26 hereof, or by first-class mail or overnight delivery service, postage prepaid or hand delivery when received and addressed (until another address is filed in writing with the Company) as follows:

Mellon Investor Services LLC

Newport Office Center VII

480 Washington Boulevard

Jersey City, New Jersey 07310

Attention: Relationship Manager

Facsimile: (201) 680-4606

Telephone: (201) 680-2464

with a copy to:

Mellon Investor Services LLC

Newport Office Center VII

480 Washington Boulevard

Jersey City, New Jersey 07310

Attention: General Counsel

Facsimile: (201) 680-4610

Telephone: (201) 680-2464

Notices or demands authorized by this Rights Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

 

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27. Supplements and Amendments . Prior to the occurrence of a Distribution Date, the Company may supplement or amend this Rights Agreement in any respect without the approval of any holders of Rights. From and after the occurrence of a Distribution Date, the Company and the Rights Agent may from time to time supplement or amend this Rights Agreement without the approval of any holders of Rights in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) shorten or lengthen any time period hereunder or (iv) to change or supplement the provisions hereunder in any manner that the Company may deem necessary or desirable and that shall not adversely affect the interests of the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided, this Rights Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person). Upon the delivery of a certificate from an appropriate officer of the Company and, if reasonably requested by the Rights Agent, an opinion of counsel, that states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Rights Agreement to the contrary, the Rights Agent may, but shall not be obligated to, enter into any supplement or amendment that affects the Rights Agent’s own rights, duties, obligations or immunities under this Rights Agreement. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock.

28. Successors . All the covenants and provisions of this Rights Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

29. Determinations and Actions by the Board of Directors, etc . For all purposes of this Rights Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Rights Agreement and to exercise all rights and powers specifically granted to the Board, or the Company, or as may be necessary or advisable in the administration of this Rights Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Rights Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Rights Agreement (including a determination to redeem or not redeem the Rights or to amend the Rights Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights Certificates and all other parties and (y) not subject the Board to any liability to the holders of the Rights. The Rights Agent is entitled always to assume the Company’s Board of Directors acted in good faith and shall be fully protected and incur no liability in reliance thereon.

 

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30. Benefits of this Rights Agreement . Nothing in this Rights Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the shares of Common Stock) any legal or equitable right, remedy or claim under this Rights Agreement; but this Rights Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the shares of Common Stock).

31. Severability . If any term, provision, covenant or restriction of this Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Rights Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided , however , that notwithstanding anything in this Rights Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Rights Agreement would adversely affect the purpose or effect of this Rights Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the Close of Business on the tenth Business Day following the date of such determination by the Board of Directors; provided further , however , that if such excluded provision shall affect the rights, immunities, duties or obligations of the Rights Agent, the Rights Agent shall be entitled to resign immediately, upon prior written notice to the Company. Without limiting the foregoing, if any provision requiring a specific group of directors to act is held by any court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall then be made by the Board of Directors in accordance with applicable law and the Company’s Certificate of Incorporation and bylaws.

32. Governing Law . This Rights Agreement and each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State.

33. Counterparts . This Rights Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

34. Descriptive Headings . Descriptive headings of the several Sections of this Rights Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

35. Force Majeure . Notwithstanding anything to the contrary contained herein, the Rights Agent shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.

 

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36. Miscellaneous .

(a) The Company acknowledges that the Rights Agent is subject to the customer identification program (“Customer Identification Program”) requirements under the USA PATRIOT Act and its implementing regulations, and that the Rights Agent must obtain, verify and record information that allows the Rights Agent to identify the Company. Accordingly, prior to accepting an appointment hereunder, the Rights Agent may request information from the Company that will help the Rights Agent to identify the Company, including without limitation the Company’s physical address, tax identification number, organizational documents, certificate of good standing, license to do business, or any other information that the Rights Agent deems necessary. The Company agrees that the Rights Agent cannot accept an appointment hereunder unless and until the Rights Agent verifies the Company’s identity in accordance with the Customer Identification Program requirements.

(b) The Rights Agent has adopted an incentive compensation program designed (i) to facilitate clients gaining access to and being provided with explanations about the full range of products and services offered by the Rights Agent and its subsidiaries and (ii) to expand and develop client relationships. This program may lead to the payment of referral fees and/or bonuses to employees of the Rights Agent or its subsidiaries who may have been involved in a referral that resulted in the execution of obtaining of products or services by the Company covered by this Agreement or which may be ancillary or supplemental to such products or services. Any such referral fees or bonuses are funded solely out of fees and commissions payable by the Company under this Rights Agreement or with respect to such ancillary or supplemental products or services. Under no circumstances will the payment of such fees and/or bonuses contemplated under this Section 36(b) increase the amount payable by the Company under any other provision of this Rights Agreement.

[ Signature Page Follows ]

 

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IN WITNESS WHEREOF, the parties have executed this Stockholders Rights Agreement as of the date first written above.

 

DIANA CONTAINERSHIPS INC.
By:  

LOGO

  Name:   Anastasios Margaronis
  Title:   President
MELLON INVESTOR SERVICES LLC,
As Rights Agent
By:  

 

  Name:  
  Title:  

 

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IN WITNESS WHEREOF, the parties have executed this Stockholders Rights Agreement as of the date first written above.

 

DIANA CONTAINERSHIPS INC.
By:  

 

  Name:   Anastasios Margaronis
  Title:   President
MELLON INVESTOR SERVICES LLC,
As Rights Agent
By:  

LOGO

  Name:   Patrick Mullaly
  Title:   Vice President

 

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Exhibit A

CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES AND PRIVILEGES OF

SERIES A PARTICIPATING PREFERRED STOCK OF DIANA CONTAINERSHIPS INC.

The undersigned, Mr. Anastasios Margaronis and Mr. Ioannis Zafirakis do hereby certify:

1. That they are the duly elected and acting President and Secretary, respectively, of Diana Containerships Inc., a Marshall Islands corporation (the “ Company ”).

2. That pursuant to the authority conferred by the Company’s Amended and Restated Articles of Incorporation, the Company’s Board of Directors on June 1, 2010 adopted the following resolution designating and prescribing the relative rights, preferences and limitations of the Company’s Series A Participating Preferred Stock:

RESOLVED, that pursuant to the authority vested in the Board of Directors (the “ Board ”) of the Company by the Amended and Restated Articles of Incorporation, the Board does hereby establish a series of preferred stock, par value $0.01 per share, and the designation of certain powers, preferences and other special rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows:

Section 1. Designation and Amount . The shares of such series shall be designated as “ Series A Participating Preferred Stock ”. The Series A Participating Preferred Stock shall have a par value of $0.01 per share, and the number of shares constituting such series shall initially be 1,250,000, which number the Board may from time to time increase or decrease (but not below the number then outstanding).

Section 2. Proportional Adjustment . In the event the Company shall at any time after the issuance of any share or shares of Series A Participating Preferred Stock (i) declare any dividend on the common stock of the Company par value $0.01 per share (the “ Common Stock ”) payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Company shall simultaneously effect a proportional adjustment to the number of outstanding shares of Series A Participating Preferred Stock.

Section 3. Dividends and Distributions .

(a) Subject to the prior and superior right of the holders of any shares of any series of preferred stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of January, April, July and October in each year (each such date being referred to herein as a “ Quarterly Dividend Payment Date ”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an

 

A-1


amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock.

(b) The Company shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

(c) Dividends shall begin to accrue on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date immediately preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

Section 4. Voting Rights . The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

(a) Each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company.

(b) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company.

(c) Except as required by law, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

 

A-2


 

Section 5. Certain Restrictions .

(d) The Company shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Participating Preferred Stock as required by Section 3 hereof.

(e) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 3 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; (ii) declare or pay dividends on, make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(f) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (a) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner.

Section 6. Reacquired Shares . Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein and, in the Amended and Restated Articles of Incorporation, as then amended.

 

A-3


 

Section 7. Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Company, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends on such shares of Series A Participating Preferred Stock.

Section 8. Consolidation, Merger, etc . In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

Section 9. No Redemption . The shares of Series A Participating Preferred Stock shall not be redeemable.

Section 10. Ranking . The Series A Participating Preferred Stock shall rank junior to all other series of the Company’s preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

Section 11. Amendment . The Amended and Restated Articles of Incorporation of the Company shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class.

Section 12. Fractional Shares . Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

We further declare under penalty of perjury that the matters set forth in the foregoing Certificate of Designation are true and correct of our own knowledge.

Executed in Athens, Greece on                     , 2010.

 

 

Anastasios Margaronis

President

 

Ioannis Zafirakis

Secretary

[Signature Page to Certificate of Designation]

 

A-4


 

Exhibit B

FORM OF RIGHTS CERTIFICATE

 

Certificate No. R-

Rights

NOT EXERCISABLE AFTER AUGUST 2, 2020, UNLESS EXTENDED PRIOR THERETO BY THE BOARD OF DIRECTORS OF THE COMPANY, OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [IF THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.] 1

RIGHTS CERTIFICATE

DIANA CONTAINERSHIPS INC.

This certifies that [                      ], or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of August 2, 2010 (the “Rights Agreement”), between Diana Containerships Inc., a Marshall Islands corporation (the “Company”), and Mellon Investor Services LLC, a New Jersey limited liability company, as Rights Agent (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York time, on August 2, 2020 at the office of the Rights Agent, or at the office of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Participating Preferred Stock, $0.01 par value per share (the “Preferred Shares”), of the Company, at a purchase price of $100 per one one-thousandth of a Preferred Share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Rights Certificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of

 

1 The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence.

 

B-1


[                      ] based on the Preferred Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one one-thousandths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events.

This Rights Certificate is subject to all of the terms, covenants and restrictions of the Rights Agreement, which terms, covenants and restrictions are hereby incorporated herein by reference and made a part hereof, and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company.

This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $0.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares or shares of the Company’s Common Stock, par value $0.01 per share.

No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.

No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

B-2


 

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of                               ,              .

 

ATTEST:     DIANA CONTAINERSHIPS INC.
      By

 

   

 

Name:     Name:
Title:     Title:
     
Countersigned:    
Mellon Investor Services LLC, as Rights Agent    
By  

 

   
Authorized Signature    

 

B-3


 

FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Rights Certificate.)

 

FOR VALUE RECEIVED  

 

hereby sells, assigns and transfers unto  

 

 

(Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                                          Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution.

 

Dated:                               ,              .    

 

    Signature

Signature Guaranteed:

Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program.

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) this Rights Certificate [    ] is [    ] is not being sold, assigned or transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any Acquiring Person (as such terms are defined in the Rights Agreement); and

(2) after due inquiry and to the best knowledge of the undersigned, it [    ] did [    ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate thereof.

 

Dated:                               ,              .    

 

    Signature

Signature Guaranteed:

Signatures must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to the Company’s transfer agent.

 

B-4


 

FORM OF ELECTION TO PURCHASE

(To be executed by the registered holder if such holder

desires to exercise Rights represented by the Rights Certificate.)

 

TO: DIANA CONTAINERSHIPS INC.

The undersigned hereby irrevocably elects to exercise                      Rights represented by this Rights Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of and delivered to:

 

 

 

  
 

 

  
 

 

  
  (Please print name and address)   
 

 

  
 

Please insert social security

or other tax identifying number

  

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

 

 

 

  
 

 

  
 

 

  
  (Please print name and address)   
 

 

  
 

Please insert social security

or other tax identifying number

  

 

Dated:                               ,              .    

 

    Signature

Signature Guaranteed:

Signatures must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to the Company’s transfer agent.

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) this Rights Certificate [    ] is [    ] is not being sold, assigned or transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

 

B-5


 

(2) after due inquiry and to the best knowledge of the undersigned, it [    ] did [    ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

 

Dated:                               ,              .    

 

    Signature

Signature Guaranteed:

Signatures must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to the Company’s transfer agent.

NOTICE

The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored.

 

B-6


 

Exhibit C

SUMMARY OF RIGHTS

The Board of Directors (the “Board”) of Diana Containerships Inc., (the “Company”), authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of the common stock of the Company, par value $0.01 per share (the “Common Stock”), to stockholders of record at the close of business on August 16, 2010 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series A Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), at a purchase price of $100.00 per Unit, subject to adjustment (the “Purchase Price”). The terms of the Rights are set forth in the stockholders rights agreement (the “Agreement”) to which this exhibit is a part.

Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate rights certificates (“Rights Certificates”) will be distributed. Subject to certain exceptions specified in the Agreement, the Rights will separate from the Common Stock and a distribution date (a “Distribution Date”) will occur upon the earlier of (i) 10 calendar days (or such later date as the Board shall determine) after a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership, or obtained the right to acquire for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder (or any comparable or successor law or regulation), fifteen percent (15%) or more of the outstanding shares of Common Stock (the “Stock Acquisition Date”), or (ii) 10 business days (or such later date as the Board shall determine) after a person or group announces a tender or exchange offer, the consummation of which would result in such person or group becoming an Acquiring Person. Under certain circumstances, described in detail in the Agreement, a person or group of affiliated or associated persons, who beneficially own fifteen percent (15%) or more of the outstanding Common Stock, may not be deemed Acquiring Persons.

Until the Distribution Date: (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with, and only with, such Common Stock certificates; (ii) new Common Stock certificates issued after the Record Date will contain a notation incorporating the Agreement by reference; and (iii) the surrender or transfer of any certificates of Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates.

As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. The Rights are not exercisable prior to the Distribution Date and will expire on August 2, 2020 (the “Final Expiration Date”), unless such date is amended by the Board or the Rights are redeemed or exchanged by the Company.

In the event that a person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise,

 

C-1


Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of the event set forth in this paragraph, all Rights that are, or were (under certain circumstances specified in the Agreement), beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the Rights are no longer redeemable by the Company as set forth below.

In the event that, at any time following the Stock Acquisition Date, (i) the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation, (ii) the Company engages in a merger or other business combination transaction in which the Company is the surviving corporation and the Common Stock of the Company is changed or exchanged, or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The events set forth in this and the preceding paragraph are referred to as “Triggering Events.”

At any time after a person becomes an Acquiring Person and prior to the acquisition by such person or group of fifty percent (50%) or more of the outstanding Common Stock, the Board may exchange the Rights (other than Rights owned by such person or group which have become null and void), in whole or in part, at an exchange ratio of one share of Common Stock per Right.

At any time until ten business days following the Stock Acquisition Date, the Final Expiration Date or such earlier or later date as may be determined by the Board in an amendment to the Agreement, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price.

Until a Right is exercised, the holder thereof, as such, will have no separate rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends in respect of the Rights.

 

C-2

 

Exhibit 4.4

CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES AND PRIVILEGES OF

SERIES A PARTICIPATING PREFERRED STOCK OF DIANA CONTAINERSHIPS INC.

The undersigned, Mr. Anastasios Margaronis and Mr. Ioannis Zafirakis do hereby certify:

1. That they are the duly elected and acting President and Secretary, respectively, of Diana Containerships Inc., a Marshall Islands corporation (the “ Company ”).

2. That pursuant to the authority conferred by the Company’s Amended and Restated Articles of Incorporation, the Company’s Board of Directors on June 1, 2010 adopted the following resolution designating and prescribing the relative rights, preferences and limitations of the Company’s Series A Participating Preferred Stock:

RESOLVED, that pursuant to the authority vested in the Board of Directors (the “ Board ”) of the Company by the Amended and Restated Articles of Incorporation, the Board does hereby establish a series of preferred stock, par value $0.01 per share, and the designation of certain powers, preferences and other special rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows:

Section 1.  Designation and Amount . The shares of such series shall be designated as “ Series A Participating Preferred Stock ”. The Series A Participating Preferred Stock shall have a par value of $0.01 per share, and the number of shares constituting such series shall initially be 1,250,000, which number the Board may from time to time increase or decrease (but not below the number then outstanding).

Section 2.  Proportional Adjustment . In the event the Company shall at any time after the issuance of any share or shares of Series A Participating Preferred Stock (i) declare any dividend on the common stock of the Company par value $0.01 per share (the “ Common Stock ”) payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Company shall simultaneously effect a proportional adjustment to the number of outstanding shares of Series A Participating Preferred Stock.

Section 3.  Dividends and Distributions .

Subject to the prior and superior right of the holders of any shares of any series of preferred stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of January, April, July and October in each year (each such date being referred to herein as a “ Quarterly Dividend Payment Date ”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock.


 

The Company shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

Dividends shall begin to accrue on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date immediately preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

Section 4.  Voting Rights . The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

Each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company.

Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company.

Except as required by law, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 5.  Certain Restrictions .

The Company shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Participating Preferred Stock as required by Section 3 hereof.


 

Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 3 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; (ii) declare or pay dividends on, make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (a) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner.

Section 6.  Reacquired Shares . Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein and, in the Amended and Restated Articles of Incorporation, as then amended.

Section 7.  Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Company, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends on such shares of Series A Participating Preferred Stock.


 

Section 8.  Consolidation, Merger, etc . In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

Section 9.  No Redemption . The shares of Series A Participating Preferred Stock shall not be redeemable.

Section 10.  Ranking . The Series A Participating Preferred Stock shall rank junior to all other series of the Company’s preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

Section 11.  Amendment . The Amended and Restated Articles of Incorporation of the Company shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class.

Section 12.  Fractional Shares . Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

We further declare under penalty of perjury that the matters set forth in the foregoing Certificate of Designation are true and correct of our own knowledge.

Executed in Athens, Greece on August 2, 2010.

 

/s/ Anastasios Margaronis

Anastasios Margaronis

President

/s/ Ioannis Zafirakis

Ioannis Zafirakis

Secretary

[Signature Page to Certificate of Designation]

EXHIBIT 5.1

[Seward & Kissel LLP Letterhead]

D-R-A-F-T

 

Diana Containerships Inc.   , 2010

Pendelis 16

175 64 Palaio Faliro

Athens, Greece

011 30 210 947 0000

Re: Diana Containerships Inc.

Ladies and Gentlemen:

We have acted as counsel to Diana Containerships Inc. (the “Company”) in connection with the Company’s Registration Statement on Form F-4 (File No. 333-        ) (the “Registration Statement”) as filed with the U.S. Securities and Exchange Commission (the “Commission”) on             , 2010, as thereafter amended or supplemented, with respect to the share exchange (the “Exchange”) of up to 2,558,997 of the Company’s common shares sold previously in a private offering, par value $0.01 per share (the “Original Shares”) for new registered common shares, par value $0.01 per share (the “Exchange Shares).

We have examined originals or copies, certified or otherwise identified to our satisfaction, of: (i) the Registration Statement; (ii) the prospectus of the Company (the “Prospectus”) included in the Registration Statement; and (iii) such corporate documents and records of the Company and such other instruments, certificates and documents as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, the genuineness of all signatures and the legal competence or capacity of persons or entities to complete the execution of documents. As to various questions of fact which are material to the opinions hereinafter expressed, we have relied upon statements or certificates of public officials, directors of the Company and others.

We have further assumed for the purposes of this opinion, without investigation, that (i) all documents contemplated by the Prospectus to be executed in connection with the Offering have been duly authorized, executed and delivered by each of the parties thereto other than the Company, and (ii) the terms of the Offering comply in all respects with the terms, conditions and restrictions set forth in the Prospectus and all of the instruments, agreements and other documents relating thereto or executed in connection therewith.


 

Based upon and subject to the foregoing, and having regard to such other legal considerations which we deem relevant, we are of the opinion that under the laws of the Republic of the Marshall Islands, the Exchange Shares have been duly authorized, and when delivered by the Company in exchange for the Original Shares in the manner contemplated by the prospectus contained in the Registration Statement, the Exchange Shares will be validly issued, fully paid and non-assessable.

This opinion is limited to the law of the Republic of the Marshall Islands as in effect on the date hereof.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, and to each reference to us and the discussions of advice provided by us under the headings “Legal Matters” in the Prospectus, without admitting we are “experts” within the meaning of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder with respect to any part of the Registration Statement.

 

Very truly yours,

EXHIBIT 8.1

[Seward & Kissel LLP Letterhead]

 

Diana Containerships Inc.

  October 15, 2010

Pendelis 16

175 64 Palaio Faliro

Athens, Greece

011 30 210 947 0000

 

  Re: Diana Containerships Inc.

Ladies and Gentlemen:

We have acted as counsel to Diana Containerships Inc. (the “Company”) in connection with the Company’s Registration Statement on Form F-4 (File No. 333-      ) (the “Registration Statement”) as filed with the U.S. Securities and Exchange Commission (the “Commission”) on October 15, 2010, as thereafter amended or supplemented, with respect to the share exchange (the “Exchange”) of up to 2,558,997 of the Company’s common shares sold previously in a private offering, par value $0.01 per share (the “Original Shares”) for new registered common shares, par value $0.01 per share (the “Exchange Shares).

In formulating our opinion as to these matters, we have examined such documents as we have deemed appropriate, including the Registration Statement and the prospectus of the Company (the “Prospectus”) included in the Registration Statement. We also have obtained such additional information as we have deemed relevant and necessary from representatives of the Company.

Capitalized terms not defined herein have the meanings ascribed to them in the Registration Statement.

Based on the facts as set forth in the Registration Statement and, in particular, on the representations, covenants, assumptions, conditions and qualifications described under the captions “Risk Factors” and “Taxation” therein, we hereby confirm that the opinions of Seward & Kissel LLP with respect to United States federal income tax matters and Marshall Islands tax matters are those opinions attributed to Seward & Kissel LLP expressed in the Registration Statement under the captions “Taxation” and “Risk Factors — We may have to pay tax on United States source income, which would reduce our earnings” and “Risk Factors — 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” in the Registration Statement accurately state our opinion as to the tax matters discussed therein.


Our opinions and the tax discussion as set forth in the Registration Statement are based on the current provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service which may be cited or used as precedents, and case law, any of which may be changed at any time with retroactive effect. No opinion is expressed on any matters other than those specifically referred to above by reference to the Registration Statement.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement.

Very truly yours,

/s/ SEWARD & KISSEL LLP

 

EXHIBIT 10.1

DIANA CONTAINERSHIPS INC.

2010 EQUITY INCENTIVE PLAN

ARTICLE I.

General

 

1.1. Purpose

The Diana Containerships Inc. 2010 Equity Incentive Plan (the “Plan”) is designed to provide certain key Persons (as defined below), whose initiative and efforts are deemed to be important to the successful conduct of the business of Diana Containerships Inc. (the “Company”), with incentives to (a) enter into and remain in the service of the Company or its Affiliates (as defined below), (b) acquire a proprietary interest in the success of the Company, (c) maximize their performance and (d) enhance the long-term performance of the Company.

 

1.2. Administration

(a) Administration . The Plan shall be administered by the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors (the “Board”), or such other committee of the Board as may be designated by the Board to administer the Plan (the “Administrator”); provided that (i) in the event the Company is subject to Section 16 of the U.S. Securities Exchange Act of 1934, as amended (the “1934 Act”), the Administrator shall be composed of two or more directors, each of whom is a “Non-Employee Director” (a “Non-Employee Director”) under Rule 16b-3 (as promulgated and interpreted by the Securities and Exchange Commission (the “SEC”) under the 1934 Act, or any successor rule or regulation thereto as in effect from time to time), and (ii) the Administrator shall be composed solely of two or more directors who are “independent directors” under the rules of any stock exchange on which the Company’s Common Stock (as defined below) is traded; provided further , however, that, (A) the requirement in the preceding clause (i) shall apply only when required to exempt an Award intended to qualify for an exemption under the applicable provisions referenced therein, (B) the requirement in the preceding clause (ii) shall apply only when required pursuant to the applicable rules of the applicable stock exchange and (C) if at any time the Administrator is not so composed as required by the preceding provisions of this sentence, that fact will not invalidate any grant made, or action taken, by the Administrator hereunder that otherwise satisfies the terms of the Plan. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Administrator by the Plan, the Administrator shall have the full power and authority to: (1) designate the Persons to receive Awards (as defined below) under the Plan; (2) determine the types of Awards granted to a participant under the Plan; (3) determine the number of shares to be covered by, or with respect to which payments, rights or other matters are to be calculated with respect to, Awards; (4) determine the terms and conditions of any Awards; (5) determine whether, and to what extent, and under what circumstances, Awards may be settled or exercised in cash, shares, other securities, other Awards or other property, or cancelled, forfeited or suspended, and the methods by which Awards may be settled, exercised, cancelled, forfeited or suspended; (6) determine whether, to what extent, and under what circumstances cash, shares, other securities, other Awards, other property and

 

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other amounts payable with respect to an Award shall be deferred, either automatically or at the election of the holder thereof or the Administrator; (7) construe, interpret and implement the Plan and any Award Agreement (as defined below); (8) prescribe, amend, rescind or waive rules and regulations relating to the Plan, including rules governing its operation, and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (9) make all determinations necessary or advisable in administering the Plan; (10) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award Agreement; and (11) make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Administrator, may be made at any time and shall be final, conclusive and binding upon all Persons.

(b) General Right of Delegation . Except to the extent prohibited by applicable law, the applicable rules of a stock exchange or any charter, by-laws or other agreement governing the Administrator, the Administrator may delegate all or any part of its responsibilities to any Person or Persons selected by it and may revoke any such allocation or delegation at any time.

(c) Indemnification . No member of the Board, the Administrator or any employee of the Company or any of its Affiliates (each such Person, a “Covered Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award hereunder. Each Covered Person shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and (ii) any and all amounts paid by such Covered Person, with the Company’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person; provided that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and, once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Articles of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Persons or hold them harmless.

(d) Delegation of Authority to Senior Officers . The Administrator may, in accordance with the terms of Section 1.2(b), delegate, on such terms and conditions as it determines, to one or more senior officers of the Company the authority to make grants of Awards to employees (other than officers) of the Company and its Subsidiaries (including any such prospective employee) and consultants of the Company and its Subsidiaries; provided ,

 

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however , that in no event shall any such officer be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (i) individuals who are subject to Section 16 of the 1934 Act, or (ii) officers of the Company (or directors of the Company) to whom authority to grant or amend Awards has been delegated hereunder.

(e) Awards to Non-Employee Directors . Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards to Non-Employee Directors or administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority and responsibility granted to the Administrator herein.

 

1.3. Persons Eligible for Awards

The Persons eligible to receive Awards under the Plan are those directors, officers and employees (including any prospective officer or employee) of the Company and its Subsidiaries and Affiliates and consultants and service providers (including individuals who are employed by or provide services to any entity that is itself such a consultant or service provider) to the Company and its Subsidiaries and Affiliates (collectively, “Key Persons”) as the Administrator shall select.

 

1.4. Types of Awards

Awards may be made under the Plan in the form of (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) restricted stock units and (e) unrestricted stock, all as more fully set forth in the Plan. The term “Award” means any of the foregoing that are granted under the Plan.

 

1.5. Shares Available for Awards; Adjustments for Changes in Capitalization

(a) Maximum Number . Subject to adjustment as provided in Section 1.5(c), the aggregate number of shares of common stock of the Company, par value $0.01 (“Common Stock”), with respect to which Awards may at any time be granted under the Plan shall be 392,198. The following shares of Common Stock shall again become available for Awards under the Plan: (i) any shares that are subject to an Award under the Plan and that remain unissued upon the cancellation or termination of such Award for any reason whatsoever; (ii) any shares of restricted stock forfeited pursuant to the Plan or the applicable Award Agreement; provided that any dividend equivalent rights with respect to such shares that have not theretofore been directly remitted to the grantee are also forfeited; and (iii) any shares in respect of which an Award is settled for cash without the delivery of shares to the grantee. Any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again become available to be delivered pursuant to Awards under the Plan.

(b) Source of Shares . Shares issued pursuant to the Plan may be authorized but unissued Common Stock or treasury shares. The Administrator may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares.

(c) Adjustments . (i) In the event that any dividend or other distribution (whether in the form of cash, Company shares, other securities or other property), stock split, reverse stock split, reorganization, merger, consolidation, split-up, combination, repurchase or exchange of

 

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Company shares or other securities of the Company, issuance of warrants or other rights to purchase Company shares or other securities of the Company, or other similar corporate transaction or event, other than an Equity Restructuring, affects the Company shares such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of the number of shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan.

(ii) The Administrator is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including the events described in Section 1.5(c)(i) or the occurrence of a Change in Control (as defined below), other than an Equity Restructuring) affecting the Company, any of its Affiliates, or the financial statements of the Company or any of its Affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, including providing for (A) adjustment to (1) the number of shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate and (2) the Exercise Price (as defined below) with respect to any Award and (B) a substitution or assumption of Awards, accelerating the exercisability or vesting of, or lapse of restrictions on, Awards, or accelerating the termination of Awards by providing for a period of time for exercise prior to the occurrence of such event, or, if deemed appropriate or desirable, providing for a cash payment to the holder of an outstanding Award in consideration for the cancellation of such Award (it being understood that, in such event, any option or stock appreciation right having a per share Exercise Price equal to, or in excess of, the Fair Market Value (as defined below) of a share subject to such option or stock appreciation right may be cancelled and terminated without any payment or consideration therefor; provided , however , that with respect to options and stock appreciation rights, unless otherwise determined by the Administrator, such adjustment shall be made in accordance with the provisions of Section 424(h) of the Code.

(iii) In the event of (A) a dissolution or liquidation of the Company, (B) a sale of all or substantially all the Company’s assets or (C) a merger, reorganization or consolidation involving the Company or one of its Subsidiaries (as defined below), the Administrator shall have the power to:

(1) provide that outstanding options, stock appreciation rights and/or restricted stock units (including any related dividend equivalent right) shall either continue in effect, be assumed or an equivalent award shall be substituted therefor by the successor corporation or a parent corporation or subsidiary corporation;

(2) cancel, effective immediately prior to the occurrence of such event, options, stock appreciation rights and/or restricted stock units (including each dividend equivalent right related thereto) outstanding immediately prior to such event (whether or not then exercisable) and, in full consideration of such cancellation, pay to the holder of such Award a cash payment in an amount equal to the excess, if any, of the Fair Market

 

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Value (as of a date specified by the Administrator) of the shares subject to such Award over the aggregate Exercise Price of such Award (it being understood that, in such event, any option or stock appreciation right having a per share Exercise Price equal to, or in excess of, the Fair Market Value of a share subject to such option or stock appreciation right may be cancelled and terminated without any payment or consideration therefor); or

(3) notify the holder of an option or stock appreciation right in writing or electronically that each option and stock appreciation right shall be fully vested and exercisable for a period of 30 days from the date of such notice, or such shorter period as the Administrator may determine to be reasonable, and the option or stock appreciation right shall terminate upon the expiration of such period (which period shall expire no later than immediately prior to the consummation of the corporate transaction).

(iv) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in this Section 1.5(c):

(A) The number and type of securities or other property subject to each outstanding Award and the Exercise Price or grant price thereof, if applicable, shall be equitably adjusted; and

(B) The Administrator shall make such equitable adjustments, if any, as the Administrator may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations set forth in Sections 1.5(a)). The adjustments provided under this Section 1.5(c)(iv) shall be nondiscretionary and shall be final and binding on the affected participant and the Company.

 

1.6. Definitions of Certain Terms

(a) “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Administrator.

(b) Unless otherwise set forth in an Award Agreement, in connection with a termination of employment or consultancy/service relationship or a dismissal from Board membership, for purposes of the Plan, the term “for Cause” shall be defined as follows:

(i) if there is an employment, severance, consulting, service, change in control or other agreement governing the relationship between the grantee, on the one hand, and the Company or any of its Affiliates, on the other hand, that contains a definition of “cause” (or similar phrase), for purposes of the Plan, the term “for Cause” shall mean those acts or omissions that would constitute “cause” under such agreement; or

(ii) if the preceding clause (i) is not applicable to the grantee, for purposes of the Plan, the term “for Cause” shall mean any of the following:

(A) any failure by the grantee substantially to perform the grantee’s employment or consulting/service or Board membership duties;

 

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(B) any excessive unauthorized absenteeism by the grantee;

(C) any refusal by the grantee to obey the lawful orders of the Board or any other Person to whom the grantee reports;

(D) any act or omission by the grantee that is or may be injurious to the Company or any of its Affiliates, whether monetarily, reputationally or otherwise;

(E) any act by the grantee that is inconsistent with the best interests of the Company or any of its Affiliates;

(F) the grantee’s gross negligence that is injurious to the Company or any of its Affiliates, whether monetarily, reputationally or otherwise;

(G) the grantee’s material violation of any of the policies of the Company or any of its Affiliates, as applicable, including, without limitation, those policies relating to discrimination or sexual harassment;

(H) the grantee’s material breach of his or her employment or service contract with the Company or any of its Affiliates;

(I) the grantee’s unauthorized (1) removal from the premises of the Company or any of its Affiliates of any document (in any medium or form) relating to the Company or any of its Affiliates or the customers or clients of the Company or any of its Affiliates or (2) disclosure to any Person or entity of any of the Company’s, or any of its Affiliate’s, confidential or proprietary information;

(J) the grantee’s being convicted of, or entering a plea of guilty or nolo contendere to, any crime that constitutes a felony or involves moral turpitude; and

(K) the grantee’s commission of any act involving dishonesty or fraud.

Any rights the Company or any of its Affiliates may have under the Plan in respect of the events giving rise to a termination or dismissal “for Cause” shall be in addition to any other rights the Company or any of its Affiliates may have under any other agreement with a grantee or at law or in equity. Any determination of whether a grantee’s employment, consultancy/service relationship or Board membership is (or is deemed to have been) terminated “for Cause” shall be made by the Administrator. If, subsequent to a grantee’s voluntary termination of employment or consultancy/service relationship or voluntarily resignation from the Board or involuntary termination of employment or consultancy/service relationship without Cause or removal from the Board other than “for Cause”, it is discovered that the grantee’s employment or consultancy/service relationship or Board membership could have been terminated “for Cause”, the Administrator may deem such grantee’s employment or consultancy/service relationship or Board membership to have been terminated “for Cause” upon such discovery and determination by the Administrator.

 

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(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Exercise Price” shall mean (i) in the case of options, the price specified in the applicable Award Agreement as the price-per-share at which such share can be purchased pursuant to the option or (ii) in the case of stock appreciation rights, the price specified in the applicable Award Agreement as the reference price-per-share used to calculate the amount payable to the grantee.

(e) “Equity Restructuring” shall mean a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the shares of Common Stock (or other securities of the Company) or the share price thereof and causes a change in the per share value of the shares underlying outstanding Awards.

(f) The “Fair Market Value” of a share of Common Stock on any day shall be the closing price on the stock exchange upon which such shares are listed, as reported for such day in The Wall Street Journal, or, if no such price is reported for such day, the average of the high bid and low asked price of Common Stock as reported for such day. If no quotation is made for the applicable day, the Fair Market Value of a share of Common Stock on such day shall be determined in the manner set forth in the preceding sentence for the next preceding trading day. Notwithstanding the foregoing, if there is no reported closing price or high bid/low asked price that satisfies the preceding sentences, or if otherwise deemed necessary or appropriate by the Administrator, the Fair Market Value of a share of Common Stock on any day shall be determined by such methods and procedures as shall be established from time to time by the Administrator. The “Fair Market Value” of any property other than Common Stock shall be the fair market value of such property determined by such methods and procedures as shall be established from time to time by the Administrator.

(g) “Person” shall mean any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental body or other entity of any kind.

(h) “Repricing” shall mean (i) lowering the Exercise Price of an option or a stock appreciation right after it has been granted, (ii) cancellation of an option or a stock appreciation right in exchange for cash or another Award when the Exercise Price exceeds the Fair Market Value of the underlying shares subject to the Award and (iii) any other action with respect to an option or a stock appreciation right that is treated as a repricing under (A) generally accepted accounting principles or (B) any applicable stock exchange rules.

(i) “Subsidiary” shall mean any entity in which the Company, directly or indirectly, has a 50% or more equity interest.

ARTICLE II.

Awards Under The Plan

 

2.1. Agreements Evidencing Awards

Each Award granted under the Plan shall be evidenced by a written certificate (“Award Agreement”), which shall contain such provisions as the Administrator may deem necessary or

 

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desirable and which may, but need not, require execution or acknowledgment by a grantee. The Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement.

 

2.2. Grant of Stock Options and Stock Appreciation Rights

(a) Stock Option Grants . The Administrator may grant stock options (“options”) to purchase shares of Common Stock from the Company to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. No option will be treated as an “incentive stock option” for purposes of the Code. The Administrator shall not grant an Award in the form of stock options to an individual who is then subject to the requirements of Section 409A of the Code with respect to such Award if the Common Stock (as defined below) underlying such Award does not then qualify as “service recipient stock” for purposes of Section 409A. Options granted to individuals who are subject to Section 409A and/or 457 of the Code shall be structured so as to comply with the requirements of Section 409A and/or 457 of the Code, as applicable.

(b) Stock Appreciation Right Grants; Types of Stock Appreciation Rights . The Administrator may grant stock appreciation rights to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. The terms of a stock appreciation right may provide that it shall be automatically exercised for a payment upon the happening of a specified event that is outside the control of the grantee and that it shall not be otherwise exercisable. Stock appreciation rights may be granted in connection with all or any part of, or independently of, any option granted under the Plan. The Administrator shall not grant an Award in the form of stock appreciation rights to any Key Person (i) who is then subject to the requirements of Section 409A of the Code with respect to such Award if the Common Stock underlying such Award does not then qualify as “service recipient stock” for purposes of Section 409A or (ii) if such Award would create adverse tax consequences for such Key Person under Section 457A of the Code.

(c) Nature of Stock Appreciation Rights . The grantee of a stock appreciation right shall have the right, subject to the terms of the Plan and the applicable Award Agreement, to receive from the Company an amount equal to (i) the excess of the Fair Market Value of a share of Common Stock on the date of exercise of the stock appreciation right over the Exercise Price of the stock appreciation right, multiplied by (ii) the number of shares with respect to which the stock appreciation right is exercised. Each Award Agreement with respect to a stock appreciation right shall set forth the Exercise Price of such Award and, unless otherwise specifically provided in the Award Agreement, the Exercise Price of a stock appreciation right shall equal the Fair Market Value of a share of Common Stock on the date of grant; provided that in no event may such Exercise Price be less than the greater of (A) the Fair Market Value of a share of Common Stock on the date of grant and (B) the par value of a share of Common Stock. Payment upon exercise of a stock appreciation right shall be in cash or in shares of Common Stock (valued at their Fair Market Value on the date of exercise of the stock appreciation right) or any combination of both, all as the Administrator shall determine. Repricing of stock appreciation rights granted under the Plan shall not be permitted (1) to the extent such action could cause adverse tax consequences to the grantee under Sections 409A or 457A of the Code or (2) without prior shareholder approval, to the extent such approval would be required to be

 

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obtained by the Company pursuant to the rules of any applicable stock exchange on which the Common Stock is then listed, and any action that would be deemed to result in a Repricing of a stock appreciation right shall be deemed null and void if it would cause such adverse tax consequences or if any requisite shareholder approval related thereto is not obtained prior to the effective time of such action. Upon the exercise of a stock appreciation right granted in connection with an option, the number of shares subject to the option shall be reduced by the number of shares with respect to which the stock appreciation right is exercised. Upon the exercise of an option in connection with which a stock appreciation right has been granted, the number of shares subject to the stock appreciation right shall be reduced by the number of shares with respect to which the option is exercised. Stock appreciation rights granted to individuals who are subject to Section 409A and/or 457 of the Code shall be structured so as to comply with the requirements of Section 409A and/or 457 of the Code, as applicable.

(d) Option Exercise Price . Each Award Agreement with respect to an option shall set forth the Exercise Price of such Award and, unless otherwise specifically provided in the Award Agreement, the Exercise Price of an option shall equal the Fair Market Value of a share of Common Stock on the date of grant; provided that in no event may such Exercise Price be less than the greater of (i) the Fair Market Value of a share of Common Stock on the date of grant and (ii) the par value of a share of Common Stock. Repricing of options granted under the Plan shall not be permitted (1) to the extent such action could cause adverse tax consequences to the grantee under Sections 409A or 457A of the Code or (2) without prior shareholder approval, to the extent such approval would be required to be obtained by the Company pursuant to the rules of any applicable stock exchange on which the Common Stock is then listed, and any action that would be deemed to result in a Repricing of an option shall be deemed null and void if it would cause such adverse tax consequences or if any requisite shareholder approval related thereto is not obtained prior to the effective time of such action.

 

2.3. Exercise of Options and Stock Appreciation Rights

Subject to the other provisions of this Article II and the Plan, each option and stock appreciation right granted under the Plan shall be exercisable as follows:

(a) Timing and Extent of Exercise . Options and stock appreciation rights shall be exercisable at such times and under such conditions as determined by the Administrator and set forth in the corresponding Award Agreement, but in no event shall any portion of such Award be exercisable subsequent to the tenth anniversary of the date on which such Award was granted. Unless the applicable Award Agreement otherwise provides, an option or stock appreciation right may be exercised from time to time as to all or part of the shares as to which such Award is then exercisable.

(b) Notice of Exercise . An option or stock appreciation right shall be exercised by the filing of a written notice with the Company or the Company’s designated exchange agent (the “Exchange Agent”), on such form and in such manner as the Administrator shall prescribe.

(c) Payment of Exercise Price . Any written notice of exercise of an option shall be accompanied by payment for the shares being purchased. Such payment shall be made: (i) by certified or official bank check (or the equivalent thereof acceptable to the Company or its Exchange Agent) for the full option Exercise Price; (ii) with the consent of the Administrator, which consent shall be given or withheld in the sole discretion of the Administrator, by

 

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delivery of shares of Common Stock having a Fair Market Value (determined as of the exercise date) equal to all or part of the option Exercise Price and a certified or official bank check (or the equivalent thereof acceptable to the Company or its Exchange Agent) for any remaining portion of the full option Exercise Price; or (iii) at the sole discretion of the Administrator and to the extent permitted by law, by such other provision, consistent with the terms of the Plan, as the Administrator may from time to time prescribe (whether directly or indirectly through the Exchange Agent), or by any combination of the foregoing payment methods.

(d) Delivery of Certificates Upon Exercise . Subject to Sections 3.2, 3.4 and 3.13, promptly after receiving payment of the full option Exercise Price, or after receiving notice of the exercise of a stock appreciation right for which the Administrator determines payment will be made partly or entirely in shares, the Company or its Exchange Agent shall (i) deliver to the grantee, or to such other Person as may then have the right to exercise the Award, a certificate or certificates for the shares of Common Stock for which the Award has been exercised or, in the case of stock appreciation rights, for which the Administrator determines will be made in shares or (ii) establish an account evidencing ownership of the stock in uncertificated form. If the method of payment employed upon an option exercise so requires, and if applicable law permits, an optionee may direct the Company or its Exchange Agent, as the case may be, to deliver the stock certificate(s) to the optionee’s stockbroker.

(e) No Stockholder Rights . No grantee of an option or stock appreciation right (or other Person having the right to exercise such Award) shall have any of the rights of a stockholder of the Company with respect to shares subject to such Award until the issuance of a stock certificate to such Person for such shares. Except as otherwise provided in Section 1.5(c), no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate is issued.

 

2.4. Termination of Employment; Death Subsequent to a Termination of Employment

(a) General Rule . Except to the extent otherwise provided in paragraphs (b), (c), (d), (e) or (f) of this Section 2.4 or Section 3.5(b)(iii), a grantee who incurs a termination of employment or consultancy/service relationship or dismissal from the Board may exercise any outstanding option or stock appreciation right on the following terms and conditions: (i) exercise may be made only to the extent that the grantee was entitled to exercise the Award on the date of termination of employment or consultancy/service relationship or dismissal from the Board, as applicable; and (ii) exercise must occur within three months after termination of employment or consultancy/service relationship or dismissal from the Board but in no event after the original expiration date of the Award.

(b) Dismissal “for Cause” . If a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board “for Cause”, all options and stock appreciation rights not theretofore exercised shall immediately terminate upon the grantee’s termination of employment or consultancy/service relationship or dismissal from the Board.

(c) Retirement . If a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her retirement (as defined below), then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such retirement, remain exercisable for a period of three

 

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years after such retirement; provided that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award. For this purpose, “retirement” shall mean a grantee’s resignation of employment or consultancy/service relationship or dismissal from the Board, with the Company’s or its applicable Affiliate’s prior consent, on or after (i) his or her 65th birthday, (ii) the date on which he or she has attained age 60 and completed at least five years of service with the Company or one or more of its Affiliates (using any method of calculation the Administrator deems appropriate) or (iii) if approved by the Administrator, on or after his or her having completed at least 20 years of service with the Company or one or more of its Affiliates (using any method of calculation the Administrator deems appropriate).

(d) Disability . If a grantee incurs a termination of employment or consultancy/service relationship or a dismissal from the Board by reason of a disability (as defined below), then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such termination or dismissal, remain exercisable for a period of one year after such termination or dismissal; provided that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award. For this purpose, “disability” shall mean any physical or mental condition that would qualify the grantee for a disability benefit under the long-term disability plan maintained by the Company or its Affiliate, as applicable, or, if there is no such plan, a physical or mental condition that prevents the grantee from performing the essential functions of the grantee’s position (with or without reasonable accommodation) for a period of six consecutive months. The existence of a disability shall be determined by the Administrator.

(e) Death .

(i) Termination of Employment as a Result of Grantee’s Death . If a grantee incurs a termination of employment or consultancy/service relationship or leaves the Board as the result of his or her death, then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such death, remain exercisable for a period of one year after such death; provided that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award.

(ii) Restrictions on Exercise Following Death . Any such exercise of an Award following a grantee’s death shall be made only by the grantee’s executor or administrator or other duly appointed representative reasonably acceptable to the Administrator, unless the grantee’s will specifically disposes of such Award, in which case such exercise shall be made only by the recipient of such specific disposition. If a grantee’s personal representative or the recipient of a specific disposition under the grantee’s will shall be entitled to exercise any Award pursuant to the preceding sentence, such representative or recipient shall be bound by all the terms and conditions of the Plan and the applicable Award Agreement which would have applied to the grantee.

(f) Administrator Discretion . The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.4.

 

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2.5. Transferability of Options and Stock Appreciation Rights

Except as otherwise provided in an applicable Award Agreement evidencing an option or stock appreciation right, during the lifetime of a grantee, each such Award granted to a grantee shall be exercisable only by the grantee, and no such Award shall be assignable or transferable other than by will or by the laws of descent and distribution. The Administrator may, in any applicable Award Agreement evidencing an option or stock appreciation right, permit a grantee to transfer all or some of the options or stock appreciation rights to (a) the grantee’s spouse, children or grandchildren (“Immediate Family Members”), (b) a trust or trusts for the exclusive benefit of such Immediate Family Members or (c) other parties approved by the Administrator. Following any such transfer, any transferred options and stock appreciation rights shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.

 

2.6. Grant of Restricted Stock

(a) Restricted Stock Grants . The Administrator may grant restricted shares of Common Stock to such Key Persons, in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions as the Administrator shall determine, subject to the provisions of the Plan. A grantee of a restricted stock Award shall have no rights with respect to such Award unless such grantee accepts the Award within such period as the Administrator shall specify by accepting delivery of a restricted stock Award Agreement in such form as the Administrator shall determine and, in the event the restricted shares are newly issued by the Company, makes payment to the Company or its Exchange Agent by certified or official bank check (or the equivalent thereof acceptable to the Administrator) in an amount at least equal to the par value of the shares covered by the Award (which payment may be waived at the time of grant of the restricted stock Award to the extent the restricted shares granted hereunder are otherwise deemed to be fully paid and non-assessable).

(b) Issuance of Stock Certificate . Promptly after a grantee accepts a restricted stock Award in accordance with Section 2.6(a), subject to Sections 3.2, 3.4 and 3.13, the Company or its Exchange Agent shall issue to the grantee a stock certificate or stock certificates for the shares of Common Stock covered by the Award or shall establish an account evidencing ownership of the stock in uncertificated form. Upon the issuance of such stock certificates, or establishment of such account, the grantee shall have the rights of a stockholder with respect to the restricted stock, subject to: (i) the nontransferability restrictions and forfeiture provision described in the Plan (including paragraphs (d) and (e) of this Section 2.6); (ii) in the Administrator’s sole discretion, a requirement, as set forth in the Award Agreement, that any dividends paid on such shares shall be held in escrow and, unless otherwise determined by the Administrator, shall remain forfeitable until all restrictions on such shares have lapsed; and (iii) any other restrictions and conditions contained in the applicable Award Agreement.

(c) Custody of Stock Certificate . Unless the Administrator shall otherwise determine, any stock certificates issued evidencing shares of restricted stock shall remain in the possession of the Company until such shares are free of any restrictions specified in the applicable Award Agreement. The Administrator may direct that such stock certificates bear a legend setting forth the applicable restrictions on transferability.

 

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(d) Nontransferability . Shares of restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of prior to the lapsing of all restrictions thereon, except as otherwise specifically provided in this Plan or the applicable Award Agreement. The Administrator at the time of grant shall specify the date or dates (which may depend upon or be related to the attainment of performance goals and other conditions) on which the nontransferability of the restricted stock shall lapse.

(e) Consequence of Termination of Employment . Unless otherwise set forth in the applicable Award Agreement, (i) a grantee’s termination of employment or consultancy/service relationship or dismissal from the Board for any reason other than death or disability (as defined in Section 2.4(d)) shall cause the immediate forfeiture of all shares of restricted stock that have not yet vested as of the date of such termination of employment or consultancy/service relationship or dismissal from the Board and (ii) if a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her death or disability, all shares of restricted stock that have not yet vested as of the date of such termination or departure from the Board shall immediately vest as of such date. Unless otherwise determined by the Administrator, all dividends paid on shares forfeited under this Section 2.6(e) that have not theretofore been directly remitted to the grantee shall also be forfeited, whether by termination of any escrow arrangement under which such dividends are held or otherwise. The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.6(e).

 

2.7. Grant of Restricted Stock Units

(a) Restricted Stock Unit Grants . The Administrator may grant restricted stock units to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. A restricted stock unit granted under the Plan shall confer upon the grantee a right to receive from the Company, conditioned upon the occurrence of such vesting event as shall be determined by the Administrator and specified in the Award Agreement, the number of such grantee’s restricted stock units that vest upon the occurrence of such vesting event multiplied by the Fair Market Value of a share of Common Stock on the date of vesting. Payment upon vesting of a restricted stock unit shall be in cash or in shares of Common Stock (valued at their Fair Market Value on the date of vesting) or both, all as the Administrator shall determine, and such payments shall be made to the grantee at such time as provided in the Award Agreement, which shall be (i) if Section 409A of the Code is applicable to the grantee, within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 409A and the Treasury Regulations issued thereunder, unless the Administrator shall provide for deferral of the Award in compliance with Section 409A, (ii) if Section 457A of the Code is applicable to the grantee, within the period required by Section 457A(d)(3)(B) such that it qualifies for the exemption thereunder, or (iii) if Sections 409A and 457A of the Code are not applicable to the grantee, at such time as determined by the Administrator.

(b) Dividend Equivalents . The Administrator may include in any Award Agreement with respect to a restricted stock unit a dividend equivalent right entitling the grantee to receive amounts equal to the ordinary dividends that would be paid, during the time such Award is outstanding and unvested, on the shares of Common Stock underlying such Award if such shares were then outstanding. In the event such a provision is included in a Award Agreement, the Administrator shall determine whether such payments shall be (i) paid to the holder of the

 

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Award, as specified in the Award Agreement, either (A) at the same time as the underlying dividends are paid, regardless of the fact that the restricted stock unit has not theretofore vested, or (B) at the time at which the Award’s vesting event occurs, conditioned upon the occurrence of the vesting event, (ii) made in cash, shares of Common Stock or other property and (iii) subject to such other vesting and forfeiture provisions and other terms and conditions as the Administrator shall deem appropriate and as shall be set forth in the Award Agreement.

(c) Consequence of Termination of Employment . Unless otherwise set forth in the applicable Award Agreement, (i) a grantee’s termination of employment or consultancy/service relationship or dismissal from the Board for any reason other than death or disability (as defined in Section 2.4(d)) shall cause the immediate forfeiture of all restricted stock units that have not yet vested as of the date of such termination of employment or consultancy/service relationship or dismissal from the Board and (ii) if a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her death or disability, all restricted stock units that have not yet vested as of the date of such termination or departure from the Board shall immediately vest as of such date. Unless otherwise determined by the Administrator, any dividend equivalent rights on any restricted stock units forfeited under this Section 2.7(c) that have not theretofore been directly remitted to the grantee shall also be forfeited, whether by termination of any escrow arrangement under which such dividends are held or otherwise. The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.7(c).

(d) No Stockholder Rights . No grantee of a restricted stock unit shall have any of the rights of a stockholder of the Company with respect to such Award unless and until a stock certificate is issued with respect to such Award upon the vesting of such Award (it being understood that the Administrator shall determine whether to pay any vested restricted stock unit in the form of cash or Company shares or both), which issuance shall be subject to Sections 3.2, 3.4 and 3.13. Except as otherwise provided in Section 1.5(c), no adjustment to any restricted stock unit shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate, if any, is issued.

(e) Transferability of Restricted Stock Units . Except as otherwise provided in an applicable Award Agreement evidencing a restricted stock unit, no restricted stock unit granted under the Plan shall be assignable or transferable. The Administrator may, in any applicable Award Agreement evidencing a restricted stock unit, permit a grantee to transfer all or some of the restricted stock units to (i) the grantee’s Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members or (iii) other parties approved by the Administrator. Following any such transfer, any transferred restricted stock units shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.

 

2.8. Grant of Unrestricted Stock

The Administrator may grant (or sell at a purchase price at least equal to par value) shares of Common Stock free of restrictions under the Plan to such Key Persons and in such amounts and subject to such forfeiture provisions as the Administrator shall determine. Shares may be thus granted or sold in respect of past services or other valid consideration.

 

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ARTICLE III.

Miscellaneous

 

3.1. Amendment of the Plan; Modification of Awards

(a) Amendment of the Plan . The Board may from time to time suspend, discontinue, revise or amend the Plan in any respect whatsoever, except that no such amendment shall materially impair any rights or materially increase any obligations under any Award theretofore made under the Plan without the consent of the grantee (or, upon the grantee’s death, the Person having the right to exercise the Award). For purposes of this Section 3.1, any action of the Board or the Administrator that in any way alters or affects the tax treatment of any Award shall not be considered to materially impair any rights of any grantee.

(b) Stockholder Approval Requirement . If required by applicable rules or regulations of a national securities exchange or the SEC, the Company shall obtain stockholder approval with respect to any amendment to the Plan that (i) expands the types of Awards available under the Plan, (ii) materially increases the number of shares which may be issued under the Plan (except as permitted pursuant to Section 1.5(c)), (iii) materially increases the benefits to participants under the Plan, including any material change to (A) permit, or that has the effect of, a “re-pricing” of any outstanding Award, (B) reduce the price at which shares of options to purchase shares may be offered or (C) extends the duration of the Plan or (iv) materially expands the class of Persons eligible to receive Awards under the Plan.

(c) Modification of Awards . The Administrator may cancel any Award under the Plan. The Administrator also may amend any outstanding Award Agreement, including, without limitation, by amendment which would: (i) accelerate the time or times at which the Award becomes unrestricted, vested or may be exercised; (ii) waive or amend any goals, restrictions or conditions set forth in the Award Agreement; or (iii) waive or amend the operation of Sections 2.4, 2.6(e) or 2.7(c) with respect to the termination of the Award upon termination of employment or consultancy/service relationship or dismissal from the Board; provided , however , that 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 Award. However, any such cancellation or amendment (other than an amendment pursuant to Section 1.5, 3.5 or 3.16) that materially impairs the rights or materially increases the obligations of a grantee under an outstanding Award shall be made only with the consent of the grantee (or, upon the grantee’s death, the Person having the right to exercise the Award). In making any modification to an Award ( e.g. , an amendment resulting in a direct or indirect reduction in the Exercise Price or a waiver or modification under Section 2.4(f), 2.6(e) or 2.7(c)), the Administrator may consider the implications, if any, under Sections 409A and 457A of the Code of such modification.

 

3.2. Consent Requirement

(a) No Plan Action Without Required Consent . If the Administrator shall at any time determine that any Consent (as defined below) is necessary or desirable as a condition of, or in connection with, the granting of any Award under the Plan, the issuance or purchase of shares or other rights thereunder, or the taking of any other action thereunder (each such action being hereinafter referred to as a “Plan Action”), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained to the full satisfaction of the Administrator.

 

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(b) Consent Defined . The term “Consent” as used herein with respect to any Plan Action means (i) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, rule or regulation, (ii) any and all written agreements and representations by the grantee with respect to the disposition of shares, or with respect to any other matter, which the Administrator shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made and (iii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies.

 

3.3. Nonassignability

Except as provided in Sections 2.4(e), 2.5, 2.6(d) or 2.7(e), (a) no Award or right granted to any Person under the Plan or under any Award Agreement shall be assignable or transferable other than by will or by the laws of descent and distribution and (b) all rights granted under the Plan or any Award Agreement shall be exercisable during the life of the grantee only by the grantee or the grantee’s legal representative or the grantee’s permissible successors or assigns (as authorized and determined by the Administrator). All terms and conditions of the Plan and the applicable Award Agreements will be binding upon any permitted successors or assigns.

 

3.4. Taxes

(a) Withholding . A grantee or other Award holder under the Plan shall be required to pay, in cash, to the Company, and the Company and Affiliates shall have the right and are hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to such grantee or other Award holder, the amount of any applicable withholding taxes in respect of an Award, its grant, its exercise, its vesting, or any payment or transfer under an Award or under the Plan, and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for payment of such taxes. Whenever shares of Common Stock are to be delivered pursuant to an Award under the Plan, with the approval of the Administrator, which the Administrator shall have sole discretion whether or not to give, the grantee may satisfy the foregoing condition by electing to have the Company withhold from delivery shares having a value equal to the amount of minimum tax required to be withheld. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award as may be approved by the Administrator in its sole discretion.

(b) Liability for Taxes . Grantees and holders of Awards are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with Awards (including, without limitation, any taxes arising under Sections 409A and 457A of the Code) and the Company shall not have any obligation to indemnify or otherwise hold any such Person harmless from any or all of such taxes. The Administrator shall have the discretion to organize any deferral program, to require deferral election forms, and to grant or, notwithstanding anything to the contrary in the Plan or any Award Agreement, to unilaterally modify any Award

 

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in a manner that (i) conforms with the requirements of Sections 409A and 457A of the Code (to the extent applicable), (ii) voids any participant election to the extent it would violate Sections 409A or 457A of the Code (to the extent applicable) and (iii) for any distribution event or election that could be expected to violate Section 409A or 457A of the Code, make the distribution only upon the earliest of the first to occur of a “permissible distribution event” within the meaning of Section 409A of the Code or a distribution event that the participant elects in accordance with Section 409A of the Code. The Administrator shall have the sole discretion to interpret the requirements of the Code, including, without limitation, Sections 409A and 457A, for purposes of the Plan and all Awards.

 

3.5. Change in Control

(a) Change in Control Defined . Unless otherwise set forth in the applicable Award Agreement, for purposes of the Plan, “Change in Control” shall mean the occurrence of any of the following:

(i) any “person” (as defined in Section 13(d)(3) of the 1934 Act), corporation or other entity (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (C) any company or other entity owned, directly or indirectly, by the holders of the voting stock of the Company in substantially the same proportions as their ownership of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company) other than Diana Shipping Inc. acquires “beneficial ownership” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company;

(ii) the sale of all or substantially all the Company’s assets in one or more related transactions to a person or group of persons, other than such a sale (A) to a Subsidiary which does not involve a change in the equity holdings of the Company or (B) to an entity which has acquired all or substantially all the Company’s assets (any such entity described in clause (A) or (B), the “Acquiring Entity”) if, immediately following such sale, 50% or more of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Acquiring Entity (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Acquiring Entity) is beneficially owned by the holders of the voting stock of the Company, and such voting power among the persons who were holders of the voting stock of the Company immediately prior to such sale is, immediately following such sale, held in substantially the same proportions as the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company immediately prior to such sale;

(iii) any merger, consolidation, reorganization or similar event of the Company or any Subsidiary as a result of which the holders of the voting stock of the Company immediately prior to such merger, consolidation, reorganization or similar event do not directly or indirectly hold 50% or more of the aggregate voting power of the capital stock of the surviving entity (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the surviving entity) and

 

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such voting power among the persons who were holders of the voting stock of the Company immediately prior to such sale is, immediately following such sale, held in substantially the same proportions as the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company immediately prior to such sale;

(iv) the approval by the Company’s stockholders of a plan of complete liquidation or dissolution of the Company; or

(v) during any period of 12 consecutive calendar months, individuals:

 

  (A) who were directors of the Company on the first day of such period, or

 

  (B) whose election or nomination for election to the Board was recommended or approved by at least a majority of the directors then still in office who were directors of the Company on the first day of such period, or whose election or nomination for election were so approved,

shall cease to constitute a majority of the Board.

Notwithstanding the foregoing, (1) in no event shall a Change in Control be deemed to have occurred in connection with an initial public offering of Common Stock, and (2) for each Award subject to Section 409A of the Code, a Change in Control shall be deemed to occur under this Plan with respect to such Award only if a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Section 409A of the Code, provided that such limitation shall apply to such Award only to the extent necessary to avoid adverse tax effects under Section 409A of the Code.

(b) Effect of a Change in Control . Unless the Administrator provides otherwise in an Award Agreement, upon the occurrence of a Change in Control:

(i) notwithstanding any other provision of this Plan, any Award then outstanding shall become fully vested and any Award in the form of an option or stock appreciation right shall be immediately exercisable;

(ii) to the extent permitted by law and not otherwise limited by the terms of the Plan, the Administrator may amend any Award Agreement in such manner as it deems appropriate;

(iii) a grantee who incurs a termination of employment or consultancy/service relationship or dismissal from the Board for any reason, other than a termination or dismissal “for Cause”, concurrent with or within one year following the Change in Control may exercise any outstanding option or stock appreciation right, but only to the extent that the grantee was entitled to exercise the Award on the date of his or her termination of employment or consultancy/service relationship or dismissal from the Board, until the earlier of (A) the original expiration date of the Award and (B) the later of (x) the date provided for under the terms of Section 2.4 without reference to this Section 3.5(b)(iii) and (y) the first anniversary of the grantee’s termination of employment or consultancy/service relationship or dismissal from the Board.

 

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(c) Miscellaneous . Whenever deemed appropriate by the Administrator, any action referred to in paragraph (b)(ii) of this Section 3.5 may be made conditional upon the consummation of the applicable Change in Control transaction. For purposes of the Plan and any Award Agreement granted hereunder, the term “Company” shall include any successor to Diana Containerships Inc.

 

3.6. Operation and Conduct of Business

Nothing in the Plan or any Award Agreement shall be construed as limiting or preventing the Company or any of its Affiliates from taking any action with respect to the operation and conduct of their business that they deem appropriate or in their best interests, including any or all adjustments, recapitalizations, reorganizations, exchanges or other changes in the capital structure of the Company or any of its Affiliates, any merger or consolidation of the Company or any of its Affiliates, any issuance of Company shares or other securities or subscription rights, any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or other securities or rights thereof, any dissolution or liquidation of the Company or any of its Affiliates, any sale or transfer of all or any part of the assets or business of the Company or any of its Affiliates, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

3.7. No Rights to Awards

No Key Person or other Person shall have any claim to be granted any Award under the Plan.

 

3.8. Right of Discharge Reserved

Nothing in the Plan or in any Award Agreement shall confer upon any grantee the right to continue his or her employment with the Company or any of its Affiliates, his or her consultancy/service relationship with the Company or any of its Affiliates, or his or her position as a director of the Company or any of its Affiliates, or affect any right that the Company or any of its Affiliates may have to terminate such employment or consultancy/service relationship or service as a director.

 

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3.9. Non-Uniform Determinations

The Administrator’s determinations and the treatment of Key Persons and grantees and their beneficiaries under the Plan need not be uniform and may be made and determined by the Administrator selectively among Persons who receive, or who are eligible to receive, Awards under the Plan (whether or not such Persons are similarly situated). Without limiting the generality of the foregoing, the Administrator shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to (a) the Persons to receive Awards under the Plan, (b) the types of Awards granted under the Plan, (c) the number of shares to be covered by, or with respect to which payments, rights or other matters are to be calculated with respect to, Awards and (d) the terms and conditions of Awards.

 

3.10. Other Payments or Awards

Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any award or payment to any Person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

 

3.11. Headings

Any section, subsection, paragraph or other subdivision headings contained herein are for the purpose of convenience only and are not intended to expand, limit or otherwise define the contents of such subdivisions.

 

3.12. Effective Date and Term of Plan

(a) Adoption; Stockholder Approval . The Plan was adopted by the Board on January 13, 2010. The Board may, but need not, make the granting of any Awards under the Plan subject to the approval of the Company’s stockholders.

(b) Termination of Plan . The Board may terminate the Plan at any time. All Awards made under the Plan prior to its termination shall remain in effect until such Awards have been satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Award Agreements. No Awards may be granted under the Plan following the tenth anniversary of the date on which the Plan was adopted by the Board.

 

3.13. Restriction on Issuance of Stock Pursuant to Awards

The Company shall not permit any shares of Common Stock to be issued pursuant to Awards granted under the Plan unless such shares of Common Stock are fully paid and non-assessable under applicable law. Notwithstanding anything to the contrary in the Plan or any Award Agreement, at the time of the exercise of any Award, at the time of vesting of any Award, at the time of payment of shares of Common Stock in exchange for, or in cancellation of, any Award, or at the time of grant of any unrestricted shares under the Plan, the Company and the Administrator may, if either shall deem it necessary or advisable for any reason, require the holder of an Award (a) to represent in writing to the Company that it is the Award holder’s then-intention to acquire the shares with respect to which the Award is granted for investment and not with a view to the distribution thereof or (b) to postpone the date of exercise until such time as the Company has available for delivery to the Award holder a prospectus meeting the requirements of all applicable securities laws; and no shares shall be issued or transferred in

 

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connection with any Award unless and until all legal requirements applicable to the issuance or transfer of such shares have been complied with to the satisfaction of the Company and the Administrator. The Company and the Administrator shall have the right to condition any issuance of shares to any Award holder hereunder on such Person’s undertaking in writing to comply with such restrictions on the subsequent transfer of such shares as the Company or the Administrator shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and all share certificates delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Company or the Administrator may deem advisable under the Plan, the applicable Award Agreement or the rules, regulations and other requirements of the SEC, any stock exchange upon which such shares are listed, and any applicable securities or other laws, and certificates representing such shares may contain a legend to reflect any such restrictions. The Administrator may refuse to issue or transfer any shares or other consideration under an Award if it determines that the issuance or transfer of such shares or other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the 1934 Act, and any payment tendered to the Company by a grantee or other Award holder in connection with the exercise of such Award shall be promptly refunded to the relevant grantee or other Award holder. Without limiting the generality of the foregoing, no Award granted under the Plan shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Administrator has determined that any such offer, if made, would be in compliance with all applicable requirements of any applicable securities laws.

 

3.14. Requirement of Notification of Election Under Section 83(b) of the Code

If an Award recipient, in connection with the acquisition of Company shares under the Plan, makes an election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Code), the grantee shall notify the Administrator of such election within ten days of filing notice of the election with the U.S. Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code.

 

3.15. Severability

If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Administrator, such provision shall be construed or deemed amended to conform to the applicable laws or, if it cannot be construed or deemed amended without, in the determination of the Administrator, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

 

3.16. Sections 409A and 457A

To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Sections 409A and 457A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding any provision of the Plan or any applicable Award Agreement to the contrary, in the event that the Administrator determines that any Award may be subject to Section 409A or 457A of the Code, the Administrator may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies

 

21


and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (i) exempt the Plan and Award from Sections 409A and 457A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Sections 409A and 457A of the Code and related Department of Treasury guidance and thereby avoid the application of penalty taxes under Sections 409A and 457A of the Code.

 

3.17. Forfeiture; Clawback

The Administrator may, in its sole discretion, specify in the applicable Award Agreement that any realized gain with respect to options or stock appreciation rights and any realized value with respect to other Awards shall be subject to forfeiture or clawback, in the event of (a) a grantee’s breach of any non-competition, non-solicitation, confidentiality or other restrictive covenants with respect to the Company or any of its Affiliates or (ii) a financial restatement that reduces the amount of bonus or incentive compensation previously awarded to a grantee that would have been earned had results been properly reported.

 

3.18. No Trust or Fund Created

Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any of its Affiliates and an Award recipient or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any of its Affiliates pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or its Affiliates.

 

3.19. No Fractional Shares

No fractional shares shall be issued or delivered pursuant to the Plan or any Award, and the Administrator shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional shares or whether such fractional shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

 

3.20. Governing Law

The Plan will be construed and administered in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws.

 

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Exhibit 10.2

ADMINISTRATIVE SERVICES AGREEMENT

THIS ADMINISTRATIVE SERVICES AGREEMENT (as the same may be amended or modified from time to time, the “ Agreement ”), dated as of April 6, 2010, is made by and between DIANA CONTAINERSHIPS INC., a Marshall Islands corporation (the “ Company ”), and DIANA SHIPPING SERVICES S.A., a Panamanian corporation (the “ Manager ”).

WHEREAS, the Company is a recently formed entity established for the purpose of acquiring, owning and operating a fleet of containerships (each a “ Vessel ” and collectively the “ Vessels ”), indirectly through separate wholly-owned subsidiaries (each a “ Vessel Owning Subsidiary ” and collectively the “ Vessel Owning Subsidiaries ”);

WHEREAS, the Company anticipates the completion of a private placement of its Common Shares, par value $0.01 per share (the “ Common Shares ”), with the net proceeds of such private placement to be used to fund all or a portion of the purchase price of the Vessels;

WHEREAS, the Company expects that each Vessel Owning Subsidiary will enter into separate commercial and technical management agreements with the Manager pursuant to which the Manager will provide each Vessel Owning Subsidiary with commercial and technical management services for each owned Vessel;

WHEREAS, the Company desires to enter into this Agreement with the Manager to engage the Manager to provide certain administrative services to the Company, and the Manager desires to provide such administrative services to the Company, on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and premises of the Parties hereto and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 Certain Definitions. In this Agreement, including the recitals hereto, unless the context requires otherwise, the following terms shall have the respective meanings set forth below:

Accounting Referee ” has the meaning ascribed to such term in Section 6.3.

Administrative Management Services ” has the meaning ascribed to such term in Section 3.

Affiliates ” means, with respect to any Person as at any particular date, any other Persons that directly or indirectly, through one or more intermediaries, are Controlled by, Control or are under common Control with the Person in question, and “ Affiliate ” means any one of them.


 

Applicable Laws ” means, in respect of any Person, property, transaction or event, all laws, statutes, ordinances, regulations, municipal by-laws, treaties, judgments and decrees applicable to that Person, property, transaction or event, all applicable official directives, rules, consents, approvals, authorizations, guidelines, orders, codes of practice and policies of any Governmental Authority having authority over that Person, property, transaction or event and having the force of law, and all general principles of common law and equity.

Approved Budget ” has the meaning ascribed to such term in Section 3.4(c).

Board of Directors ” means the board of directors of the Company, as the same may be constituted from time to time.

Books and Records ” means all books of accounts and records, including tax records, sales and purchase records, Vessel records, computer software, formulae, business reports, plans and projections and all other documents, files, correspondence and other information of the Company with respect to the Vessels or the Business (whether or not in written, printed, electronic or computer printout form).

Business ” means the Company’s business of owning, operating and/or chartering or re-chartering containerships to other Persons and any other lawful act or activity customarily conducted in conjunction therewith.

Business Day ” means a day other than a Saturday, Sunday or statutory holiday on which the banks in New York, New York are required to close.

Change of Control ” has the meaning ascribed to such term in Section 8.4.

Charter ” means a charter party agreement between a Company (or a Vessel Owning Subsidiary of the Company) and any Person that relates to any of the Vessels (including any voyage or spot charters), and “ Charters ” means all such charter party agreements.

Charterer ” means any Person that has entered or enter into, or assumed or assume the obligations under, by novation or otherwise, a Charter with a Company (or a Vessel Owning Subsidiary of the Company).

Chief Financial Officer ” means the chief financial officer of the Company.

Common Shares ” has the meaning ascribed to such term in the recitals to this Agreement.

Company Breach ” has the meaning ascribed to such term in Section 10.4(b).

Company Indemnified Persons ” has the meaning ascribed to such term in Section 7.3.

Confidential Information ” means all nonpublic or proprietary information or data (including all oral and visual information or data recorded in writing or in any other medium or by any other method) relating to a Disclosing Party that is obtained from the Disclosing Party or any third party on the Disclosing Party’s behalf, at any time before, simultaneously with, or after


the execution of this Agreement; and, without prejudice to the general nature of the foregoing definition, the term Confidential Information shall include, but not by way of limitation, (i) information regarding the Disclosing Party’s existing or proposed operations, business plans, market opportunities, and business affairs and (ii) any information ascertainable by inspection of Confidential Information disclosed to the Receiving Party or by the analysis of any materials supplied to the Receiving Party. Notwithstanding the foregoing, Confidential Information shall not include any information which (x) is public knowledge at the time of disclosure or which subsequently becomes public knowledge other than as a result of a breach of this Agreement; (y) the Receiving Party can show was made available to it by some other Person who had a right to do so and who was not subject to any obligation of confidentiality or restricted use regarding such information; or (z) was developed by the Receiving Party independently without use of any confidential information provided hereunder or by a third party in breach of its confidentiality obligations.

Continuing Directors ” means, as of any date of determination, any member of the Board of Directors who was (a) a member of the Board of Directors as of the date this Agreement is entered into or (b) nominated for election or elected to the Board of Directors with the approval of a majority of the directors then in office who were either directors as of the date this Agreement was entered into or whose nomination or election was previously so approved.

Control ” or “ Controlled ” means, with respect to any Person, the right to elect or appoint, directly or indirectly, a majority of the directors of such Person or a majority of the Persons who have the right, including any contractual right, to manage and direct the business, affairs and operations of such Person, or the possession of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of Voting Securities, by contract, or otherwise.

Containership ” means a cargo ship designed and built to transport containerized cargoes.

Costs and Expenses ” has the meaning ascribed to such term in Section 6.1.

Credit Facility ” means any credit facility agreement to which any Company or any Subsidiary of the Company may be a party from time to time.

Designated Representative ” and “ Designated Representatives ” each have the meaning ascribed to such terms in Section 9.1.

Disclosing Party ” means a Party who has disclosed Confidential Information hereunder to the other Party or on whose behalf Confidential Information has been disclosed to the other Party.

Dispute ” has the meaning ascribed to such term in Section 9.1.

Dividend ” means any cash dividend paid by the Company on all outstanding Common Stock.

Draft Budget ” has the meaning ascribed to such term in Section 3.4(a).


 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

Fiscal Quarter ” means a fiscal quarter for the Company or, in the case of the fiscal quarter ending March 31, 2010, the portion of such fiscal quarter between the date of this Agreement and the commencement of the next fiscal quarter.

Fiscal Year ” means the fiscal year of the Company, being the twelve-month period ending December 31.

Force Majeure Event ” has the meaning ascribed to such term in Section 10.2.

GAAP ” means generally accepted accounting principles consistently applied in the United States.

Governmental Authority ” means any domestic or foreign government, including any federal, provincial, state, territorial or municipal government, any multinational or supranational organization, any government agency (including the SEC), any tribunal, labor relations board, commission or stock exchange (including the New York Stock Exchange), and any other authority or organization exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government.

Initial Term ” has the meaning ascribed to such term in Section 8.1.

Legal Action ” means any action, claim, complaint, demand, suit, judgment, investigation or proceeding, pending or threatened, by any Person or before any Governmental Authority.

Lenders ” means the lenders, facility agent, security trustee, swap banks, swap agent or other financial institution contemplated by any Credit Facility.

Losses ” means losses, expenses, costs, liabilities and damages, excluding lost profits and consequential damages, but including interest charges, penalties, fines and monetary sanctions.

Management Fee ” has the meaning ascribed to such term in Section 6.1.

Manager Breach ” has the meaning ascribed to such term in Section 8.3(a).

Manager Indemnified Persons ” has the meaning ascribed to such term in Section 7.2.

Manager Misconduct ” has the meaning ascribed to such term in Section 7.1(a).

Manager’s Personnel ” means all individuals who are employed by or have entered into consulting arrangements with the Manager or any subcontractor under Section 2.3.

Mediator’s Report ” has the meaning ascribed to such term in Section 9.2(c).

Other Financing Agreements ” has the meaning ascribed to such term in Section 3.2(b).


 

Parties ” means the Company and the Manager.

Person ” means an individual, corporation, limited liability company, partnership, joint venture, trust or trustee, unincorporated organization, association, Governmental Authority or other entity.

President ” means the chief executive officer of the Company.

Purpose ” has the meaning ascribed to such term in Section 10.3(a).

Questioned Items ” has the meaning ascribed to such term in Section 3.4(b).

Receiving Party ” means a Party to whom Confidential Information of a Disclosing Party has been disclosed hereunder.

Renewal Term ” has the meaning ascribed to such term in Section 8.2.

SEC ” means the United States Securities and Exchange Commission.

Subsidiary ” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Persons Controlled by such Person or a combination thereof, (b) a partnership (whether general or limited) in which such Person or a Person Controlled by such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the partnership interests of such partnership (considering all of the partnership interests of the partnership as a single class) is owned, directly or indirectly, at the date of determination, by such Person, one or more Persons Controlled by such Person, or a combination thereof, or (c) any other Person (other than a corporation or a partnership) in which such Person, one or more Persons Controlled by such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

Term ” means the Initial Term and any Renewal Term, in each case subject to any early termination of this Agreement as permitted herein.

Voting Securities ” means securities of all classes of a Person entitling the holders thereof to vote on a regular basis in the election of members of the board of directors or other governing body of such Person.

1.2 Construction. In this Agreement, unless the context requires otherwise:

(a) references to laws and regulations refer to such laws and regulations as they may be amended from time to time, and references to particular provisions of a law or regulation include any corresponding provisions of any succeeding law or regulation;

(b) references to money refer to legal currency of the United States;


 

(c) “including” means “including, without limitation,” whether or not so expressed;

(d) words importing the singular include the plural and vice versa, and words importing gender include all genders; and

(e) a reference to an “approval,” “authorization,” “consent,” “notice” or “agreement” means an approval, authorization, consent, notice or agreement, as the case may be, in writing.

1.3 Headings. All article or section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof.

2. ENGAGEMENT OF MANAGER

2.1 Engagement. The Company hereby engages the Manager to provide, upon the Company’s request, the Administrative Management Services specified in Section 3, below, and the Manager hereby accepts such engagement, all in accordance with the terms of this Agreement. The Company and the Manager each acknowledge that to the extent set out in this Agreement, the Manager is acting solely on behalf of, as agent of and for the account of the Company. The Manager shall advise Persons with whom it deals on behalf of the Company that it is conducting such business for and on behalf of the Company.

2.2 Powers and Duties of the Manager. The Manager has the power and authority to take such actions on its own behalf or on behalf of the Company as it from time to time considers necessary or appropriate to enable it to perform its obligations under this Agreement, subject to customary oversight and supervision of the Company, its Board of Directors and its executive officers.

2.3 Ability to Subcontract. The Manager may subcontract any of its duties and obligations hereunder to provide Administrative Management Services to any of its Affiliates without the consent of the Company and may subcontract its duties and obligations hereunder to provide Administrative Management Services to Persons that are not Affiliates with the prior written consent of the Company, not to be unreasonably withheld. In the event of any subcontract by the Manager, the Manager shall promptly notify the Company thereof and shall remain fully liable for the due performance of its obligations under this Agreement.

2.4 Outside Activities. The Company acknowledges that the Manager and its Affiliates may have business interests and engage in business activities in addition to those relating to the Company, for their own respective accounts and for the accounts of other Persons. The Manager and its Affiliates may undertake activities that compete with the activities of the Company.

2.5 Authority of the Parties. Each Party represents to the other that it is duly authorized with full power and authority to execute, deliver and perform its obligations under this Agreement. The Company represents that the engagement of the Manager has been duly authorized by the Company and is in accordance with all governing documents of the Company.


 

2.6 Inspection of Books and Records. At all reasonable times and on reasonable notice, any Person authorized by the Company may inspect, examine, copy and audit the Books and Records of the Company kept by the Manager pursuant to this Agreement.

3. ADMINISTRATIVE SERVICES

The Manager shall, at its own expense, provide to the Company the services described in this Section 3 (collectively, the “ Administrative Management Services ”).

3.1 Accounting and Records. The Manager shall, on behalf of the Company, establish an accounting system, including the development, implementation, maintenance and monitoring of internal control over financial reporting and disclosure controls and procedures, and maintain Books and Records, with such modifications as may be necessary to comply with Applicable Laws. The Books and Records shall contain particulars of receipts and disbursements relating to the Company’s assets and liabilities and shall be kept pursuant to normal commercial practices that will permit financial statements to be prepared for the Company in accordance with GAAP. The Books and Records shall be the property of the Company but shall be kept at the Manager’s primary office or such other place as the Company and the Manager may mutually agree. Upon expiration or termination of this Agreement, all of the Books and Records shall be provided to the Company or a new manager pursuant to Section 8.5(b).

3.2 Reporting Requirements. The Manager shall prepare and deliver to the Company the following reports, which the Manager shall use its reasonable best efforts to prepare and deliver within the time periods specified below or, if not so specified, within the time period requested by the relevant party:

(a) a quarterly report to be delivered within 45 days of the end of each Fiscal Quarter setting out the interim financial results of the Company for such quarter and for the applicable Fiscal Year through the end of such Fiscal Quarter;

(b) a draft of the reports, certificates, documents and other information required under any Credit Facility and any other financing arrangements of the Company (“ Other Financing Agreements ”) to be delivered at least two Business Days prior to their required delivery to the Lenders or lenders under Other Financing Agreements;

(c) as and when requested by the Company, draft reports regarding financial and other information required in connection with Applicable Laws (including annual and other reports that may be required to be filed under the Exchange Act and all other Applicable Laws); and

(d) as and when reasonably requested by the Company from time to time, such other reports with respect to financial and other information of the Company.

3.3 Financial Statements and Tax Returns. At the instruction of the Company, the Manager shall prepare and deliver for review by the Company and the Audit Committee of the Board of Directors the following which the Manager shall use its reasonable best efforts to prepare and deliver within the time periods specified below or, if not so specified, within the time period requested by the relevant party:


 

(a) within 30 days of the end of each Fiscal Quarter, unaudited financial statements of the Company for such Fiscal Quarter, to be reviewed by the external auditors of the Company, prepared in accordance with GAAP and the rules and regulations of the SEC, on a consolidated basis with all Subsidiaries of the Company;

(b) within 90 days of the end of each Fiscal Year, financial statements of the Company for such Fiscal Year, to be audited by the external auditors of the Company, prepared in accordance with GAAP and the rules and regulations of the SEC, on a consolidated basis with all Subsidiaries of the Company; and

(c) tax returns for the Company and all of its Subsidiaries required to be filed by Applicable Laws.

Notwithstanding the foregoing, in the event that the Company’s reporting obligations are accelerated under the Exchange Act beyond what such obligations are as of the date of this Agreement, the Manager shall use its reasonable best efforts to provide to the Company the financial statements referred to in clauses (a) and (b) above within such periods as shall be required for the Company to comply with any reporting requirements under the Exchange Act or other similar applicable laws and regulations.

In addition, the Manager shall attend to the time calculation and payment of all taxes payable by the Company. At the instruction of the Company, the Manager shall cause the Company’s external accountants to review the Company’s unaudited financial statements, audit the Company’s annual financial statements and finalize tax returns. The Manager shall make available to the Company’s accountants the relevant Books and Records for the Company and shall assist the accountants in their duties.

3.4 Budgets and Corporate Planning.

(a) Draft Budgets

On or before December 15 of each year, the Manager, in consultation with the Company, shall prepare and submit to the Board of Directors a detailed draft budget for the next Fiscal Year in a format acceptable to the Board of Directors and generally used by the Manager, which shall include: (1) a statement of estimated revenue and expenses, including Costs and Expenses; and (2) a proposed budget for capital expenditures, repairs and alterations, including proposed expenditures in respect of drydockings, together with an analysis as to when and why such expenditures, repairs and alterations may be required (the “ Draft Budget ”).

(b) Process for Finalizing the Draft Budget.

For a period of seven (7) days after receipt of the Draft Budget, the Board of Directors may request further details and submit written comments on the Draft Budget. If, after reviewing the Draft Budget, the Company does not agree with any term thereof, the Company shall, within the same seven (7) day period, give the Manager notice of such disagreements and terms (the “ Questioned Items ”) and a proposal for resolution of each such Questioned Item. The Company and the Manager shall endeavor to resolve any such differences between them with respect to the Questioned Items. In resolving any Questioned Item, the Company and the Manager shall consider, among other things, the Company’s obligations under any relevant Charter, Credit Facility, or Other Financing Agreement.


 

(c) Approved Budget.

The Manager shall use its commercially reasonable efforts to prepare and deliver to the Company a revised budget that has been approved by the Board of Directors (the “ Approved Budget ”) by December 31 of the preceding Fiscal Year. However, the Company acknowledges that the Approved Budget is only an estimate of the performance of the Vessels and the Manager makes no assurance, representation or warranty that the actual performance of the Vessels in the applicable Fiscal Year will correspond to the estimates contained in the Approved Budget for such Fiscal Year. The Parties acknowledge that any projections contained in the Approved Budget are subject to and may be affected by changes in financial, economic and other conditions and circumstances beyond the control of the Parties.

(d) Amendments to Approved Budget.

The Manager may, from time to time, in any Fiscal Year propose amendments to the Approved Budget upon at least fifteen (15) days prior notice to the Company, in which event the Company shall have the right to approve the amendments in accordance with the process set out in Section 3.4(b), with the relevant time periods being amended accordingly. Whenever, due to circumstances beyond the reasonable control of the Manager, emergency expenditures are required to ensure that any Vessels are operated and maintained as required under any applicable Charters, the Manager may make such emergency expenditures and reasonably request prompt reimbursement thereof, to the extent that such items are the responsibility of the Company, even if such expenditures are not included or reflected in the Approved Budget.

3.5 Legal and Securities Compliance Services.

(a) Responsibilities of the Manager.

The Manager shall assist the Company with the following items, whether or not related to any of the Vessels:

(i) compliance with all Applicable Laws, including all relevant securities laws and the rules and regulations of the SEC and any securities exchange upon which the Company’s securities are listed;

(ii) arranging for the provision of advisory services to the Company with respect to the Company’s obligations under applicable securities laws in the United States and disclosure and reporting obligations under applicable securities laws, including the preparation for review, approval and filing by the Company of reports and other documents with the SEC and all other applicable regulatory authorities;

(iii) maintaining the Company’s corporate existence and good standing in all necessary jurisdictions and assisting in all other corporate and regulatory compliance matters; and

(iv) conducting investor relations functions on behalf of the Company.


 

(b) Administration and Settlement of Legal Actions.

If any Legal Action is commenced against or is required to be commenced in favor of the Company or any Vessel Owning Subsidiary, the Manager shall arrange for the commencement or defense of such Legal Action, as the case may be, in the name of, on behalf of and at the expense of the Company or Vessel Owning Subsidiary, including retaining and instructing legal counsel, investigating the substance of the Legal Action and entering pleadings with respect to the Legal Action. The Manager shall assist the Company in administering and supervising any such Legal Actions and shall keep the Company advised of the status thereof. The Manager may settle any Legal Action on behalf of the Company or Vessel Owning Subsidiary where the amount of settlement is less than $250,000 with the approval of the Company’s Chief Executive Officer or President and, in excess of such amount with the approval of the Board of Directors.

(c) Interaction with Regulatory Authorities.

Notwithstanding anything in this Section 3 or otherwise, the Manager shall not act for or on behalf of the Company in its relationships with regulatory authorities except to the extent specifically authorized by the Company from time to time.

3.6 Bank Accounts.

(a) Administration by Manager.

The Manager shall oversee banking services for the Company and shall establish in the name of the Company banking accounts with such financial institutions as the Company may request. The Manager shall administer and manage all of the Company’s cash and accounts, including making any deposits and withdrawals reasonably necessary for the management of its business and day-to-day operations. The Manager shall promptly deposit all moneys payable to the Company and received by the Manager into a bank account held in the name of the Company.

(b) Payments from Operating Account.

The Company shall ensure that all charter hire associated with each Charter is paid by the applicable Charterer into the operating account. Unless otherwise instructed by the Company, the Manager shall instruct the financial institutions at which the accounts have been established to pay from the operating account, as and when required, amounts payable under any Credit Facility or Other Financing Agreement.

3.7 Other Administrative Management Services.

The Manager shall:

(a) develop, maintain and monitor internal audit controls, disclosure controls and information technology for the Company;

(b) assist with arranging board meetings and preparing board and committee meeting materials, including, as applicable, agendas, discussion papers, analyses and reports;


 

(c) prepare and provide such reports and accounting information so as to permit the Board of Directors to determine the amount of the cash available for the payment of dividends to the Company’s shareholders, and to assist the Company in making arrangements with the Company’s transfer agent for the payment of dividends, if any, to the shareholders;

(d) obtain, on behalf of the Company, general insurance, director and officer liability insurance and other insurance of the Company not related to the Vessels that would normally be obtained for a company in a similar business to that of the Company;

(e) administer payroll services, benefits and directors fees, as applicable, for the officers, other employees or directors of the Company;

(f) provide office space and office equipment for personnel of the Company at the location of the Manager or as otherwise reasonably designated by the Company, and clerical, secretarial, accounting and administrative assistance as may be reasonably necessary;

(g) provide all administrative services required in connection with any Credit Facility or Other Financing Agreement;

(h) negotiate and arrange for interest rate swap agreements, foreign currency contracts and forward exchange contracts;

(i) monitor the performance of investment managers;

(j) at the request and under the direction of the Company, handle all administrative and clerical matters in respect of (i) the call and arrangement of all annual and special meetings of shareholders, (ii) the preparation of all materials (including notices of meetings and proxy or similar materials) in respect thereof and (iii) the submission of all such materials to the Company in sufficient time prior to the dates upon which they must be mailed, filed or otherwise relied upon so that the Company has full opportunity to review, approve, execute and return them to the Manager for filing or mailing or other disposition as the Company may require or direct;

(k) provide, at the request and under the direction of the Company, such communications to the transfer agent for the Company as may be necessary or desirable;

(1) make recommendations to the Company for the appointment of auditors, accountants, legal counsel and other accounting, financial or legal advisers, and technical, commercial, marketing or other independent experts; provided, however , that nothing herein shall permit the Manager to engage any such adviser or expert for the Company without the Company’s specific approval;

(m) attend to all matters necessary for any reorganization, bankruptcy or insolvency petitions or proceedings, liquidation, dissolution or winding up of the Company;

(n) attend to all other administrative matters necessary to ensure the professional management of the Company’s business or as reasonably requested by the Company from time to time.


 

4. EMPLOYEES AND MANAGER’S PERSONNEL

4.1 Manager’s Personnel. The Manager shall provide the Administrative Management Services hereunder through the Manager’s Personnel. The Manager shall be responsible for all aspects of the employment or other relationship of the Manager’s Personnel as required in order for the Manager to perform its obligations hereunder, including recruitment, training, staffing levels, compensation and benefits, supervision, discipline and discharge, and other terms and conditions of employment or contract. However, the Manager shall remain directly responsible and liable to the Company to carry out all of its obligations under this Agreement, whether performed directly or subcontracted to another Person, and the Manager shall be responsible for the compensation and reimbursement of all such other Persons.

5. COVENANTS OF THE MANAGER

The Manager hereby agrees and covenants with the Company that, during the Term, the Manager shall:

(a) obtain and maintain for its benefit professional indemnity insurance and other insurance as is reasonable having regard to the nature and extent of the Manager’s obligations under this Agreement;

(b) exercise all due care, skill and diligence in carrying out its duties under this Agreement as required by Applicable Laws;

(c) provide the President, the Chief Financial Officer, and the Board of Directors with all information in relation to the performance of the Manager’s obligations under this Agreement as the President, the Chief Financial Officer, or the Board of Directors may reasonably request;

(d) use its reasonable best efforts to have all material property of the Company clearly identified as such, held separately from property of the Manager and, where applicable, in safe custody;

(e) use its reasonable best efforts to have all property of the Company (other than money to be deposited to any bank account of the Company) transferred to or otherwise held in the name of the Company or any nominee or custodian appointed by the Company;

(f) use its reasonable best efforts to cause (i) the Company to own or possess all licenses that are necessary and used in the operation of its business as of the date hereof, (ii) all such licenses to be in full force and effect at all times, and (iii) all required filings with respect to such licenses to be timely made and all required applications for renewal thereof to be timely filed;

(g) use its reasonable best efforts to retain at all times a qualified staff so as to maintain a level of expertise sufficient to provide the Administrative Management Services; and

(h) use its reasonable best efforts to keep full and proper books, records and accounts showing clearly all transactions relating to its provision of Administrative Management Services in accordance with established general commercial practices and in accordance with GAAP, and allow the Company and its representatives to audit and examine such books, records and accounts at any time during customary business hours.


 

6. MANAGER’S COMPENSATION AND REIMBURSEMENT

6.1 Fees for Administrative Management Services; Reimbursement. In consideration for the provision of the Administrative Management Services by the Manager to the Company, the Company shall pay the Manager a monthly management fee (the “ Management Fee ”) in the amount of $10,000 (ten thousand U.S. dollars) in accordance with Section 6.2. In addition, the Company shall reimburse the Manager for all of the reasonable direct and indirect costs and expenses incurred by the Manager and its Affiliates in providing the Administrative Management Services (the “ Costs and Expenses ”).

6.2 Invoicing. The Manager shall, in good faith, determine the expenses related to the Administrative Management Services that are allocable to the Company in any reasonable manner determined by the Manager and shall provide to the Company on a quarterly basis an invoice for the reasonable costs and expenses to be paid pursuant to Section 6.1, which invoice shall contain a description in reasonable detail of the costs and expenses that comprise the aggregate amount of the payment being invoiced. The Manager shall maintain the records of all costs and expenses incurred, including any invoices, receipts and supplementary materials as are necessary or proper for the settlement of accounts between the Parties. The Company shall pay such invoices within thirty (30) days of receipt, unless the invoice is being disputed in accordance with this Agreement.

6.3 Dispute of Invoice. If the Company, in good faith, disputes the amount of an invoice, the Company shall give written notice of such dispute (including the particulars of such dispute) to the Manager on or before the date such invoice is payable with respect to all or any portion of such invoice. Upon receipt of such notice, the Manager shall furnish the Company with additional supporting documentation to reasonably substantiate the amount of the invoice. Upon delivery of such additional documentation, the Company and the Manager shall cooperate in good faith and use commercially reasonable efforts to resolve such dispute. If they are unable to resolve the dispute within ten (10) Business Days of the delivery of such additional supporting information (in the case of an invoice) the dispute shall be referred for resolution to a firm of independent accountants of nationally recognized standing in the United States reasonably satisfactory to each of the Manager and the Company (the “ Accounting Referee ”), which shall determine the disputed amounts within thirty (30) days of the referral of such invoice dispute to such Accounting Referee. The determination of the Accounting Referee shall not require the Company to pay more than the amount in dispute nor require the Manager to return any amount previously paid by the Company. The fees and expenses of the Accounting Referee shall be borne equally by the Company and the Manager. If any invoice dispute is resolved in favor of the Manager, the Company shall make payment to the Manager within ten (10) days of resolution of the dispute. Notwithstanding the foregoing, in no event shall the Company be entitled to withhold any amounts other than those portions of the applicable payment that are in dispute.

6.4 Direction to Pay. By written notice to the Company, the Manager may direct the Company to pay any amounts owing under this Agreement directly to an Affiliate of the Manager pursuant to a subcontracting arrangement relating to this Agreement.


 

7. LIABILITY OF THE MANAGER; INDEMNIFICATION

7.1 Liability of the Manager. The Manager shall not be liable to the Company for any Loss arising from the Administrative Management Services unless and to the extent that such Loss resulted from:

(a) the fraud, gross negligence, recklessness or willful misconduct of the Manager or any of its Affiliates (other than the Company) or any of their respective employees, agents or subcontractors (“ Manager Misconduct ”); or

(b) any breach of this Agreement by the Manager or any of its Affiliates (other than the Company).

7.2 Manager Indemnification. The Company shall indemnify and hold harmless the Manager and its directors, officers, employees, subcontractors and Affiliates (the “ Manager Indemnified Persons ”) from and against any and all Losses incurred or suffered by the Manager Indemnified Persons by reason of or arising from or in connection with their performance of this Agreement or any third-party Legal Action brought or threatened against such Manager Indemnified Persons in connection with their performance of this Agreement, other than for any Losses to the extent related to or that resulted from:

(a) any liabilities or obligations that the Manager has agreed to pay or for which the Manager is otherwise expressly responsible under this Agreement;

(b) Manager Misconduct; or

(c) any breach of this Agreement by the Manager or any of its Affiliates (other than the Company).

7.3 Company Indemnification. The Manager shall indemnify and hold harmless the Company and the Company’s directors, officers, employees, subcontractors and Affiliates (the “ Company Indemnified Persons ”) from and against any and all Losses incurred or suffered by the Company Indemnified Persons, to the extent related to or that resulted from:

(a) any liabilities or obligations that the Manager has agreed to pay or for which the Manager is otherwise expressly responsible under this Agreement;

(b) Manager Misconduct; or

(c) any breach of this Agreement by the Manager or any of its Affiliates (other than the Company).

8. TERM AND TERMINATION

8.1 Initial Term. The initial term of this Agreement shall commence on the date hereof and end on the first anniversary of the date hereof, unless terminated earlier pursuant to this Agreement (the Initial Term ”).


 

8.2 Renewal Term. This Agreement will, without any further act or formality on the part of either Party, on the expiration of the Initial Term or any Renewal Term, be automatically renewed for a further term of twelve (12) months (each a “ Renewal Term ”) unless notice of termination is given by the Company to the Manager in accordance with Section 8.3 or by the Manager to the Company in accordance with Section 8.4.

8.3 Termination by the Company. This Agreement may be terminated by the Company:

(a) upon not less than thirty (30) days prior written notice by the Company to the Manager;

(b) if, at any time, the Manager materially breaches this Agreement and the matter is unresolved after ninety (90) days pursuant to the dispute resolution procedures set forth in Section 9 (“ Manager Breach ”);

(c) if, at any time,

(i) the Manager has been convicted of, has entered a plea of guilty or nolo contendere with respect to, or has entered into a plea bargain or settlement admitting guilt for, a crime, which conviction, plea bargain or settlement is demonstrably and materially injurious to the Company; and

(ii) the holders of a majority of the outstanding Common Shares elect to terminate this Agreement;

(d) if the Manager commits fraud or is grossly negligent in the performance of its obligations hereunder, or commits an act of willful misconduct, and the Company is materially injured thereby in any such case;

(e) if, at any time, the Manager becomes insolvent, admits in writing its inability to pay its debts as they become due, is adjudged bankrupt or declares bankruptcy or makes an assignment for the benefit of creditors, a proposal or similar action under the bankruptcy, insolvency or other similar laws of any applicable jurisdiction, or commences or consents to proceedings relating to it under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction; or

(f) if there is a Change of Control of the Manager.

8.4 Termination by the Manager. This Agreement may be terminated by the Manager:

(a) after the expiration of the Initial Term, with six (6) months’ prior notice by the Manager to the Company;

(b) if, at any time, the Company materially breaches the Agreement and the matter is unresolved after ninety (90) days pursuant to the dispute resolution procedures set forth in Section 9 (“ Company Breach ”); or


 

(c) at any time upon the earlier of (i) the occurrence of a Change of Control of the Company or (ii) the Manager’s receipt of written notice from the Company that such a Change of Control will occur until sixty (60) days after the later of (x) the occurrence of such a Change of Control or (y) the Manager’s receipt of the written notice in the preceding clause (ii). If the Company has knowledge that a Change of Control of the Company will occur, the Company shall give prompt written notice thereof to the Manager. A “ Change of Control ” means the occurrence of any of the following:

(A) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the Company’s assets;

(B) an order made for, or the adoption by the Board of Directors of a plan of liquidation or dissolution of the Company;

(C) the consummation of any transaction (including any merger or consolidation) the result of which is that any “person” (as such term is used in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of more than a majority of the Company’s Voting Securities, measured by voting power rather than number of shares;

(D) if, at anytime, the Company becomes insolvent, admits in writing its inability to pay its debts as they become due, is adjudged bankrupt or declares bankruptcy or makes an assignment for the benefit of creditors, or makes a proposal or similar action under the bankruptcy, insolvency or other similar laws of any applicable jurisdiction or commences or consents to proceedings relating to it under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction;

(E) the consolidation of the Company with, or the merger of the Company with or into, any “person” (other than an Affiliate of the Company), or the consolidation of any “person” (other than an Affiliate of the Company) with, or the merger of any “person” (other than an Affiliate of the Company) with or into, the Company, in any such event pursuant to a transaction in which any of the Common Shares outstanding immediately prior to such transaction are converted into or exchanged for cash, securities or other property or receive a payment of cash, securities or other property, other than any such transaction where the Company’s Voting Securities outstanding immediately prior to such transaction are converted into or exchanged for Voting Securities of the surviving or transferee “person” constituting a majority (measured by voting power rather than number of shares) of the outstanding Voting Securities of such surviving or transferee “person” immediately after giving effect to such issuance; or

(F) a change in directors after which a majority of the members of the Board of Directors are not Continuing Directors.

8.5 Effects of Termination or Expiry of this Agreement. (a) If the Manager terminates this Agreement pursuant to Section 8.4(b) or 8.4(c), the Company shall have the option to require the Manager to continue to provide Administrative Management Services to the Company, for the fee described in Section 6.1, for up to a ninety (90) day period from the date that the Manager provides notice of termination of this Agreement.


(b) Upon termination or expiry of this Agreement, this Agreement will be void and there shall be no liability on the part of any Party (or their respective officers, directors, employees or Affiliates) except that the obligation of the Company to pay to the Manager or its Affiliates the amounts accrued but outstanding under Section 6 and the terms and conditions set forth in Sections 7 and 10.3 shall survive such termination. After a written notice of termination has been given under this Section 8 or upon expiry, the Company may direct the Manager to, at the cost of the Company, undertake any actions reasonably necessary to transfer any aspect of the ownership or control of the assets of the Company to the Company or to any nominee of the Company and to do all other things reasonably necessary to bring the appointment of the Manager to an end at the appropriate time, and the Manager shall promptly comply with all such reasonable directions. Upon termination or expiry of this Agreement, the Manager shall promptly deliver to any new manager or the Company any Books and Records held by the Manager under this Agreement and shall execute and deliver such instruments and do such things as may reasonably be required to permit the new manager of the Company to assume its responsibilities.

9. DISPUTE RESOLUTION

9.1 Notice of Dispute. If (a) a dispute or disagreement arises between the Parties with respect to any provision of this Agreement (other than Section 6.3), including its interpretation or the performance of a Party under this Agreement or (b) (i) the Company in good faith believes that a Manager Breach has occurred or is reasonably likely to occur or (ii) the Manager in good faith believes that a Company Breach has occurred or is reasonably likely to occur (each of the foregoing a “ Dispute ”), either Party may, or the Party alleging such breach or potential breach shall, deliver written notice to the other Party. Such notice shall contain in detail the specific facts and circumstances relating to the Dispute. With respect to any Dispute described in clause (a) or (b) above, each Party shall designate an individual to negotiate and resolve the Dispute (each a “ Designated Representative ” and, together, the “ Designated Representatives ”). The Designated Representatives shall in good faith attempt to resolve the matter within a thirty (30) day period from the date of delivery of the notice referred to above. If either Designated Representative intends to be accompanied by counsel at any meeting, such Designated Representative shall give the other Designated Representative at least three (3) Business Days’ notice. All discussions and negotiations pursuant to this Section 9 shall be confidential and without prejudice to settlement negotiations.

9.2 Mediation. If a Dispute described in clause (a) or (b) of Section 9.1 is not resolved by the Designated Representatives during the thirty (30) days provided in Section 9.1, either of the Parties may refer the matter to mediation. With respect to the mediation of any Dispute, the mediator shall be mutually agreed upon by the Parties, and such mediator will be instructed to:

(a) review the terms of the Dispute and the position of the Parties;

(b) consider the terms of and context of this Agreement; and

(c) render a non-binding report within sixty (60) days of the appointment of the mediator (the “ Mediator’s Report ”) or such later date as to which the Parties may agree.


 

The Parties shall consider the Mediator’s Report and may mutually decide to make it a binding report. If the mediator is not able to facilitate a binding agreement between the Parties, the Dispute is not resolved to the satisfaction of the Parties as a result of the Mediator’s Report or a mediator cannot be chosen mutually by the Parties, the Dispute shall be submitted to binding arbitration pursuant to Section 9.3.

9.3 Arbitration. Any Dispute not resolved by the Parties pursuant to Section 9.1 or 9.2 shall be fully and finally resolved by binding arbitration pursuant to this Section 9.3. Either Party may refer the Dispute to arbitration, which shall take place in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator. The prevailing Party in any such arbitration shall be entitled to costs, expenses and reasonable attorneys’ fees, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

10. GENERAL

10.1 Assignment; Binding Effect. The Parties may not assign any of their respective rights under this Agreement in whole or in part without the prior written consent of the other Party, which consent may be withheld in the sole discretion of such other Party. This Agreement is binding upon and inures to the benefit of the Parties and their successors and permitted assigns.

10.2 Force Majeure. Neither of the Parties shall be under any liability for any failure to perform any of their obligations hereunder if any of the following occurs (each a “ Force Majeure Event ”):

(a) any event, cause or condition which is beyond the reasonable control of either or both of the Parties and which prevents either or both of the Parties from performing any of their respective obligations under this Agreement;

(b) acts of God, including fire, explosions, unusually or unforeseeably bad weather conditions, epidemic, lightening, earthquake or tsunami;

(c) acts of public enemies, including war or civil disturbance, vandalism, sabotage, terrorism, blockade or insurrection;

(d) acts of a Governmental Authority, including injunction or restraining orders issued by any judicial, administrative or regulatory authority, expropriation or requisition;

(e) government rule, regulation or legislation, embargo or national defense requirement; or

(f) labor troubles or disputes, strikes or lockouts, including any failure to settle or prevent such event which is in the control of any Party.

A Party shall give written notice to the other Party promptly upon the occurrence of a Force Majeure Event.


10.3 Confidentiality. (a) Each Receiving Party agrees:

(i) to use any Confidential Information solely to carry out its obligations or exercise its rights under this Agreement (the “ Purpose ”) and for no other purpose;

(ii) to copy and make other works based on Confidential Information only as strictly necessary for the Purpose;

(iii) to maintain the confidentiality of the Confidential Information using at least the same degree of care that the Receiving Party uses for its own confidential or proprietary information of a similar nature, but no less than reasonable care;

(iv) to reveal any Confidential Information to any third party without the prior written consent of the Disclosing Party, except that if the Receiving Party is required by law, court or administrative order or regulation to reveal any Confidential Information, the Receiving Party is permitted to do so, provided that the Receiving Party gives the Disclosing Party reasonable prior written notice (if permitted) of the required disclosure and cooperate with the Disclosing Party at its expense in seeking a protective order or other relief;

(v) to limit disclosure of the Confidential Information to such of the Company’s or the Manager’s officers and employees as is necessary for the Purpose;

(vi) to inform each officer and employee who receives any Confidential Information of the restrictions as to use and disclosure of Confidential Information contained herein and to be responsible for any breach of such restrictions by any such persons; and

(vii) forthwith upon the Disclosing Party’s request, to procure the return of all Confidential Information together with any copies, abstracts, or other works which contain or are based on any of the Confidential Information; provided that, notwithstanding the foregoing, the Receiving Party shall be permitted to retain Confidential Information to the extent it is required to retain such Confidential Information pursuant to law, court or administrative order or regulation.

(b) Each Receiving Party further acknowledges that any breach of the provisions of this Agreement would result in serious damage being sustained by the Disclosing Party, and as a result hereby unconditionally agrees:

(i) to be responsible for losses, damages or expenses (including without limitation attorneys’ fees and expenses) that have been determined to have been caused by any such breach; and

(ii) that the Disclosing Party shall be entitled to equitable relief (including without limitation injunctive relief) in relation to any threatened or actual breach of the provisions of this Agreement without any requirement of posting a bond and without limiting any other remedy that may be available to the Disclosing Party.

10.4 Notices. Each notice, consent or request required to be given to a Party pursuant to this Agreement must be given in writing. A notice may be given by delivery to an individual or


by fax, and shall be validly given if delivered on a Business Day to an individual at the following address, or, if transmitted on a Business Day, by fax or email addressed to the following Party:

 

If to the Company:    If to the Manager:

Diana Containerships Inc.

Pendelis 16, 175 64 Palaio Faliro

Athens, Greece

Tel: +302109470000

Fax: +302109424975

  

Diana Shipping Services S.A.

Pendelis 16, 175 64 Palaio Faliro

Athens, Greece

Tel:+302109470000

Fax:+302109424975

With Copy to:    With Copy to:

Gary J. Wolfe, Esq.

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

(212) 574 1223 (telephone number)

(212) 480 8421 (facsimile number)

  

Gary J. Wolfe, Esq.

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

(212) 574 1223 (telephone number)

(212) 480 8421 (facsimile number)

or to any other address or fax number that the Party so designates by notice given in accordance with this Section. Any notice

(a) if validly delivered on a Business Day, shall be deemed to have been given when delivered; and

(b) if validly transmitted by fax on a Business Day, shall be deemed to have been given on that Business Day.

10.5 Third Party Rights. The provisions of this Agreement are enforceable solely by the Parties to this Agreement, and no shareholder, employee, agent of any Party or any other Person shall have the right to enforce any provision of this Agreement or to compel any Party to this Agreement to comply with the terms of this Agreement.

10.6 No Joint Venture. Nothing in this Agreement is intended to create or shall be construed as creating a joint venture or partnership between the Parties, and this Agreement shall not be deemed for any purpose to constitute any Party a partner of any other Party to this Agreement in the conduct of any business or otherwise or as a member of a joint venture or joint enterprise with any other Party to this Agreement.

10.7 Severability. Each provision of this Agreement is severable. If any provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, the illegality, invalidity or unenforceability of that provision will not affect:

(a) the legality, validity or enforceability of the remaining provisions of this Agreement; or


 

(b) the legality, validity or enforceability of that provision in any other jurisdiction;

except that if:

(x) on the reasonable construction of this Agreement as a whole, the applicability of the other provision presumes the validity and enforceability of the particular provision, the other provision will be deemed also to be invalid or unenforceable; and

(y) as a result of the determination by a court of competent jurisdiction that any part of this Agreement is unenforceable or invalid and, as a result of this Section 10.7, the basic intentions of the Parties in this Agreement are entirely frustrated, the Parties shall use commercially reasonable efforts to amend, supplement or otherwise vary this Agreement to confirm their mutual intention in entering into this Agreement.

10.8 Governing Law; Jurisdiction; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed in and to be performed in that state, and each party hereto agrees to submit to the non-exclusive jurisdiction of the federal or state courts located in the City, County and State of New York as regards any claim or matter arising under or in connection with this Agreement. Each of the Parties hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this agreement or the transactions contemplated hereby, in the federal or state courts located in the City, County and State of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum or seek to change the venue from any such court.

10.9 Amendments. No amendment, supplement, modification or restatement of any provision of this Agreement shall be binding unless it is in writing and signed by each Person that is a Party to this Agreement at the time of the amendment, supplement, modification or restatement.

10.10 Entire Agreement. This Agreement constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

10.11 Waiver. No failure by any Party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or of any other covenant, duty, agreement or condition. Any waiver must be specifically stated as such in writing.

10.12 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the Parties.

[Remainder of This Page Intentionally Left Blank]


IN WITNESS WHEREOF, this Administrative Services Agreement has been duly executed by the Parties as of the date first written above.

 

DIANA CONTAINERSHIPS INC.

LOGO

Name : Anastasios Margaronis
Title: Director and President
DIANA SHIPPING SERVICES S.A.

LOGO

Name: Ioannis Zafirakis
Title: Director and Treasurer

[Signature Page to Administrative Services Agreement]

 

Exhibit 10.3

DIANA ENTERPRISES INC.

THIS AGREEMENT dated this 1 st day of June 2010 by and between Diana Shipping Services S.A., (the “Company”) and Diana Enterprises Inc. (the “Broker”).

BY WHICH, in consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows:

1. The Company. The Company provides, directly and through one or more affiliated entities, agents, representatives and Brokers, commercial and technical vessel management services to Diana Containerships Inc. (collectively the “Services”). Diana Containerships Inc. (“DCI”) is or will be engaged in the worldwide operation of containerships.

2. Engagement. The Company hereby engages the Broker to act as broker for the Company and for any of its affiliates as directed by the Company to assist the Company in the provision of the Services by providing to the Company, or to an entity designated by the Company from time to time, brokerage services relating to the purchase, sale or chartering of vessels, brokerage services relating to the repairs and other maintenance of vessels, and any relevant consulting services permitted by Greek laws or the Company’s Law 27/1975 license (collectively the “Brokerage Services”), and the Broker hereby accepts such appointment.

3. Duration. The duration of the engagement shall be for a term of five (5) years commencing the l st day of June 2010 and ending (unless terminated earlier on the basis of any other provision of this Agreement) on the day before the fifth anniversary of such date (the said period as it may be extended being hereinafter referred to as the “Term”).

4. Representations of Broker. The Broker represents that it has personnel fully qualified, without the benefit of any further training or experience and has obtained all necessary permits and licenses, to perform the Brokerage Services. The duties of the Broker shall be offered on a worldwide basis. Broker’s duties and responsibilities hereunder shall always be subject to the policies and directives of the board of directors of the Company as communicated from time to time to the Broker. Subject to the above, the precise duties, responsibilities and authority of the Broker may be expanded, limited or modified, from time to time, at the discretion of the board of directors of the Company.

5. Commission. Because of their permanent relation the Company shall pay the Broker a lump sum commission in the amount of United States Dollars 1,040,000 per annum, payable quarterly at the beginning of every quarter, with effect from the 1 st day of


June 2010, subject to required deductions and withholdings. Commissions on a percentage basis for specific deals may be agreed by separate agreements in writing. Such commission shall increase to United States Dollars 1,300,000 as of the date the common shares of Diana Containerships Inc. are approved for listing on a stock exchange.

6. Expenses. The Company shall not pay or reimburse the Broker for any out-of pocket expenses as such expenses are included in the commission paid to the Broker.

7. Termination. This Agreement, unless otherwise agreed in writing between the parties, shall be terminated as follows:

(a) At the end of the Term, unless extended by mutual agreement in writing.

(b) The parties, by mutual agreement, may terminate this Agreement at any time.

(c) Either party may terminate this Agreement for any material breach by the other party of their respective obligations under this Agreement.

8. Change of Control.

(a) In the event of a “Change in Control” (as defined herein) within five (5) years of the date of this Agreement, the Broker has the option to terminate this Agreement within six (6) months following such Change in Control, and shall be eligible to receive the payment specified in sub-paragraph (c), below, provided that the conditions of said paragraph are satisfied.

(b) For purposes of this Agreement, the term “Change of Control” shall mean the:

(i) acquisition by any individual, entity or group of beneficial ownership of twenty-five percent (25%) or more of either (A) the then-outstanding shares of common stock of the Company or of Diana Shipping Inc. (“DSI”) or of DCI (B) the combined voting power of the then-outstanding voting securities of the Company or of DSI entitled to vote generally in the election of directors; provided, however, that this Clause 8(b)(i) shall not apply to an individual, entity or group that beneficially owns twenty-five percent (25%) or more as of the date the Company’s or as the case may be DCI’s common shares are approved for listing on the NYSE.

(ii) consummation of a reorganization, merger or consolidation of the Company or of DSI or DCI the sale or other disposition of all or substantially all of the assets of the Company and/or of the Affiliates; or

(iii) approval by the shareholders of the Company or of DSI of a complete liquidation or dissolution of the Company.


 

(c) If the Broker terminates this Agreement within six (6) months following a Change of Control, the Broker shall receive a payment equal to three (3) years’ annual commission. Receipt of the foregoing shall be contingent upon the Broker’s execution and non-revocation of a Release of Claims in favor of the Company and the Affiliates in a form that is reasonably satisfactory to the Company and its counsel.

9. Notices. Every notice, request, demand or other communication under this Agreement shall:

(a) be in writing delivered personally or by courier or by fax or shall be served through a process server;

(b) be deemed to have been received, subject as otherwise provided in this Agreement in the case of fax upon receipt of a successful transmission report (or—if sent after business hours—the following business day) and in the case of a letter when delivered personally or through courier or served at the address below; and

(c) be sent:

(i) If to the Company, to:

Diana Shipping Services S.A.

Pendelis 16, Palaio Faliro, 175 64

Athens, Greece

Telephone: +30 210 9470000

Telefax: +30 210 9424975

Attn: Director and President

(ii) If to the Broker, to:

Diana Enterprises Inc.

Pendelis 26, Palaio Faliro, 175 64

Athens, Greece

Telephone: +30 210 9470150

Telefax: +30 210 9470151

Attn: Director and President

or to such other person, address or telefax, as is notified by the relevant Party to the other Party to this Agreement and such notification shall not become effective until notice of such change is actually received by the other Party. Until such change of person or address is notified, any notification to the above addresses and fax numbers are agreed to be validly effected for the purposes of this Agreement.


 

10. Entire Agreement. This Agreement supersedes all prior agreements written or oral, with respect thereto.

11. Amendments. This Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived, only by a written instrument signed by the parties.

12. Independent Contractor. All services provided hereunder shall be provided by the Broker as an independent contractor. No employment contract, partnership or joint venture between the Broker and the Company has been created in or by this Agreement or as a result of services provided hereunder.

13. Assignment. This Agreement, and the Broker’s rights and obligations hereunder, may not be assigned by the Broker; any purported assignment in violation hereof shall be null and void. This Agreement, and the Company’s rights and obligations hereunder, may not be assigned by the Company; provided, however, that in the event of any sale, transfer or other disposition of all or substantially all of the Company’s assets and business, whether by merger, consolidation or otherwise, the Company shall assign this Agreement and its rights hereunder to the successor to its assets and business.

14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representative.

15. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto.

16. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

17. Governing Law and Jurisdiction.

(a) This Agreement shall be governed by and construed in accordance with English Law.

(b) Any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this clause.


 

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

 

DIANA SHIPPING SERVICES S.A.
  LOGO
By:   Simeon Palios

Title:

  Director and President

 

DIANA ENTERPRISES INC.
  LOGO
By:   Andreas Nikolaos Michalopoulos
Title:   Director and Secretary

EXHIBIT 10.4

FORM OF VESSEL MANAGEMENT AGREEMENT

THIS AGREEMENT is made this      day of                      2010 between [ShipCo] , whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960 (hereinafter called the “Owner”), of the one part and DIANA SHIPPING SERVICES S.A., whose Registered Office is at Edificio Universal, Piso 12, Avenida Federico Boyd, Panama, Republic of Panama, acting through its office at Pendelis 16, 175 64 Palaio Faliro, Greece (hereinafter called the “Manager”), of the other part,

WHEREBY IT IS MUTUALLY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:

 

1. The Owner hereby appoints the Manager, and the Manager hereby agrees to act, as sole and exclusive manager of the vessel more particularly described on Schedule I hereto (hereinafter called the “Vessel”) for the period and on and subject to the terms and conditions hereinafter contained.

 

2. The Manager undertakes to use its best endeavors to manage the Vessel on behalf of the Owner in accordance with sound ship management practice and to promote the interests of the Owner in all matters relating to the efficient operation and management of the Vessel, provided however, that the Manager shall not be required so to exercise its powers hereunder as to give preference in any respect to the Owner, it being understood and agreed that the Manager shall so far as practicable ensure a fair distribution of available manpower, supplies, and services to all vessels managed by it.

 

3. The Manager shall provide the management services specified hereunder and shall have power in the name of the Owner or otherwise on its behalf to do all things which the Manager considers to be expedient or necessary for the provision of the said services or otherwise in relation to the proper and efficient management of the Vessel:

 

  (a) Arrangement for and supervision of the maintenance, survey, and repair of the Vessel and for scheduled and unscheduled dry docking of the Vessel;


 

  (b) Engagement and provision of crew (Masters, Officers, and ratings) and attendance to all matters pertaining to discipline, labor relations, welfare, and amenities;

 

  (c) Arrangement for victualling and storing of the Vessel and placing of contracts relative thereto and for the purchase of supplies and spare parts for the operation of the Vessel;

 

  (d) Arrangement of bunker fuel and towage contracts for the Vessel;

 

  (e) Arrangement of loading and discharging and otherwise for services required in connection with the trading of the Vessel;

 

  (f) Appointment of agents for the Vessel;

 

  (g) Arrangement (in consultation with the Owner) of all insurance relating to the Vessel and her apparel, fittings, freights, earnings, and disbursements against the customary marine and war risks;

 

  (h) Arrangement (in accordance with instructions from the Owner) for entry of the Vessel in Protection and Indemnity, Defense, and other such Associations;

 

  (i) Handling and settlement of all insurance, average, salvage, and other claims in connection with the Vessel;

 

  (j) Collection and deposit any and all earnings of the Vessel of any nature whatsoever, including but not limited to charter money, hire, freight, demurrage, damages, salvage money, etc., with bank accounts as specified by the Owner; an

 

  (k) Payment on behalf of the Owner of all expenses incurred in and about provision of the foregoing services or otherwise in relation to the proper and efficient management of the Vessel;

 

  (l) Chartering services including but not limited to seeking and negotiating employment for the Vessel, the fixing and signing on behalf of the Owner, of charter parties or other contracts relating to the employment of the Vessel;

 

  (m) Arranging proper payment to Owner or their nominees of all hire and/or freight revenues or other monies whatsoever to which Owner may become entitled arising out of the employment of the Vessel or otherwise;


 

  (n) Issuing voyage instructions, and arranging surveys associated with the commercial operation of the Vessel;

 

  (o) At the request of the Owner, to arrange for the lay-up of the Vessel in accordance with the instructions of the Owner;

 

  (p) Providing reasonable pre-delivery services and oversight of the Vessel necessary and appropriate to prepare the Vessel for employment in compliance with all applicable laws;

 

  (q) Maintain Vessel in compliance with all applicable environmental laws and regulations, including but not limited to the preparation and filing of all necessary reports, forms or plans and satisfaction of all documentation and record-keeping requirements related thereto;

 

  (r) Post fixture services including but not limited to settling of accounts and claims for or in respect of charter hire, freight and/or demurrage payable under contracts relating to the employment of the Vessel.

Provided, however, that the Manager shall consult with the Owner before the Vessel is fixed and shall not employ the Vessel in any trade or service which in the reasonable opinion of the Owner may be detrimental to its reputation as Owner or prejudicial to the commercial interests of the Owner. The Owner shall have the right to terminate this agreement at any time in the event that the fixture is concluded against their wishes and advice.

 

4. The Manager shall (without prejudice to the generality of the powers vested in them as aforesaid) be entitled:

 

  (a) To employ on behalf of the Owner any such agent for the Vessel or insurance brokers as the Manager deems fit, including any associated, subsidiary, or holding company of the Manager;

 

  (b) To employ on behalf of the Owner consultants and other experts, including any associated, subsidiary, or holding company of the Manager, to supervise or advise in relation to the operation and maintenance of the Vessel;


 

  (c) To open, continue, and operate such bank account or accounts as the Manager may deem necessary or expedient;

 

  (d) To use any funds of the Owner remaining after payment of all expenses of the Owner and the Vessel for providing loans from the Owner to any other wholly-owned subsidiary of Diana Containerships Inc., such loans always to be on terms acceptable to the Owner, their immediate shareholders and the Owner’s lenders, if any;

 

  (e) To bring or defend on behalf of the Owner actions, suits, or proceedings in connection with all matters hereby entrusted to the Manager; and

 

  (f) To obtain legal advice in relation to disputes or other matters affecting the interests of the Owner in respect of the Vessel.

 

5. The Manager shall keep proper books, records, and accounts relating to the management of the Vessel and shall make the same available for inspection and audit by Certified Public Accountants, Chartered Accountants, or other suitably qualified accountants on behalf of the Owner at such reasonable times as may be mutually agreed (which books and records shall remain the property at all time during the term of this Agreement).

 

6. This Agreement is agreed for a non-specific period of time, provided that it may be terminated by either party giving 3 (three) months’ notice at any time and without any justification but always in writing, provided however that the Owner shall have the right to terminate this Agreement without notice with payment to the Manager of damages equal to the average management fees paid to Manager during the last 3 (three) full months immediately preceding such termination. Either party shall have the right (but not be bound) to terminate this Agreement without liability for damages in either of the following events:

 

  (a) The Vessel shall become an actual, compromised, constructive, or arranged total loss or be sold or otherwise disposed of or cease to be in the disponent ownership of the Owner; or

 

  (b) If an order be made or resolution be passed for the winding up of the other party (otherwise than a winding up for the purpose of reconstruction or amalgamation), or if a receiver be appointed of the undertaking or property of the other party, or if the other party shall suspend payment or cease to carry on business or make any special arrangement or composition with its creditors.


 

7. (a) Subject to Section 7(b), below, the Management Fees under this Agreement are fixed as the aggregate of 1% (one per centum) on hire and on freight of the gross income of the Vessel plus (i) US$15,000.00 (fifteen thousand United States dollars) per month for each month that the Vessel is employed or is available for employment or (ii) US$20,000.00 (twenty thousand United States dollars) per month for each month that the Vessel is laid-up and not available for employment for at least 15 calendar days of such month.

 

  (b) The Management Fees payable pursuant to Section 7(a) above shall be paid commencing on the later of (i) the execution of this Agreement and (ii) the date that is four calendar months prior to the expected delivery date of a Vessel subject to this Agreement (the “Fee Commencement Date”), provided, however , that if this Agreement is executed as of a date prior to the Fee Commencement Date, the Manager shall be entitled to a reduced Management Fee in the amount of US$7,500 (seven thousand five hundred United States Dollars) for each month (or portion thereof) from the execution of this Agreement until the Fee Commencement Date. In the event that a Fee Commencement Date occurs on a date other than the first day of a calendar month, the Management Fee payable to the Manager in accordance with this Section 7 shall be adjusted pro-rata.

 

8. (a) The Manager shall at its own expense provide all office accommodation, equipment, stationery, and staff ordinarily required for the provision of the services hereby contracted for.

 

  (b) The Owner shall reimburse the Manager in respect of:

 

  i. Expenditures incurred in and about the maintenance, survey, repair or modification of the Vessel;

 

  ii. Wages and all other payments made to or in respect of the crews of the Vessel (including pension and insurance contributions, traveling and accommodation expenses or allowances, and all costs of repatriation, whether incurred before or after the determination of this Agreement);


 

  iii. Travelling, accommodation, and other expenses incurred in respect of or paid to any superintendents or officers or servants of the Manager in connection with the performance of the services hereby contracted for; and

 

  iv. Any expenses in connection with any legal and/or special technical and/or other assistance that may be obtained by the Manager in connection with the performance of the management services. The Manager is hereby authorized to use funds of the Owner in the Manager’s custody for settlement of any claim of the Manager out of the management of the Vessel in priority of any other claim against the Vessel or the Owner.

 

9. Expenses and Disbursements incurred by the Manager for the Vessel will be paid to it by the Owner upon request.

 

10. The Manager is hereby authorized to act for and on behalf of the Owner, as well as to represent the Owner before any court and/or authority having jurisdiction over Owner or the Vessel, including port authorities in particular, with full powers in respect of all the rights of the Owner, including but not limited to the right of accepting service of any document destined for the Owner, signing contracts of any nature whatsoever, starting legal or arbitration proceedings of any nature and terminating them by compromise or any other method, repudiating contracts, and settling claims of the Owner by compromise provided this is to the interest of the Owner.

 

11. (a) Force Majeure – Neither the Owner nor the Manager shall be under any liability for any failure to perform any of their respective obligations hereunder by reason of any cause whatsoever of any nature or kind beyond their reasonable control.

 

  (b)

Liability to Owner – (i) Without prejudice to Sub-Clause 11 (a), the Manager shall be under no liability whatsoever to the Owner for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect, (including but not limited to loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services unless same is proved to have resulted solely from the negligence, gross negligence or willful default of the Manager or its employees or agents, or sub-contractors employed by them in connection with the Vessel, in


 

which case (save where loss, damage, delay or expense has resulted from the Manager’s personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Manager’s liability for each incident or series of incidents giving rise to a claim or claims shall never exceed a total of ten times the annual management fee payable hereunder.

 

  (ii) Notwithstanding anything that may appear to the contrary in this Agreement, the Manager shall not be liable for any of the actions of the Crew, even if such actions are negligent, grossly negligent or willful, except only to the extent that they are shown to have resulted from a failure by the Manager to discharge its obligations under Sub-Clause 3 (b), in which case its liability shall be limited in accordance with the terms of this Clause 11.

 

  (c) Indemnity – Except to the extent and solely for the amount therein set out that the Manager would be liable under Sub-Clause 11 (b) the Owner hereby undertakes to keep the Manager and its employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the Agreement, and against and in respect of all costs, loss, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Manager may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement.

 

  (d)

“Himalaya” clause – It is hereby expressly agreed that no employee or agent of the Manager (including every sub-contractor from time to time employed by the Manager) shall in any circumstances whatsoever be under any liability whatsoever to the Owner for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 11, every exemption, limitation, condition and liberty herein contained and every


 

right, exemption from liability, defense and immunity of whatsoever nature applicable to the Manager or to which the Manager is entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Manager acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 11 the Manager is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement.

 

12. Arbitration Clause – In case any dispute or difference shall arise between the Owner and the Manager as to the construction, meaning, and effect of anything herein contained, such dispute or difference shall be referred to 2 (two) arbitrators in London, England, to be appointed by the Owner and the Manager respectively and in case of their disagreement to an umpire to be appointed by the 2 (two) arbitrators as chosen, and this Agreement shall be deemed to be a submission to arbitration within the meaning of the Arbitration Act 1996 or any statutory modification or re-enactment thereof for the time being in force. The decisions of the 2 (two) arbitrators or the umpire, as the case may be, shall be final and binding upon both parties.

 

13. This Agreement shall be governed by English law.

 

14. (a) Any notice which the Manager may require to give to the Owner shall be validly given if sent to the Owner at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece.

 

  (b) Any notice which the Owner may wish to give to the Manager shall be validly given if sent to the Manager at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece.

 

  (c) Notices required to be given in writing may be given by letter, telex, fax, or e-mail.

 

15. If this agreement shall be translated into different languages and any difference shall arise in the texts, the English text shall prevail and shall constitute the terms of the agreement.

 

16. THIS MANAGEMENT AGREEMENT is to be executed in duplicate, 1 (one) for the Owner and 1 (one) for the Manager.


 

IN WITNESS whereof this agreement has been signed on behalf of the parties hereto by persons duly authorized the day and year first above written.

 

SIGNED by   SIGNED by
For and on behalf of:   For and on behalf of:
[SHIPCO]   DIANA SHIPPING SERVICES S.A.
(the “Owner”)   (the “Manager”)
in the presence of:   in the presence of:


 

Schedule I

Vessel Specifications

Exhibit 10.5

NON COMPETE AGREEMENT

This AGREEMENT (this “ Agreement ”) is made effective as of April 6, 2010 among DIANA SHIPPING INC., a Marshall Islands company (“ Diana Shipping ”) and DIANA CONTAINERSHIPS INC., a Marshall Islands company (“ Diana Containerships ”).

WHEREAS , Diana Shipping is engaged in the ownership, operation and chartering of drybulk carrier vessels and is a shareholder of Diana Containerships, and certain of the senior executive officers and directors of Diana Shipping also serve as senior executive officers and directors of Diana Containerships;

WHEREAS , Diana Containerships is or will be engaged in the ownership, operation and chartering of containerships;

WHEREAS , Diana Shipping Services S.A., a wholly-owned subsidiary of Diana Shipping (the “ Manager ”), will provide certain corporate and administrative services to Diana Containerships pursuant to an administrative services agreement between the Manager and Diana Containerships (the “ Administrative Services Agreement ”) and will provide commercial and technical vessel management services to the containerships in Diana Containerships’ fleet upon or prior to the delivery of the vessels pursuant to separate agreement between the Manager and each vessel owning subsidiary of Diana Containerships (the “ Vessel Management Agreements ”).

WHEREAS , Diana Shipping and Diana Containerships desire to enter into this agreement to memorialize their agreement relating engaging in competing business activities and certain other matters set forth more fully herein.

NOW , THEREFORE , in consideration of the mutual covenants and premises of the parties hereto and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Non-Competition Agreement of Diana Shipping Inc . Diana Shipping agrees that until the date that is the later of (i) the six month anniversary of the termination of the Administrative Services Agreement or (ii) the six month anniversary of the termination of the Vessel Management Agreement, neither Diana Shipping nor any wholly-owned subsidiary of Diana Shipping will acquire or charter or enter into any proposal or agreement relating to the acquisition or charter of any containership vessel or business related to the ownership or operation of container vessels.

2. Non-Competition Agreement of Diana Containerships Inc . Diana Containerships agrees that until the date that is the later of (i) the six month anniversary of the termination of the Administrative Services Agreement or (ii) the six month anniversary of the termination of the Vessel Management Agreement, neither Diana Containerships nor any wholly-owned subsidiary of Diana Containerships will acquire or charter or enter into any proposal or agreement relating to the acquisition or charter of any drybulk vessel or business related to the ownership or operation of drybulk carrier vessels.

3. Non-Solicitation . Each of the parties hereto agree that during the term of the Administrative Services Agreement and the Vessel Management Agreement and for a period of 12 months after the later of (i) the termination of the Administrative Services Agreement and (ii) the termination of the Vessel Management Agreement, neither party


to this Agreement will, without the prior written consent of the other party, directly or indirectly, including through a wholly-owned subsidiary or affiliate, on behalf of itself or any other individual or entity, solicit for employment, induce or encourage the resignation of any employee of the other party or its related entities, subsidiaries or affiliates, or any person who was employed by the other party or a subsidiary or affiliate of the other party within six months of the date of such solicitation; or in any other way interfere or attempt to interfere with the relationship of either party hereto with any of its or their employees, provided, however, that nothing herein shall be deemed to prohibit or limit certain of the executive officers and/or directors of Diana Shipping set forth on Schedule I from providing services to Diana Containerships in their capacity as executive officers and / or directors of Diana Containerships.

4. Confidentiality . Except as (i) the parties may otherwise agree or (ii) as may be required by either party in the disclosing party’s reasonable opinion after consultation with outside legal counsel by applicable law (including without limitation U.S. federal securities law) or compliance with the requirements of any regulatory authority or stock exchange on which the shares of a party may be listed, any non-public information or confidential information relating to or obtained in the pursuant to this Agreement or the Management Agreement or any transaction contemplated therefore, or the business or affairs of either party, their respective subsidiaries or affiliates, shall be kept strictly confidential by the other party hereto; provided, however, in the case of clause (ii) of this Section 4, prior to any public disclosure by a party hereto contemplated to be made in order to comply with applicable law or requirements of regulatory authorities or stock exchange requirements, the disclosing party shall provide a draft of such public disclosure or other communication to the non-disclosing party in advance and consult with the non-disclosing party regarding the contents of such disclosure and, to the extent reasonably practicable in the circumstances, take into consideration any comments on such disclosure as may be provided by the non-disclosing party.

5. Notices . Each notice, consent or request required to be given to a Party pursuant to this Agreement must be given in writing. A notice may be given by delivery to an individual or by fax, and shall be validly given if delivered on a Business Day to an individual at the following address, or, if transmitted on a Business Day, by fax or email addressed to the following Party:

 

If to Diana Shipping Inc.:    If to Diana Containerships Inc.:

Diana Shipping Inc.

  

Diana Containerships Inc.

Pendelis

  

Pendelis

16, 175 64

  

16, 175 64

Palaio Faliro

  

Palaio Faliro

Athens, Greece

  

Athens, Greece

Attention:

  

Attention:

Tel:

  

Tel:

Fax:

  

Fax:

 

2


With Copy to:

  

With Copy to:

Gary J. Wolfe, Esq.

  

Gary J. Wolfe, Esq.

Seward & Kissel LLP

  

Seward & Kissel LLP

One Battery Park Plaza

  

One Battery Park Plaza

New York, New York 10004

  

New York, New York 10004

(212) 574 1223 (telephone number)

  

(212) 574 1223 (telephone number)

(212) 480 8421 (facsimile number)

  

(212) 480 8421 (facsimile number)

6. Governing Law . This Agreement and the rights and obligations of the parties hereto will be governed by and construed in accordance with the laws of England.

7. Further Assurances . Each of the parties to this Agreement agrees to execute, acknowledge and deliver all such instruments and take all such actions a party from time to time may reasonably request in order to further effectuate the purposes of this Agreement and to carry out the terms hereof and to better assure and confirm to the Company its rights, powers and remedies hereunder.

8. Binding Effect; Assignment . This Agreement will be binding upon and inure to the benefit of the parties hereto and to their respective heirs, executors, administrators, successors and permitted assigns. This Agreement is not assignable by either party without the prior written consent of the other party except as provided in Section 2 hereof.

9. Severability . If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, then this Agreement will be construed as if such invalid, illegal, or unenforceable provision or part of a provision had never been contained in this Agreement.

10. Counterparts . This Agreement may be executed in multiple counterparts, each of which will be deemed an original and all of such counterparts together will constitute one agreement. To facilitate execution of this Agreement, the parties may execute and exchange counterparts of signature pages by telephone facsimile.

[ Signature page follows. ]

 

3


IN WITNESS WHEREOF , this Agreement has been duly executed by the parties as of the date first written above.

 

DIANA SHIPPING INC.

LOGO

Name: Anastasios Margaronis

Title: Director and President

 

DIANA CONTAINERSHIPS INC.

LOGO

Name: Symeon Palios

Title: Director, Chief Executive Officer
    and Chairman of the Board

[ Signature Page to Non-Compete Agreement ]


 

Schedule I

 

Person

  

Diana Shipping Capacity

  

Diana Containerships Capacity

     
Symeon Palios    Director, Chief Executive Officer and Chairman    Director, Chief Executive Officer and Chairman  
Anastasios Margaronis    Director and President    Director and President  
Ioannis Zafirakis    Director, Executive Vice President and Secretary    Director, Chief Operating Officer and Secretary  
Andreas Michalopoulos    Chief Financial Officer and Treasurer    Chief Financial Officer and Treasurer  

 

5

 

Exhibit 10.6

Private & Confidential

LOAN AGREEMENT

for a Loan of up to US$40,000,000

to

LIKIEP SHIPPING COMPANY INC.

and

ORANGINA INC.

provided by

THE BANKS AND FINANCIAL INSTITUTIONS SET OUT IN SCHEDULE 1

Arranger, Agent, Security Agent

and Account Bank

DNB NOR BANK ASA

Swap Provider

DNB NOR BANK ASA

LOGO


 

Contents

 

Clause

   Page  

1Purpose and definitions

     1   

2The Total Commitment and the Advances

     14   

3Interest and Interest Periods

     16   

4Repayment and prepayment

     18   

5Fees, commitment commission and expenses

     20   

6Payments and taxes; accounts and calculations

     21   

7Representations and warranties

     23   

8Undertakings

     28   

9Conditions

     33   

10Events of Default

     34   

11Indemnities

     38   

12Unlawfulness and increased costs

     39   

13Security, set-off and pro-rata payments

     41   

14Operating Accounts

     43   

15Assignment, transfer and lending office

     44   

16Arranger, Agent and Security Agent

     46   

17Notices and other matters

     55   

18Governing law and jurisdiction

     58   
Schedule 1 The Banks and their Commitments      59   
Schedule 2 Form of Drawdown Notice      60   
Schedule 3 Documents and evidence required as conditions precedent to the Loan being made      61   
Schedule 4 Form of Transfer Certificate      68   
Schedule 5 Form of Trust Deed      72   
Schedule 6 Mandatory Cost formula      73   
Schedule 7 Form of Mortgage      75   
Schedule 8 Form of General Assignment      76   
Schedule 9 Form of Corporate Guarantee      77   
Schedule 10 Form of Manager’s Undertaking      78   
Schedule 11 Form of Master Swap Agreement      79   
Schedule 12 Form of Swap Assignment      80   
Schedule 13 Form of Operating Account Assignment      81   
Schedule 14 Form of Charter Assignment      82   


 

THIS AGREEMENT is dated 7 July 2010 and made BETWEEN :

 

(1) LIKIEP SHIPPING COMPANY INC. and ORANGINA INC. as joint and several Borrowers;

 

(2) DNB NOR BANK ASA as Arranger, Agent, Security Agent and Account Bank;

 

(3) DNB NOR BANK ASA as Swap Provider; and

 

(4) THE BANKS AND FINANCIAL INSTITUTIONS whose names are set out in schedule 1 as Banks.

IT IS AGREED as follows:

 

1 Purpose and definitions

 

1.1 Purpose

This Agreement sets out the terms and conditions upon and subject to which the Banks agree, according to their several obligations, to make available to the Borrowers, jointly and severally, in four (4) Advances, a loan of up to Forty million Dollars ($40,000,000) for the purpose of assisting the Borrowers to finance part of the acquisition cost of the Ships.

 

1.2 Definitions

In this Agreement, unless the context otherwise requires:

Account Bank ” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as Account Bank by the Agent for the purposes of this Agreement and includes its successors in title;

Advance ” means each borrowing of a proportion of the Total Commitment by the Borrowers or (as the context may require) the principal amount of such borrowing, being the Centaurus First Advance, the Centaurus Second Advance, the Sagitta First Advance and the Sagitta Second Advance and:

(a) in relation to the Centaurus Ship, it means the Centaurus First Advance and the Centaurus Second Advance; or

(b) in relation to the Sagitta Ship, it means the Sagitta First Advance and the Sagitta Second Advance,

and “ Advances ” means any or all of them;

Agent ” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as agent by the Banks and the Swap Provider pursuant to clause 16.13 and includes its successors in title;

Applicable Accounting Principles ” means the most recent and up-to-date US GAAP at any relevant time;

Approved Shipbrokers ” means, together, H. Clarkson and Company Ltd of London, England, Arrow Research Ltd. of London, England, Astrup Fearnley A/S of Oslo, Norway, R.S. Platou Shipbrokers of Oslo, Norway and any other independent firm of shipbrokers nominated by the Borrowers and approved by the Agent in its absolute discretion and “ Approved Shipbroker ” means any of them;

 

1


 

Arranger ” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) and includes its successors in title;

Available Commitment ” means, in relation to a Bank, the amount of its Commitment less the amount of its Contribution;

Balloon Instalment ” shall have, in relation to each Advance, the meaning ascribed thereto in clause 4.1;

Banks ” means the banks and financial institutions listed in schedule 1 and includes their respective successors in title and Transferee Banks and “ Bank ” means any of them;

Banking Day ” means a day on which dealings in deposits in Dollars are carried on in the London Interbank Eurocurrency Market and (other than Saturday or Sunday) on which banks are open for business in London, Athens and New York City (or any other relevant place of payment under clause 6);

Basel 2 Accord ” means the “International Convergence of Capital Measurement and Capital Standards, a Revised Framework” published by the Basel Committee on Banking Supervision in June 2004 in the form existing on the date of the First Supplemental Agreement;

Basel 2 Approach ” means, in relation to each Bank, either the Standardised Approach or the relevant Internal Ratings Based Approach (each as defined in the Basel 2 Accord) adopted by such Bank (or its holding company) for the purposes of implementing or complying with the Basel 2 Accord;

Basel 2 Regulation ” means, in relation to each Bank, (a) any law or regulation implementing the Basel 2 Accord or (b) any Basel 2 Approach adopted by such Bank;

Borrowed Money ” means Indebtedness in respect of (i) money borrowed or raised and debit balances at banks, (ii) any bond, note, loan stock, debenture or similar debt instrument, (iii) acceptance or documentary credit facilities, (iv) receivables sold or discounted (otherwise than on a non-recourse basis), (v) deferred payments for assets or services acquired, (vi) finance leases and hire purchase contracts, (vii) swaps, forward exchange contracts, futures and other derivatives, (viii) any other transaction (including without limitation forward sale or purchase agreements) having the commercial effect of a borrowing or raising of money or of any of (ii) to (vii) above and (ix) guarantees in respect of Indebtedness of any person falling within any of (i) to (viii) above;

Borrower ”:

 

  (a) in relation to the Centaurus Ship and/or the Centaurus Advances, means the Centaurus Borrower; or

 

  (b) in relation to the Sagitta Ship and/or the Sagitta Advances, means the Sagitta Borrower,

and “ Borrowers ” means either or both of them;

Borrowers ’ Security Documents” means, at any relevant time, such of the Security Documents as shall have been executed by either of the Borrowers at such time;

Capital Adequacy Law ” means any law or any regulation (whether or not having the force of law, but, if not having the force of law, with which a Bank or, as the case may be, its holding company habitually complies), including (without limitation) those relating to Taxation, capital

 

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adequacy, liquidity, reserve assets, cash ratio deposits and special deposits or other banking or monetary controls or requirements which affect the manner in which a Bank allocates capital resources to its obligations hereunder (including, without limitation, those resulting from the implementation or application of or compliance with the Basel 2 Accord or any Basel 2 Regulation);

Centaurus Advances ” means, together, the Centaurus First Advance and the Centaurus Second Advance and “ Centaurus Advance ” shall mean either of them;

Centaurus Borrower ” means Orangina Inc. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960 and includes its successors in title;

Centaurus Contract ” means the memorandum of agreement dated 8 June 2010 made between the Seller and the Centaurus Borrower as may be further amended and supplemented from time to time, relating to the sale by the Seller and the purchase by the Centaurus Borrower, of the Centaurus Ship;

Centaurus Contract Price ” means the purchase price payable by the Centaurus Borrower to the Seller for the Centaurus Ship under the Centaurus Contract, being Thirty seven million three hundred thousand euro (€37,300,000) or such other sum as is determined under the terms of the Centaurus Contract to be the purchase price of the Centaurus Ship thereunder;

Centaurus First Advance ” means an Advance of up to Ten million Dollars ($10,000,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of the Centaurus Ship by the Centaurus Borrower pursuant to the Centaurus Contract;

Centaurus General Assignment ” means the general assignment collateral to the Centaurus Mortgage executed or (as the context may require) to be executed by the Centaurus Borrower in favour of the Security Agent in the form set out in schedule 8;

Centaurus Management Agreement ” means the agreement dated 8 June 2010 made between the Centaurus Borrower and the Manager or any other agreement previously approved in writing by the Agent between the Centaurus Borrower and the Manager, providing [inter alia) for the Manager to manage the Centaurus Ship;

Centaurus Manager’s Undertaking ” means the undertaking and assignment in respect of the Centaurus Ship executed or (as the context may require) to be executed by the Manager in favour of the Security Agent in the form set out in schedule 10;

Centaurus Mortgage ” means the first preferred Marshall Island mortgage of the Centaurus Ship executed or (as the context may require) to be executed by the Centaurus Borrower in favour of the Security Agent in the form set out in schedule 7;

Centaurus Operating Account ” means an interest bearing Dollar account of the Centaurus Borrower opened or (as the context may require) to be opened with the Account Bank and includes any sub-accounts thereof and any other account designated in writing by the Agent to be a Centaurus Operating Account for the purposes of this Agreement;

Centaurus Operating Account Assignment ” means a first priority assignment executed or (as the context may require) to be executed by the Centaurus Borrower in favour of the Security Agent in respect of the Centaurus Operating Account in the form set out in schedule 13;

Centaurus Second Advance ” means an Advance of up to Ten million Dollars ($10,000,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of the Centaurus Ship pursuant to the Centaurus Contract;

Centaurus Ship ” means Hull No. 559 currently under construction by the Seller (with the specifications set out in the shipbuilding contract dated 19 June 2006 referred to in the Centaurus Contract) to be registered on its Delivery Date under the name and in the ownership of the Centaurus Borrower through the relevant Registry and under the laws and flag of the relevant Flag State with the name Centaurus ;

 

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Charter ” means, in respect of a Ship, any charter or other contract of employment which is entered into between the relevant Borrower as owner and another person (other than a Related Company of the Borrowers) as charterer or counterparty in relation to such Ship during the Security Period, with a tenor in excess of 12 months (including any options to extend or renew contained therein);

Charter Assignment ” means, in relation to each Ship and any Charter relevant to such Ship, the specific assignment executed or (as the context may require) to be executed by the relevant Borrower in favour of the Security Agent in respect of such Charter, whether pursuant to clause 8.1.14 or otherwise, in the form set out in schedule 14;

Charterer ” means, in respect of a Ship, any such person which shall enter into a Charter with the relevant Borrower in respect of the relevant Ship during the Security Period;

Classification ” means, in relation to each Ship, the highest class available to a vessel of such Ship’s type with the relevant Classification Society or such other classification as the Agent shall, at the request of a Borrower, have agreed in writing shall be treated as the Classification in relation to such Borrower’s Ship for the purposes of the relevant Ship Security Documents;

Classification Society ” means such classification society (being a member of the International Association of Classification Societies (“ IACS ”)) which the Agent shall, at the request of a Borrower, have agreed in writing shall be treated as the Classification Society in relation to such Borrower’s Ship for the purposes of the relevant Ship Security Documents;

Code ” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention constituted pursuant to Resolution A. 741 (18) of the International Maritime Organisation and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;

Commitment ” means, in relation to each Bank, the amount set out opposite its name in the column headed “ Commitment ” in schedule 1, and/or, in the case of a Transferee Bank, the amount transferred as specified in the relevant Transfer Certificate, as reduced in each case by any relevant term of this Agreement;

Compliance Certificate ” means each certificate received or (as the context may require) to be received by the Agent pursuant to clause 5.1 of the Corporate Guarantee in the form set out in the schedule to the Corporate Guarantee;

Compulsory Acquisition ” means requisition for title or other compulsory acquisition, requisition, appropriation, expropriation, deprivation, forfeiture or confiscation for any reason of a Ship by any Government Entity or other competent authority, whether de jure or de facto, but shall exclude requisition for use or hire not involving requisition of title;

Confirmation ” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

Contract ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Contract; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Contract,

and “ Contracts ” means both of them;

Contribution ” means, in relation to each Bank, the principal amount of the Loan owing to such Bank at any relevant time;

 

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Corporate Guarantee ” means the corporate guarantee issued or (as the context may require) to be issued by the Corporate Guarantor in favour of the Security Agent in the form set out in schedule 9;

Corporate Guarantor ” means Diana Containerships Inc. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960, and includes its successors in title;

Creditors ” means, together, the Arranger, the Agent, the Security Agent, the Swap Provider, the Account Bank and the Banks and “ Creditor ” means any of them;

Default ” means any Event of Default or any event or circumstance which with the giving of notice or lapse of time or the satisfaction of any other condition (or any combination thereof) would constitute an Event of Default;

Delivery Date ” means, in relation to each Ship, the date on which such Ship is delivered to, and accepted by, the relevant Borrower in accordance with the relevant Contract;

Designated Transaction ” means a Transaction which fulfils the following requirements:

 

  (a) it is entered into by the Borrowers pursuant to the Master Swap Agreement with the Swap Provider as contemplated by clause 2.9; and

 

  (b) its purpose is the hedging of the Borrowers’ exposure under this Agreement to fluctuations of LIBOR arising from the funding of the Loan (or any part thereof) for a period expiring no later than the final Repayment Date for the Loan or the relevant part thereof;

DOC ” means a document of compliance issued to an Operator in accordance with rule 13 of the Code;

Dollars ” and “ $ ” mean the lawful currency of the United States of America and, in respect of all payments to be made under any of the Security Documents, mean funds which are for same day settlement in the New York Clearing House Interbank Payments System (or such other U.S. dollar funds as may at the relevant time be customary for the settlement of international banking transactions denominated in U.S. dollars);

Drawdown Date ” means any date, being a Banking Day falling during the Drawdown Period, on which an Advance is, or is to be, made available;

Drawdown Notice ” means, in relation to each Advance, a notice substantially in the form of schedule 2 in respect of such Advance;

Drawdown Period ” means, in relation to each Advance, the period from the date of this Agreement and ending on the earlier of (a) the Termination Date, (b) the date on which the aggregate amount of the Advances is equal to the Total Commitment and (c) the date on which the Total Commitment is reduced to zero pursuant to clauses 4.3, 10.2 or 12;

DSI ” means Diana Shipping Inc. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960, and includes its successors in title;

Early Termination Date ” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

Encumbrance ” means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest or other encumbrance of any kind securing any obligation of any person or any type of preferential arrangement (including without limitation title transfer and/or retention arrangements) having a similar effect;

 

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Environmental Affiliate ” means any agent or employee of either Borrower or any other Relevant Party or any person having a contractual relationship with either Borrower or any other Relevant Party in connection with any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship;

Environmental Approval ” means any consent, authorisation, licence or approval of any governmental or public body or authorities or courts applicable to any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship required under any Environmental Law;

Environmental Claim ” means any and all enforcement, clean-up, removal or other governmental or regulatory actions or orders instituted or completed pursuant to any Environmental Law or any Environmental Approval together with claims made by any third party relating to damage, contribution, loss or injury, resulting from any actual or threatened emission, spill, release or discharge of a Pollutant from any Relevant Ship;

Environmental Laws ” means all national, international and state laws, rules, regulations, treaties and conventions applicable to any Relevant Ship pertaining to the pollution or protection of human health or the environment including, without limitation, the carriage of Pollutants and actual or threatened emissions, spills, releases or discharges of Pollutants;

euro ” or “ ” mean the lawful currency of the European Union from time to time;

Event of Default ” means any of the events or circumstances described in clause 10.1;

Fee Letter ” means the letter of even date herewith made between the Arranger, the Agent, the Borrowers and the Corporate Guarantor in respect of certain of the fees payable under clause 5.1;

First Advances ” means, together, the Centaurus First Advance and the Sagitta First Advance and “ First Advance ” shall mean either of them;

Flag State ” means, in relation to a Ship, the Republic of the Marshall Islands or such other state or territory designated in writing by the Agent, at the request of the Borrower owning such Ship, as being the “ Flag State ” of such Ship for the purposes of the relevant Ship Security Documents;

General Assignment ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus General Assignment; or

 

  (b) in relation to the Sagitta Ship, the Sagitta General Assignment,

and “ General Assignments ” means either or both of them;

Government Entity ” means and includes (whether having a distinct legal personality or not) any national or local government authority, board, commission, department, division, organ, instrumentality, court or agency and any association, organisation or institution of which any of the foregoing is a member or to whose jurisdiction any of the foregoing is subject or in whose activities any of the foregoing is a participant;

Group ” means, together, the Corporate Guarantor and its Subsidiaries from time to time (including, for the avoidance of doubt, the Borrowers) and “ member of Group ” shall be constructed accordingly;

Indebtedness ” means any obligation for the payment or repayment of money, whether as principal or as surety and whether present or future, actual or contingent;

 

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Interest Payment Date ” means the last day of an Interest Period;

Interest Period ” means, in relation to an Advance, each period for the calculation of interest in respect of such Advance, ascertained in accordance with clauses 3.2 and 3.3;

ISPS Code ” means the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the International Maritime Organization now set out in Chapter XI-2 of the International Convention for the Safety of Life at Sea 1974 (as amended) as adopted by a Diplomatic conference of the International Maritime Organisation on Maritime Security in December 2002 and includes any amendments or extensions thereto and any regulation issued pursuant thereto;

ISSC ” means, in relation to each Ship, an International Ship Security Certificate issued in respect of that Ship pursuant to the ISPS Code;

LIBOR ” means in relation to a particular period:

 

  (a) the rate for deposits of the relevant currency for a period equivalent to such period at or about 11:00 a.m. on the Quotation Date for such period as displayed on Reuters page LIBOR 01 (British Bankers’ Association Interest Settlement Rates) (or such other page as may replace such page LIBOR 01 on such system or on any other system of the information vendor for the time being designated by the British Bankers’ Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers’ Association’s Recommended Terms and Conditions (“ BBAIRS ” terms) applicable at the relevant time)); or

 

  (b) provided that if on such date no such rate is so displayed, LIBOR for such period shall be the arithmetic mean of the rates quoted to the Agent by the Reference Banks at the request of the Agent as the Reference Banks’ offered rate for deposits of the relevant currency in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to such period to prime banks in the London Interbank Market at or about 11:00 a.m. on the Quotation Date for such period;

Loan ” means the aggregate principal amount owing to the Banks under this Agreement at any relevant time;

Majority Banks ” means, at any relevant time, Banks (a) the aggregate of whose Contributions exceeds Sixty-six point six per cent (66.6%) of the Loan or (b) (if no principal amounts are outstanding under this Agreement) the aggregate of whose Commitments exceeds Sixty-six point six per cent (66.6%) of the Total Commitment;

Manager ” means Diana Shipping Services S.A. of Edificio Universal, Piso 12, Avenida Federico Boyd, Panama or any other person appointed by a Borrower, with the prior written consent of the Majority Banks as the technical and commercial manager of such Borrower’s Ship and includes its successors in title;

Management Agreement ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Management Agreement; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Management Agreement,

and “ Management Agreements ” means either or both of them;

Manager’s Undertaking ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Manager’s Undertaking; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Manager’s Undertaking,

 

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and “ Manager’s Undertakings ” means either or both of them;

Mandatory Cost ” means, in relation to any period, a percentage calculated by the Agent for such period at an annual rate determined by the application of the formula set out in schedule 6;

Margin ” means two point four zero per cent (2.40%) per annum;

Master Swap Agreement ” means the agreement made or (as the context may require) to be made between the Swap Provider and the Borrowers comprising an ISDA Master Agreement (including the Schedule) in the form set out in schedule 11 and includes any Designated Transactions from time to time entered into and any Confirmations (as defined therein) from time to time exchanged thereunder and governed thereby;

month ” means a period beginning in one calendar month and ending in the next calendar month on the day numerically corresponding to the day of the calendar month on which it started, provided that (a) if the period started on the last Banking Day in a calendar month or if there is no such numerically corresponding day, it shall end on the last Banking Day in such next calendar month and (b) if such numerically corresponding day is not a Banking Day, the period shall end on the next following Banking Day in the same calendar month but if there is no such Banking Day it shall end on the preceding Banking Day and “ months ” and “ monthly ” shall be construed accordingly;

Mortgage ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Mortgage; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Mortgage,

and “ Mortgages ” means either or both of them;

Mortgaged Ship ” means, at any relevant time, any Ship which is at such time subject to a Mortgage and/or the Earnings, Insurances and Requisition Compensation (as defined in the relevant Ship Security Documents) of which are subject to an Encumbrance pursuant to the relevant Ship Security Documents and a Ship shall for the purposes of this Agreement be deemed to be a Mortgaged Ship as from whichever shall be the earlier of (a) the drawdown of the Advance relating to that Ship and (b) the date that the Mortgage of that Ship shall have been executed and registered in accordance with this Agreement until whichever shall be the earlier of (i) the payment in full of the amount required by the Agent to be paid pursuant to clause 4.3 following the sale or Total Loss of such Ship and (ii) the date on which all moneys owing under the Security Documents have been repaid in full;

Operating Account ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Operating Account; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Operating Account,

and “ Operating Accounts ” means either or both of them;

Operating Account Assignment ” means:

 

  (a) in relation to the Centaurus Ship, the Centaurus Operating Account Assignment; or

 

  (b) in relation to the Sagitta Ship, the Sagitta Operating Account Assignment,

and “ Operating Account Assignments ” means either or both of them;

 

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Operator ” means any person who is from time to time during the Security Period (as defined in each Mortgage) concerned in the operation of a Ship and falls within the definition of “Company” set out in rule 1.1.2 of the Code;

Permitted Encumbrance ” means any Encumbrance in favour of the Security Agent created pursuant to the Security Documents and Permitted Liens;

Permitted Liens ” means, in respect of each Ship:

 

  (a) any lien on such Ship for master’s, officer’s or crew’s wages outstanding in the ordinary course of trading;

 

  (b) any lien for salvage; and

 

  (c) any ship repairer’s or outfitter’s possessory lien for a sum not (except with the prior written consent of the Agent) exceeding the Casualty Amount (as defined in the relevant Ship Security Documents) for such Ship;

Pollutant ” means and includes pollutants, contaminants, toxic substances, oil as defined in the United States Oil Pollution Act of 1990 and all hazardous substances as defined in the United States Comprehensive Environmental Response, Compensation and Liability Act 1980;

Quotation Date ” means, in respect of any period for which LIBOR falls to be determined under this Agreement, the second Banking Day before the first day of such period;

Reference Banks ” means the Agent and any other prime bank or financial institution in the London Interbank Market appointed as a Reference Bank by the Agent from time to time;

Registry ” means, in respect of a Ship, such registrar, commissioner or representative of the relevant Flag State who is duly authorised and empowered to register such Ship, the relevant Borrower’s title to such Ship and the relevant Mortgage under the laws and flag of the relevant Flag State;

Related Company ” of a person means any Subsidiary of such person, any company or other entity of which such person is a Subsidiary and any Subsidiary of any such company or entity;

Relevant Jurisdiction ” means any jurisdiction in which or where any Security Party is incorporated, resident, domiciled, has a permanent establishment, carries on, or has a place of business or is otherwise effectively connected;

Relevant Party ” means each of the Borrowers, any other Security Party and any other member of the Group;

Relevant Ship ” means the Ships and any other vessel from time to time (whether before or after the date of this Agreement) owned, managed or crewed by, or chartered to, any Relevant Party;

Repayment Dates ” means, in relation to each Advance and subject to clause 6.3, each of the dates falling at three (3) monthly intervals after the Drawdown Date for such Advance, up to and including the earlier of (i) the date falling seventy two (72) months after the Drawdown Date for such Advance and (ii) 31 July 2017;

Sagitta Advances ” means, together, the Sagitta First Advance, and the Sagitta Second Advance and “Sagitta Advance” shall mean either of them;

Sagitta Borrower ” means Likiep Shipping Company Inc. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960 and includes its successors in title;

 

9


 

Sagitta Contract ” means the memorandum of agreement dated 8 June 2010 made between the Seller and the Sagitta Borrower as may be further amended and supplemented from time to time, relating to the sale by the Seller and the purchase by the Sagitta Borrower, of the Sagitta Ship;

Sagitta Contract Price ” means the purchase price payable by the Sagitta Borrower to the Seller for the Sagitta Ship under the Sagitta Contract, being Thirty seven million three hundred thousand euro (€37,300,000) or such other sum as is determined under the terms of the Sagitta Contract to be the purchase price of the Sagitta Ship thereunder;

Sagitta First Advance ” means an Advance of up to Ten million Dollars ($10,000,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of the Sagitta Ship by the Sagitta Borrower pursuant to the Sagitta Contract;

Sagitta General Assignment ” means the general assignment collateral to the Sagitta Mortgage executed or (as the context may require) to be executed by the Sagitta Borrower in favour of the Security Agent in the form set out in schedule 8;

Sagitta Management Agreement ” means the agreement dated 8 June 2010 made between the Sagitta Borrower and the Manager or any other agreement previously approved in writing by the Agent between the Sagitta Borrower and the Manager, providing ( inter alia ) for the Manager to manage the Sagitta Ship;

Sagitta Manager’s Undertaking ” means the undertaking and assignment in respect of the Sagitta Ship executed or (as the context may require) to be executed by the Manager in favour of the Security Agent in the form set out in schedule 10;

Sagitta Mortgage ” means the first preferred Marshall Island mortgage of the Sagitta Ship executed or (as the context may require) to be executed by the Sagitta Borrower in favour of the Security Agent in the form set out in schedule 7;

Sagitta Operating Account ” means an interest bearing Dollar account of the Sagitta Borrower opened or (as the context may require) to be opened with the Account Bank and includes any sub-accounts thereof and any other account designated in writing by the Agent to be a Sagitta Operating Account for the purposes of this Agreement;

Sagitta Operating Account Assignment ” means a first priority assignment executed or (as the context may require) to be executed by the Sagitta Borrower in favour of the Security Agent in respect of the Sagitta Operating Account in the form set out in schedule 13;

Sagitta Second Advance ” means an Advance of up to Ten million Dollars ($10,000,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of the Sagitta Ship pursuant to the Sagitta Contract;

Sagitta Ship ” means Hull No. 558 currently under construction by the Seller (with the specifications set out in the shipbuilding contract dated 19 June 2006 referred to in the Sagitta Contract) to be registered on its Delivery Date under the name and in the ownership of the Sagitta Borrower through the relevant Registry and under the laws and flag of the relevant Flag State with the name Sagitta ;

Second Advances ” means, together, the Centaurus Second Advance and the Sagitta Second Advance and “ Second Advance ” shall mean either of them;

Security Agent ” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as security agent and trustee by the Banks, the Agent and the Swap Provider pursuant to clause 16 and includes its successors in title;

 

10


 

Security Documents ” means this Agreement, the Fee Letter, the Master Swap Agreement, the Mortgages, the General Assignments, any Charter Assignments, the Operating Account Assignments, the Corporate Guarantee, the Manager’s Undertakings and the Swap Assignment and any other documents as may have been or shall from time to time after the date of this Agreement be executed to guarantee and/or secure all or any part of the Loan, interest thereon and other moneys from time to time owing by the Borrowers and/or any other Security Party pursuant to this Agreement and/or any other Security Document (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Party ” means the Borrowers, the Manager, the Corporate Guarantor or any other person who may at any time be a party to any of the Security Documents (other than the Creditors);

Security Requirement ” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrowers and the other Creditors) which is at any relevant time, one hundred and twenty five per cent (125%) of the aggregate of (a) the Loan and (b) the Swap Exposure, as at the relevant time;

Security Value ” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrowers and the other Creditors) which is, at any relevant time, the aggregate of (a) the market value of the Mortgaged Ships as most recently determined in accordance with clause 8.2.2 and (b) the market value of any additional security for the time being actually provided to the Creditors pursuant to clause 8.2.1(b);

Seller ” means TKMS Blohm + Voss Nordseewerke GmbH of Germany (with local court of Hamburg registration number HRB104702 and with local court of Aurich registration number HRB100282) and includes its successors in title;

Ship ”:

 

  (a) in relation to the Centaurus Borrower and/or the Centaurus Advances, means the Centaurus Ship; or

 

  (b) in relation to the Sagitta Borrower and/or the Sagitta Advances, means the Sagitta Ship,

and “ Ships ” means either or both of them;

Ship Security Documents ”:

 

  (a) in respect of the Centaurus Ship, means the Centaurus Mortgage, the Centaurus General Assignment, the Centaurus Manager’s Undertaking and any relevant Charter Assignment; or

 

  (b) in respect of the Sagitta Ship, means the Sagitta Mortgage, the Sagitta General Assignment, the Sagitta Manager’s Undertaking and any relevant Charter Assignment;

SMC ” means a safety management certificate issued in respect of a Ship in accordance with rule 13 of the Code;

Subsidiary ” of a person means any company or entity directly or indirectly controlled by such person, and for this purpose “ control ” means either the ownership of more than fifty per cent (50%) of the voting share capital (or equivalent rights of ownership) of such company or entity or the power to direct its policies and management, whether by contract or otherwise;

 

11


 

Swap Assignment ” means the assignment executed or (as the context may require) to be executed by the Borrowers in favour of the Security Agent in relation to certain of the rights of the Borrowers under the Master Swap Agreement in the form set out in schedule 12;

Swap Exposure ” means, as at any relevant time, the amount certified by the Swap Provider to the Agent to be the aggregate net amount in Dollars which would be payable by the Borrowers to the Swap Provider under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of the Master Swap Agreement if an Early Termination Date had occurred at the relevant time in relation to all continuing Designated Transactions;

Swap Provider ” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) and includes its successors in title;

Taxes ” includes all present and future taxes, levies, imposts, duties, fees or charges of whatever nature together with interest thereon and penalties in respect thereof and “ Taxation ” shall be construed accordingly;

Termination Date ” means 31 July 2011 or such later date as the Agent (acting on the instructions of all the Banks) may in its absolute discretion agree in writing;

Total Commitment ” means, at any relevant time, the total of the Commitments of all the Banks at such time as reduced by any relevant term of this Agreement;

Total Loss ” in relation to a Ship means:

 

  (a) actual, constructive, compromised or arranged total loss of such Ship; or

 

  (b) the Compulsory Acquisition of such Ship; or

 

  (c) the hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of such Ship (other than where the same amounts to the Compulsory Acquisition of such Ship) by any Government Entity, or by persons acting or purporting to act on behalf of any Government Entity, unless such Ship be released and restored to the relevant Borrower from such hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation within thirty (30) days after the occurrence thereof;

Transaction ” has the meaning given in the Master Swap Agreement;

Transfer Certificate ” means a certificate in substantially the form set out in schedule 4;

Transferee Bank ” has the meaning ascribed thereto in clause 15.3;

Transferor Bank ” has the meaning ascribed thereto in clause 15.3;

Trust Deed ” means a trust deed in the form, or substantially in the form, set out in schedule 5;

Trust Property ” means (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Security Agent under or pursuant to the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to the Security Agent in the Security Documents), (ii) all moneys, property and other assets paid or transferred to or vested in the Security Agent or any agent of the Security Agent or any receiver or received or recovered by the Security Agent or any agent of the Security Agent or any receiver pursuant to, or in connection with, any of the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by the Security Agent or any agent of the Security Agent in respect of the same (or any part thereof); and

 

12


 

Underlying Documents ” means, together, the Management Agreements, the Contracts and any Charters and “ Underlying Document ” means any of them.

 

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement.

 

1.4 Construction of certain terms

In this Agreement, unless the context otherwise requires:

 

1.4.1 references to clauses and schedules are to be construed as references to clauses of, and schedules to, this Agreement and references to this Agreement include its schedules;

 

1.4.2 references to (or to any specified provision of) this Agreement or any other document shall be construed as references to this Agreement, that provision or that document as in force for the time being and as amended in accordance with terms thereof, or, as the case may be, with the agreement of the relevant parties;

 

1.4.3 references to a “ regulation ” include any present or future regulation, rule, directive, requirement, request or guideline (whether or not having the force of law) of any agency, authority, central bank or government department or any self-regulatory or other national or supra-national authority and, for the avoidance of doubt, shall include any Basel 2 Regulation;

 

1.4.4 words importing the plural shall include the singular and vice versa;

 

1.4.5 references to a time of day are to London time;

 

1.4.6 references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

 

1.4.7 two or more persons are “ acting in concert ” if, pursuant to an agreement or understanding (whether formal or informal), they actively co-operate, through the acquisition (directly or indirectly) of shares in the Corporate Guarantor by any of them, either directly or indirectly to obtain or consolidate control of the Corporate Guarantor;

 

1.4.8 references to a “ guarantee ” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “ guaranteed ” shall be construed accordingly; and

 

1.4.9 references to any enactment shall be deemed to include references to such enactment as re-enacted, amended or extended.

 

1.5 Majority Banks

Where this Agreement provides for any matter to be determined by reference to the opinion of the Majority Banks or to be subject to the consent or request of the Majority Banks or for any action to be taken on the instructions in writing of the Majority Banks, such opinion, consent, request or instructions shall (as between the Banks) only be regarded as having been validly given or issued by the Majority Banks if all the Banks shall have received prior notice of the matter on which such opinion, consent, request or instructions are required to be obtained and the relevant majority of Banks shall have given or issued such opinion, consent, request or instructions but so that (as between the Borrowers and the Creditors) the Borrowers shall be entitled (and bound) to assume that such notice shall have been duly received by each Bank and that the relevant majority shall have been obtained to constitute Majority Banks whether or not this is in fact the case.

 

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1.6 Banks’ Commitment

For the purposes of the definition of “ Majority Banks ” in clause 1.2 and the relevant provisions of the Security Documents, references to the Commitment of a Bank shall, if the Total Commitment has, at any relevant time, been reduced to zero, be deemed to be a reference to the Commitment of that Bank immediately prior to such reduction to zero.

 

2 The Total Commitment and the Advances

 

2.1 Agreement to lend

The Banks, relying upon each of the representations and warranties in clause 7, agree to lend to the Borrowers, jointly and severally, in four (4) Advances and upon and subject to the terms of this Agreement, the aggregate principal sum of up to Forty million Dollars ($40,000,000). The obligation of each Bank under this Agreement shall be to contribute that proportion of each Advance which, as at the Drawdown Date of such Advance, such Bank’s Commitment bears to the Total Commitment.

 

2.2 Obligations several

The obligations of the Banks under this Agreement are several according to their respective Commitments and/or Contributions; the failure of any Bank to perform such obligations or the failure of the Swap Provider to perform its obligations under the Master Swap Agreement shall not relieve any other Creditor or the Borrowers or either of them of any of their respective obligations or liabilities under this Agreement or, as the case may be, the Master Swap Agreement nor shall any Creditor be responsible for the obligations of any Creditors (except for its own obligations, if any, as a Bank or Swap Provider) under this Agreement or the Master Swap Agreement.

 

2.3 Interests several

Notwithstanding any other term of this Agreement (but without prejudice to the provisions of this Agreement relating to or requiring action by the Majority Banks) the interests of the Creditors are several and the amount due to any Creditor is a separate and independent debt. Each Creditor shall have the right to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Creditor to be joined as an additional party in any proceedings for this purpose.

 

2.4 Drawdown

Subject to the terms and conditions of this Agreement, each Advance shall be made to the Borrowers following receipt by the Agent from the Borrowers of a Drawdown Notice not later than 10:00 a.m. on the third Banking Day before the proposed Drawdown Date which shall be a Banking Day falling within the Drawdown Period. A Drawdown Notice shall be effective on actual receipt by the Agent and, once given, shall, subject as provided in clause 3.6.1, be irrevocable.

 

2.5 Timing and limitation of Advances

 

2.5.1 The aggregate amount of all Advances shall not exceed the Total Commitment.

 

2.5.2 Each Advance shall not exceed the lower of (a) Ten million Dollars ($10,000,000) and (b) twenty five per cent (25%) of the market value of the Ship relevant to such Advance determined in accordance with the valuation(s) obtained for that Ship pursuant to schedule 3, Part 2 (in relation to a First Advance) or schedule 3, Part 3 (in relation to a Second Advance).

 

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2.5.3 Each First Advance:

 

  (a) shall be applied in or towards payment to the Seller of such part of the Contract Price for the Ship relevant to such Advance, which is payable on the Delivery Date for that Ship;

 

  (b) shall be drawn down only once the part of the Contract Price referred to in paragraph 2.5.3(a) above has become due and payable; and

 

  (c) shall be paid by the Banks to the Seller directly, unless the relevant Borrower has already paid such part of the Contract Price to the Seller when it was due, in which case the relevant Advance (or part thereof) shall be advanced to the Borrowers.

 

2.5.4 Each Second Advance:

 

  (a) shall be applied in or towards payment to the Seller of such part of the Contract Price for the Ship relevant to such Advance, which is payable on the Delivery Date for that Ship;

 

  (b) shall be drawn down only once the part of the Contract Price referred to in paragraph 2.5.4(a) above has become due and payable; and

 

  (c) shall be paid by the Banks to the Seller directly, unless the relevant Borrower has already paid such part of the Contract Price to the Seller when it was due, in which case the relevant Advance (or part thereof) shall be advanced to the Borrowers.

 

2.5.5 A Second Advance for a Ship shall not be available for drawdown unless the First Advance for the same Ship has already been drawn down (but the First Advance and the Second Advance for the same Ship may be drawn down simultaneously).

 

2.5.6 If, and to the extent that, an Advance is payable by the Agent directly to the Seller subject to and in accordance with the terms of this Agreement, that Advance shall be drawn down in Dollars and, forthwith upon its drawdown and immediately prior to its remittance by the Agent to the Seller, it shall be converted in euros at the Agent’s spot rate of exchange at the relevant time for the purchase of euros with Dollars (and the term “ spot rate of exchange ” shall be interpreted in accordance with clause 14.1.2).

 

2.6 Availability

Upon receipt of a Drawdown Notice complying with the terms of this Agreement the Agent shall promptly notify each Bank and, subject to the provisions of clause 9, on the Drawdown Date for the relevant Advance, each Bank shall make available to the Agent its portion of such Advance for payment by the Agent in accordance with clause 6.2. The Borrowers acknowledge that payment of any Advance or part thereof to the Seller, in accordance with clause 6.2, shall satisfy the obligations of the Banks to lend such Advance or part thereof to the Borrowers.

 

2.7 Termination of Total Commitment

Any part of the Total Commitment which remains undrawn and uncancelled by the end of the Termination Date shall thereupon be automatically cancelled.

 

2.8 Application of proceeds

Without prejudice to the Borrowers’ obligations under clause 8.1.3, none of the Creditors shall have any responsibility for the application of the proceeds of the Loan or part thereof by the Borrowers.

 

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2.9 Derivative transactions

 

2.9.1 If, at any time during the Security Period, the Borrowers wish to enter into interest rate swap or other derivative transactions so as to hedge all or any part of their exposure under this Agreement to interest rate fluctuations, they shall advise the Swap Provider in writing.

 

2.9.2 Any such swap or other derivative transaction shall be concluded with the Swap Provider under the Master Swap Agreement provided however that no such swap or other derivative transaction shall be concluded unless the Swap Provider first agrees to it in writing. For the avoidance of doubt, other than the Swap Provider’s agreement in writing referred to in the preceding sentence no prior approval is required by the Borrowers from any other Creditor before concluding any such transaction. If and when any such swap or other derivative transaction has been concluded, it shall constitute a Designated Transaction, and the Borrowers shall sign a Confirmation with the Swap Provider and advise the Banks through the Agent promptly after concluding any Designated Transaction.

 

3 Interest and Interest Periods

 

3.1 Normal interest rate

The Borrowers shall pay interest on each Advance in respect of each Interest Period relating thereto on each Interest Payment Date (or, in the case of Interest Periods of more than three (3) months, by instalments, the first instalment three (3) months from the commencement of the Interest Period and the subsequent instalments at intervals of three (3) months or, if shorter, the period from the date of the preceding instalment until the Interest Payment Date relative to such Interest Period) at the rate per annum determined by the Agent to be the aggregate of (a) the Margin, (b) LIBOR for such Interest Period and (c) Mandatory Cost (if any).

 

3.2 Selection of Interest Periods

The Borrowers may by notice received by the Agent not later than 10:00 a.m. on the third Banking Day before the beginning of each Interest Period specify whether such Interest Period shall have a duration of three (3), six (6) or twelve (12) months or such other period (shorter than twelve (12) months) as the Borrowers may select and the Agent (acting on the instructions of the Majority Banks) may agree.

 

3.3 Determination of Interest Periods

Every Interest Period shall be of the duration specified by the Borrowers pursuant to clause 3.2 but so that:

 

3.3.1 the initial Interest Period in respect of each Advance shall commence on the Drawdown Date for such Advance and each subsequent Interest Period for such Advance shall commence on the last day of the previous Interest Period for such Advance;

 

3.3.2 if any Interest Period for an Advance would otherwise overrun a Repayment Date for such Advance, then, in the case of the last Repayment Date for such Advance, such Interest Period shall end on such Repayment Date, and in the case of any other Repayment Date or Repayment Dates for such Advance, the relevant Advance shall be divided into parts so that there is one part in the amount of the repayment instalment due on each Repayment Date for such Advance falling during that Interest Period and having an Interest Period ending on the relevant Repayment Date and another part in the amount of the balance of the relevant Advance having an Interest Period ascertained in accordance with clause 3.2 and the other provisions of this clause 3.3; and

 

3.3.3 if the Borrowers fail to specify the duration of an Interest Period in accordance with the provisions of clause 3.2 and this clause 3.3 such Interest Period shall have a duration of three (3) months or such other period as shall comply with this clause 3.3.

 

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3.4 Default interest

If the Borrowers or either of them fail to pay any sum (including, without limitation, any sum payable pursuant to this clause 3.4) on its due date for payment under any of the Security Documents (except the Master Swap Agreement), the Borrowers shall pay interest on such sum on demand from the due date up to the date of actual payment (as well after as before judgment) at a rate determined by the Agent pursuant to this clause 3.4. The period beginning on such due date and ending on such date of payment shall be divided into successive periods of not more than six (6) months as selected by the Agent each of which (other than the first, which shall commence on such due date) shall commence on the last day of the preceding such period. The rate of interest applicable to each such period shall be the aggregate (as determined by the Agent) of (a) two per cent (2%) per annum, (b) the Margin, (c) LIBOR for such period and (d) the Mandatory Cost (if any). Such interest shall be due and payable on the last day of each such period as determined by the Agent and each such day shall, for the purposes of this Agreement, be treated as an Interest Payment Date, provided that if such unpaid sum is an amount of principal which became due and payable by reason of a declaration by the Agent under clause 10.2.2 or a prepayment pursuant to clauses 4.3, 8.2.1 or 12.1, on a date other than an Interest Payment Date relating thereto, the first such period selected by the Agent shall be of a duration equal to the period between the due date of such principal sum and such Interest Payment Date and interest shall be payable on such principal sum during such period at a rate of two per cent (2%) above the rate applicable thereto immediately before it shall have become so due and payable. If, for the reasons specified in clause 3.6.1, the Agent is unable to determine a rate in accordance with the foregoing provisions of this clause 3.4, each Bank shall promptly notify the Agent of the cost of funds to such Bank and interest on any sum not paid on its due date for payment shall be calculated at a rate determined by the Agent to be ) two per cent (2%) per annum above the aggregate of the Margin and the cost of funds to such Bank (including Mandatory Costs, if any).

 

3.5 Notification of Interest Periods and interest rate

The Agent shall notify the Borrowers and the Banks promptly of the duration of each Interest Period and of each rate of interest (or, as the case may be default interest) determined by it under this clause 3.

 

3.6 Market disruption; non-availability

 

3.6.1 If and whenever, at any time prior to the commencement of any Interest Period:

 

  (a) the Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive) that adequate and fair means do not exist for ascertaining LIBOR during such Interest Period; or

 

  (b) where applicable, none of the Reference Banks supplies the Agent with a quotation for the purpose of calculating LIBOR; or

 

  (c)

the Agent shall have received notification from Banks whose aggregate Contributions are not less than one-third (  1 / 3 rd) of the Loan (or, prior to the first Drawdown Date, whose aggregate Commitments are not less than one-third (  1 / 3 rd) of the Total Commitment), that deposits in Dollars are not available to such Banks in the London Interbank Market in the ordinary course of business in sufficient amounts to fund their Commitments or their Contributions for such Interest Period or that LIBOR does not accurately reflect the cost to such Banks of obtaining such deposits,

the Agent shall forthwith give notice (a “ Determination Notice ”) thereof to the Borrowers and to each of the Banks and the Swap Provider. A Determination Notice shall contain particulars of the relevant circumstances giving rise to its issue. After the giving of any Determination Notice the undrawn amount of the Total Commitment shall not be borrowed until notice to the contrary is given to the Borrowers by the Agent.

 

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3.6.2 During the period of ten (10) days after any Determination Notice has been given by the Agent under clause 3.6.1, each Bank shall certify an alternative basis (the “ Alternative Basis ”) for funding its Commitment or for maintaining its Contribution. The Alternative Basis may at the relevant Bank’s sole and unfettered discretion (without limitation) include alternative interest periods, alternative currencies or alternative rates of interest but shall include a margin above the cost of funds to such Bank equivalent to the Margin. The Agent shall calculate the arithmetic mean of the Alternative Basis provided by the relevant Banks (the “ Substitute Basis ”) and certify the same to the Borrowers, the Banks and the Swap Provider. The Substitute Basis so certified shall be binding upon the Borrowers and shall take effect in accordance with its terms from the date specified in the Determination Notice until such time as the Agent notifies the Borrowers that none of the circumstances specified in clause 3.6.1 continues to exist whereupon the normal interest rate fixing provisions of this Agreement shall apply.

 

3.7 Reference Bank quotations

If any Reference Bank is unable or otherwise fails to furnish a quotation for the purposes of calculating LIBOR, the interest rate shall be determined, subject to clause 3.6, on the basis of quotations furnished by the other Reference Banks (if any).

 

4 Repayment and prepayment

 

4.1 Repayment

The Borrowers shall repay each Advance by twenty four (24) instalments, one such instalment to be repaid on each of the Repayment Dates for such Advance. Subject to the provisions of this Agreement, the amount of each of the first to twenty third instalments (inclusive) for such Advance shall be One hundred and sixty five thousand Dollars ($165,000) and the amount of the twenty fourth and final instalment for such Advance shall be Six million two hundred and five thousand Dollars ($6,205,000) (comprising a repayment instalment of One hundred and sixty five thousand Dollars ($165,000) and a balloon payment of Six million forty thousand Dollars ($6,040,000) (each such balloon payment in relation to an Advance, the “ Balloon Instalment ”)).

If the Total Commitment in respect of any Advance or part thereof is not drawn down in full, the amount of each repayment instalment in respect of such Advance (including the relevant Balloon Instalment) shall be reduced proportionately.

 

4.2 Voluntary prepayment

The Borrowers may prepay any Advance in whole or part (being Five hundred thousand Dollars ($500,000) or any larger sum which is an integral multiple of Five hundred thousand Dollars ($500,000)), on any Interest Payment Date relating to the Advance to be prepaid without premium or penalty.

 

4.3 Cancellation of Commitments and prepayment on Total Loss or sale

 

4.3.1 Before drawdown

On a Ship becoming a Total Loss (or suffering damage or being involved in an incident which in the opinion of the Agent may result in such Ship being subsequently determined to be a Total Loss) before any Advance in respect of such Ship is drawn down, the obligations of the Banks to make either Advance for such Ship available shall immediately cease and the Total Commitment shall be immediately reduced by the amount of the Advances for such Ship.

 

4.3.2 Thereafter

 

  (a) On a Mortgaged Ship becoming a Total Loss or sold, the obligations of the Banks to advance any undrawn Advance for that Ship shall immediately cease and the Total Commitment shall be immediately reduced by the amount of the undrawn Advances for that Ship.

 

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  (b) Further, on the date falling one hundred and twenty (120) days after that on which a Mortgaged Ship became a Total Loss or, if earlier, on the date upon which the insurance proceeds in respect of such Total Loss are, or Requisition Compensation (as defined in the relevant Ship Security Documents) is, received by the relevant Borrower (or the Security Agent pursuant to the relevant Ship Security Documents), or on the date falling immediately prior to the completion of the sale of a Mortgaged Ship, the Borrowers shall prepay the outstanding Advances relevant to that Ship in full.

 

4.3.3 Interpretation

For the purpose of this Agreement and the other Security Documents, a Total Loss in respect of a Ship shall be deemed to have occurred:

 

  (a) in the case of an actual total loss of a Ship, on the actual date and at the time such Ship was lost or, if such date is not known, on the date on which such Ship was last reported;

 

  (b) in the case of a constructive total loss of a Ship, upon the date and at the time notice of abandonment of such Ship is given to the insurers of such Ship for the time being;

 

  (c) in the case of a compromised or arranged total loss of a Ship, on the date upon which a binding agreement as to such compromised or arranged total loss has been entered into by the insurers of such Ship;

 

  (d) in the case of Compulsory Acquisition of a Ship, on the date upon which the relevant requisition of title or other compulsory acquisition of such Ship occurs; and

 

  (e) in the case of hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of a Ship (other than where the same amounts to Compulsory Acquisition of such Ship) by any Government Entity, or by persons purporting to act on behalf of any Government Entity, which deprives the relevant Owner of the use of such Ship for more than thirty (30) days, upon the expiry of the period of thirty (30) days after the date upon which the relevant hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation occurred.

 

4.4 Amounts payable on prepayment

Any prepayment of all or part of the Loan under this Agreement shall be made together with:

 

  (a) accrued interest on the amount to be prepaid to the date of such prepayment;

 

  (b) any additional amount payable under clauses 6.6 or 12.2; and

 

  (c) all other sums payable by the Borrowers to the Creditors under this Agreement or any of the other Security Documents including, without limitation, any amounts payable under clause 11.1.

 

4.5 Notice of prepayment; reduction of repayment instalments

 

4.5.1 No prepayment may be effected under clause 4.2 unless the Borrowers shall have given the Agent at least ten (10) Banking Days’ prior written notice of their intention to make such prepayment. Every notice of prepayment shall be effective only on actual receipt by the Agent, shall be irrevocable, shall specify the Advance and the amount thereof to be prepaid and shall oblige the Borrowers to make such prepayment on the date specified.

 

4.5.2 Any amount prepaid pursuant to clause 4.2 in respect of an Advance shall be applied in reducing the repayment instalments of the relevant Advance (including, where applicable, the relevant Balloon Instalment) under clause 4.1 proportionately.

 

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4.5.3 Any amount prepaid pursuant to clause 8.2.1(a) shall be applied in prepayment of all Advances proportionately as between them and in reduction of the repayment instalments of each Advance proportionately.

 

4.5.4 The Borrowers may not prepay the Loan or any part thereof save as expressly provided in this Agreement.

 

4.5.5 No amount prepaid under this Agreement may be re-borrowed.

 

4.6 Unwinding of Designated Transactions

On or prior to any repayment or prepayment of all or part of the Loan (including, without limitation, pursuant to clauses 4.2, 4.3 or 8.2.1), the Borrowers shall upon the request of the Swap Provider wholly or partially reverse, offset, unwind, cancel, close out, net out or otherwise terminate one or more of the continuing Designated Transactions so that the notional principal amount of the continuing Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortisation) exceed the amount of the Loan as reducing from time to time thereafter pursuant to clause 4.1.

 

5 Fees, commitment commission and expenses

 

5.1 Fees

The Borrowers shall pay to the Agent:

 

5.1.1 for the account of the Arranger, on or prior to the date of this Agreement, an arrangement fee of such amount as is specified in the Fee Letter; and

 

5.1.2 for the account of each Bank pro rata in accordance with its Commitment, on each of the dates falling at three (3) monthly intervals after the date of this Agreement until the last day of the Drawdown Period and on such day, commitment commission computed from the date of this Agreement (in the case of the first payment of commission) and from the due date of the preceding payment of commission (in the case of each subsequent payment), at the rate of zero point nine six per cent (0.96%) per annum on the daily undrawn amount of the Total Commitment.

The fee referred to in clause 5.1.1 and the commitment commission referred to in clause 5.1.2 shall be non-refundable and shall be payable by the Borrowers, whether or not any part of the Total Commitment is ever advanced.

 

5.2 Expenses

The Borrowers shall pay to the Agent on a full indemnity basis on demand all expenses (including legal, printing and out-of-pocket expenses) incurred by the Creditors or any of them:

 

5.2.1 in connection with the negotiation, preparation, execution and, where relevant, registration of the Security Documents and of any amendment or extension of or the granting of any waiver or consent under, any of the Security Documents, the syndication of the Loan and/or the securitisation of the Loan and any or all of the Security Documents; and

 

5.2.2 in contemplation of, or otherwise in connection with, the enforcement of, or preservation of any rights under, any of the Security Documents, or otherwise in respect of the moneys owing under any of the Security Documents,

together with interest at the rate referred to in clause 3.4 from the date on which such expenses were incurred to the date of payment (as well after as before judgment).

 

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5.3 Value added tax

All fees and expenses payable pursuant to this clause 5 and/or pursuant to the Security Documents shall be paid together with value added tax or any similar tax (if any) properly chargeable thereon. Any value added tax chargeable in respect of any services supplied by the Creditors or any of them under this Agreement shall, on delivery of the value added tax invoice, be paid in addition to any sum agreed to be paid hereunder.

 

5.4 Stamp and other duties

The Borrowers shall pay all stamp, documentary, registration or other like duties or taxes (including any duties or taxes payable by, or assessed on, the Creditors or any of them) imposed on or in connection with any of the Underlying Documents, the Security Documents or the Loan and shall indemnify the Creditors or any of them against any liability arising by reason of any delay or omission by the Borrowers to pay such duties or taxes.

 

6 Payments and taxes; accounts and calculations

 

6.1 No set-off or counterclaim

The Borrowers acknowledge that in performing their respective obligations under this Agreement, the Banks will be incurring liabilities to third parties in relation to the funding of amounts to the Borrowers, such liabilities matching the liabilities of the Borrowers to the Banks and that it is reasonable for the Banks to be entitled to receive payments from the Borrowers gross on the due date in order that each of the Banks is put in a position to perform its matching obligations to the relevant third parties. All payments to be made by the Borrowers under any of the Security Documents shall be made in full, without any set-off or counterclaim whatsoever and, subject as provided in clause 6.6, free and clear of any deductions or withholdings, in Dollars on the due date to such account at such bank and in such place as the Agent may from time to time specify for this purpose. Save for payments which are for the account of the Swap Provider and save as otherwise provided in this Agreement or any relevant Security Documents such payments shall be for the account of all Banks and the Agent or, as the case may be, the Security Agent shall distribute such payments in like funds as are received by the Agent or, as the case may be, the Security Agent to the Banks rateably in accordance with their respective Commitment or (if after the first drawdown) Contribution, as the case may be.

 

6.2 Payment by the Banks

All sums to be advanced by the Banks to the Borrowers under this Agreement shall be remitted in Dollars on the Drawdown Date for the relevant Advance to the account of the Agent at such bank as the Agent may have notified to the Banks and shall be paid by the Agent to such account as is specified in the Drawdown Notice for such Advance.

 

6.3 Non-Banking Days

When any payment under any of the Security Documents would otherwise be due on a day which is not a Banking Day, the due date for payment shall be extended to the next following Banking Day unless such Banking Day falls in the next calendar month in which case payment shall be made on the immediately preceding Banking Day.

 

6.4 Calculations

All interest and other payments of an annual nature under any of the Security Documents shall accrue from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year.

 

6.5 Certificates conclusive

Any certificate or determination of the Agent or the Security Agent or any Bank or the Swap Provider as to any rate of interest or any other amount pursuant to and for the purposes of any

 

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of the Security Documents shall, in the absence of manifest error, be conclusive and binding on the Borrowers and (in the case of a certificate or determination by the Agent or the Security Agent) on the other Creditors.

 

6.6 Grossing-up for Taxes

 

6.6.1 If at any time the Borrowers are required to make any deduction or withholding in respect of Taxes from any payment due under any of the Security Documents for the account of any Creditor (or if the Agent or, as the case may be, the Security Agent is required to make any such deduction or withholding from a payment to a Bank), the sum due from the Borrowers in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the relevant Creditor receives on the due date for such payment (and retains, free from any liability in respect of such deduction or withholding), a net sum equal to the sum which it would have received had no such deduction or withholding been required to be made and the Borrowers shall indemnify each Creditor against any losses or costs incurred by it by reason of any failure of the Borrowers to make any such deduction or withholding or by reason of any increased payment not being made on the due date for such payment. The Borrowers shall promptly deliver to the Agent any receipts, certificates or other proof evidencing the amounts (if any) paid or payable in respect of any deduction or withholding as aforesaid.

 

6.6.2 For the avoidance of doubt, clause 6.6.1 does not apply in respect of sums due from the Borrowers to the Swap Provider under or in connection with the Master Swap Agreement as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of the Master Swap Agreement shall apply.

 

6.7 Loan account

Each Bank shall maintain, in accordance with its usual practice, an account evidencing the amounts from time to time lent by, owing to and paid to it under the Security Documents. The Security Agent shall maintain a control account showing the Loan, interest and other sums owing and/or payable by the Borrowers under the Security Documents. The control account shall, in the absence of manifest error, be conclusive as to the amount from time to time owing by the Borrowers under the Security Documents.

 

6.8 Agent may assume receipt

Where any sum is to be paid under this Agreement to the Agent for the account of another person, the Agent may assume that the payment will be made when due and may (but shall not be obliged to) make such sum available to the person so entitled. If it proves to be the case that such payment was not made to the Agent, then the person to whom such sum was so made available shall on request refund such sum to the Agent together with interest thereon sufficient to compensate the Agent for the cost of making available such sum up to the date of such repayment and the person by whom such sum was payable shall indemnify the Agent for any and all loss or expense which the Agent may sustain or incur as a consequence of such sum not having been paid on its due date.

 

6.9 Partial payments

If, on any date on which a payment is due to be made by the Borrowers under any of the Security Documents, the amount received by the Agent from the Borrowers falls short of the total amount of the payment due to be made by the Borrowers on such date then, without prejudice to any rights or remedies available to the Creditors or any of them under the Security Documents, the Agent shall apply the amount actually received from the Borrowers in or towards discharge of the obligations of the Borrowers under the Security Documents in the following order, notwithstanding any appropriation made, or purported to be made, by the Borrowers:

 

6.9.1 firstly, in or towards payment, on a pro rata basis, of any unpaid costs and expenses of the Agent and the Security Agent under, or in relation to, the Security Documents;

 

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6.9.2 secondly, in or towards payment of any fees payable to the Agent or any other Creditor under, or in relation to, the Security Documents which remain unpaid;

 

6.9.3 thirdly, in or towards payment to the Banks, on a pro rata basis, of any accrued interest which shall have become due under any of the Security Documents but remains unpaid;

 

6.9.4 fourthly, in or towards payment to the Banks, on a pro rata basis, of any principal in respect of the Loan which shall have become due but remains unpaid;

 

6.9.5 fifthly, in or towards payment to any Bank for any loss suffered by reason of any payment in respect of principal not being effected on an Interest Payment Date relating to the part of the Loan repaid and which amounts are so payable under this Agreement;

 

6.9.6 sixthly, in or towards payment to the Swap Provider of any amounts owing to it under the Master Swap Agreement; and

 

6.9.7 seventhly, in or towards payment to the relevant person of any other sum which shall have become due under any of the Security Documents but remains unpaid (and, if more than one such sum so remains unpaid, on a pro rata basis).

The order of application set out in this clause 6.9.3 to 6.9.7 may be varied by the Agent if the Majority Banks so direct, without any reference to, or consent or approval from, the Borrowers.

 

7 Representations and warranties

 

7.1 Continuing representations and warranties

The Borrowers jointly and severally represent and warrant to each Creditor that:

 

7.1.1 Due incorporation

the Borrowers and each of the other Security Parties are duly incorporated and validly existing in good standing under the laws of their respective countries of incorporation as limited liabilities companies or (as the case may be) corporations, and have power to carry on their respective businesses as they are now being conducted and to own their respective property and other assets;

 

7.1.2 Corporate power

each of the Borrowers has power to execute, deliver and perform its obligations under the Underlying Documents and the Borrowers’ Security Documents to which it is or is to be a party and to borrow the Total Commitment and each of the other Security Parties has power to execute and deliver and perform its obligations under the Security Documents and the Underlying Documents to which it is or is to be a party; all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same and no limitation on the powers of either Borrower to borrow will be exceeded as a result of borrowing the Loan;

 

7.1.3 Binding obligations

the Underlying Documents and the Security Documents constitute or will, when executed, constitute valid and legally binding obligations of the relevant Security Parties enforceable in accordance with their respective terms;

 

7.1.4 No conflict with other obligations

the execution and delivery of, the performance of their obligations under, and compliance with the provisions of, the Underlying Documents and the Security Documents by the relevant Security Parties will not (i) contravene any existing applicable law, statute, rule or regulation or any judgment, decree or permit to which either of the Borrowers or any other Security

 

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Party is subject, (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which either of the Borrowers or any other Security Party is a party or is subject or by which it or any of its property is bound, (iii) contravene or conflict with any provision of the constitutional documents of either of the Borrowers or any other Security Party or (iv) result in the creation or imposition of or oblige either of the Borrowers or any other member of the Group or any other Security Party to create any Encumbrance (other than a Permitted Encumbrance) on any of the undertakings, assets, rights or revenues of either of the Borrowers or any other member of the Group or any other Security Party;

 

7.1.5 No litigation

no litigation, arbitration or administrative proceeding is taking place, pending or, to the knowledge of the officers of either of the Borrowers, threatened against either of the Borrowers or any other member of the Group or any other Security Party which could have a material adverse effect on the business, assets, management prospects, performance, operations, results of operations, properties or the condition (financial or otherwise) of either of the Borrowers or any other member of the Group or any other Security Party or the Group as a whole;

 

7.1.6 No filings required

save for the registration of the Mortgages under the laws of the Flag State through the Registry, it is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of any of the Underlying Documents or the Security Documents that they or any other instrument be notarised, filed, recorded, registered or enrolled in any court, public office or elsewhere in any Relevant Jurisdiction or that any stamp, registration or similar tax or charge be paid in any Relevant Jurisdiction on or in relation to any of the Underlying Documents or the Security Documents and each of the Underlying Documents and the Security Documents is in proper form for its enforcement in the courts of each Relevant Jurisdiction;

 

7.1.7 Choice of law

the choice of English law to govern the Underlying Documents and the Security Documents (other than the Mortgages) and the choice of Marshall Islands law to govern the Mortgages, and the submissions by the Security Parties therein to the non-exclusive jurisdiction of the English courts are valid and binding;

 

7.1.8 No immunity

neither of the Borrowers nor any other Security Party nor any of their respective assets is entitled to immunity on the grounds of sovereignty or otherwise from any legal action or proceeding (which shall include, without limitation, suit, attachment prior to judgement, execution or other enforcement);

 

7.1.9 Consents obtained

every consent, authorisation, licence or approval of, or registration with or declaration to, governmental or public bodies or authorities or courts required by any Security Party to authorise, or required by any Security Party in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of each of the Underlying Documents and each of the Security Documents to which it is a party or the performance by each Security Party of its obligations under the Security Documents to which it is a party, respectively, has been obtained or made and is in full force and effect and there has been no default in the observance of any of the conditions or restrictions (if any) imposed in, or in connection with, any of the same;

 

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7.1.10 Financial statements correct and complete

the proforma consolidated financial statements of the Group in respect of the financial half-year ended on 30 June 2010 as delivered to the Agent, have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the consolidated financial position of the Group as at the date they were prepared and the consolidated results of the operations of the Group for the financial period ended on such date and, as at such date no member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements;

 

7.1.11 Compliance with laws and regulations

each of the Borrowers is in compliance with the terms and conditions of all laws, regulations, agreements, licences and concessions material to the carrying on of its business (including in relation to Taxation); and

 

7.1.12 No material adverse change

there has been no material adverse change in the business, management, assets, operations, results of operations, properties, performance, prospects or the condition (financial or otherwise) of any of the Borrowers or the Manager or the Corporate Guarantor or the Group as a whole from that existing on the date of this Agreement as described by or on behalf of the Borrowers and/or any other Security Party to the Agent and/or the Arranger in the negotiation of this Agreement.

 

7.2 Initial representations and warranties

The Borrowers jointly and severally further represent and warrant to each Creditor that:

 

7.2.1 Pari passu

the obligations of each Borrower under this Agreement are direct, general and unconditional obligations of such Borrower and rank at least pari passu with all other present and future unsecured and unsubordinated Indebtedness of such Borrower with the exception of any obligations which are mandatorily preferred by law and not by contract;

 

7.2.2 No default under other Indebtedness

neither of the Borrowers nor any other member of the Group nor any other Security Party is (nor would with the giving of notice or lapse of time or the satisfaction of any other condition or combination thereof be) in breach of or in default under any agreement relating to Indebtedness to which it is a party or by which it may be bound;

 

7.2.3 Information

the information, exhibits and reports furnished by any Security Party to the Agent and/or the Arranger in connection with the negotiation and preparation of the Security Documents are true and accurate in all material respects and not misleading, do not omit material facts and all reasonable enquiries have been made to verify the facts and statements contained therein; there are no other facts the omission of which would make any fact or statement therein misleading;

 

7.2.4 No withholding Taxes

no Taxes are imposed by withholding or otherwise on any payment to be made by any Security Party under the Underlying Documents or the Security Documents or are imposed on or by virtue of the execution or delivery by the Security Parties of the Underlying Documents or the Security Documents or any other document or instrument to be executed or delivered under any of the Security Documents;

 

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7.2.5 No Default

no Default has occurred and is continuing;

 

7.2.6 The Ships

each Ship will, on the Drawdown Date of First Advance relevant to such Ship, be:

 

  (a) in the absolute ownership of the relevant Borrower who will, on and after such Drawdown Date, be the sole, legal and beneficial owner of such Ship;

 

  (b) permanently registered through the Registry as a ship under the laws and flag of the relevant Flag State;

 

  (c) operationally seaworthy and in every way fit for service; and

 

  (d) classed with the relevant Classification free of all requirements and recommendations of the relevant Classification Society;

 

7.2.7 Ships’ employment

save for any relevant Charter delivered to the Agent prior to the date of this Agreement, neither Ship is nor will, on or before the Drawdown Date of the First Advance relevant to such Ship, be subject to any charter or contract or to any agreement to enter into any charter or contract which, if entered into after the date of the relevant Ship Security Documents, would have required the consent of the Agent or, as the context may require, the Security Agent and on or before the Drawdown Date of the First Advance relevant to such Ship, there will not be any agreement or arrangement whereby the Earnings (as defined in the General Assignment for such Ship) of such Ship may be shared with any other person;

 

7.2.8 Freedom from Encumbrances

neither of the Ships, nor its Earnings, Insurances or Requisition Compensation (each as defined in the relevant Ship Security Documents) nor the Operating Account for such Ship nor any other properties or rights which are, or are to be, the subject of any of the Security Documents nor any part thereof will be, on the Drawdown Date of the First Advance relevant to such Ship, subject to any Encumbrance;

 

7.2.9 Compliance with Environmental Laws and Approvals

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent:

 

  (a) the Borrowers and the other Relevant Parties and, to the best of the Borrowers’ knowledge and belief (having made due enquiry), their respective Environmental Affiliates have complied with the provisions of all Environmental Laws;

 

  (b) the Borrowers and the other Relevant Parties and, to the best of the Borrowers’ knowledge and belief (having made due enquiry), their respective Environmental Affiliates have obtained all Environmental Approvals and are in compliance with all such Environmental Approvals; and

 

  (c) neither the Borrowers nor any other Relevant Party nor, to the best of the Borrowers’ knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates have received notice of any Environmental Claim that the Borrowers or any other Relevant Party or any such Environmental Affiliate is not in compliance with any Environmental Law or any Environmental Approval;

 

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7.2.10 No Environmental Claims

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent, there is no Environmental Claim pending or, to the best of the Borrowers’ knowledge and belief, threatened against the Borrowers or either of the Ships or any other Relevant Party or any other Relevant Ship or, to the best of the Borrowers’ knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates;

 

7.2.11 No potential Environmental Claims

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent, there has been no emission, spill, release or discharge of a Pollutant from either of the Ships or any other Relevant Ship owned by, managed or crewed by or chartered to the Borrowers nor, to the best of the Borrowers’ knowledge and belief (having made due enquiry), from any Relevant Ship owned by, managed or crewed by or chartered to any other Relevant Party which could give rise to an Environmental Claim;

 

7.2.12 Copies true and complete

the copies of the Underlying Documents delivered or to be delivered to the Agent pursuant to clause 9.1 are or will, when delivered, be true and complete copies of such documents; such documents constitute valid and binding obligations of the parties thereto enforceable in accordance with their terms and there have been no amendments or variations thereof or defaults thereunder; and

 

7.2.13 Shareholdings and management

 

  (a) each of the Borrowers is a wholly-owned direct Subsidiary of the Corporate Guarantor;

 

  (b) all of the issued shares in the Manager are legally and beneficially owned by DSI;

 

  (c) no less than 51% of the total issued voting share capital of the Corporate Guarantor and no less than 51% of the total issued share capital of the Corporate Guarantor, is legally and beneficially owned by DSI; and

 

  (d) Mr. Simeon Palios is the Chief Executive Officer, the Chairman and a member of the board of directors of the Corporate Guarantor.

 

7.3 Repetition of representations and warranties

On and as of each Drawdown Date and (except in relation to the representations and warranties in clause 7.2) on each Interest Payment Date, the Borrowers shall (a) be deemed to repeat the representations and warranties in clauses 7.1 and 7.2 (other than clauses 7.2.13(c) and (d)) as if made with reference to the facts and circumstances existing on such day and (b) be deemed to further represent and warrant to each of the Creditors that the then latest financial statements delivered to the Agent by the Borrowers (if any) under clause 8.1.5 have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the financial position of the Borrowers and the consolidated financial position of the Group, respectively, as at the end of the financial period to which the same relate and the results of the operations of the Borrowers and the consolidated results of the operations of the Group, respectively, for the financial period to which the same relate and, as at the end of such financial period, neither the Borrowers nor the Corporate Guarantor nor any other member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements.

 

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8 Undertakings

 

8.1 General

The Borrowers jointly and severally undertake with each Creditor that, from the date of this Agreement and so long as any moneys are owing under any of the Security Documents and while all or any part of the Total Commitment remains outstanding, they will:

 

8.1.1 Notice of Default

promptly inform the Agent of any occurrence of which either of them becomes aware which might adversely affect the ability of any Security Party to perform its obligations under any of the Security Documents and, without limiting the generality of the foregoing, will inform the Agent of any Default forthwith upon becoming aware thereof and will from time to time, if so requested by the Agent, confirm to the Agent in writing that, save as otherwise stated in such confirmation, no Default has occurred and is continuing;

 

8.1.2 Consents and licences

without prejudice to clauses 7.1 and 9, obtain or cause to be obtained, maintain in full force and effect and comply in all material respects with the conditions and restrictions (if any) imposed in, or in connection with, every consent, authorisation, licence or approval of governmental or public bodies or authorities or courts and do, or cause to be done, all other acts and things which may from time to time be necessary or desirable under applicable law for the continued due performance of all the obligations of the Security Parties under each of the Security Documents;

 

8.1.3 Use of proceeds

use the Loan or, as the case may be, the Advances for their benefit and under their full responsibility and exclusively for the purposes specified in clauses 1.1 and 2.5;

 

8.1.4 Pari passu and subordination

 

  (a) ensure that their obligations under this Agreement shall, without prejudice to the provisions of clause 8.3 and the security intended to be created by the Security Documents, at all times rank at least pari passu with all their other present and future unsecured and unsubordinated Indebtedness with the exception of any obligations which are mandatorily preferred by law and not by contract; and

 

  (b) ensure that the obligations (if any) of the Borrowers to repay any loan advanced to them by their shareholders or any other member of the Group are at all times fully subordinated towards their obligations to the Creditors under this Agreement and the other Security Documents and that any such loans or advances are and remain at all times on terms and conditions acceptable to the Banks in all respects;

 

8.1.5 Financial statements, valuations and Compliance Certificate

 

  (a) prepare or cause to be prepared individual financial statements of the Borrowers and consolidated financial statements of the Group in accordance with the Applicable Accounting Principles consistently applied in respect of each financial year (but commencing with the financial year ending on 31 December 2010) and cause the same to be reported on by their auditors and prepare unaudited consolidated financial statements of the Group on the same basis as the annual statements in respect of each financial half-year, including on a year to date basis (but commencing with the financial half-year ending on 30 June 2010) and deliver as many copies of the same as the Agent may reasonably require as soon as practicable but not later than one hundred and twenty (120) days (in the case of audited financial statements) or ninety (90) days (in the case of unaudited financial statements) after the end of the financial period to which they relate;

 

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  (b) deliver or cause to be delivered to the Agent a valuation (dated not earlier than 30 days previously) of each Fleet Vessel (as defined in the Corporate Guarantee) prepared in accordance with, and in the manner specified in, clause 8.2.2 (at the expense of the Borrowers) at the time when any consolidated financial statements of the Group are delivered to the Agent in accordance with clause 8.1.5(a) and clause 5.1.4 of the Corporate Guarantee (and for the purpose of any such valuations of Fleet Vessels, the provisions of clause 8.2.2.shall apply mutatis mutandis); and

 

  (c) deliver to the Agent in sufficient copies for all the Banks, a Compliance Certificate for the relevant period executed by the Corporate Guarantor and counter-signed by the Chief Financial Officer or two authorised Directors of the Corporate Guarantor at the time when any unaudited or audited consolidated financial statements of the Group are delivered to the Agent in accordance with clause 8.1.5(a) and clause 5.1.4 of the Corporate Guarantee;

 

8.1.6 Delivery of reports

deliver to the Agent sufficient copies for all the Banks of every report, circular, notice or like document issued by the Borrowers or any member of the Group to its shareholders or creditors generally, at the same time if is issued or given;

 

8.1.7 Provision of further information

provide the Agent with such financial and other information concerning the Borrowers, the other Security Parties, any other member of the Group, the Group as a whole and their respective affairs as the Agent may from time to time reasonably require, including, without limitation, regarding their financial standing, commitments, operations, vessel sales or purchases, any new borrowings, any material litigation, arbitration and administrative proceedings and all major financial developments in relation to each Security Party, any other member of the Group and the Group as a whole;

 

8.1.8 Know your customer information

deliver to the Agent such documents and evidence as the Agent shall from time to time require relating to the verification of identity and knowledge of the Agent’s or any Bank’s or the Swap Provider’s customers and the compliance by the Agent or any Bank or the Swap Provider with all necessary “know your customer” or similar checks, always on the basis of applicable laws and regulations or the Agent’s or any Bank’s or any Swap Provider’s own internal guidelines, in each case as such laws, regulations or internal guidelines apply from time to time;

 

8.1.9 Obligations under Security Documents

and will procure that each of the other Security Parties will, duly and punctually perform each of the obligations expressed to be assumed by them under the Security Documents;

 

8.1.10 Compliance with Code

and will procure that the Manager or any Operator will, comply with and ensure that each Ship and the Manager or any Operator at all times complies with the requirements of the Code, including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto throughout the Security Period (as defined in the Deeds of Covenant) and will procure that each member of the Group and each vessel thereof complies with the requirements of the Code;

 

8.1.11 Withdrawal of DOC and SMC

and will procure that the Manager or any Operator will, immediately inform the Agent if there is any threatened or actual withdrawal of its Operator’s DOC or the SMC in respect of any Ship;

 

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8.1.12 Issuance of DOC and SMC

and will procure that the Manager or any Operator will, promptly inform the Agent upon the issue to either of the Borrowers, the Manager or any Operator of a DOC and to each Ship of an SMC or the receipt by either of the Borrowers, the Manager or any Operator of notification that its application for the same has been refused;

 

8.1.13 ISPS Code Compliance

and will procure that the Manager or any Operator will:

 

  (a) maintain at all times a valid and current ISSC respect of each Ship;

 

  (b) immediately notify the Agent in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC in respect of each Ship; and

 

  (c) procure that each Ship and any other vessel of the Group will comply at all times with the ISPS Code;

 

8.1.14 Charters

advise the Agent promptly of any Charter of either Ship and (i) forthwith after its execution deliver a certified copy of each such Charter to the Agent, (ii) forthwith following demand by the Agent execute a Charter Assignment of any such Charter in favour of the Security Agent and any notice of assignment required in connection therewith and promptly procure the service of any such notice of assignment on the relevant Charterer and the acknowledgement of such notice by the relevant Charterer and (iii) pay all legal and other costs incurred by the Agent or any other Creditor in connection with any such Charter Assignments; and

 

8.1.15 Intra-Group transactions

ensure that any transactions, agreements or other arrangements (if any) entered into by it with any members of the Group, are entered into on an arm’s length basis and for full value and consideration.

 

8.2 Security value maintenance

 

8.2.1 Security shortfall

If at any time the Security Value shall be equal to or less than the Security Requirement, the Agent (acting on the instructions of the Majority Banks) shall give notice to the Borrowers requiring that such deficiency be remedied and then the Borrowers shall either:

 

  (a) prepay within a period of ten (10) days of the date of receipt by the Borrowers of the Agent’s said notice, such sum in Dollars as will result in the Security Requirement after such prepayment (taking into account any other repayment made between the date of the notice and the date of such prepayment) being higher than the Security Value; or

 

  (b) within ten (10) days of the date of receipt by the Borrowers of the Agent’s said notice constitute to the satisfaction of the Agent such further security for the Loan and amounts owing under the Master Swap Agreement, as shall be acceptable to the Banks, having a value for security purposes (as determined by the Agent in its absolute discretion) at the date upon which such further security shall be constituted which, when added to the Security Value, shall not be higher than the Security Requirement as at such date.

The provisions of clause 4.4 and any relevant provisions of clause 4.5 shall apply to prepayments made under clause 8.2.1(a).

 

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8.2.2 Valuation of Mortgaged Ships

Each of the Mortgaged Ships shall, for the purposes of this Agreement, be valued in Dollars as and when the Agent (acting on instructions of the Majority Banks) shall require by two (2) of the Approved Shipbrokers nominated by the Borrowers (or, failing this, by the Agent) and appointed by the Agent. Each such valuation shall be addressed to the Agent (with a copy to the Borrowers) and made without, unless required by the Agent, physical inspection and on the basis of a sale for prompt delivery for cash at arm’s length on normal commercial terms as between a willing buyer and a willing seller without taking into account the benefit of any charterparty or other engagement concerning such Mortgaged Ship. In the event that the said two (2) valuations differ between them by more than fifteen per cent (15%), then the Agent may, in its sole discretion, obtain a third valuation of a Mortgaged Ship from another Approved Broker and made on the same basis as the other two valuations for such Mortgaged Ship. The arithmetic mean of the valuations for a Mortgaged Ship eventually obtained in accordance with this clause shall constitute the value of such Mortgaged Ship for the purposes of this clause 8.2.

The value of each Mortgaged Ship determined in accordance with the provisions of this clause 8.2 shall be binding upon the parties hereto until such time as any such further valuation shall be obtained.

 

8.2.3 Information

The Borrowers jointly and severally undertake with each Creditor to supply to the Agent and to any such Approved Shipbrokers such information concerning each Mortgaged Ship and its condition as such Approved Shipbroker may require for the purpose of making any such valuation.

 

8.2.4 Costs

All costs in connection with the Agent obtaining any valuation of the Mortgaged Ships referred to in clause 8.2.2 up to two (2) times per calendar year (and taking into account any valuation of the Mortgaged Ships included in the valuations obtained under clause 8.1.5(b)), any valuation of the Fleet Vessels referred to in clause 8.1.5(b), the valuations of the Ships referred to in schedule 3, and any valuation either of any additional security for the purposes of ascertaining the Security Value at any time or necessitated by the Borrowers electing to constitute additional security pursuant to clause 8.2.1(b), shall be borne by the Borrowers Provided however that, if a Default shall have occurred, the cost of any and all such valuation or valuations of the Mortgaged Ships and the Fleet Vessels shall be borne by the Borrowers.

 

8.2.5 Valuation of additional security

For the purpose of this clause 8.2, the market value of any additional security provided or to be provided to the Security Agent shall be determined by the Agent in its absolute discretion without any necessity for the Agent assigning any reason thereto.

 

8.2.6 Documents and evidence

In connection with any additional security provided in accordance with this clause 8.2, the Agent shall be entitled to receive such evidence and documents of the kind referred to in schedule 3 as may in the Agent’s opinion be appropriate and such favourable legal opinions as the Agent shall in its absolute discretion require.

 

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8.3 Negative undertakings

The Borrowers jointly and severally undertake with each Creditor that, from the date of this Agreement and so long as any moneys are owing under the Security Documents and while all or any part of the Total Commitment remains outstanding, the Borrowers will not, without the prior written consent of the Agent:

 

8.3.1 Negative pledge

permit any Encumbrance (other than a Permitted Encumbrance) to subsist, arise or be created or extended over all or any part of their present or future undertakings, assets, rights or revenues to secure or prefer any present or future Indebtedness or other liability or obligation of any Security Party (other than the Corporate Guarantor) or any other person;

 

8.3.2 No merger

merge or consolidate with any other person or enter into any demerger, amalgamation or corporate reconstruction or redomiciliation of any type;

 

8.3.3 Disposals

sell, transfer, abandon, lend or otherwise dispose of or cease to exercise direct control over any part (being, either alone or when aggregated with all other disposals falling to be taken into account pursuant to this clause 8.3.3, material in the opinion of the Agent in relation to their respective undertakings, assets, rights and revenues taken as a whole) of their respective present or future undertakings, assets, rights or revenues (otherwise than by transfers, sales or disposals for full consideration in the ordinary course of trading but in any event excluding the Ships) whether by one or a series of transactions related or not;

 

8.3.4 Other business

undertake any business other than the ownership, chartering and operation of the Ships and the chartering of the Ships to third parties;

 

8.3.5 Acquisitions

acquire any further assets other than the Ships and rights arising under contracts entered into by or on behalf of the Borrowers in the ordinary course of their businesses of owning, operating and chartering the Ships;

 

8.3.6 Other obligations

incur any obligations except for obligations arising under the Underlying Documents or the Security Documents or contracts entered into in the ordinary course of their business of owning, operating and chartering the Ships;

 

8.3.7 No borrowing

incur any Borrowed Money except for Borrowed Money pursuant to the Security Documents;

 

8.3.8 Repayment of borrowings

repay or prepay the principal of, or pay interest on or any other sum in connection with, any of their Borrowed Money except for Borrowed Money pursuant to the Security Documents;

 

8.3.9 Guarantees

issue any guarantees or indemnities or otherwise become directly or contingently liable for the obligations of any person, firm, or corporation except pursuant to the Security Documents and except for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which a Ship is entered, guarantees required to procure the release of a Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of a Ship;

 

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8.3.10 Loans

make any loans or grant any credit (save for normal trade credit in the ordinary course of business) to any person or agree to do so;

 

8.3.11 Sureties

permit any Indebtedness of either Borrower to any person (other than the Creditors) to be guaranteed by any person (save for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which a Ship is entered, guarantees required to procure the release of a Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of a Ship);

 

8.3.12 Share capital and distribution

purchase or otherwise acquire for value any shares of their capital or declare or pay any dividends or distribute any of their present or future assets, undertakings, rights or revenues to any of their shareholders Provided however that each Borrower may declare or pay dividends to the Corporate Guarantor, if no Event of Default has occurred and is continuing at the time of declaration or payment of such dividends or would occur as a result thereof;

 

8.3.13 Change of management of a Ship

appoint any person to carry out the commercial and technical management of the Ship other than the Manager or terminate a Management Agreement or vary or amend the terms thereof;

 

8.3.14 Designated Transactions

enter into any derivative transactions other than Designated Transactions; or

 

8.3.15 Subsidiaries

form or acquire any Subsidiaries; or

 

8.3.16 Financial year, auditors and constitutional documents

 

  (a) change, cause, permit or agree to any change in, the way of computation of their financial year;

 

  (b) change, permit or agree to any change of, their auditors from those existing on the date of this Agreement; or

 

  (c) change, amend or vary, or agree to or permit any change, amendment or variation of or to, their constitutional documents.

 

9 Conditions

 

9.1 Documents and evidence

The obligation of each Bank to make its Commitment available shall be subject to the condition that:

 

9.1.1 the Agent, or its duly authorised representative, shall have received, not later than the day on which the Drawdown Notice for the first Advance is given, the documents and evidence specified in Part 1 of schedule 3 in form and substance satisfactory to the Agent;

 

9.1.2 the Agent, or its duly authorised representative, shall have received, on or prior to the drawdown of the First Advance for a Ship, the documents and evidence specified in Part 2 of schedule 3 in respect of such First Advance and the Ship relevant to it, in form and substance satisfactory to the Agent; and

 

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9.1.3 the Agent, or its duly authorised representative, shall have received, on or prior to the

drawdown of the Second Advance for a Ship, the documents and evidence specified in Part 3 of schedule 3 in respect of such Second Advance and the Ship relevant to it, in form and substance satisfactory to the Agent.

 

9.2 General conditions precedent

The obligation of each Bank to contribute to any Advance shall be subject to the further conditions that, at the time of the giving of the Drawdown Notice for such Advance, and at the time of the making of such Advance:

 

9.2.1 the representations and warranties contained in (a) clauses 7.1, 7.2 and 7.3(b) and (b) clause 4 of the Corporate Guarantee, are true and correct on and as of each such time as if each was made with respect to the facts and circumstances existing at such time; and

 

9.2.2 no Default shall have occurred and be continuing or would result from the making of such Advance.

 

9.3 Waiver of conditions precedent

The conditions specified in this clause 9 are inserted solely for the benefit of the Banks and may be waived by the Agent (acting on the instructions of the Majority Banks) in whole or in part and with or without conditions.

 

9.4 Further conditions precedent

Not later than five (5) Banking Days prior to each Drawdown Date and not later than five (5) Banking Days prior to each Interest Payment Date, the Agent (acting on the instructions of the Majority Banks) may request and the Borrowers shall, not later than two (2) Banking Days prior to such date, deliver to the Agent on such request further favourable certificates and/or favourable opinions as to any or all of the matters which are the subject of clauses 7, 8, 9 and 10.

 

10 Events of Default

 

10.1 Events

There shall be an Event of Default if:

 

10.1.1 Non-payment : any Security Party fails to pay any sum payable by it under any of the Security Documents at the time, in the currency and in the manner stipulated in the Security Documents (and so that, for this purpose, sums payable on demand shall be treated as having been paid at the stipulated time if paid within three (3) Banking Days of demand); or

 

10.1.2 Master Swap Agreement : (a) an Event of Default or Potential Event of Default (in each case as defined in the Master Swap Agreement) has occurred and is continuing with the Borrowers or either of them as the Defaulting Party (as defined in the Master Swap Agreement) under the Master Swap Agreement or (b) an Early Termination Date has occurred or been or become capable of being effectively designated under the Master Swap Agreement by the Swap Provider or (c) the Master Swap Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason; or

 

10.1.3

Breach of Insurance and certain other obligations : either of the Borrowers or, as the context may require, the Manager fails to obtain and/or maintain the Insurances (as defined in, and in accordance with the requirements of, the Ship Security Documents) for either of the Mortgaged Ships or if any insurer in respect of such Insurances cancels such Insurances or

 

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disclaims liability by reason, in either case, of mis-statement in any proposal for such Insurances or for any other failure or default on the part of either of the Borrowers or any other person or either of the Borrowers commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by them under clauses 8.1.5, 8.2 or 8.3 or the Corporate Guarantor commits any breach or fails to observe any of the obligations or undertakings expressed to be assumed by it under clauses 5.1.4, 5.2 or 5.3 of the Corporate Guarantee; or

 

10.1.4 Breach of other obligations : any Security Party commits any breach of or omits to observe any of its obligations or undertakings expressed to be assumed by it under any of the Security Documents (other than those referred to in clauses 10.1.1 and 10.1.3 above) and, in respect of any such breach or omission which in the opinion of the Agent (following consultation with the Banks) is capable of remedy, such action as the Agent (acting on the instructions of the Majority Banks) may require shall not have been taken within fourteen (14) days of the Agent notifying the relevant Security Party of such default and of such required action; or

 

10.1.5 Misrepresentation : any representation or warranty made or deemed to be made or repeated by or in respect of any Security Party in or pursuant to any of the Security Documents or in any notice, certificate or statement referred to in or delivered under any of the Security Documents is or proves to have been incorrect or misleading in any material respect; or

 

10.1.6 Cross-default : any Indebtedness of any Security Party or any other member of the Group is not paid when due or any Indebtedness of any Security Party or any other member of the Group becomes (whether by declaration or automatically in accordance with the relevant agreement or instrument constituting the same) due and payable prior to the date when it would otherwise have become due (unless as a result of the exercise by the relevant Security Party or any other member of the Group of a voluntary right of prepayment), or any creditor of any Security Party or any other member of the Group becomes entitled to declare any such Indebtedness due and payable or any facility or commitment available to any Security Party or other member of the Group relating to Indebtedness is withdrawn, suspended or cancelled by reason of any default (however described) of the person concerned unless the relevant Security Party or any other member of the Group shall have satisfied the Agent that such withdrawal, suspension or cancellation will not affect or prejudice in any way the ability of the relevant Security Party or of the relevant member of the Group to pay its debts as they fall due and fund its commitments, or any guarantee given by any Security Party or any other member of the Group in respect of Indebtedness is not honoured when due and called upon Provided that the amount or aggregate amount at any one time, of all Indebtedness of any Security Party or any other member of the Group in relation to which any of the foregoing events shall have occurred and be continuing, is equal to or greater than One million Dollars ($1,000,000) or its equivalent in the currency which the same is denominated or payable; or

 

10.1.7 Legal process : any judgment or order made against any Security Party or other member of the Group is not stayed or complied with within seven (7) days or a creditor attaches or takes possession of, or a distress, execution, sequestration or other process is levied or enforced upon or sued out against, any of the undertakings, assets, rights or revenues of any Security Party or other member of the Group and is not discharged within seven (7) days; or

 

10.1.8 Insolvency : any Security Party or other member of the Group is unable or admits inability to pay its debts as they fall due; suspends making payments on any of its debts or announces an intention to do so; becomes insolvent; has assets the value of which is less than the value of its liabilities (taking into account contingent and prospective liabilities); or suffers the declaration of a moratorium in respect of any of its Indebtedness; or

 

10.1.9 Reduction or loss of capital : a meeting is convened by any Security Party or other member of the Group for the purpose of passing any resolution to purchase, reduce or redeem any of its share capital; or

 

10.1.10

Winding up : any corporate action, legal proceedings or other procedure or step is taken for the purpose of winding-up any Security Party or other member of the Group or an order is

 

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made or resolution passed for the winding up of any Security Party or other member of the Group or a notice is issued convening a meeting for the purpose of passing any such resolution; or

 

10.1.11 Administration : any petition is presented, notice given or other step is taken for the purpose of the appointment of an administrator of any Security Party or other member of the Group or the Agent believes that any such petition or other step is imminent or an administration order is made in relation to any Security Party or other member of the Group; or

 

10.1.12 Appointment of receivers and managers : any administrative or other receiver is appointed of any Security Party or other member of the Group or any part of its assets and/or undertaking or any other steps are taken to enforce any Encumbrance over all or any part of the assets of any Security Party or other member of the Group; or

 

10.1.13 Compositions : any corporate action, legal proceedings or other procedures or steps are taken, or negotiations commenced, by any Security Party or other member of the Group or by any of its creditors with a view to the general readjustment or rescheduling of all or part of its indebtedness or to proposing any kind of composition, compromise or arrangement involving such person and any of its creditors; or

 

10.1.14 Analogous proceedings : there occurs, in relation to any Security Party or other member of the Group, in any country or territory in which any of them carries on business or to the jurisdiction of whose courts any part of their assets is subject, any event which, in the reasonable opinion of the Agent, appears in that country or territory to correspond with, or have an effect equivalent or similar to, any of those mentioned in clauses 10.1.7 to 10.1.13 (inclusive) or any Security Party or other member of the Group otherwise becomes subject, in any such country or territory, to the operation of any law relating to insolvency, bankruptcy or liquidation; or

 

10.1.15 Cessation of business : any Security Party or any other member of the Group suspends or ceases or threatens to suspend or cease to carry on its business; or

 

10.1.16 Seizure : all or a material part of the undertaking, assets, rights or revenues of, or shares or other ownership interests in, any Security Party or any other member of the Group are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any government; or

 

10.1.17 Invalidity : any of the Security Documents shall at any time and for any reason become invalid or unenforceable or otherwise cease to remain in full force and effect, or if the validity or enforceability of any of the Security Documents shall at any time and for any reason be contested by any Security Party which is a party thereto, or if any such Security Party shall deny that it has any, or any further, liability thereunder; or

 

10.1.18 Unlawfulness : it becomes impossible or unlawful at any time for any Security Party, to fulfil any of the covenants and obligations expressed to be assumed by it in any of the Security Documents or for a Creditor to exercise the rights or any of them vested in it under any of the Security Documents or otherwise; or

 

10.1.19 Repudiation : any Security Party repudiates any of the Security Documents or does or causes or permits to be done any act or thing evidencing an intention to repudiate any of the Security Documents; or

 

10.1.20 Encumbrances enforceable : any Encumbrance (other than Permitted Liens) in respect of any of the property (or part thereof) which is the subject of any of the Security Documents becomes enforceable; or

 

10.1.21

Material adverse change : there occurs, in the opinion of the Agent, a material adverse change in the business, management, assets, operations, results of operations, properties, performances, prospects or the condition (financial or otherwise) of either Borrower or any other Security Party or any other member of the Group from that existing on the date of this

 

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Agreement, as described by or on behalf of the Borrowers or any other Security Party to the Agent and/or the Arranger in the negotiation of this Agreement which in the reasonable opinion of the Agent (following consultation with the Banks) is likely, materially and adversely, to affect the ability of any Security Party to perform all or any of its obligations under, or otherwise to comply with the terms of, any of the Security Documents; or

 

10.1.22 Arrest : either Ship is arrested, confiscated, seized, taken in execution, impounded, forfeited, detained in exercise or purported exercise of any possessory lien or other claim or otherwise taken from the possession of the relevant Borrower and such Borrower shall fail to procure the release of such Ship within a period of three (3) days thereafter; or

 

10.1.23 Registration : the registration of either Ship under the laws and flag of the relevant Flag State is cancelled or terminated without the prior written consent of the Agent (acting on the instructions of the Majority Banks) or if such registration of such Ship is not renewed at least thirty (30) days prior to the expiry of such registration; or

 

10.1.24 Unrest : the Flag State of either Ship becomes involved in hostilities or civil war or there is a seizure of power in the Flag State of either Ship by unconstitutional means if, in any such case such event could in the opinion of the Agent reasonably be expected to have a material adverse effect on the security constituted by any of the Security Documents; or

 

10.1.25 Environment : either Borrower and/or any other Relevant Party and/or any of their respective Environmental Affiliates fails to comply with any Environmental Law or any Environmental Approval or either of the Ships or any other Relevant Ship is involved in any incident which gives rise or may give rise to an Environmental Claim if, in any such case, such non-compliance or incident or the consequences thereof could, in the opinion of the Majority Banks acting through the Agent, reasonably be expected to have an adverse effect on the business, assets, operations, property or financial condition of either Borrower or any other Security Party, or on the security constituted by any of the Security Documents or on the ability of any Security Party to perform all or any of its obligations under or otherwise to comply with the terms of any of the Security Documents; or

 

10.1.26 P&I : either Borrower or any other person fails or omits to comply with any requirements of the protection and indemnity association or other insurer with which such Borrower’s Ship is entered for insurance or insured against protection and indemnity risks (including oil pollution risks) to the effect that any cover (including, without limitation, any cover in respect of liability for Environmental Claims arising in jurisdictions where such Ship operates or trades) is or may be liable to cancellation, qualification or exclusion at any time; or

 

10.1.27 Shareholdings :

 

  (a) either of the Borrowers ceases at any time to be a wholly-owned direct Subsidiary of the Corporate Guarantor; or

 

  (b) there is any change in the legal and/or beneficial ownership of any of the shares of the Manager, from that existing on the date of this Agreement, as set out in clause 7.2.13; or

 

  (c) any person, or persons acting in concert (other than DSI or any financial institution acting as a passive investor), become at any time the legal or ultimate beneficial owners of a higher percentage of the total issued share capital of the Corporate Guarantor, than the percentage of the total issued share capital of the Corporate Guarantor, owned by DSI at that time; or

 

  (d) Mr. Simeon Palios ceases to hold an executive position in the Corporate Guarantor or to be actively involved in the management of the Corporate Guarantor; or

 

10.1.28 Accounts : moneys are withdrawn from either of the Operating Accounts other than in accordance with clause 14 or as otherwise provided in this Agreement; or

 

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10.1.29 Manager : either Ship ceases to be managed by the Manager; or

 

10.1.30 Licenses, etc : any license, authorisation, consent or approval at any time necessary to enable any Security Party to comply with its obligations under the Security Documents is revoked or withheld or modified or is otherwise not granted or fails to remain in full force and effect or if any exchange control or other law or regulation shall exist which would make any transaction under the Security Documents or the continuation thereof, unlawful or would prevent the performance by any Security Party of any term of any of the Security Documents; or

 

10.1.31 Material events : any other event occurs or circumstance arises which, in the reasonable opinion of the Agent (following consultation with the Banks), is likely materially and adversely to affect either (a) the ability of any Security Party to perform all or any of its obligations under or otherwise to comply with the terms of any of the Security Documents or (b) the security created by any of the Security Documents.

 

10.2 Acceleration

The Agent may, and if so requested by the Majority Banks shall, without prejudice to any other rights of the Banks, at any time after the happening of an Event of Default by notice to the Borrowers declare that:

 

10.2.1 the obligation of each Bank to make its Commitment available shall be terminated, whereupon the Total Commitment shall be reduced to zero forthwith; and/or

 

10.2.2 the Loan and all interest and commitment commission accrued and all other sums payable under the Security Documents have become due and payable, whereupon the same shall, immediately or in accordance with the terms of such notice, become due and payable.

 

10.3 Demand basis

If, pursuant to clause 10.2.2, the Agent declares the Loan to be due and payable on demand, the Agent may (and if so instructed by the Majority Banks shall) by written notice to the Borrowers (a) call for repayment of the Loan on such date as may be specified whereupon the Loan shall become due and payable on the date so specified together with all interest and commitment commission accrued and all other sums payable under this Agreement or (b) withdraw such declaration with effect from the date specified in such notice.

 

10.4 Position of Swap Provider

Neither the Agent nor the Security Agent shall be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of this clause 10, to have any regard to the requirements of the Swap Provider except to the extent that the Swap Provider is also a Bank.

 

11 Indemnities

 

11.1 Miscellaneous indemnities

The Borrowers shall on demand indemnify each Creditor, without prejudice to any of such Creditor’s other rights under any of the Security Documents, against any loss (including loss of Margin) or expense which such Creditor shall certify as sustained or incurred by it as a consequence of:

 

11.1.1 any default in payment by any Security Party of any sum under any of the Security Documents when due;

 

11.1.2 the occurrence of any other Event of Default;

 

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11.1.3 any prepayment of the Loan or part thereof being made under clauses 4.2, 4.3, 8.2.1 or 12.1, or any other repayment or prepayment of the Loan or part thereof being made otherwise than on an Interest Payment Date relating to the part of the Loan prepaid or repaid; or

 

11.1.4 any Advance not being made for any reason (excluding any default by any Creditor) after the Drawdown Notice for such Advance has been given,

including, in any such case, but not limited to, any loss or expense sustained or incurred by the relevant Creditor in maintaining or funding its Contribution or, as the case may be, Commitment or any part thereof or in liquidating or re-employing deposits from third parties acquired to effect or maintain its Contribution or, as the case may be, Commitment or any part thereof or in terminating or reversing or otherwise in connection with, any interest rate and/or currency swap or other derivative transaction or other arrangement entered into by a Creditor (whether with another legal entity or with another office or department of such Creditor) to hedge any exposure arising under this Agreement or in terminating, reversing, or otherwise in connection with, any open position arising under this Agreement, or any other amount owing to such Creditor.

 

11.2 Currency indemnity

If any sum due from the Borrowers or either of them under any of the Security Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the “ first currency ”) in which the same is payable under the relevant Security Document or under such order or judgment into another currency (the “ second currency ”) for the purpose of (a) making or filing a claim or proof against the Borrowers or either of them, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation to any of the Security Documents, the Borrowers shall indemnify and hold harmless each Creditor from and against any loss suffered as a result of any difference between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the relevant Creditor may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.

Any amount due from the Borrowers under this clause 11.2 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of any of the Security Documents and the term “ rate of exchange ” includes any premium and costs of exchange payable in connection with the purchase of the first currency with the second currency.

 

11.3 Environmental indemnity

The Borrowers shall indemnify each Creditor on demand and hold it harmless from and against all costs, expenses, payments, charges, losses, demands, liabilities, actions, proceedings (whether civil or criminal), penalties, fines, damages, judgements, orders, sanctions or other outgoings of whatever nature which may be suffered, incurred or paid by, or made or asserted against such Creditor at any time, whether before or after the repayment in full of principal and interest under this Agreement, relating to, or arising directly or indirectly in any manner or for any cause or reason whatsoever out of an Environmental Claim made or asserted against such Creditor if such Environmental Claim would not have been, or been capable of being, made or asserted against such Creditor if it had not entered into any of the Security Documents and/or exercised any of its rights, powers and discretions thereby conferred and/or performed any of its obligations thereunder and/or been involved in any of the transactions contemplated by the Security Documents.

 

12 Unlawfulness and increased costs

 

12.1 Unlawfulness

If it is or becomes contrary to any law or regulation for any Bank to contribute to an Advance or to maintain its Commitment or fund its Contribution, such Bank shall promptly, through the

 

39


Agent, give notice to the Borrowers whereupon (a) such Bank’s Commitment shall be reduced to zero and (b) the Borrowers shall be obliged to prepay such Bank’s Contribution either (i) forthwith or (ii) on a future specified date not being earlier than the latest date permitted by the relevant law or regulation together with interest accrued to the date of prepayment and all other sums payable by the Borrowers under this Agreement and/or the Master Swap Agreement.

 

12.2 Increased costs

If the result of any change in, or in the interpretation or application of, or the introduction of, any Capital Adequacy Law or of compliance by a Bank with any Capital Adequacy Law, is to:

 

12.2.1 subject any Bank to Taxes or change the basis of Taxation of any Bank with respect to any payment under any of the Security Documents (other than Taxes or Taxation on the overall net income, profits or gains of such Bank imposed in the jurisdiction in which its principal or lending office under this Agreement is located); and/or

 

12.2.2 increase the cost to, or impose an additional cost on, any Bank or its holding company in making or keeping such Bank’s Commitment available or maintaining or funding all or part of such Bank’s Contribution; and/or

 

12.2.3 reduce the amount payable or the effective return to any Bank under any of the Security Documents; and/or

 

12.2.4 reduce any Bank’s or its holding company’s rate of return on its overall capital by reason of a change in the manner in which it is required to allocate capital resources to such Bank’s obligations under any of the Security Documents; and/or

 

12.2.5 require any Bank or its holding company to make a payment or forego a return on or calculated by reference to any amount received or receivable by such Bank under any of the Security Documents; and/or

 

12.2.6 require any Bank or its holding company to incur or sustain a loss (including a loss of future potential profits) by reason of being obliged to deduct all or part of its Commitment or the Loan from its capital for regulatory purposes,

then and in each such case (subject to clause 12.3):

 

  (a) such Bank shall (through the Agent) notify the Borrowers in writing of such event promptly upon its becoming aware of the same; and

 

  (b) the Borrowers shall on demand made at any time whether or not such Bank’s Contribution has been repaid, pay to the Agent for the account of such Bank the amount which such Bank specifies (in a certificate setting forth the basis of the computation of such amount but not including any matters which such Bank or its holding company regards as confidential) is required to compensate such Bank and/or (as the case may be) its holding company for such liability to Taxes, cost, reduction, payment, forgone return or loss.

For the purposes of this clause 12.2 “ holding company ” means, in relation to a Bank, the company or entity (if any) within the consolidated supervision of which such Bank is included.

 

12.3 Exception

Nothing in clause 12 shall entitle any Bank to receive any amount in respect of compensation for any such liability to Taxes, increased or additional cost, reduction, payment, foregone return or loss to the extent that the same is the subject of an additional payment under clause 6.6.

 

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12.4 Mitigation

If circumstances arise which would, or would upon the giving of notice, result in an increased payment required to be made by the Borrowers under clause 6.6 or clause 12.2 then, without in any way limiting the obligations of the Borrowers under either of these clauses, the relevant Bank shall use reasonable endeavours to transfer its obligations, liabilities and rights under this Agreement and the other Security Documents to another of its offices not affected by the circumstances which gave rise to such increased payment, but no Bank shall be under any obligation to take any such action if in its opinion, to do so would or might:

 

12.4.1 be prejudicial to such Bank (or, as the case may be, its holding company); or

 

12.4.2 have an adverse effect on such Bank’s or its holding company’s business, operations, administration or financial condition; or

 

12.4.3 involve such Bank or its holding company in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent, with any regulation or such Bank’s general banking policies; or

 

12.4.4 involve such Bank or its holding company in any expense (unless indemnified to its satisfaction) or tax disadvantage.

 

13 Security, set-off and pro-rata payments

 

13.1 Application of moneys

All moneys received by the Agent and/or the Security Agent under or pursuant to any of the Security Documents and expressed to be applicable in accordance with the provisions of this clause 13.1 shall be applied in the following manner:

 

13.1.1 first, in or towards payment of all unpaid costs and expenses which may be owing to the Creditors or any of them under any of the Security Documents;

 

13.1.2 secondly, in or towards payment of any unpaid fees payable to the Creditors or any of them;

 

13.1.3 thirdly, in or towards payment of any arrears of interest owing in respect of the Loan or any part thereof;

 

13.1.4 fourthly, in or towards repayment of the Loan (whether the same is due and payable or not);

 

13.1.5 fifthly, in or towards payment to any Bank for any loss suffered by reason of any such payment in respect of principal not being effected on an Interest Payment Date relating to the part of the Loan repaid or prepaid and which amounts are so payable under this Agreement;

 

13.1.6 sixthly, in or towards payment to the Swap Provider of any amounts owing to it under the Master Swap Agreement;

 

13.1.7 seventhly, in or towards payment to any Creditor of any other sums owing to it under any of the Security Documents; and

 

13.1.8 eighthly, the surplus (if any) shall be paid to the Borrowers or to whomsoever else may be entitled to receive such surplus.

 

13.2 Pro rata payments

 

13.2.1

If at any time any Bank (the “ Recovering Bank ”) receives or recovers any amount owing to it by the Borrowers under this Agreement by direct payment, set-off or in any manner other than by payment through the Agent pursuant to clauses 6.1 or 6.9 (not being a payment received from a Transferee Bank or a sub-participant in such Bank’s Contribution or any other payment of an amount due to the Recovering Bank for its sole account pursuant to

 

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clauses 3.6, 5, 6.6, 11.1, 11.2, 12.1 or 12.2) the Recovering Bank shall, within two (2) Banking Days of such receipt or recovery (a “ Relevant Receipt ”) notify the Agent of the amount of the Relevant Receipt. If the Relevant Receipt exceeds the amount which the Recovering Bank would have received if the Relevant Receipt had been received by the Agent and distributed pursuant to clauses 6.1 or 6.9 (as the case may be) then:

 

  (a) within two (2) Banking Days of demand by the Agent, the Recovering Bank shall pay to the Agent an amount equal (or equivalent) to the excess;

 

  (b) the Agent shall treat the excess amount so paid by the Recovering Bank as if it were a payment made by the Borrowers and shall distribute the same to the Banks (other than the Recovering Bank) in accordance with clause 6.9; and

 

  (c) as between the Borrowers and the Recovering Bank the excess amount so redistributed shall be treated as not having been paid but the obligations of the Borrowers to the other Banks shall, to the extent of the amount so re-distributed to them, be treated as discharged.

 

13.2.2 If any part of the Relevant Receipt subsequently has to be wholly or partly refunded by the Recovering Bank (whether to a liquidator or otherwise) each Bank to which any part of such Relevant Receipt was so re-distributed shall on request from the Recovering Bank repay to the Recovering Bank such Bank’s pro-rata share of the amount which has to be refunded by the Recovering Bank.

 

13.2.3 Each Bank shall on request supply to the Agent such information as the Agent may from time to time request for the purpose of this clause 13.2.

 

13.2.4 Notwithstanding the foregoing provisions of this clause 13.2, no Recovering Bank shall be obliged to share any Relevant Receipt which it receives or recovers pursuant to legal proceedings taken by it to recover any sums owing to it under this Agreement with any other party which has a legal right to, but does not, either join in such proceedings or commence and diligently pursue separate proceedings to enforce its rights in the same or another court (unless the proceedings instituted by the Recovering Bank are instituted by it without prior notice having been given to such party through the Agent).

 

13.3 Set-off

 

13.3.1 Each Borrower authorises each Creditor (without prejudice to any of such Creditor’s rights at law, in equity or otherwise), at any time and without notice to such Borrower, to apply any credit balance to which such Borrower is then entitled standing upon any account of such Borrower with any branch of such Creditor in or towards satisfaction of any sum due and payable from such Borrower to such Creditor under any of the Security Documents. For this purpose, each Creditor is authorised to purchase with the moneys standing to the credit of such account such other currencies as may be necessary to effect such application.

 

13.3.2 No Creditor shall be obliged to exercise any right given to it by this clause 13.2. Each Creditor shall notify the Agent and the relevant Borrower forthwith upon the exercise or purported exercise of any right of set-off giving full details in relation thereto and the Agent shall inform the other Creditors.

 

13.4 No release

For the avoidance of doubt it is hereby declared that failure by any Recovering Bank to comply with the provisions of clause 13.2 shall not release any other Recovering Bank from any of its obligations or liabilities under clause 13.2.

 

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13.5 No charge

The provisions of this clause 13 shall not, and shall not be construed so as to, constitute a charge or other security interest by a Creditor over all or any part of a sum received or recovered by it in the circumstances mentioned in clause 13.2.

 

13.6 Further assurance

The Borrowers jointly and severally undertake that the Security Documents shall both at the date of execution and delivery thereof and so long as any moneys are owing under any of the Security Documents be valid and binding obligations of the respective parties thereto and rights of each Creditor enforceable in accordance with their respective terms and that they will, at their expense, execute, sign, perfect and do, and will procure the execution, signing, perfecting and doing by each of the other Security Parties of, any and every such further assurance, document, act or thing as in the reasonable opinion of the Majority Banks may be necessary or desirable for perfecting the security contemplated or constituted by the Security Documents.

 

13.7 Conflicts

In the event of any conflict between this Agreement and any of the other Borrowers’ Security Documents, the provisions of this Agreement shall prevail.

 

14 Operating Accounts

 

14.1 General

The Borrowers jointly and severally undertake with each Creditor that they will:

 

14.1.1 on or before the Drawdown Date of the first Advance to be drawn down, open each of the Operating Accounts; and

 

14.1.2 procure that all moneys payable to a Borrower in respect of the Earnings (as defined in the relevant General Assignment) of such Borrower’s Ship shall, unless and until the Agent (acting on the instructions of the Majority Banks) directs to the contrary pursuant to clause 2.1 of each of the General Assignment relevant to such Ship, be paid to such Borrower’s Operating Account Provided however that if any of the moneys paid to either of the Operating Accounts are payable in a currency other than Dollars, the Account Bank shall (and the Borrowers hereby irrevocably and unconditionally instruct the Account Bank to) convert such moneys into Dollars at the Account Bank’s spot rate of exchange at the relevant time for the purchase of Dollars with such currency and the term “ spot rate of exchange ” shall include any premium and costs of exchange payable in connection with the purchase of Dollars with such currency.

 

14.2 Account terms

Amounts standing to the credit of the Operating Accounts shall (unless otherwise agreed between the Account Bank and the Borrowers) bear interest at the rates from time to time offered by the Account Bank to its customers for Dollar deposits in comparable amounts for comparable periods. Interest shall accrue on the Operating Accounts from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year and shall be credited to the Operating Accounts at such times as the Account Bank and the Borrowers shall agree.

 

14.3 Withdrawals

Unless the Agent (acting on the instructions of the Majority Banks) otherwise agrees in writing, neither Borrower shall be entitled to withdraw any moneys from its Operating Account at any time from the date of this Agreement and so long as any moneys are owing under the Security Documents save that, unless and until a Default shall occur and the Agent (acting on the instructions of the Majority Banks) shall direct to the contrary, each Borrower may withdraw moneys from its Operating Account:

 

14.3.1 to pay any amount to the Agent in or towards payments of any instalments of interest or principal or any other amounts then payable pursuant to the Security Documents;

 

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14.3.2 to pay the proper and reasonable operating expenses of its Ship;

 

14.3.3 to pay the proper and reasonable expenses of administering its affairs; and

 

14.3.4 to make any payments of dividends to the extent permitted by clause 8.3.12.

 

14.4 Application of accounts

At any time after the occurrence of an Event of Default, the Agent may (and on the instructions of the Majority Banks shall), without notice to the Borrowers, instruct the Account Bank to apply all moneys then standing to the credit of the Operating Accounts or either of them (together with interest from time to time accruing or accrued thereon) in or towards satisfaction of any sums due to the Creditors or any of them under the Security Documents in the manner specified in clause 13.1.

 

14.5 Charging of Operating Accounts

The Operating Accounts and all amounts from time to time standing to the credit thereof shall be subject to the security constituted and the rights conferred by the Operating Account Assignments.

 

15 Assignment, transfer and lending office

 

15.1 Benefit and burden

This Agreement shall be binding upon, and enure for the benefit of, the Creditors and the Borrowers and their respective successors in title.

 

15.2 No assignment by Borrowers

Neither Borrower may assign or transfer any of its rights or obligations under this Agreement.

 

15.3 Transfers by Banks

Subject to the prior written consent of the Agent, any Bank (the “ Transferor Bank ”) may at any time cause all or any part of its rights, benefits and/or obligations under this Agreement and the Security Documents to be transferred to any other bank, financial institution or other person whatsoever (a “ Transferee Bank ”) by delivering to the Agent a Transfer Certificate duly completed and duly executed by the Transferor Bank and the Transferee Bank. No such transfer is binding on, or effective in relation to, the Borrowers, the Agent or the other Creditors unless (i) it is effected or evidenced by a Transfer Certificate which complies with the provisions of this clause 15.3 and is signed by or on behalf of the Transferor Bank, the Transferee Bank and the Agent (on behalf of itself, the Borrowers and the other Creditors) and (ii) such transfer of rights under the other Security Documents has been effected and registered. Upon signature of any such Transfer Certificate by the Agent, which signature shall be effected as promptly as is practicable after such Transfer Certificate has been delivered to the Agent, and subject to the terms of such Transfer Certificate, such Transfer Certificate shall have effect as set out below.

The following further provisions shall have effect in relation to any Transfer Certificate:

 

15.3.1 a Transfer Certificate may be in respect of a Bank’s rights in respect of all, or part of, its Commitment and shall be in respect of the same proportion of its Contribution;

 

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15.3.2 a Transfer Certificate shall only be in respect of rights and obligations of the Transferor Bank in its capacity as a Bank and shall not transfer its rights and obligations as Agent, Security Agent or in any other capacity, as the case may be and such other rights and obligations may only be transferred in accordance with any applicable provisions of this Agreement;

 

15.3.3 a Transfer Certificate shall take effect in accordance with English law as follows:

 

  (a) to the extent specified in the Transfer Certificate, the Transferor Bank’s payment rights and all its other rights (other than those referred to in sub-clause 15.3.2 above) under this Agreement are assigned to the Transferee Bank absolutely, free of any defects in the Transferor Bank’s title and of any rights or equities which the Borrowers or either of them had against the Transferor Bank;

 

  (b) the Transferor Bank’s Commitment is discharged to the extent specified in the Transfer Certificate;

 

  (c) the Transferee Bank becomes a Bank with a Contribution and a Commitment of the amounts specified in the Transfer Certificate;

 

  (d) the Transferee Bank becomes bound by all the provisions of this Agreement and the Security Documents which are applicable to the Banks generally, including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent, the Security Agent, the Swap Provider and the Arranger in accordance with the provisions of clause 16 and to the extent that the Transferee Bank becomes bound by those provisions, the Transferor Bank ceases to be bound by them;

 

  (e) an Advance or part of an Advance which the Transferee Bank makes after the Transfer Certificate comes into effect ranks in point of priority and security in the same way as it would have ranked had it been made by the Transferor Bank, assuming that any defects in the Transferor Bank’s title and any rights or equities of any Security Party against the Transferor Bank had not existed; and

 

  (f) the Transferee Bank becomes entitled to all the rights under this Agreement which are applicable to the Banks generally, including but not limited to those relating to the Majority Banks and those under clauses 3.6, 5 and 12 and to the extent that the Transferee Bank becomes entitled to such rights, the Transferor Bank ceases to be entitled to them;

 

15.3.4 the rights and equities of the Borrowers or of any other Security Party referred to above include, but are not limited to, any right of set-off and any other kind of cross-claim; and

 

15.3.5 the Borrowers, the Account Bank, the Security Agent, the Swap Provider and the Banks hereby irrevocably authorise and instruct the Agent to sign any such Transfer Certificate on their behalf and undertake not to withdraw, revoke or qualify such authority or instruction at any time. Promptly upon its signature of any Transfer Certificate, the Agent shall notify the Borrowers, the Security Agent, the Swap Provider, the Account Bank, the Arranger, the Transferor Bank, the Transferee Bank and the other Banks.

 

15.4 Reliance on Transfer Certificate

 

15.4.1 The Agent shall be entitled to rely on any Transfer Certificate believed by it to be genuine and correct and to have been presented or signed by the persons by whom it purports to have been presented or signed, and shall not be liable to any of the parties to this Agreement and the Security Documents for the consequences of such reliance.

 

15.4.2

The Agent shall at all times during the continuation of this Agreement maintain a register in which it shall record the name, Commitments, Contributions and administrative details (including the lending office) from time to time of the Banks holding a Transfer Certificate and the date at which the transfer referred to in such Transfer Certificate held by each Bank was transferred to such Bank, and the Agent shall make the said register available for inspection

 

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by any Bank, the Security Agent, the Swap Provider, the Account Bank or either Borrower during normal banking hours upon receipt by the Agent of reasonable prior notice requesting the Agent to do so.

 

15.4.3 The entries on the said register shall, in the absence of manifest error, be conclusive in determining the identities of the Commitments, the Contributions and the Transfer Certificates held by the Banks from time to time and the principal amounts of such Transfer Certificates and may be relied upon by the Agent, the other Creditors and the Security Parties for all purposes in connection with this Agreement and the Security Documents.

 

15.5 Transfer fees and expenses

If any Bank causes the transfer of all or any part of its rights, benefits and/or obligations under the Security Documents, it shall pay to the Agent and/or the Security Agent on demand all costs, fees and expenses (including, but not limited to, legal fees and expenses), and all value added tax thereon, verified by the Agent or, as the case may be, the Security Agent as having been incurred by it in connection with such transfer.

 

15.6 Documenting transfers

If any Bank transfers all or any part of its rights, benefits and/or obligations as provided in clause 15.3, the Borrowers jointly and severally undertake with each Creditor, immediately on being requested to do so by the Agent and at the cost of the Transferor Bank, to enter into, and procure that the other Security Parties shall (at the cost of the Transferor Bank) enter into, such documents as may be necessary or desirable to transfer to the Transferee Bank all or the relevant part of such Bank’s interest in the Security Documents and all relevant references in this Agreement to such Bank shall thereafter be construed as a reference to the Transferor Bank and/or its Transferee Bank (as the case may be) to the extent of their respective interests.

 

15.7 Sub-participation

A Bank may sub-participate to any other bank or financial institution all or any part of its rights and/or obligations under the Security Documents without the consent of, or notice to, the Borrowers but with the prior written consent of the Agent (acting on the instructions of the Majority Banks).

 

15.8 Lending offices

Each Bank shall lend through its office at the address specified in schedule 1 or, as the case may be, in any relevant Transfer Certificate or through any other office of such Bank selected from time to time by such Bank through which such Bank wishes to lend for the purposes of this Agreement. If the office through which a Bank is lending is changed pursuant to this clause 15.8, such Bank shall notify the Agent promptly of such change and the Agent shall notify the Borrowers, the Security Agent, the Swap Provider, the Account Bank and the other Banks.

 

15.9 Disclosure of information

Any Bank may, with the prior written consent of the Agent, disclose to a prospective Transferee Bank or to any other person who may propose entering into contractual relations with such Bank in relation to this Agreement such information about the Borrowers, the other Security Parties or any of them as such Bank shall consider appropriate.

 

16 Arranger, Agent and Security Agent

 

16.1 Appointment of the Agent

Each Bank and the Swap Provider irrevocably appoints the Agent as its agent for the purposes of this Agreement and such of the Security Documents to which it may be appropriate for the Agent to be party. By virtue of such appointment, each of the Banks and the Swap Provider hereby authorises the Agent:

 

16.1.1 to execute such documents as may be approved by the Majority Banks for execution by the Agent; and

 

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16.1.2 (whether or not by or through employees or agents) to take such action on such Bank’s or, as the case may be, the Swap Provider’s behalf and to exercise such rights, remedies, powers and discretions as are specifically delegated to the Agent by this Agreement and/or any other Security Document, together with such powers and discretions as are reasonably incidental thereto.

 

16.2 Agent’s actions

Any action taken by the Agent under or in relation to this Agreement or any of the other Security Documents whether with requisite authority, or on the basis of appropriate instructions, received from the Banks (or as otherwise duly authorised) shall be binding on all the Banks, the Swap Provider and the other Creditors.

 

16.3 Agent’s duties

The Agent shall:

 

16.3.1 promptly notify each Bank and the Swap Provider of the contents of each notice, certificate or other document received by it from the Borrowers under or pursuant to clauses 8.1.1, 8.1.5, 8.1.6 and 8.1.7; and

 

16.3.2 (subject to the other provisions of this clause 16) take (or instruct the Security Agent to take) such action or, as the case may be, refrain from taking (or authorise the Security Agent to refrain from taking) such action with respect to the exercise of any of its rights, remedies, powers and discretions as agent, as the Majority Banks may direct.

 

16.4 Agent’s rights

The Agent may:

 

16.4.1 in the exercise of any right, remedy, power or discretion in relation to any matter, or in any context, not expressly provided for by this Agreement or any of the other Security Documents, act or, as the case may be, refrain from acting (or authorise the Security Agent to act or refrain from acting) in accordance with the instructions of the Banks, and shall be fully protected in so doing;

 

16.4.2 unless and until it shall have received directions from the Majority Banks, take such action or, as the case may be, refrain from taking such action (or authorise the Security Agent to take or refrain from taking such action) in respect of a Default of which the Agent has actual knowledge as it shall deem advisable in the best interests of the Banks and the Swap Provider (but shall not be obliged to do so);

 

16.4.3 refrain from acting (or authorise the Security Agent to refrain from acting) in accordance with any instructions of the Banks to institute any legal proceedings arising out of or in connection with this Agreement or any of the other Security Documents until it and/or the Security Agent has been indemnified and/or secured to its satisfaction against any and all costs, expenses or liabilities (including legal fees) which it would or might incur as a result;

 

16.4.4 deem and treat (i) each Bank as the person entitled to the benefit of the Contribution of such Bank for all purposes of this Agreement unless and until a Transfer Certificate shall have been filed with the Agent pursuant to clause 15.3 and shall have become effective, and (ii) the office set opposite the name of each of the Banks in schedule 1 or, as the case may be, in any relevant Transfer Certificate as such Bank’s lending office unless and until a written notice of change of lending office shall have been received by the Agent and the Agent may act upon any such notice unless and until the same is superseded by a further such notice;

 

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16.4.5 rely as to matters of fact which might reasonably be expected to be within the knowledge of any Security Party upon a certificate signed by any director or officer of the relevant Security Party on behalf of the relevant Security Party; and

 

16.4.6 do anything which is in its opinion necessary or desirable to comply with any law or regulation in any jurisdiction.

 

16.5 No liability of Arranger or Agent

Neither the Arranger nor the Agent nor any of their respective employees and agents shall:

 

16.5.1 be obliged to make any enquiry as to the use of any of the proceeds of any Advance unless (in the case of the Agent) so required in writing by a Bank, in which case the Agent shall promptly make the appropriate request to the Borrowers; or

 

16.5.2 be obliged to make any enquiry as to any breach or default by either of the Borrowers or any other Security Party in the performance or observance of any of the provisions of this Agreement or any of the other Security Documents or as to the existence of a Default unless the Agent has actual knowledge thereof or has been notified in writing thereof by a Bank or the Swap Provider, in which case the Agent shall promptly notify the Banks of the relevant event or circumstance; or

 

16.5.3 be obliged to enquire whether or not any representation or warranty made by either of the Borrowers or any other Security Party pursuant to this Agreement or any of the other Security Documents is true; or

 

16.5.4 be obliged to do anything (including, without limitation, disclosing any document or information) which would, or might in its opinion, be contrary to any law or regulation or be a breach of any duty of confidentiality or otherwise be actionable or render it liable to any person; or

 

16.5.5 be obliged to account to any Bank or the Swap Provider for any sum or the profit element of any sum received by it for its own account; or

 

16.5.6 be obliged to institute any legal proceedings arising out of or in connection with this Agreement or any of the other Security Documents other than on the instructions of the Majority Banks; or

 

16.5.7 be liable to any Bank or the Swap Provider for any action taken or omitted under or in connection with this Agreement or any of the other Security Documents unless caused by its gross negligence or wilful misconduct.

For the purposes of this clause 16, neither the Arranger nor the Agent shall be treated as having actual knowledge of any matter of which the corporate finance or any other division outside the agency or loan administration department of the Arranger or the person for the time being acting as the Agent may become aware in the context of corporate finance, advisory or lending activities from time to time undertaken by the Arranger or, as the case may be, the Agent for any Security Party or any other person which may be a trade competitor of any Security Party or may otherwise have commercial interests similar to those of any Security Party.

 

16.6 Non-reliance on Arranger or Agent

Each Bank and the Swap Provider acknowledges that it has not relied on any statement, opinion, forecast or other representation made by the Arranger or the Agent to induce it to enter into this Agreement or any of the other Security Documents and that it has made and will continue to make, without reliance on the Arranger or the Agent and based on such documents as it considers appropriate, its own appraisal of the creditworthiness of the Security Parties and its own independent investigation of the financial condition, prospects and affairs of the Security Parties in connection with the making and continuation of such Bank’s Commitment or Contribution under this Agreement. Neither the Arranger nor the Agent shall have any duty or

 

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responsibility, either initially or on a continuing basis, to provide any other Creditor with any credit or other information with respect to any Security Party whether coming into its possession before the making of any Advance or at any time or times thereafter other than as provided in clause 16.3.1.

 

16.7 No responsibility on Arranger or Agent for Borrowers’ performance

Neither the Arranger nor the Agent shall have any responsibility or liability to any other Creditor:

 

16.7.1 on account of the failure of any Security Party to perform its obligations under any of the Security Documents; or

 

16.7.2 for the financial condition of any Security Party; or

 

16.7.3 for the completeness or accuracy of any statements, representations or warranties in any of the Security Documents or any document delivered under any of the Security Documents; or

 

16.7.4 for the execution, effectiveness, adequacy, genuineness, validity, enforceability or admissibility in evidence of any of the Security Documents or of any certificate, report or other document executed or delivered under any of the Security Documents; or

 

16.7.5 to investigate or make any enquiry into the title of either of the Borrowers or any other Security Party to the Ships or any other security or any part thereof; or

 

16.7.6 for the failure to register any of the Security Documents with any official or regulatory body or office or elsewhere; or

 

16.7.7 for taking or omitting to take any other action under or in relation to any of the Security Documents or any aspect of any of the Security Documents; or

 

16.7.8 on account of the failure of the Security Agent to perform or discharge any of its duties or obligations under the Security Documents; or

 

16.7.9 otherwise in connection with this Agreement or its negotiation or for acting (or, as the case may be, refraining from acting) in accordance with the instructions of the Banks.

 

16.8 Reliance on documents and professional advice

The Arranger and the Agent shall be entitled to rely on any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person and shall be entitled to rely as to legal or other professional matters on opinions and statements of any legal or other professional advisers selected or approved by it (including those in the Arranger’s or, as the case may be, the Agent’s employment).

 

16.9 Other dealings

The Arranger and the Agent may, without any liability to account to any other Creditor, accept deposits from, lend money to, and generally engage in any kind of banking or other business with, and provide advisory or other services to, any Security Party or any of its Related Companies or any of the other Creditors as if it was not the Arranger or, as the case may be, the Agent.

 

16.10 Rights of Agent as Bank; no partnership

With respect to its own Commitment and Contribution (if any) the Agent shall have the same rights and powers under the Security Documents as any other Bank and may exercise the same as though it were not performing the duties and functions delegated to it under this Agreement and the term “ Banks ” shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank. This Agreement shall not and shall not be construed so as to constitute a partnership between the parties or any of them.

 

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16.11 Amendments and waivers

 

16.11.1 Subject to clause 16.11.2, the Agent may, with the written consent of the Majority Banks (or if and to the extent expressly authorised by the other provisions of any of the Security Documents) and, if so instructed by the Majority Banks, shall:

 

  (a) agree (or authorise the Security Agent to agree) amendments or modifications to any of the Security Documents with any Security Party; and/or

 

  (b) waive breaches of, or defaults under, or otherwise excuse performance of, any provision of any of the other Security Documents by any Security Party (or authorise the Security Agent to do so).

Any such action so authorised and effected by the Agent shall be documented in such manner as the Agent shall (with the approval of the Majority Banks) determine, shall be promptly notified to the Banks by the Agent and (without prejudice to the generality of clause 16.2) shall be binding on all the Creditors.

 

16.11.2 Except with the prior written consent of all the Banks, the Agent shall have no authority on behalf of the Banks to agree (or authorise the Security Agent to agree) with any Security Party any amendment or modification to any of the Security Documents or to grant (or authorise the Security Agent to grant) waivers in respect of breaches or defaults or to vary or excuse (or authorise the Security Agent to vary or excuse) performance of or under any of the Security Documents by any Security Party, if the effect of such amendment, modification, waiver or excuse would be to:

 

  (a) reduce the Margin;

 

  (b) postpone the due date or reduce the amount of any payment of principal, interest or other amount payable by any Security Party under any of the Security Documents;

 

  (c) change the currency in which any amount is payable by any Security Party under any of the Security Documents;

 

  (d) increase any Bank’s Commitment;

 

  (e) extend the Termination Date;

 

  (f) change any provision of any of the Security Documents which expressly or implied requires the approval or consent of all the Banks such that the relevant approval or consent may be given otherwise than with the sanction of all the Banks;

 

  (g) change the order of distribution under clause 6.9 or clause 13.1;

 

  (h) change this clause 16.11;

 

  (i) change the definition of “ Majority Banks ” in clause 1.2; or

 

  (j) release any Security Party from the security constituted by any Security Document (except as required by the terms thereof or by law) or change the terms and conditions upon which such security or guarantee may be, or is required to be, released.

 

16.12 Reimbursement and indemnity by Banks

Each Bank shall reimburse the Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution), to the extent that the Agent is not reimbursed by the Borrowers, for the costs, charges and expenses incurred by the Agent which are expressed to be payable by the Borrowers under clause 5.2 including (in each case) the fees and expenses of legal or other professional advisers. Each Bank shall on demand indemnify the Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution)

 

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against all liabilities, damages, costs and claims whatsoever incurred by the Agent in connection with any of the Security Documents or the performance of its duties under any of the Security Documents or any action taken or omitted by the Agent under any of the Security Documents, unless such liabilities, damages, costs or claims arise from the Agent’s own gross negligence or wilful misconduct.

 

16.13 Retirement of Agent

 

16.13.1 The Agent may, (having given to the Borrowers, each of the Banks and the Swap Provider not less than fifteen (15) days’ notice of its intention to do so), retire from its appointment as Agent under this Agreement, provided that no such retirement shall take effect unless there has been appointed by the Banks and the Swap Provider as a successor agent:

 

  (a) a Bank nominated within a period of twenty eight (28) days by the Majority Banks or, failing such a nomination,

 

  (b) any reputable bank or financial institution experienced in shipping finance nominated by the retiring Agent.

Any corporation into which the retiring Agent may be merged or converted or any corporation with which the Agent may be consolidated or any corporation resulting from any merger, conversion, amalgamation, consolidation or other reorganisation to which the Agent shall be a party shall, to the extent permitted by applicable law, be the successor Agent under this Agreement and the other Security Documents without the execution or filing of any document or any further act on the part of any of the parties to this Agreement and the other Security Documents save that notice of any such merger, conversion, amalgamation, consolidation or other reorganisation shall forthwith be given to each Security Party, the Banks and the Swap Provider. Prior to any such successor being appointed, the Agent agrees to consult with the Borrowers as to the identity of the proposed successor and to take account of any reasonable objections which the Borrowers may raise to such successor being appointed.

 

16.13.2 Upon any such successor as aforesaid being appointed, the retiring Agent shall be discharged from any further obligation under the Security Documents (but shall continue to have the benefit of this clause 16 in respect of any action it has taken or refrained from taking prior to such discharge) and its successor and each of the other parties to this Agreement shall have the same rights and obligations among themselves as they would have had if such successor had been a party to this Agreement in place of the retiring Agent. The retiring Agent shall (at the expense of the Borrowers) provide its successor with copies of such of its records as its successor reasonably requires to carry out its functions under the Security Documents.

 

16.14 Appointment and retirement of Security Agent

 

16.14.1 Appointment

Each of the Agent, the Swap Provider and the Banks irrevocably appoints the Security Agent as its security agent and trustee for the purposes of this Agreement and the other Security Documents on the terms set out in this Agreement. By virtue of such appointment, the Agent, the Swap Provider and each of the Banks hereby authorises the Security Agent (whether or not by or through employees or agents) to take such action on its behalf and to exercise such rights, remedies, powers and discretions as are specifically delegated to the Security Agent by this Agreement and/or any of the other Security Documents together with such powers and discretions as are reasonably incidental thereto.

 

16.14.2 Retirement

 

  (a) Without prejudice to clause 16.13, the Security Agent may, having given to the Borrowers and each of the Banks and the Swap Provider not less than fifteen (15) days’ notice of its intention to do so, retire from its appointment as Security Agent under this Agreement and any Trust Deed, provided that no such retirement shall take effect unless there has been appointed by the Banks, the Agent and the Swap Provider as a successor security agent and trustee:

 

  (i) a Related Company of the Security Agent nominated by the Security Agent which the Banks hereby irrevocably and unconditionally agree to appoint or, failing such nomination,

 

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  (ii) a bank or trust corporation nominated by the Majority Banks or, failing such a nomination,

 

  (iii) any bank or trust corporation nominated by the retiring Security Agent,

and, in any case (A) such successor security agent and trustee shall have duly accepted such appointment by delivering to the Agent (1) written confirmation (in a form acceptable to the Agent) of such acceptance agreeing to be bound by this Agreement in the capacity of Security Agent as if it had been an original party to this Agreement and (2) a duly executed Trust Deed and (B) such successor security agent and trustee shall have duly entered into, whether with the retiring Security Agent and/or with the Borrowers and/or with the Creditors or with any of them, such documents in connection with the Security Documents as the Agent shall require in its absolute discretion.

 

  (b) Any corporation into which the retiring Security Agent may be merged or converted or any corporation with which the Security Agent may be consolidated or any corporation resulting from any merger, conversion, amalgamation, consolidation or other reorganisation to which the Security Agent shall be a party shall, to the extent permitted by applicable law, be the successor Security Agent under this Agreement, any Trust Deed and the other Security Documents without the execution or filing of any document or any further act on the part of any of the parties to this Agreement, any Trust Deed and the other Security Documents save that notice of any such merger, conversion, amalgamation, consolidation or other reorganisation shall forthwith be given to each Security Party, the Banks, the Agent and the Swap Provider. Prior to any such successor being appointed, the Security Agent agrees to consult with the Borrowers as to the identity of the proposed successor and to take account of any reasonable objections which the Borrowers may raise to such successor being appointed.

 

  (c) Upon any such successor as aforesaid being appointed, the retiring Security Agent shall be discharged from any further obligation under the Security Documents (but shall continue to have the benefit of this clause 16 in respect of any action it has taken or refrained from taking prior to such discharge) and its successor and each of the other parties to this Agreement shall have the same rights and obligations among themselves as they would have had if such successor had been a party to this Agreement in place of the retiring Security Agent. The retiring Security Agent shall (at the expense of the Borrowers) provide its successor with copies of such of its records as its successor reasonably requires to carry out its functions under the Security Documents.

 

16.15 Powers and duties of the Security Agent

 

16.15.1 The Security Agent shall have no duties, obligations or liabilities to the Agent, the Swap Provider or any of the Banks beyond those expressly stated in any of the Security Documents. The Agent, the Swap Provider and each of the Banks hereby authorises the Security Agent to enter into and execute:

 

  (a) each of the Security Documents to which the Security Agent is or is intended to be a party; and

 

  (b) any and all such other Security Documents as may be approved by the Agent in writing (acting on the instructions of the Majority Banks) for entry into by the Security Agent, and, in each and every case, to hold any and all security thereby created upon trust for the Banks, the Agent and the Swap Provider in the manner contemplated by this Agreement.

 

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16.15.2 Subject to clause 16.15.3 the Security Agent may, with the prior consent of the Majority Banks communicated in writing by the Agent, concur with any of the Security Parties to:

 

  (a) amend, modify or otherwise vary any provision of the Security Documents to which the Security Agent is or is intended to be a party; or

 

  (b) waive breaches of, or defaults under, or otherwise excuse performance of, any provision of the Security Documents to which the Security Agent is or is intended to be a party.

Any such action so authorised and effected by the Security Agent shall be promptly notified to the Banks, the Agent and the Swap Provider by the Security Agent and shall be binding on all the Creditors.

 

16.15.3 The Security Agent shall not concur with any Security Party with respect to any of the matters described in clause 16.11.2 without the consent of all the Banks communicated in writing by the Agent.

 

16.15.4 The Security Agent shall (subject to the other provisions of this clause 16) take such action or, as the case may be, refrain from taking such action, with respect to any of its rights, powers and discretions as security agent and trustee, as the Agent may direct. Subject as provided in the foregoing provisions of this clause, unless and until the Security Agent shall have received such instructions from the Agent, the Security Agent may, but shall not be obliged to, take (or refrain from taking) such action under or pursuant to the Security Documents referred to in clause 16.15.1 as the Security Agent shall deem advisable in the best interests of the Creditors provided that (for the avoidance of doubt), to the extent that this clause might otherwise be construed as authorising the Security Agent to take, or refrain from taking, any action of the nature referred to in clause 16.15.2- and for which the prior consent of the Banks is expressly required under clause 16.15.3 - clauses 16.15.2 and 16.15.3 shall apply to the exclusion of this clause.

 

16.15.5 None of the Banks nor the Swap Provider nor the Agent shall have any independent power to enforce any of the Security Documents referred to in clause 16.15.1 or to exercise any rights, discretions or powers or to grant any consents or releases under or pursuant to such Security Documents or otherwise have direct recourse to the security and/or guarantees constituted by such Security Documents except through the Security Agent.

 

16.15.6 For the purpose of this clause 16, the Security Agent may, rely and act in reliance upon any information from time to time furnished to the Security Agent by the Agent (whether pursuant to clause 16.15.7 or otherwise) unless and until the same is superseded by further such information, so that the Security Agent shall have no liability or responsibility to any party as a consequence of placing reliance on and acting in reliance upon any such information unless the Security Agent has actual knowledge that such information is inaccurate or incorrect.

 

16.15.7 Without prejudice to the foregoing, each of the Agent, the Swap Provider and the Banks (whether directly or through the Agent) shall provide the Security Agent with such written information as it may reasonably require for the purpose of carrying out its duties and obligations under the Security Documents referred to in clause 16.15.1.

 

16.15.8

Each Bank shall reimburse the Security Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution), to the extent that the Security Agent is not reimbursed by the Borrowers, for the costs, charges and expenses incurred by the Agent which are expressed to be payable by the Borrowers under clause 5.2 including (in each case) the fees and expenses of legal or other professional advisers. Each Bank shall on demand indemnify the Security Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution) against all liabilities, damages, costs and claims whatsoever incurred by the Security Agent in connection with any of the Security

 

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Documents or the performance of its duties under any of the Security Documents or any action taken or omitted by the Security Agent under any of the Security Documents, unless such liabilities, damages, costs or claims arise from the Security Agent’s own gross negligence or wilful misconduct.

 

16.16 Trust provisions

 

16.16.1 The trusts constituted or evidenced in or by this Agreement and the Trust Deed shall remain in full force and effect until whichever is the earlier of:

 

  (a) the expiration of a period of eighty (80) years from the date of this Agreement; and

 

  (b) receipt by the Security Agent of confirmation in writing by the Agent that there is no longer outstanding any Indebtedness (actual or contingent) which is secured or guaranteed or otherwise assured by or under any of the Security Documents,

and the parties to this Agreement declare that the perpetuity period applicable to this Agreement and the trusts declared by the Trust Deed shall for the purposes of the Perpetuities and Accumulations Act 1964 be the period of eighty (80) years from the date of this Agreement.

 

16.16.2 In its capacity as trustee in relation to the Security Documents specified in clause 16.15.1 the Security Agent shall, without prejudice to any of the powers, discretions and immunities conferred upon trustees by law (and to the extent not inconsistent with the provisions of any of those Security Documents), have all the same powers and discretions as a natural person acting as the beneficial owner of such property and/or as are conferred upon the Security Agent by any of those Security Documents.

 

16.16.3 It is expressly declared that, in its capacity as trustee in relation to the Security Documents specified in clause 16.15.1, the Security Agent shall be entitled to invest moneys forming part of the security and which, in the opinion of the Security Agent, may not be paid out promptly following receipt in the name or under the control of the Security Agent in any of the investments for the time being authorised by law for the investment by trustees of trust moneys or in any other property or investments whether similar to the aforesaid or not or by placing the same on deposit in the name or under the control of the Security Agent as the Security Agent may think fit without being under any duty to diversify its investments and the Security Agent may at any time vary or transpose any such property or investments for or into any others of a like nature and shall not be responsible for any loss due to depreciation in value or otherwise of such property or investments. Any investment of any part of all of the security may, at the discretion of the Security Agent, be made or retained in the names of nominees.

 

16.17 Independent action by Creditors

None of the Creditors shall enforce, exercise any rights, remedies or powers or grant any consents or releases under or pursuant to, or otherwise have a direct recourse to the security and/or guarantees constituted by any of the Security Documents without the prior written consent of the Majority Banks but, Provided such consent has been obtained, it shall not be necessary for any other Creditor to be joined as an additional party in any proceedings for this purpose.

 

16.18 Common Agent and Security Agent

The Agent and the Security Agent have entered into the Security Documents in their separate capacities (a) as agent for the Banks and the Swap Provider under and pursuant to this Agreement (in the case of the Agent) and (b) as security agent and trustee for the Agent, the Banks and the Swap Provider, under and pursuant to this Agreement, to hold the guarantees and/or security created by the other Security Documents specified in clause 16.15.1 on the terms set out in such Security Documents (in the case of the Security Agent). However, from time to time the Agent and the Security Agent may be the same entity. When the Agent and the Security Agent are the same entity and any Security Document provides for the Agent to communicate with or provide instructions to the Security Agent (and vice versa), it will not be necessary for there to be any such formal communications or instructions on those occasions.

 

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16.19 Co-operation to achieve agreed priorities of application

The Banks, the Agent and the Swap Provider shall co-operate with each other and with the Security Agent and any receiver under the Security Documents in realising the property and assets subject to the Security Documents and in ensuring that the net proceeds realised under the Security Documents after deduction of the expenses of realisation are applied in accordance with clause 13.1.

 

16.20 Prompt distribution of proceeds

Moneys received by any of the Creditors (whether from a receiver or otherwise) pursuant to the exercise of (or otherwise by virtue of the existence of) any rights and powers under or pursuant to any of the Security Documents shall (after providing for all costs, charges, expenses and liabilities and other payments ranking in priority) be paid to the Agent for distribution (in the case of moneys so received by any of the Creditors other than the Agent or the Security Agent) and shall be distributed by the Agent or, as the case may be, the Security Agent (in the case of moneys so received by the Agent or, as the case may be, the Security Agent) in each case in accordance with clause 13.1. The Agent or, as the case may be, the Security Agent shall make each such application and/or distribution as soon as is practicable after the relevant moneys are received by, or otherwise become available to, the Agent or, as the case may be, the Security Agent save that (without prejudice to any other provision contained in any of the Security Documents) the Agent or, as the case may be, the Security Agent (acting on the instructions of the Majority Banks) or any receiver may credit any moneys received by it to a suspense account for so long and in such manner as the Agent or such receiver may from time to time determine with a view to preserving the rights of the Agent and/or the Security Agent and/or the Account Bank and/or the Swap Provider and/or the Arranger and/or the Banks or any of them to provide for the whole of their respective claims against the Borrowers or any other person liable.

 

17 Notices and other matters

 

17.1 Notices

Every notice, request, demand or other communication under this Agreement or (unless otherwise provided therein) under any of the other Security Documents shall:

 

17.1.1 be in writing delivered personally or by first-class prepaid letter (airmail if available) or facsimile transmission or other means of telecommunication in permanent written form;

 

17.1.2 be deemed to have been received, subject as otherwise provided in the relevant Security Document, in the case of a letter, when delivered personally or three (3) days after it has been put in to the post and, in the case of a facsimile transmission or other means of telecommunication in permanent written form, at the time of despatch (provided that if the date of despatch is not a business day in the country of the addressee or if the time of despatch is after the close of business in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day); and
17.1.3 be sent:

 

  (a) if to the Borrowers or either of them at:

c/o Diana Shipping Services S.A.

Pendelis 16

Palaio Faliro

175 64 Athens

Greece

Fax no: +30 210 942 4975

Attention: Mr Andreas Michalopoulos

 

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  (b) if to the Arranger, the Agent, the Security Agent or the Account Bank at:

DnB NOR Bank ASA

20 St. Dunstan’s Hill

London EC3R 8HY

England

Fax No: +44 207 626 5956

Attention: Shipping Department

 

  (c) in the case of a Bank, to its address or facsimile number specified in schedule 1 or in any relevant Transfer Certificate; or

 

  (d) in the case of the Swap Provider, to its address or fax number specified in paragraph (a) of Part 4 of the Schedule to the Master Swap Agreement,

or to such other address and/or numbers as is notified by one party to the other parties under this Agreement.

 

17.2 Notices through the Agent

Every notice, request, demand or other communication under this Agreement to be given by the Borrowers to any other party (other than the Swap Provider) shall be given to the Agent for onward transmission as appropriate and if such notice, request, demand or other communication is to be given to the Borrowers it shall (except if otherwise provided in the Security Documents) be given through the Agent.

 

17.3 No implied waivers, remedies cumulative

No failure or delay on the part of any Creditor to exercise any power, right or remedy under any of the Security Documents shall operate as a waiver thereof, nor shall any single or partial exercise by any Creditor of any power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy. The remedies provided in the Security Documents are cumulative and are not exclusive of any remedies provided by law.

 

17.4 English language

All certificates, instruments and other documents to be delivered under or supplied in connection with any of the Security Documents shall be in the English language or shall be accompanied by a certified English translation upon which the Creditors or any of them shall be entitled to rely.

 

17.5 Borrowers’ obligations

 

17.5.1 Joint and several

Notwithstanding anything to the contrary contained in any of the Security Documents, the agreements, obligations and liabilities of the Borrowers herein contained are joint and several and shall be construed accordingly. Each of the Borrowers agrees and consents to be bound by the Security Documents to which it is, or is to be, a party notwithstanding that the other Borrower which is intended to sign or to be bound may not do so or be effectually bound and notwithstanding that any of the Security Documents may be invalid or unenforceable against the other Borrower, whether or not the deficiency is known to any of the Creditors.

 

17.5.2 Borrowers as principal debtors

Each Borrower acknowledges and confirms that it is a principal and original debtor in respect of all amounts which may become payable by the Borrowers in accordance with the terms of this Agreement or any of the other Security Documents and agrees that the Creditors may also continue to treat it as such, whether or not any Creditor is or becomes aware that such Borrower is or has become a surety for the other Borrower.

 

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17.5.3 Indemnity

The Borrowers hereby agree jointly and severally to keep the Creditors fully indemnified on demand against all damages, losses, costs and expenses arising from any failure of either Borrower to perform or discharge any purported obligation or liability of a Borrower which would have been the subject of this Agreement or any other Security Document had it been valid and enforceable and which is not or ceases to be valid and enforceable against a Borrower on any ground whatsoever, whether or not known to a Creditor (including, without limitation, any irregular exercise or absence of any corporate power or lack of authority of, or breach of duty by, any person purporting to act on behalf of a Borrower (or any legal or other limitation, whether under the Limitation Acts or otherwise or any disability or death, bankruptcy, unsoundness of mind, insolvency, liquidation, dissolution, winding up, administration, receivership, amalgamation, reconstruction or any other incapacity of any person whatsoever (including, in the case of a partnership, a termination or change in the composition of the partnership) or any change of name or style or constitution of any Security Party)).

 

17.5.4 Liability unconditional

None of the obligations or liabilities of the Borrowers under this Agreement or any other Security Document shall be discharged or reduced by reason of:

 

  (a) the death, bankruptcy, unsoundness of mind, insolvency, liquidation, dissolution, winding-up, administration, receivership, amalgamation, reconstruction or other incapacity of any person whatsoever (including, in the case of a partnership, a termination or change in the composition of the partnership) or any change of name or style or constitution of a Borrower or any other person liable;

 

  (b) the Agent (acting on the instructions of the Majority Banks) or the Security Agent granting any time, indulgence or concession to, or compounding with, discharging, releasing or varying the liability of, a Borrower or any other person liable or renewing, determining, varying or increasing any accommodation, facility or transaction or otherwise dealing with the same in any manner whatsoever or concurring in, accepting, varying any compromise, arrangement or settlement or omitting to claim or enforce payment from a Borrower or any other person liable; or

 

  (c) anything done or omitted which but for this provision might operate to exonerate the Borrowers or either of them.

 

17.5.5 Recourse to other security

The Creditors shall not be obliged to make any claim or demand or to resort to any Security Document or other means of payment now or hereafter held by or available to it for enforcing this Agreement or any of the Security Documents against a Borrower or any other person liable and no action taken or omitted by any Creditor in connection with any such Security Document or other means of payment will discharge, reduce, prejudice or affect the liability of the Borrowers under this Agreement and the Security Documents to which either of them is, or is to be, a party.

 

17.5.6 Waiver of Borrowers’ rights

Each Borrower agrees with each Creditor that, from the date of this Agreement and so long as any moneys are owing under any of the Security Documents and while all or any part of the Total Commitment remains outstanding, it will not, without the prior written consent of the Agent (acting on the instructions of the Majority Banks):

 

  (a) exercise any right of subrogation, reimbursement and indemnity against the other Borrower or any other person liable under the Security Documents;

 

57


  (b) demand or accept repayment in whole or in part of any Indebtedness now or hereafter due to such Borrower from the other Borrower or from any other person liable or demand or accept any guarantee, indemnity or other assurance against financial loss or any document or instrument created or evidencing an Encumbrance in respect of the same or dispose of the same;

 

  (c) take any steps to enforce any right against any other Borrower or any other person liable in respect of any such moneys; or

 

  (d) claim any set-off or counterclaim against the other Borrower or any other person liable or claiming or proving in competition with any Creditor in the liquidation of any other Borrower or any other person liable or have the benefit of, or share in, any payment from or composition with, the other Borrower or any other person liable or any other Security Document now or hereafter held by any Creditor for any moneys owing under this Agreement or for the obligations or liabilities of any other person liable but so that, if so directed by the Agent, it will prove for the whole or any part of its claim in the liquidation of any other Borrower or other person liable on terms that the benefit of such proof and all money received by it in respect thereof shall be held on trust for the Banks and applied in or towards discharge of any moneys owing under this Agreement in such manner as the Agent (acting on the instructions of the Majority Banks) shall deem appropriate.

 

18 Governing law and jurisdiction

 

18.1 Law

This Agreement and any non-contractual obligations connected with it are governed by, and shall be construed in accordance with, English law.

 

18.2 Submission to jurisdiction

The Borrowers jointly and severally agree, for the benefit of each Creditor, that any legal action or proceedings arising out of or in connection with this Agreement (including any non-contractual obligations connected with this Agreement) against the Borrowers or either of them or any of their assets may be brought in the English courts. Each of the Borrowers irrevocably and unconditionally submits to the jurisdiction of such courts and irrevocably designates, appoints and empowers A. Nicolaou & Co at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings. The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of any Creditor to take proceedings against either of the Borrowers in the courts of any other competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

The parties further agree that only the courts of England and not those of any other State shall have jurisdiction to determine any claim which either of the Borrowers may have against any Creditor arising out of or in connection with this Agreement (including any non-contractual obligations connected with this Agreement).

 

18.3 Contracts (Rights of Third Parties) Act 1999

No term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement.

IN WITNESS whereof the parties to this Agreement have caused this Agreement to be duly executed on the date first above written.

 

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Schedule 1

The Banks and their Commitments

 

Name

  

Lending Office

  

Address for Notices

   Commitment
($)
 

DnB NOR Bank ASA

  

20 St. Dunstan’s Hill

London EC3R 8HY

England

  

20 St. Dunstan’s Hill

London EC3R 8HY

England

     40,000,000   
     

 

Fax no:

Att:

 

 

+44 207 626 5956

Shipping Department

  
                

TOTAL COMMITMENT

             40,000,000   
                

 

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Schedule 2

Form of Drawdown Notice

(referred to in clause 2.4)

 

To: DnB NOR Bank ASA

20 St Dunstan’s Hill

London EC3R 8HY

England

(as Agent)

[ ] 2010

U.S.$40,000,000 Loan

Loan Agreement dated [ ] 2010 (the “Loan Agreement”)

We refer to the above Loan Agreement and hereby give you notice that we wish to draw down the [First] [Second] [Centaurus] [Sagitta] Advance, namely $ on [            ] 200[ ] and select the first interest period in respect thereof to expire on [ ]. The funds should be credited to [ name and number of account ] with [ details of bank in New York City ].

We confirm that:

 

(a) no event or circumstance has occurred and is continuing which constitutes a Default;

 

(b) the representations and warranties contained in (i) clauses 7.1, 7.2 and 7.3(b) of the Loan Agreement and (ii) clause 4 of the Corporate Guarantee, are true and correct at the date hereof as if made with respect to the facts and circumstances existing at such date;

 

(c) the borrowing to be effected by the drawdown of the [First] [Second] [Centaurus] [Sagitta] Advance will be within our corporate powers, has been validly authorised by appropriate corporate action and will not cause any limit on our borrowings (whether imposed by statute, regulation, agreement or otherwise) to be exceeded;

 

(d) there has been no material adverse change in our business, management, assets, operations, results of operations, properties, performances, prospects or the condition (financial or otherwise) from that existing on the date of the Loan Agreement as described by us or any other Security Party to the Agent and/or the Arranger in the negotiation of the Loan Agreement; and

 

(e) we will use the proceeds of the [First] [Second] [Centaurus] [Sagitta] Advance for our benefit and under our full responsibility and exclusively for the purpose specified in the Loan Agreement.

Words and expressions defined in the Loan Agreement shall have the same meanings where used.

 

 

For and on behalf of
LIKIEP SHIPPING COMPANY INC.

 

For and on behalf of
ORANGINA INC.

 

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Schedule 3

Documents and evidence required as conditions precedent to the Loan being

made

(referred to in clause 9.1)

Part 1

 

1 Constitutional documents

copies, certified by the legal adviser of each Security Party as true, complete and up to date copies of all documents which contain or establish or relate to the constitution of that Security Party;

 

2 Corporate authorisations

copies of resolutions of the directors of each Security Party and the shareholders of each Security Party (other than the Corporate Guarantor) approving such of the Security Documents to which such Security Party is, or is to be, party and copies of resolutions of the directors of each Security Party approving such of the Underlying Documents to which such Security Party is, or is to be, party, and authorising the signature, delivery and performance of such Security Party’s obligations thereunder, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer of such Security Party as:

 

  (a) being true and correct;

 

  (b) being duly passed at meetings of the directors of such Security Party and of the shareholders of such Security Party each duly convened and held;

 

  (c) not having been amended, modified or revoked; and

 

  (d) being in full force and effect,

together with originals or certified copies of any powers of attorney issued by any such Security Party pursuant to such resolutions;

 

3 Specimen signatures

copies of the signatures of the persons who have been authorised on behalf of each Security Party to sign such of the Underlying Documents and the Security Documents to which such Security Party is, or is to be, party and to give notices and communications, including notices of drawing, under or in connection with the Security Documents, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer of such Security Party as being the true signatures of such persons;

 

4 Certificates of incumbency

a list of directors and officers of each Security Party specifying the names and positions of such persons, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by the legal adviser of such Security Party to be true, complete and up to date;

 

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5 Borrowers’ consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of each of the Borrowers that no consents, authorisations, licences or approvals are necessary for that Borrower to authorise or are required by that Borrower in connection with the borrowing by that Borrower of the Loan pursuant to this Agreement or the execution, delivery and performance of that Borrower’s Security Documents;

 

6 Other consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of each Security Party (other than the Borrowers) that no consents, authorisations, licences or approvals are necessary for such Security Party to guarantee and/or grant security for the borrowing by the Borrowers of the Total Commitment pursuant to this Agreement and execute, deliver and perform the Security Documents insofar as such Security Party is a party thereto;

 

7 Due diligence

evidence that all information required in relation to any Security Party in order for the Agent and each Bank to complete its due diligence formalities in connection with this Agreement and the other Security Documents has been provided and is satisfactory in all respects to the Agent;

 

8 Money laundering

such documentation and other evidence as is reasonably requested by the Agent in order for each Creditor to carry out and be satisfied with the results of all necessary “know your client” or other checks which it is required to carry out in relation to the transactions contemplated by this Agreement and the other Security Documents and to the identity of any parties to the Security Documents (other than the Creditors) and their directors and officers;

 

9 Financial Statements

the proforma consolidated financial statements of the Group in respect of the financial half-year ended on 30 June 2010;

 

10 Certified Underlying Documents

a copy, certified (in a certificate dated no earlier than (5) five Banking Days prior to the date of this Agreement) as a true and complete copy by the legal adviser of each of the Borrowers of each of the Management Agreements, the Contracts and any existing Charter;

 

11 Marshall Islands opinion

an opinion of Cozen O’Connor, special legal advisers on matters of Marshall Islands law to the Agent;

 

12 Panamanian opinion

an opinion of Patton, Moreno & Asvat, special legal advisers on matters of Panamanian law to the Agent;

 

13 Operating Accounts

evidence that the Operating Accounts have been opened together with mandate forms in respect thereof and each of them has a credit balance of at least $10;

 

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14 Security Documents

the Fee Letter, the Master Swap Agreement, the Corporate Guarantee, the Operating Account Assignments and the Swap Assignment, each duly executed;

 

15 Fees

evidence that any fees and commission due under clause 5.1 have been paid in full;

 

16 Borrowers’ process agent

a letter from each Borrower’s agent for receipt of service of proceedings referred to in clause 18.2 accepting its appointment under the said clause and under each of the other Security Documents in which it is or is to be appointed as such Borrower’s agent; and

 

17 Security Parties’ process agent

a letter from each Security Party’s agent for receipt of service of proceedings accepting its appointment under each of the Security Documents in which it is or is to be appointed as such Security Party’s agent.

 

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Part 2

 

1 Past conditions precedent

Evidence that the conditions precedent referred to in Part 1 of this schedule 3, remain satisfied;

 

2 Ship conditions

evidence that the Ship (the “ Relevant Ship ”) to which the First Advance to be drawn down relates (the “ Relevant Advance ”):

 

2.1 Registration and Encumbrances

is permanently registered in the name of the relevant Borrower under the laws and flag of the relevant Flag State through the relevant Registry and that the Relevant Ship and its Earnings, Insurances and Requisition Compensation (each as defined in the relevant Ship Security Documents) are free of Encumbrances;

 

2.2 Classification

maintains the relevant Classification free of all requirements and recommendations of the relevant Classification Society; and

 

2.3 Insurance

is insured in accordance with the provisions of the relevant Ship Security Documents and all requirements of such Ship Security Documents in respect of such insurance have been complied with (including without limitation, confirmation from the protection and indemnity association or other insurer with which the Relevant Ship is, or is to be, entered for insurance or insured against protection and indemnity risks (including oil pollution risks) that any necessary declarations required by the association or insurer for the removal of any oil pollution exclusion have been made and that any such exclusion does not apply to the Relevant Ship);

 

3 Ship Security Documents

the Ship Security Documents (including, in the event that a Charter for the Relevant Ship exists, the relevant Charter Assignment) for the Relevant Ship, together with the other documents to be delivered to the Security Agent pursuant thereto, duly executed;

 

4 Title and no Encumbrances

 

  (a) evidence that the transfer of title to the Relevant Ship from the Seller to the relevant Borrower has been duly registered in the relevant Registry free of any Encumbrance (other than Permitted Encumbrances); and

 

  (b) evidence that there was no prior registration of the Relevant Ship in the name of the Seller in any ship register, the Seller having transferred title to the Relevant Ship to the relevant Borrower immediately after the completion of the construction of the Relevant Ship by the Seller under the shipbuilding contract referred to in the Contract relating to such Ship;

 

5 Mortgage registration

evidence that the relevant Mortgage has been permanently registered against the Relevant Ship under the laws and flag of the relevant Flag State through the relevant Registry;

 

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6 Registration forms

such statutory forms duly signed by the Borrowers and the other Security Parties as may be required by the Agent to perfect the security contemplated by the Security Documents;

 

7 Notices of assignment and acknowledgements

copies of duly executed notices of assignment and acknowledgements thereof in the forms prescribed by the relevant Ship Security Documents in respect of the Relevant Ship;

 

8 Marshall Islands opinion

an opinion of Cozen O’Connor, special legal advisers on matters of Marshall Islands law to the Agent;

 

9 Panamanian opinion

an opinion of Patton, Moreno & Asvat, special legal advisers on matters of Panamanian law to the Agent;

 

10 Further opinions

any such further opinion as may be required by the Agent;

 

11 Insurance opinion

an opinion from insurance consultants to the Agent on the insurances effected or to be effected in respect of the Relevant Ship upon and following the relevant Drawdown Date of the Relevant Advance in form and substance satisfactory to the Agent;

 

12 Delivery documents

a copy, certified as a true and complete copy by an officer or a legal advisor of the Borrowers, of (a) a duly executed and notarised/legalised bill of sale in respect of the Relevant Ship evidencing the full Contract Price for the Relevant Ship, (b) the builder’s certificate in respect of the Relevant Ship, (c) the protocol of delivery and acceptance in respect of the Relevant Ship and (d) a declaration of warranty, each duly executed and exchanged under the Contract for the Relevant Ship, and any other delivery documents duly executed and exchanged pursuant to the relevant Contract (including a receipt by the Seller to the relevant Borrower of any other similar evidence, evidencing payment in full of the relevant Contract Price);

 

13 Readiness and payment of Contract Price

evidence that the Relevant Ship is in all respects ready for delivery pursuant to the relevant Contract and that the relevant Contract Price for the Relevant Ship has been paid in full;

 

14 ISPS Code compliance

 

14.1 evidence satisfactory to the Agent that the Relevant Ship is subject to a ship security plan which complies with the ISPS Code; and

 

14.2 a copy certified (in a certificate dated no later than seven (7) Banking Days after the Delivery Date of the Relevant Ship) as a true and complete copy by an officer or a legal advisor of the Borrowers of the ISSC for the Relevant Ship and the continuous synopsis record required by the ISPS Code in respect of the Relevant Ship;

 

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15 SMC/DOC

a copy, certified (in a certificate dated no later than seven (7) Banking Days after the Delivery Date of the Relevant Ship) as a true and complete copy by an officer of the Borrowers of the DOC issued to the Operator of the Relevant Ship and the SMC for the Relevant Ship;

 

16 Valuation

a valuation of the Relevant Ship, made (at the cost of the Borrowers) by two (2) or (as the case may be) three (3) Approved Shipbrokers nominated by the Borrowers (or, failing this, by the Agent) and appointed by the Agent, demonstrating the market value of such Ship, on the basis and in the manner set out in clause 8.2.2; and

 

17 Further matters/conditions

any such other matter or conditions as may be required by the Agent.

 

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Part 3

 

1 Past conditions precedent

Evidence that the conditions precedent referred to in (a) Part 1 and (b) Part 2 (but in respect of the Ship to which the Second Advance relates) of this schedule 3, remain satisfied;

 

2 Valuation

if requested by the Agent, a valuation of the Ship to which the Second Advance relates made (at the cost of the Borrowers) by two (2) or (as the case may be) three (3) Approved Shipbrokers nominated by the Borrowers (or, failing this, by the Agent) and appointed by the Agent, demonstrating the market value of such Ship, on the basis and in the manner set out in clause 8.2.2; and

 

3 Mortgaged Ship

evidence that the Ship relevant to such Second Advance remains a Mortgaged Ship.

 

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Schedule 4

Form of Transfer Certificate

(referred to in clause 15.3)

TRANSFER CERTIFICATE

Banks are advised not to employ Transfer Certificates or otherwise to assign or transfer interests in the Loan Agreement without further ensuring that the transaction complies with all applicable laws and regulations, including the Financial Services and Markets Act 2000 and regulations made thereunder and similar statutes which may be in force in other jurisdictions

 

To: DNB NOR BANK ASA as agent on its own behalf and on behalf of the Borrowers, the Account Bank, the Security Agent, the Arranger, the Swap Provider and the Banks defined in the Loan Agreement referred to below.

[Date]

Attention: [ ]

This certificate (“ Transfer Certificate ”) relates to a loan agreement dated [ ] 2010 (the “ Loan Agreement ”) and made between (1) Likiep Shipping Company Inc. and Orangina Inc. as joint and several borrowers (the “ Borrowers ”), (2) the banks and financial institutions set out in schedule 1 thereto as banks (the “ Banks ”) and (3) DnB NOR Bank ASA as Arranger, Agent, Security Agent, Swap Provider and Account Bank, in relation to a loan of up to $40,000,000. Terms defined in the Loan Agreement shall, unless otherwise defined herein, have the same meanings herein as therein.

In this Certificate:

the “ Transferor ” means [ full name ] of [ lending office ]; and

the “ Transferee ” means [ full name ] of [ lending office ].

 

1 The Transferor with full title guarantee assigns to the Transferee absolutely all rights and interests (present, future or contingent) which the Transferor has as a Bank under or by virtue of the Loan Agreement and all the Security Documents in relation to that part of the [Contribution] [Available Commitment] of the Transferor (or its predecessors in title) details of which are set out below:

 

Date of Advances

   Amount of Advance      Transferor’s
[Contribution]

[Available
Commitment]

to Advance
     Maturity Date  
        

 

2 By virtue of this Transfer Certificate and clause 15 of the Loan Agreement, the Transferor is discharged [entirely from its [Contribution] [Commitment] which amounts to $[            ]] [from [    ] per cent ([    ]%) of its [Contribution] [Commitment] in respect of both Advances], which percentage represents $[            ]].

 

68


 

3 The Transferee hereby requests the Borrowers, the Agent (on behalf of itself, the Account Bank, the Arranger, the Security Agent, the Swap Provider and the Banks) to accept the executed copies of this Transfer Certificate as being delivered pursuant to and for the purposes of clause 15.3 of the Loan Agreement so as to take effect in accordance with the terms thereof on [ date of transfer ].

 

4 The Transferee:

 

4.1 confirms that it has received a copy of the Loan Agreement and the other Security Documents together with such other documents and information as it has required in connection with the transaction contemplated thereby;

 

4.2 confirms that it has not relied and will not hereafter rely on the Transferor, the Agent, the Security Agent, the Swap Provider, the Arranger, the Account Bank or the other Banks to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of the Loan Agreement, any of the Security Documents or any such documents or information;

 

4.3 agrees that it has not relied and will not rely on the Transferor, the Agent, the Security Agent, the Arranger, the Account Bank, the Swap Provider or the Banks to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrowers or either of them or any other Security Party (save as otherwise expressly provided therein);

 

4.4 warrants that it has power and authority to become a party to the Loan Agreement and has taken all necessary action to authorise execution of this Transfer Certificate and to obtain all necessary approvals and consents to the assumption of its obligations under the Loan Agreement and the Security Documents; and

 

4.5 if not already a Bank, appoints (i) the Agent to act as its agent and (ii) the Security Agent to act as its security agent and trustee, in each case as provided in the Loan Agreement and the Security Documents and agrees to be bound by the terms of the Loan Agreement and the other Security Documents.

 

5 The Transferor:

 

5.1 warrants to the Transferee that it has full power to enter into this Transfer Certificate and has taken all corporate action necessary to authorise it to do so;

 

5.2 warrants to the Transferee that this Transfer Certificate is binding on the Transferor under the laws of England, the country in which the Transferor is incorporated and the country in which its lending office is located; and

 

5.3 agrees that it will, at its own expense, execute any documents which the Transferee reasonably requests for perfecting in any relevant jurisdiction the Transferee’s title under this Transfer Certificate or for a similar purpose.

 

6 The Transferee hereby undertakes with the Transferor and each of the other parties to the Loan Agreement and the other Security Documents that it will perform in accordance with its terms all those obligations which by the terms of the Loan Agreement and the other Security Documents will be assumed by it after delivery of the executed copies of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.

 

7

By execution of this Transfer Certificate on their behalf by the Agent and in reliance upon the representations and warranties of the Transferee, the Borrowers, the Account Bank, the Arranger, the Security Agent, the Swap Provider and the Banks accept the Transferee as a party to the Loan Agreement and the Security Documents with respect to all those rights and/or obligations which by the terms of the Loan Agreement and the Security Documents will be assumed by the Transferee (including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent, the Arranger, the Account Bank, the Swap

 

69


 

Provider and the Security Agent as provided by the Loan Agreement) after delivery of the executed copies of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.

 

8 None of the Transferor, the Agent, the Security Agent, the Account Bank, the Arranger, the Swap Provider or the Banks:

 

8.1 makes any representation or warranty nor assumes any responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Loan Agreement or any of the Security Documents or any document relating thereto; or

 

8.2 assumes any responsibility for the financial condition of the Borrowers or either of them or any other Security Party or any party to any such other document or for the performance and observance by the Borrowers or either of them or any other Security Party or any party to any such other document (save as otherwise expressly provided therein) and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded (except as aforesaid).

 

9 The Transferor and the Transferee each undertake that they will on demand fully indemnify the Agent in respect of any claim, proceeding, liability or expense which relates to or results from this Transfer Certificate or any matter concerned with or arising out of it unless caused by the Agent’s gross negligence or wilful misconduct, as the case may be.

 

10 The agreements and undertakings of the Transferee in this Transfer Certificate are given to and for the benefit of and made with each of the other parties to the Loan Agreement and the Security Documents.

 

11 This Transfer Certificate is governed by, and shall be construed in accordance with, English law.

 

Transferor     Transferee
By:  

 

    By:  

 

Dated:  

 

    Dated:  

 

Agent

Agreed for and on behalf of itself as Agent, the Borrowers, the Security Agent, the Account Bank, the Arranger, the Swap Provider and the Banks.

 

DNB NOR BANK ASA

By:

 

 

Dated:

 

 

Note: The execution of this Transfer Certificate alone may not transfer a proportionate share of the Transferor’s interest in the security constituted by the Security Documents in the Transferor’s or Transferee’s jurisdiction. It is the responsibility of the Transferee to ascertain whether any other documents are required to perfect a transfer of such a share in the Transferor’s interest in such security in any such jurisdiction and, if so, to seek appropriate advice and arrange for execution of the same.

 

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The Schedule

Outstanding Contribution: $

Available Commitment: $

Portion Transferred: %

Administrative Details of Transferee

Name of Transferee:

Lending Office:

Contact Person

(Loan Administration Department):

Telephone:

Telefax No:

Contact Person:

(Credit Administration Department):

Telephone:

Telefax No:

Account for payments:

 

71


 

Schedule 5

Form of Trust Deed

THIS DECLARATION OF TRUST made by DNB NOR BANK ASA (the “ Security Agent ”) is made on [ ] 2010 and is supplemental to (and made pursuant to the terms of) a Loan Agreement dated [ ] 2010 (the “ Agreement ”) and made between (1) Likiep Shipping Company Inc. and Orangina Inc. as joint and several Borrowers, (2) the banks and financial institutions mentioned in schedule 1 to the Agreement as the Banks and (3) DnB NOR Bank ASA as Arranger, Agent, Security Agent, Swap Provider and Account Bank. Words and expressions defined in the Agreement shall have the same meaning when used in this Deed.

NOW THIS DEED WITNESSETH as follows:

 

1 The Security Agent hereby acknowledges and declares that, from the date of this Deed, it holds and shall hold the Trust Property on trust for the Banks, the Agent and the Swap Provider on the terms and basis set out in the Agreement.

 

2 The declaration and acknowledgement contained in paragraph 1 above shall be irrevocable.

IN WITNESS whereof the Security Agent has executed this Deed the day and year first above written.

 

SIGNED, SEALED and DELIVERED

  )         
as a DEED   )         
by   )      

 

  
for and on behalf of   )       Attorney-in-fact   
DNB NOR BANK ASA   )         
(as Security Agent)   )         

 

72


 

Schedule 6

Mandatory Cost formula

 

1 The Mandatory Cost is an addition to the interest rate to compensate Banks for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

 

2 On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the “ Additional Cost Rate ”) for each Bank, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Banks’ Additional Cost Rates (weighted in proportion to the percentage participation of each Bank in the Loan or any relevant unpaid sum) and will be expressed as a percentage rate per annum.

 

3 The Additional Cost Rate for any Bank lending from a lending office in a Participating Member State will be the percentage notified by that Bank to the Agent. This percentage will be certified by that Bank in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Bank’s participation in the Loan or the relevant unpaid sum made from that lending office) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that lending office.

 

4 The Additional Cost Rate for any Bank lending from a lending office in the United Kingdom will be calculated by the Agent as follows:

 

E  x 0.01   

per cent per annum.

300   

Where E is designed to compensate Banks for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Reference Banks to the Agent pursuant to paragraph 6 below and expressed in pounds per £1,000,000.

 

5 For the purposes of this Schedule:

 

  (a) Fees Rules ” means the rules on periodic fees contained in the Financial Services Authority Fees Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;

 

  (b) Fee Tariffs ” means the fee tariffs specified in the Fees Rules under Column 1 of the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate);

 

  (c) Participating Member State ” means any member of the European Union that adopts or has adopted the euro as its lawful currency in accordance with the legislation of the European Community relating to the Economic and Monetary Union;

 

  (d) Special Deposits ” has the meaning given to it from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; and

 

  (e) Tariff Base ” has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.

 

6 If requested by the Agent, each Reference Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Reference Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Reference Bank as being the average of the Fee Tariffs applicable to that Reference Bank for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of that Reference Bank.

 

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7 Each Bank shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Bank shall supply the following information on or prior to the date on which it becomes a Bank:

 

  (a) the jurisdiction of its lending office; and

 

  (b) any other information that the Agent may reasonably require for such purpose.

Each Bank shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.

 

8 The rates of charge of each Reference Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 6 and 7 above and on the assumption that, unless a Bank notifies the Agent to the contrary, each Bank’s obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a lending office in the same jurisdiction as its lending office.

 

9 The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank or Reference Bank pursuant to paragraphs 3, 6 and 7 above is true and correct in all respects.

 

10 The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank and each Reference Bank pursuant to paragraphs 3, 6 and 7 above.

 

11 Any determination by the Agent pursuant to this schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

 

12 The Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all parties to this Agreement any amendments which are required to be made to this schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

 

74


 

Schedule 7

Form of Mortgage

 

75


Private & Confidential      Draft (3): 2 July 2010
    

YIC/MGKA/AT02217

Proforma Ml Mortgage

Dated [ ] July 2010

 

 

   [LIKIEP SHIPPING COMPANY INC.]    (1)
   [ORANGINA INC.]   
   and   
   DNB NOR BANK ASA    (2)

 

 

FIRST PREFERRED MARSHALL ISLANDS SHIP

MORTGAGE

on m.v. [Sagitta] [Centaurus]

 

 

LOGO


 

Contents

 

Clause        Page  
1   Definitions      2   
2   Grant, conveyance and mortgage      5   
3   Covenants to pay and perform      6   
4   Continuing security and other matters      6   
5   Covenants      7   
6   Powers of Mortgagee to protect security and remedy defaults      14   
7   Powers of Mortgagee on Event of Default      15   
8   Application of moneys      16   
9   Remedies cumulative and other provisions      17   
10   Costs and indemnity      17   
11   Attorney      18   
12   Further assurance      18   
13   Total amount and maturity      19   
14   Law, jurisdiction and other provisions      19   
15   Notices      20   
Schedule 1 Form of Loan Agreement      22   
Schedule 2 Form of Master Swap Agreement      23   


 

THIS FIRST PREFERRED SHIP MORTGAGE is dated [ ] July 2010 and made BY :

 

(1) [LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.] , a corporation incorporated under the laws of the Republic of the Marshall Islands, whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Republic of The Marshall Islands MH96960 (the “ Owner ”); in favour of

 

(2) DNB NOR BANK ASA , a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Mortgage through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England as security agent and trustee for and on behalf of the Secured Creditors (as defined below) and for the benefit of itself and the Secured Creditors (the “ Mortgagee ”).

WHEREAS:

 

(A) the Owner is the sole, absolute and unencumbered, legal and beneficial owner of the whole of m.v. [Sagitta] [Centaurus] , documented under the laws and flag of the Republic of the Marshall Islands, Official Number [3988] [3987], of [36087] [36087] gross tons and [15774] [15774] net tons;

 

(B) by a loan agreement dated [ ] July 2010 (the “ Loan Agreement ”) made between (1) the Owner and [Orangina Inc.] [Likiep Shipping Company Inc.] as joint and several borrowers (therein referred to as the “ Borrowers ”), (2) DnB NOR Bank ASA as arranger, (3) DnB NOR Bank ASA as agent (in such capacity the “ Agent ”), security agent, swap provider (in such capacity the “ Swap Provider ”) and account bank (in such capacity the “ Account Bank ”) and (4) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ” and, together with the Agent and the Swap Provider, the “ Secured Creditors ”) (the form of which Loan Agreement without its schedules is annexed hereto as schedule 1 and which forms an integral part hereof and in respect of which the terms and conditions thereof shall be considered as a part hereof), the Banks agreed (inter alia) to advance by way of loan to the Owner, upon the terms and conditions therein contained, the principal sum of up to Forty million United States Dollars (US$40,000,000);

 

(C) by a 1992 ISDA Master Agreement dated [as of] [ ] July 2010 (the “ Master Swap Agreement ”), made between the Borrowers and the Swap Provider (a copy of the form of which Master Swap Agreement is annexed hereto as schedule 2 and forms an integral part hereof) and comprising an ISDA Master Agreement (including the Schedule thereto), the Confirmations (as defined therein) supplemental thereto, and any Transactions governed thereby, the Swap Provider agreed the terms and conditions upon which it would enter with the Borrowers into ( inter alia ) one or more interest rate swap or other derivative transactions in respect of the Loan (whether in whole or in part, as the case may be) from time to time. The Owner has agreed pursuant to this Mortgage to secure the debts and obligations arising or that may arise in favour of the Mortgagee under the Master Swap Agreement and the Owner and the Mortgagee agree for the purpose of this Mortgage that the maximum amount of such obligations to be secured by this Mortgage shall be Three million United States Dollars (US$ 3,000,000) (the “ Swap Amount ”);

 

(D) pursuant to clause 16.14 of the Loan Agreement, each of the Secured Creditors has appointed the Mortgagee (referred to in the Loan Agreement as “ Security Agent ”) as its security agent and trustee and pursuant to a Trust Deed dated [ ] July 2010 executed by the Mortgagee (as trustee) in favour of the Secured Creditors, the Mortgagee agreed to hold, receive, administer and enforce this Mortgage for and on behalf of itself and the Secured Creditors;

 

(E) pursuant to the said Loan Agreement the Mortgagee on the date hereof has agreed to advance to the Owner (and the Owner is indebted to the Mortgagee in) a total principal amount of up to Forty million United States Dollars (US$40,000,000) which (together with interest (as provided in clause 3.1 of the said Loan Agreement) thereon and fees) is to be repaid and paid, as the case may be, as provided in the Loan Agreement; and

 

(F)

the Owner, in order to secure the repayment of the said principal amount and interest thereon, the Master Swap Agreement Liabilities up to the Swap Amount and all other sums of money

 

1


 

from time to time owing to the Mortgagee under the said Loan Agreement and the other Security Documents and the performance and observance of and compliance with all of the covenants, terms and conditions contained in this Mortgage and the said Loan Agreement and/or the Master Swap Agreement, has duly authorised the execution and delivery of this First Preferred Mortgage under and pursuant to Chapter 3 of the Maritime Act 1990 of the Republic of The Marshall Islands, as amended.

NOW THIS MORTGAGE WITNESSETH AND IT IS HEREBY AGREED as follows:

 

1 Definitions

 

1.1 Defined expressions

Words and expressions defined in the Loan Agreement shall, unless the context otherwise requires or unless otherwise defined herein, have the same meanings when used in this Mortgage.

 

1.2 Definitions

In this Mortgage unless the context otherwise requires:

Agent ” includes the successors in title, assignees, transferees and/or replacements of the Agent;

Approved Brokers ” means such firm or firms of insurance brokers, appointed by the Owner, as may from time to time be approved in writing by the Mortgagee for the purposes of this Mortgage;

Banks ” includes their Transferee Banks and their respective successors in title;

Casualty Amount ” means Seventy hundred and fifty thousand United States Dollars (US$750,000) (or the equivalent in any other currency);

Collateral Instruments ” means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Earnings ” means all moneys whatsoever from time to time due or payable to the Owner during the Security Period arising out of the use or operation of the Ship including (but without limiting the generality of the foregoing) all freight, hire and passage moneys, income arising under pooling arrangements, compensation payable to the Owner in the event of requisition of the Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship;

Expenses ” means the aggregate at any relevant time (to the extent that the same have not been received or recovered by the Mortgagee) of:

 

  (a) all losses, liabilities, costs, charges, expenses, damages and outgoings of whatever nature, (including, without limitation, Taxes, repair costs, registration fees and insurance premiums) suffered, incurred or paid by the Mortgagee in connection with the exercise of the powers referred to in or granted by the Loan Agreement, the Master Swap Agreement, the General Assignment or this Mortgage or any other of the Security Documents or otherwise payable by the Owner in accordance with clause 10 or clause 8 of the General Assignment; and

 

2


 

  (b) interest on all such losses, liabilities, costs, charges, expenses, damages and outgoings from the date on which the same were suffered, incurred or paid by the Mortgagee until the date of receipt or recovery thereof (whether before or after judgement) at a rate per annum calculated in accordance with clause 3.4 of the Loan Agreement (as conclusively certified by the Mortgagee);

General Assignment ” means a deed of assignment dated [ ] July 2010 made between the Owner and the Mortgagee whereby the Owner has assigned to the Mortgagee the Insurances, any Requisition Compensation and the Earnings of the Ship;

Insurances ” means all policies and contracts of insurance (which expression includes all entries of the Ship in a protection and indemnity or war risks association) which are from time to time during the Security Period in place or taken out or entered into by or for the benefit of the Owner (whether in the sole name of the Owner, or in the joint names of the Owner and the Mortgagee or otherwise) in respect of the Ship and her Earnings or otherwise howsoever in connection with the Ship and all benefits thereof (including claims of whatsoever nature and return of premiums);

Loan ” means the total principal amount of up to Forty million United States Dollars (US$40,000,000) referred to in recital (B) hereto advanced or to be advanced by the Banks to the Borrowers pursuant to the Loan Agreement or (as the context may require) the amount thereof at any time advanced and outstanding;

Loan Agreement ” means the agreement dated [ ] July 2010 mentioned in recital (B) hereto;

Loss Payable Clauses ” means the provisions regulating the manner of payment of sums receivable under the Insurances which are to be incorporated in the relevant insurance documents, such provisions to be in the forms set out in schedule 1 to the General Assignment or in such other forms as may from time to time be required or agreed in writing by the Mortgagee;

Master Swap Agreement ” means the agreement referred to in recital (C) hereto;

Master Swap Agreement Liabilities ” means at any relevant time all liabilities, actual or contingent, present or future, owing to the Swap Provider under the Master Swap Agreement;

Mortgagee ” includes its successors in title, assignees, transferees and/or replacements;

Notice of Assignment of Insurances ” means a notice of assignment in the form set out in schedule 2 to the General Assignment or in such other form as may from time to time be required or agreed in writing by the Mortgagee;

Operative Account ” means an interest bearing Dollar account of the Owner opened or (as the context may require) to be opened by the Owner with the Account Bank and includes any sub-accounts thereof and any other account designated in writing by the Mortgagee to be an “Earnings Account” for the purposes of this Mortgage;

Outstanding Indebtedness ” means the aggregate of the Loan and interest accrued and accruing thereon, the Master Swap Agreement Liabilities up to the Swap Amount, the Expenses and all other sums of money from time to time owing by the Borrowers or either of them to the Secured Creditors and/or the Mortgagee or any of them, whether actually or contingently, under the Security Documents or any of them;

Owner ” includes the successors in title of the Owner;

Requisition Compensation ” means all moneys or other compensation from time to time payable during the Security Period by reason of the Compulsory Acquisition of the Ship;

Secured Creditors ” means the Agent, the Swap Provider and the Banks;

 

3


 

Security Documents ” means the Loan Agreement, this Mortgage, the General Assignment, the Master Swap Agreement and any other document as is defined in the Loan Agreement as a Security Document or as may have been or may hereafter be executed to guarantee and/or secure all or any part of the Loan, interest thereon, the Master Swap Agreement Liabilities and other moneys from time to time owing by the Borrowers or either of them or any other Security Party pursuant to the Loan Agreement and/or the Master Swap Agreement and/or other Security Document (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Period ” means the period commencing on the date hereof and terminating upon discharge of the security created by the Security Documents by payment of all moneys payable thereunder;

Ship ” means the vessel described in recital (A) hereto and includes any interest therein and her engines, machinery, boats, tackle, outfit, equipment, spare gear, fuel, consumable or other stores, belongings and appurtenances whether on board or ashore and whether now owned or hereafter acquired and also any and all additions, improvements and replacements hereafter made in or to such vessel or any part thereof or in or to her equipment and appurtenances aforesaid;

Swap Provider ” includes the successors in title, assignees and/or transferees of the Swap Provider; and

Total Loss ” means:

 

  (a) actual, constructive, compromised or arranged total loss of the Ship; or

 

  (b) the Compulsory Acquisition of the Ship; or

 

  (c) the hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of the Ship (other than where the same amounts to the Compulsory Acquisition of the Ship) by any Government Entity, or by persons acting or purporting to act on behalf of any Government Entity, unless the Ship be released and restored to the Owner from such hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation within thirty (30) days after the occurrence thereof.

 

1.3 Insurance terms

In clause 5.1.1:

 

1.3.1 excess risks ” means the proportion (if any) of claims for general average, salvage and salvage charges and under the ordinary collision clause not recoverable in consequence of the value at which a vessel is assessed for the purpose of such claims exceeding her insured value;

 

1.3.2 protection and indemnity risks ” means the usual risks (including oil pollution and freight, demurrage and defence cover) covered by a United Kingdom protection and indemnity association or a protection and indemnity association which is managed in London (including, without limitation, the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation therein of clause 8 of the Institute Time Clauses (Hulls) (1/11/95) or the Institute Amended Running Down Clause (1/10/71) or any equivalent provision which may be incorporated by entry with such association); and

 

1.3.3 war risks ” includes those risks covered by the standard form of English marine policy with Institute War and Strikes Clauses Hulls -Time (1/11/95) attached or similar cover.

 

4


 

1.4 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Mortgage.

 

1.5 Construction of certain terms

In this Mortgage, unless the context otherwise requires:

 

1.5.1 references to clauses and schedules are to be construed as references to clauses of, and schedules to, this Mortgage and references to this Mortgage include its schedules;

 

1.5.2 references to (or to any specified provision of) this Mortgage or any other document shall be construed as references to this Mortgage, that provision or that document as in force for the time being and as amended in accordance with the terms thereof or, as the case may be, with the agreement of the relevant parties;

 

1.5.3 words importing the plural shall include the singular and vice versa;

 

1.5.4 references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

 

1.5.5 references to a “ guarantee ” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “ guaranteed ” shall be construed accordingly; and

 

1.5.6 references to statutory provisions shall be construed as references to those provisions as replaced or amended or re-enacted from time to time.

 

1.6 Conflict with Loan Agreement or Master Swap Agreement

This Mortgage shall be read together with the Loan Agreement and the Master Swap Agreement and in the event of any conflict between (a) this Mortgage and (b) any of such two documents, the Loan Agreement or, as the case may be, the Master Swap Agreement shall prevail over the provisions of this Mortgage, provided however that anything to the contrary herein notwithstanding, this Mortgage shall be governed solely and exclusively by Marshall Islands law.

 

2 Grant, conveyance and mortgage

For good and valuable consideration, (receipt of which is hereby acknowledged by the Owner) and, pursuant to the Loan Agreement and the Master Swap Agreement and in order to secure the repayment of the Outstanding Indebtedness and to secure the performance and observance of and compliance with the covenants, terms and conditions in this Mortgage, the Loan Agreement, the Master Swap Agreement and the other Security Documents contained and supplemental thereto, express or implied, the Owner has granted, conveyed and mortgaged and does by these presents grant, convey and mortgage unto the Mortgagee, the whole of the Ship TO HAVE AND TO HOLD the same unto the Mortgagee forever, upon the terms herein set forth, for the enforcement of the payment of the Outstanding Indebtedness and to secure the performance and observance of and compliance with the covenants, terms and conditions in this Mortgage, the Loan Agreement, the Master Swap Agreement and the other Security Documents contained and supplemental thereto, express or implied.

PROVIDED ONLY , and the condition of these presents is such that, if the Owner shall pay or cause to be repaid to the Mortgagee, the Outstanding Indebtedness as and when the same shall become due and payable in accordance with the terms of the Loan Agreement, this Mortgage, the Master Swap Agreement and the other Security Documents and shall observe and comply with the covenants, terms and conditions in the Loan Agreement, this Mortgage, the Master Swap Agreement and the other Security Documents contained and supplemental thereto, expressed or implied, to be performed, observed or complied with, by and on the part of the Owner, then these presents and the rights hereunder shall cease, determine and be void, otherwise to be and remain in full force and effect.

 

5


 

IT IS NOT INTENDED that this Mortgage shall cover, and this Mortgage shall not cover, property other than the Ship as the term “Vessel” is used in Section 308(2) of Chapter 3 of the Maritime Act 1990 of the Republic of The Marshall Islands as amended.

 

3 Covenants to pay and perform

 

3.1 For the consideration aforesaid the Owner hereby covenants with the Mortgagee as follows:

 

3.1.1 the Owner will repay the Loan to the Banks by the instalments, at the times and in the manner specified in the Loan Agreement;

 

3.1.2 the Owner will pay to the Banks interest on the Loan at the rates, at the times and in the manner specified in the Loan Agreement;

 

3.1.3 the Owner will pay the full amount of all other moneys comprising the Outstanding Indebtedness (including without limitation the Master Swap Agreement Liabilities) as and when the same shall become due and payable in accordance with the terms of the Security Documents or any of them;

 

3.1.4 the Owner will pay interest at a rate per annum calculated in accordance with clause 3.4 of the Loan Agreement (as conclusively certified by the Mortgagee) on any moneys which are by this Mortgage expressed to be payable on demand and which are not paid forthwith on demand being made as from the date of demand until payment (both before and after any judgement) provided however that this provision shall not affect the right of the Mortgagee to receive that part of its Expenses as comprises interest from such date prior to demand being made as is referred to in the definition of Expenses; and

 

3.1.5 the Owner will keep, perform and observe the covenants and provisions of the Loan Agreement and the Master Swap Agreement.

 

4 Continuing security and other matters

 

4.1 Continuing security

The security created by this Mortgage shall:

 

4.1.1 be held by the Mortgagee as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions contained in the Security Documents, express or implied, and the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between the Owner or any other person who may be liable to the Mortgagee and/or the Secured Creditors in respect of the Outstanding Indebtedness or any part thereof and the Mortgagee and/or the Secured Creditors);

 

4.1.2 be in addition to, and shall not in any way prejudice or affect, and may be enforced by the Mortgagee without prior recourse to, the security created by any other of the Security Documents or by any present or future Collateral Instruments, rights or remedies held by or available to the Mortgagee and/or the Secured Creditors or any of them or any right or remedy of the Mortgagee and/or the Secured Creditors thereunder; and

 

4.1.3 not be in any way prejudiced or affected by the existence of any of the other Security Documents or any such Collateral Instruments, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Mortgagee and/or the Secured Creditors dealing with, exchanging, varying or failing to perfect or enforce any of the same, or giving time for payment or performance or indulgence or compounding with any other person liable.

 

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4.2 Rights additional

All the rights, powers and remedies vested in the Mortgagee hereunder shall be in addition to and not a limitation of any and every other right, power or remedy vested in the Mortgagee and/or the Secured Creditors under the Loan Agreement, the Master Swap Agreement, this Mortgage, the other Security Documents or any Collateral Instrument or at law and all the rights, powers and remedies so vested in the Mortgagee may be exercised from time to time and as often as the Mortgagee and/or the Secured Creditors may deem expedient.

 

4.3 No enquiry

The Mortgagee shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it under this Mortgage or to make any claim or take any action to collect any moneys or to enforce any rights or benefits to which the Mortgagee may at any time be entitled under this Mortgage.

 

4.4 Waiver of rights

The Owner hereby waives any rights under the provisions of the laws of a given country which require the Mortgagee to levy execution against the Owner or make any demand or claim against the Owner prior to the enforcement of rights under this Mortgage.

 

5 Covenants

 

5.1 The Owner further covenants with the Mortgagee and undertakes throughout the Security Period:

 

5.1.1 Insurance

 

  (a) Insured risks, amounts and terms

to insure and keep the Ship insured free of cost and expense to the Mortgagee and in the sole name of the Owner or, if so required by the Mortgagee, in the joint names of the Owner and the Mortgagee (but without liability on the part of the Mortgagee for premiums or calls):

 

  (i) against fire and usual marine risks (including excess risks) and war risks, on an agreed value basis, in such amounts (but not in any event less than whichever shall be the greater of (A) the market value of the Ship for the time being (as determined by the Agent pursuant to clause 8.2.2 of the Loan Agreement) and (B) the amount which, when aggregated with the amount of the equivalent insurance of the other Mortgaged Ship, shall be equal to at least one hundred and twenty per cent (120%) of the aggregate of (aa) the Loan and (bb) the Swap Exposure at the time) and upon such terms (which for the avoidance of doubt shall include a blocking and trapping clause) as shall from time to time be approved in writing by the Mortgagee;

 

  (ii) against protection and indemnity risks (including pollution risks for the highest amount in respect of which cover is or may become available for ships of the same type, size, age and flag as the Ship) for the full value and tonnage of the Ship (as approved in writing by the Mortgagee) and upon such terms as shall from time to time be approved in writing by the Mortgagee; and

 

  (iii) in respect of such other matters of whatsoever nature and howsoever arising in respect of which insurance would be maintained by a prudent owner of the Ship,

and to pay to the Mortgagee or to its order the cost (as conclusively certified by the Mortgagee) of (1) any mortgagee’s interest insurance (including, if the Mortgagee shall so require, mortgagee’s additional perils (including all P&l risks) coverage) which the Mortgagee may from time to time effect in respect of the Ship upon such terms and in

 

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such amounts (being in any event no less than such amount which, when aggregated with the amount of the equivalent insurance of the other Mortgaged Ship, shall be an amount equal to one hundred and ten per cent (110%) of the aggregate of (aa) the Loan and (bb) the Swap Exposure) as it shall deem desirable; and (2) any other insurance cover which the Mortgagee may from time to time effect in respect of the Ship and/or in respect of its interest and potential third party liability as mortgagee of the Ship as the Mortgagee shall deem desirable having regard to any limitations in respect of amount or extent of cover which may from time to time be applicable to any of the other insurances referred to in this clause 5.1.1(a);

 

  (b) Approved brokers, insurers and associations

to effect the insurances aforesaid in such currency as the Mortgagee may approve and through the Approved Brokers (other than the said Mortgagee’s interest insurance which shall be effected through brokers nominated by the Mortgagee) and with such insurance companies and/or underwriters as shall from time to time be approved in writing by the Mortgagee; provided however that the insurances against war risks and protection and indemnity risks may be effected by the entry of the Ship with such war risks and protection and indemnity associations as shall from time to time be approved in writing by the Mortgagee;

 

  (c) Fleet liens, set-off and cancellation

if any of the insurances referred to in clause 5.1.1(a) form part of a fleet cover, to procure that the Approved Brokers shall undertake to the Mortgagee that they shall neither set off against any claims in respect of the Ship any premiums due in respect of other vessels under such fleet cover or any premiums due for other insurances, nor cancel the insurance for reason of non-payment of premiums for other vessels under such fleet cover or of premiums for such other insurances, and shall undertake to issue a separate policy in respect of the Ship if and when so requested by the Mortgagee;

 

  (d) Payment of premiums and calls

punctually to pay all premiums, calls, contributions or other sums payable in respect of all such insurances and to produce all relevant receipts or other evidence of payment when so required by the Mortgagee;

 

  (e) Renewal

at least fourteen (14) days before the relevant policies, contracts or entries expire, to notify the Mortgagee of the names of the brokers and/or the war risks and protection and indemnity associations proposed to be employed by the Owner or any other party for the purposes of the renewal of such insurances and of the amounts in which such insurances are proposed to be renewed and the risks to be covered and, subject to compliance with any requirements of the Mortgagee pursuant to this clause 5.1.1, to procure that appropriate instructions for the renewal of such insurances on the terms so specified are given to the Approved Brokers and/or to the approved war risks and protection and indemnity associations at least ten (10) days before the relevant policies, contracts or entries expire, and that the Approved Brokers and/or the approved war risks and protection and indemnity associations will at least seven (7) days before such expiry (or within such shorter period as the Mortgagee may from time to time agree) confirm in writing to the Mortgagee as and when such renewals have been effected in accordance with the instructions so given;

 

  (f) Guarantees

to arrange for the execution and delivery of such guarantees or indemnities as may from time to time be required by any protection and indemnity or war risks association;

 

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  (g) Hull policy documents, notices, loss payable clauses and brokers’ undertakings

to deposit with the Approved Brokers (or procure the deposit of) all slips, cover notes, policies, certificates of entry or other instruments of insurance from time to time issued in connection with such of the insurances referred to in clause 5.1.1(a) as are effected through the Approved Brokers and procure that the interest of the Mortgagee shall be endorsed thereon by incorporation of the relevant Loss Payable Clause and, where the Insurances have been assigned to the Mortgagee, by means of a Notice of Assignment of Insurances (signed by the Owner and by any other assured who shall have assigned its interest in the Insurances to the Mortgagee) and that the Mortgagee shall be furnished with pro forma copies thereof and a letter or letters of undertaking from the Approved Brokers in such form as shall from time to time be required by the Mortgagee;

 

  (h) Associations’ loss payable clauses, undertakings and certificates

to procure that any protection and indemnity and/or war risks associations in which the Ship is for the time being entered shall endorse the relevant Loss Payable Clause on the relevant certificate of entry or policy and shall furnish the Mortgagee with a copy of such certificate of entry or policy and a letter or letters of undertaking in such form as may from time to time be required by the Mortgagee;

 

  (i) Extent of cover and exclusions

to take all necessary action and comply with all requirements which may from time to time be applicable to the Insurances (including, without limitation, the making of all requisite declarations within any prescribed time limits and the payment of any additional premiums or calls) so as to ensure that the Insurances are not made subject to any exclusions or qualifications to which the Mortgagee has not given its prior written consent and are otherwise maintained on terms and conditions from time to time approved in writing by the Mortgagee;

 

  (j) Correspondence with brokers and associations

to provide to the Mortgagee, at the time of each such communication, copies of all written communications between the Owner and the Approved Brokers and approved war risks and protection and indemnity associations which relate to compliance with requirements from time to time applicable to the Insurances including, without limitation, all requisite declarations and payments of additional premiums or calls referred to in clause 5.1.1(i);

 

  (k) Independent report

if so requested by the Mortgagee, but at the cost of the Owner, to furnish the Mortgagee from time to time with a detailed report signed by an independent firm of marine insurance brokers appointed by the Mortgagee dealing with the insurances maintained on the Ship and stating the opinion of such firm as to the adequacy thereof;

 

  (l) Collection of claims

to do all things necessary and provide all documents, evidence and information to enable the Mortgagee to collect or recover any moneys which shall at any time become due in respect of the Insurances;

 

  (m) Employment of Ship

not to employ the Ship or suffer the Ship to be employed otherwise than in conformity with the terms of the Insurances (including any warranties express or implied therein) without first obtaining the consent of the insurers to such employment and complying with such requirements as to extra premium or otherwise as the insurers may prescribe; and

 

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  (n) Application of recoveries

to apply all sums receivable under the Insurances which are paid to the Owner in accordance with the Loss Payable Clauses in repairing all damage and/or in discharging the liability in respect of which such sums shall have been received;

 

5.1.2 Ship’s name and registration

not to change the name of the Ship and to keep the Ship registered as a Marshall Islands ship and not to do or suffer to be done anything, or omit to do anything the doing or omission of which could or might result in such registration being forfeited or imperilled or which could or might result in the Ship being required to be registered under any other flag than the Marshall Islands flag and not to register the Ship or permit its registration under any other flag without the prior written consent of the Mortgagee;

 

5.1.3 Repair

to keep the Ship in a good and efficient state of repair and to procure that all repairs to or replacement of any damaged, worn or lost parts or equipment are effected in such manner (both as regards workmanship and quality of materials) as not to diminish the value of the Ship;

 

5.1.4 Modification; removal of parts; equipment owned by third parties

not without the prior written consent of the Mortgagee to, or suffer any other person to:

 

  (a) make any modification to the Ship in consequence of which her structure, type or performance characteristics could or might be materially altered or her value materially reduced; or

 

  (b) remove any material part of the Ship or any equipment the value of which is such that its removal from the Ship would materially reduce the value of the Ship without replacing the same with equivalent parts or equipment which are owned by the Owner free from Encumbrances; or

 

  (c) install on the Ship any equipment owned by a third party which cannot be removed without causing damage to the structure or fabric of the Ship;

 

5.1.5 Maintenance of class; compliance with regulations

to maintain the relevant Classification as the class of the Ship and to comply with and ensure that the Ship at all times complies with the provisions of all laws, regulations and requirements (statutory or otherwise) from time to time applicable to vessels registered under the laws and flag of the Republic of the Marshall Islands or otherwise applicable to the Ship;

 

5.1.6 Surveys

to submit the Ship to continuous surveys and such periodical or other surveys as may be required for classification purposes and if so required to supply to the Mortgagee copies of all survey reports issued in respect thereof;

 

5.1.7 Inspection

to ensure that the Mortgagee, by surveyors or other persons appointed by it for such purpose (but at the expense of the Owner), may board the Ship at all reasonable times for the purpose of inspecting her and her records and to afford all proper facilities for such inspections and for this purpose to give the Mortgagee reasonable advance notice of any intended drydocking of the Ship (whether for the purpose of classification, survey or otherwise);

 

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5.1.8 Prevention of and release from arrest

promptly to pay and discharge all debts, damages, liabilities and outgoings whatsoever which have given or may give rise to maritime, statutory or possessory liens on, or claims enforceable against, the Ship, her Earnings or Insurances or any part thereof and, in the event of a writ or libel being filed against the Ship, her Earnings or Insurances or any part thereof, or of any of the same being arrested, attached or levied upon pursuant to legal process or purported legal process or in the event of detention of the Ship in exercise or purported exercise of any such lien or claim as aforesaid, to procure the release of the Ship, her Earnings and Insurances from such arrest, detention, attachment or levy or, as the case may be, the discharge of the writ or libel forthwith upon receiving notice thereof by providing bail or procuring the provision of security or otherwise as the circumstances may require;

 

5.1.9 Employment

not to employ the Ship or permit her employment in any manner, trade or business which is forbidden by Marshall Islands law, or international law, or which is otherwise unlawful or illicit under the law of any relevant jurisdiction, or in carrying illicit or prohibited goods, or in any manner whatsoever which may render her liable to condemnation in a prize court, or to destruction, seizure, confiscation, penalty or sanctions and, in the event of hostilities in any part of the world (whether war be declared or not), not to employ the Ship or permit her employment in carrying any contraband goods, or to enter or trade to or to continue to trade in any zone which has been declared a war zone by any Government Entity or by the Ship’s war risks insurers unless the prior written consent of the Mortgagee is obtained and such special insurance cover as the Mortgagee may require shall have been effected by the Owner and at its expense;

 

5.1.10 Information

promptly to furnish to the Mortgagee all such information as it may from time to time require regarding the Ship, her employment, position and engagements, particulars of all towages and salvages, and copies of all charters and other contracts for her employment or otherwise howsoever concerning her;

 

5.1.11 Notification of certain events

to notify the Mortgagee forthwith by facsimile thereafter confirmed by letter of:

 

  (a) any damage to the Ship requiring repairs the cost of which will or might exceed the Casualty Amount;

 

  (b) any occurrence in consequence of which the Ship has or may become a Total Loss;

 

  (c) any requisition of the Ship for hire;

 

  (d) any requirement or recommendation made by any insurer or the relevant Classification Society or by any competent authority which is not, or cannot be, complied with in accordance with its terms;

 

  (e) any arrest or detention of the Ship or any exercise or purported exercise of a lien or other claim on the Ship or the Earnings or Insurances or any part thereof;

 

  (f) any petition or notice of meeting to consider any resolution to wind-up the Owner (or any event analogous thereto under the laws of the place of its incorporation);

 

  (g) the occurrence of any Default; or

 

  (h) the occurrence of any Environmental Claim against the Owner, the Ship, any other Relevant Party or any other Relevant Ship or any incident, event or circumstance which may give rise to any such Environmental Claim;

 

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5.1.12 Payment of outgoings and evidence of payments

promptly to pay all tolls, dues and other outgoings whatsoever in respect of the Ship and her Earnings and Insurances and to keep proper books of account in respect of the Ship and her Earnings and, as and when the Mortgagee may so require, to make such books available for inspection on behalf of the Mortgagee, and to furnish satisfactory evidence that the wages and allotments and the insurance and pension contributions of the Master and crew are being promptly and regularly paid and that all deductions from crew’s wages in respect of any tax liability are being properly accounted for and that the Master has no claim for disbursements other than those incurred by him in the ordinary course of trading on the voyage then in progress;

 

5.1.13 Encumbrances

not without the prior written consent of the Mortgagee (and then only subject to such conditions as the Mortgagee may impose) to create or purport or agree to create or permit to arise or subsist any Encumbrance (other than Permitted Liens) over or in respect of the Ship, any share or interest therein or in the Insurances, Earnings or Requisition Compensation or any part thereof or interest therein other than to or in favour of the Mortgagee;

 

5.1.14 Sale or other disposal

not without the prior written consent of the Mortgagee (and then only subject to such terms as the Mortgagee may impose) to sell, agree to sell, transfer, abandon or otherwise dispose of the Ship or any share or interest therein;

 

5.1.15 Chartering

except pursuant to the Charter, not without the prior written consent of the Mortgagee (which the Mortgagee shall have full liberty to withhold) and, if such consent is given, only subject to such conditions as the Mortgagee may impose, to lay up the Ship or to let the Ship:

 

  (a) on demise charter for any period;

 

  (b) by any time or consecutive voyage charter for a term which exceeds or which by virtue of any optional extensions therein contained might exceed twelve (12) months’ duration;

 

  (c) on terms whereby more than two (2) months’ hire (or the equivalent) is payable in advance; or

 

  (d) below the market rate prevailing at the time when the Ship is fixed or other than on arm’s length terms;

 

5.1.16 Sharing of Earnings

not without the prior written consent of the Mortgagee (and then only subject to such conditions as the Mortgagee may impose), to enter into any agreement or arrangement whereby the Earnings may be shared with any other person;

 

5.1.17 Payment of Earnings

to procure that the Earnings are paid to the Operating Account at all times unless and until the Mortgagee shall have directed to the contrary pursuant to clause 2.1.1 of the General Assignment and that any Earnings which are so payable and which are in the hands of the Owner’s brokers or agents are duly accounted for and paid over to the Mortgagee forthwith on demand;

 

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5.1.18 Repairers’ liens

not without the prior written consent of the Mortgagee, to put the Ship into the possession of any person for the purpose of work being done upon her in an amount exceeding or likely to exceed the Casualty Amount unless such person shall first have given to the Mortgagee in terms satisfactory to it, a written undertaking not to exercise any lien on the Ship or her Earnings for the cost of such work or otherwise;

 

5.1.19 Manager

not without the prior written consent of the Mortgagee, to appoint a manager of the Ship other than the Manager or to terminate or amend the terms of the Management Agreement in respect of the Ship;

 

5.1.20 Compliance with Marshall Islands law

to cause this Mortgage to be recorded as prescribed by Chapter 3 of the Maritime Act 1990 of the Republic of the Marshall Islands as amended and otherwise to comply with and satisfy all the requirements and formalities established by the said Maritime Act 1990 and any other pertinent legislation of the Republic of the Marshall Islands to perfect this Mortgage as a valid and enforceable first and preferred lien upon the Ship and to furnish to the Mortgagee from time to time such proofs as the Mortgagee may reasonably request for its satisfaction with respect to the Owner’s compliance with the provisions of this sub-clause;

 

5.1.21 Notice of Mortgage

to place and at all times and places use due diligence to retain a properly certified copy of this Mortgage (which shall form part of the Ship’s documents) on board the Ship with her papers and cause such certified copy of this Mortgage to be exhibited to any and all persons having business with the Ship which might create or imply any commitment or encumbrance whatsoever on or in respect of the Ship (other than a lien for crew’s wages and salvage) and to any representative of the Mortgagee and to place and keep prominently displayed in the navigation room and in the Master’s cabin of the Ship a framed printed notice in plain type reading as follows:

“NOTICE OF MORTGAGE

This Vessel is covered by a First Preferred Mortgage to DNB NOR BANK ASA of Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England under authority of Chapter 3 of the Maritime Act 1990 of the Republic of The Marshall Islands as amended. Under the terms of the said Mortgage neither the Owner nor any charterer nor the Master of this Vessel nor any other person has any right, power or authority to create, incur or permit to be imposed upon this Vessel any lien whatsoever other than for crew’s wages and salvage”

 

5.1.22 Conveyance on default

where the Ship is (or is to be) sold in exercise of any power contained in this Mortgage, to execute, forthwith upon request by the Mortgagee, such form of conveyance of the Ship as the Mortgagee may require;

 

5.1.23 Anti-drug abuse

without prejudice to clause 5.1.9, to take all necessary and proper precautions to prevent any infringements of the Anti-Drug Abuse Act of 1986 of the United States of America or any similar legislation applicable to the Ship in any jurisdiction in or to which the Ship shall be employed or located or trade or which may otherwise be applicable to the Ship and/or the Owner and, if the Mortgagee shall so require, to enter into a “Carrier Initiative Agreement” with the United States Customs and Border Protection and to procure that such agreement (or any similar agreement hereafter introduced by any Government Entity of the United States of America) is maintained in full force and effect and performed by the Owner;

 

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5.1.24 Compliance with Environmental Laws

to comply with, and use all reasonable and proper endeavours to procure that all Environmental Affiliates of the Owner comply with, all Environmental Laws in relation to the Ship including, without limitation, requirements relating to manning, submission of oil spill response plans, designation of qualified individuals and establishing and establishment of financial responsibility and to obtain and comply with, and use all reasonable and proper endeavours to procure that all Environmental Affiliates of the Owner obtain and comply with, all Environmental Approvals in relation to the Ship; and

 

5.1.25 Code

 

  (a) Compliance with the Code : to comply with and ensure that the Ship and its Operator at all times comply with the requirements of the Code;

 

  (b) Withdrawal of DOC or SMC : immediately to inform the Mortgagee of any threatened or actual withdrawal of any Operator’s DOC or the SMC for the Ship;

 

  (c) Issue of DOC or SMC : promptly to inform the Mortgagee of the issue of each DOC and each SMC for the Ship or of the receipt by any Operator of notification that any application for the same has been refused; and

 

  (d) Copy documentation : to provide the Mortgagee promptly on request with a copy (certified as a true copy by the Owner) of each DOC and each SMC for the Ship; and

 

5.1.26 Survey reports

to deliver to the Mortgagee at intervals of not less than twelve (12) months a report prepared by surveyors or inspectors acceptable to the Mortgagee (but at the Owner’s expense) in relation to the seaworthiness and safe operation of the Ship, to produce evidence to the Mortgagee that any recommendations made in such reports have been complied with, or will be complied with in accordance with their terms, in full and thereafter to procure that such recommendations are so complied with.

 

6 Powers of Mortgagee to protect security and remedy defaults

 

6.1 Protective action

The Mortgagee shall, without prejudice to its other rights, powers and remedies under any of the Security Documents, be entitled (but not bound) at any time, and as often as may be necessary, to take any such action as it may in its discretion think fit for the purpose of protecting or maintaining the security created by this Mortgage and the other Security Documents, and all Expenses attributable thereto shall be payable by the Owner on demand.

 

6.2 Remedy of defaults

Without prejudice to the generality of the provisions of clause 6.1:

 

6.2.1 if the Owner fails to comply with any of the provisions of clause 5.1.1, the Mortgagee shall be entitled (but not bound) to effect and thereafter to maintain all such insurances upon the Ship as in its discretion it may think fit in order to procure the compliance with such provisions or alternatively, to require the Ship (at the Owner’s risk) to remain in, or to proceed to and remain in, a port designated by the Mortgagee until such provisions are fully complied with;

 

6.2.2 if the Owner fails to comply with any of the provisions of clauses 5.1.3, 5.1.5 or 5.1.6, the Mortgagee shall be entitled (but not bound) to arrange for the carrying out of such repairs, changes or surveys as it may deem expedient or necessary in order to procure the compliance with such provisions; and

 

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6.2.3 if the Owner fails to comply with any of the provisions of clause 5.1.8, the Mortgagee shall be entitled (but not bound) to pay and discharge all such debts, damages, liabilities and outgoings as are therein mentioned and/or to take any such measures as it may deem expedient or necessary for the purpose of securing the release of the Ship in order to procure the compliance with such provisions,

and the Expenses attributable to the exercise by the Mortgagee of any such powers shall be payable by the Owner to the Mortgagee on demand.

 

7 Powers of Mortgagee on Event of Default

 

7.1 Powers

Upon the happening of any Event of Default, the Mortgagee shall become forthwith entitled, following notice given to the Owner in accordance with the provisions of clause 10.2 of the Loan Agreement or, as regards the Master Swap Agreement, in accordance with the relevant terms of the Master Swap Agreement, to declare the Outstanding Indebtedness to be due and payable immediately or in accordance with such notice and to terminate the Master Swap Agreement, whereupon the Outstanding Indebtedness shall become so due and payable and (whether or not any notice shall have been given) the Mortgagee shall become forthwith entitled, as and when it may see fit, to put into force and exercise all or any of the rights, powers and remedies possessed by it as mortgagee of the Ship or otherwise (whether at law, by virtue of this Mortgage or otherwise) and in particular (without limiting the generality of the foregoing):

 

7.1.1 to exercise all the rights and remedies in foreclosure and otherwise given to mortgagees by the provisions of Chapter 3 of the Maritime Act 1990 of the Republic of the Marshall Islands as amended and/or all applicable laws of the Republic of the Marshall Islands or any other jurisdiction;

 

7.1.2 to take possession of the Ship and the Mortgagee shall not be under any duty to render accounts to the Owner during the time when the Ship is in the possession of the Mortgagee and the Owner hereby waives its rights in respect thereof;

 

7.1.3 to require that all policies, contracts, certificates of entry and other records relating to the Insurances (including details of and correspondence concerning outstanding claims) be delivered forthwith to such adjusters and/or brokers and/or other insurers as the Mortgagee may nominate;

 

7.1.4 to collect, recover, compromise and give a good discharge for, all claims then outstanding or thereafter arising under the Insurances or any of them or in respect of the Ship, her Earnings or Requisition Compensation or any part thereof, and to take over or institute (if necessary using the name of the Owner) all such proceedings in connection therewith as the Mortgagee in its absolute discretion thinks fit, and, in the case of the Insurances, to permit any brokers through whom collection or recovery is effected to charge the usual brokerage therefor;

 

7.1.5 to discharge, compound, release or compromise claims in respect of the Ship, her Earnings, Insurances or Requisition Compensation or any part thereof which have given or may give rise to any charge or lien or other claim on the Ship, her Earnings, Insurances or Requisition Compensation or any part thereof or which are or may be enforceable by proceedings against the Ship, her Earnings, Insurances or Requisition Compensation or any part thereof;

 

7.1.6 to sell the Ship or any share or interest therein with or without prior notice to the Owner and with or without the benefit of any charterparty, and free from any claim by the Owner (whether in admiralty, in equity, at law or by statute) by public auction or private contract, at such place and upon such terms as the Mortgagee in its absolute discretion may determine, with power to postpone any such sale, and without being answerable for any loss occasioned by such sale or resulting from postponement thereof and with power, where the Mortgagee purchases the Ship, to make payment of the sale price by making an equivalent reduction in the amount of the Outstanding Indebtedness in the manner referred to in clause 8.1;

 

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7.1.7 to manage, insure, maintain and repair the Ship, and to employ, sail or lay up the Ship in such manner and for such period as the Mortgagee, in its absolute discretion, deems expedient accounting only for net profits arising from any such employment; and

 

7.1.8 to recover from the Owner on demand all Expenses incurred or paid by the Mortgagee in connection with the exercise of the powers (or any of them) referred to in this clause 7.1.

 

7.2 Dealings with Mortgagee

Upon any sale of the Ship or any share or interest therein by the Mortgagee pursuant to clause 7.1.6, or pursuant to clause 11.1, the purchaser shall not be bound to see or enquire whether the Mortgagee’s power of sale has arisen in the manner provided in this Mortgage and the sale shall be deemed to be within the power of the Mortgagee and the receipt of the Mortgagee for the purchase money shall effectively discharge the purchaser who shall not be concerned with the manner of application of the proceeds of sale or be in any way answerable therefor and the sale shall operate to divest the Owner of all rights, title and interest of any nature whatsoever in the Ship and to bar any such interest of the Owner, and all persons claiming through or under the Owner.

 

8 Application of moneys

 

8.1 Application

All moneys received by the Mortgagee in respect of:

 

8.1.1 the sale of the Ship or any share or interest therein; or

 

8.1.2 the employment of the Ship pursuant to the provisions of clause 7.1.7 (or otherwise pursuant to the provisions of this Mortgage) and all moneys received and retained by the Mortgagee in respect of the Insurances pursuant to this Mortgage, shall be held by it upon trust in the first place to pay or make good the Expenses and the balance shall:

 

  (a) in the case of moneys received in respect of sale of the Ship or recovery under the Insurances in relation to a Total Loss of the Ship or Requisition Compensation:

 

  (i) if no Default has occurred, be applied in making such prepayment as the Agent may require in accordance with clause 4.3 of the Loan Agreement and any payments required pursuant to clause 4.4 of the Loan Agreement and the balance, if any, shall be paid to the Owner; or

 

  (ii) if a Default has occurred and is continuing but no Event of Default has occurred, be retained by the Mortgagee until such time as such Default is remedied and no other Default has occurred and is continuing (whereupon such moneys shall be applied in making such prepayment as the Agent may require in accordance with clause 4.3 of the Loan Agreement and any payments required pursuant to clause 4.4 of the Loan Agreement and the balance, if any, shall be paid to the Owner) and/or shall be applied by the Mortgagee in or towards satisfaction of any sums due and payable by the Owner under the Security Documents or any of them by virtue of payment demanded thereunder, in each case as the Mortgagee may in its absolute discretion determine; and

 

  (b) in all cases if an Event of Default has occurred, be applied by the Mortgagee in the manner specified in clause 13.1 of the Loan Agreement and/or sub-paragraph (a)(ii) above, as the Mortgagee may in its absolute discretion determine.

 

16


 

8.2 Shortfall

In the event that the balance referred to in clause 8.1 is insufficient to pay in full the whole of the Outstanding Indebtedness, the Mortgagee shall be entitled to collect the shortfall from the Owner or any other person liable therefor.

 

9 Remedies cumulative and other provisions

 

9.1 No implied waivers; remedies cumulative

No failure or delay on the part of the Mortgagee or any Secured Creditor to exercise any right, power or remedy vested in it under the Loan Agreement or the Master Swap Agreement or this Mortgage or any of the other Security Documents shall operate as a waiver thereof, nor shall any single or partial exercise by the Mortgagee of any right, power or remedy nor the discontinuance, abandonment or adverse determination of any proceedings taken by the Mortgagee to enforce any right, power or remedy preclude any other or further exercise thereof or proceedings to enforce the same or the exercise of any other right, power or remedy, nor shall the giving by the Mortgagee of any consent to any act which by the terms of this Mortgage requires such consent prejudice the right of the Mortgagee to give or withhold consent to the doing of any other similar act. The remedies provided in the Loan Agreement, the Master Swap Agreement, this Mortgage and the other Security Documents are cumulative and are not exclusive of any remedies provided by law.

 

9.2 Preferred status

Anything herein to the contrary notwithstanding, it is intended that nothing herein shall waive the preferred status of this Mortgage and that, if any provision or portion hereof shall be construed to waive the preferred status of this Mortgage, then such provision or portion to such extent shall be void and of no effect.

 

9.3 Delegation

The Mortgagee shall be entitled, at any time and as often as may be expedient, to delegate all or any of the powers and discretions vested in it by the Loan Agreement, the Master Swap Agreement or this Mortgage (including the power vested in it by virtue of clause 11) or any of the other Security Documents in such manner, upon such terms, and to such persons as the Mortgagee in its absolute discretion may think fit.

 

9.4 Incidental powers

The Mortgagee shall be entitled to do all acts and things incidental or conducive to the exercise of any of the rights, powers or remedies possessed by it as mortgagee of the Ship (whether at law, under this Mortgage or otherwise) and in particular (but without prejudice to the generality of the foregoing), upon becoming entitled to exercise any of its powers under clause 7.1, the Mortgagee shall be entitled to discharge any cargo on board the Ship (whether the same shall belong to the Owner or any other person) and to enter into such other arrangements in respect of the Ship, her insurances, management, maintenance, repair, classification and employment in all respects as if the Mortgagee was the owner of the Ship, but without being responsible for any loss incurred as a result of the Mortgagee doing or omitting to do any such acts or things as aforesaid.

 

10 Costs and indemnity

 

10.1 Costs

The Owner shall pay to the Mortgagee on demand on a full indemnity basis all expenses or liabilities of whatsoever nature (including legal fees, fees of insurance advisers, printing, out-of-pocket expenses, stamp duties, registration fees and other duties or charges) together with any value added tax or similar tax payable in respect thereof, incurred by the Mortgagee in connection with the exercise or enforcement of, or preservation of any rights under, the Loan

 

17


Agreement, the Master Swap Agreement, this Mortgage or any of the other Security Documents or any of them or otherwise in respect of the Outstanding Indebtedness and the security therefor, or in connection with the preparation, completion, execution or registration of the Loan Agreement, the Master Swap Agreement, this Mortgage or any of the other Security Documents.

 

10.2 Mortgagee’s indemnity

The Owner hereby agrees and undertakes to indemnify the Mortgagee against all losses, actions, claims, expenses, demands, obligations and liabilities whatever and whenever arising which may now or hereafter be incurred by the Mortgagee or by any manager, agent, officer or employee for whose liability, act or omission the Mortgagee may be answerable in respect of, in relation to, or in connection with anything done or omitted in the exercise or purported exercise of the powers contained in this Mortgage or otherwise in connection with such powers or with this Mortgage or with the Ship, its Earnings, Requisition Compensation and Insurances or otherwise howsoever in relation to, or in connection with, any of the matters dealt with in the Loan Agreement, the Master Swap Agreement, this Mortgage or any of the other Security Documents.

 

11 Attorney

 

11.1 Power

By way of security, the Owner hereby irrevocably appoints the Mortgagee to be its attorney generally for and in the name and on behalf of the Owner, and as the act and deed or otherwise of the Owner to execute, seal and deliver and otherwise perfect and do all such deeds, assurances, agreements, instruments, acts and things which may be required for the full exercise of all or any of the rights, powers or remedies conferred by the Loan Agreement, the Master Swap Agreement, this Mortgage or any of the other Security Documents, or which may be deemed proper in or in connection with all or any of the purposes aforesaid (including, without prejudice to the generality of the foregoing, the execution and delivery of a bill of sale of the Ship). The power of attorney hereby conferred shall be a general power of attorney and the Owner ratifies and confirms, and agrees to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Mortgagee may execute or do pursuant thereto. Provided however that such power shall not be exercisable by or on behalf of the Mortgagee until the happening of an Event of Default.

 

11.2 Dealings with attorney

The exercise of such power by or on behalf of the Mortgagee shall not put any person dealing with the Mortgagee upon any enquiry as to whether any Event of Default has happened, nor shall such person be in any way affected by notice that no such Event of Default has happened, and the exercise by the Mortgagee of such power shall be conclusive evidence of the Mortgagee’s right to exercise the same.

 

11.3 Filings

The Owner hereby irrevocably appoints the Mortgagee to be its attorney in its name and on its behalf and as its act and deed or otherwise of it, to agree the form of and to execute and do all deeds, instruments, acts and things in order to file, record, register or enrol this Mortgage in any court, public office or elsewhere which the Mortgagee may in its discretion consider necessary or advisable, now or in the future, to ensure the legality, validity, enforceability or admissibility in evidence thereof.

 

12 Further assurance

The Owner hereby further undertakes at its own expense from time to time to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Mortgagee may be necessary or desirable for the purpose of more effectually mortgaging and charging the Ship or perfecting the security constituted or intended to be constituted by this Mortgage or contemplated by the Loan Agreement or the Master Swap Agreement.

 

18


 

13 Total amount and maturity

For the purpose of recording this First Preferred Mortgage as required by Chapter 3 of the Maritime Act 1990 of the Republic of the Marshall Islands as amended, the total amount is Forty three million United States United States Dollars (US$43,000,000) (of which (a) Forty million United States Dollars (US$40,000,000) represents the Loan and (b) Three million United States Dollars (US$3,000,000) represents the maximum amount secured hereby with respect to the Master Swap Agreement Liabilities) and interest on the Loan and performance of mortgage covenants. The date of maturity is 31 July 2017 and the discharge amount is the same as the total amount.

 

14 Law, jurisdiction and other provisions

 

14.1 Law

This Mortgage shall be construed and enforceable in accordance with the laws of the Republic of The Marshall Islands.

 

14.2 Submission to jurisdiction

For the benefit of the Mortgagee, the parties hereto irrevocably agree that any legal action or proceedings in connection with this Mortgage (including any non-contractual obligations connected with this Mortgage) may be brought in the English courts or in the courts of any other country chosen by the Mortgagee, each of which shall have jurisdiction to settle any disputes arising out of, or in connection with, this Mortgage (including any non-contractual obligations connected with this Mortgage). The Owner irrevocably and unconditionally submits to the jurisdiction of the English courts, and the courts of any country chosen by the Mortgagee and irrevocably designates, appoints and empowers A. Nicolaou & Co. at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive, for it and on its behalf, service of process issued out of the English courts in any legal action or proceedings arising out of or in connection with this Mortgage (including any non-contractual obligations connected with this Mortgage). The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Mortgagee to take proceedings against the Owner or the Ship in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

 

14.3 Severability of provisions

If any provision in this Mortgage be or becomes invalid or unenforceable under any applicable law the provisions hereof shall in all other respects remain in full force and effect and the provision in question shall be ineffective to the extent (but only to the extent) of its disconformity with the requirement of the applicable law and if it is competent to the parties to waive any requirements which would otherwise operate as aforesaid those requirements are hereby waived to the extent permitted by such law to the end that this Mortgage shall be valid, binding and enforceable in accordance with its terms.

 

14.4 Counterparts

This Mortgage may be executed in any number of counterparts each of which shall be an original but such counterparts shall together constitute one and the same instrument.

 

19


 

15 Notices

 

15.1 Every notice, request, demand or other communication under this Mortgage shall:

 

15.1.1 be in writing delivered personally or by first-class prepaid letter (airmail if available) or facsimile transmission or other means of telecommunication in permanent written form;

 

15.1.2 be deemed to have been received in the case of a letter, when delivered personally or three (3) days after it has been put in the post and, in the case of a facsimile transmission or other means of telecommunication in permanent written form, at the time of despatch (provided that if the date of despatch is not a business day in the country of the addressee or if the time of despatch is after the close of business in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day); and

 

15.1.3 be sent:

 

(a)    if to the Owner at:
   c/o [Diana Containerships Inc.]
   Pendelis 16
   Palaio Faliro
   175 64 Athens
   Greece
  

Fax no:      +30 210 [942 4975]

Attention:  Mr [Andreas Michalopoulos]

(b)    if to the Mortgagee at:
   DnB NOR Bank ASA
  

20 St. Dunstan’s Hill

London EC3R 8HY

England

  

Fax No:      +44 207 626 5956

Attention:   Shipping Department

or to such other address and/or numbers as is notified by one party to the other party under this Mortgage.

IN WITNESS whereof the Owner has executed this Mortgage the day and year first above written.

[LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.]

 

By:  

 

Name:  
Attorney-in-fact  

 

20


 

Acknowledgement of Mortgage

 

PIRAEUS    )
   ) S.S
PREFECTURE OF PIRAEUS, REPUBLIC OF GREECE    )

On this [ ] day of [ ] July 2010 before me personally appeared [ ] to me known who being by me duly sworn did depose and say that he resides at [ ], Greece that he is an attorney-in-fact of [LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.] the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said Corporation.

 

 

Special Agent

 

21


 

Schedule 1

Form of Loan Agreement

 

22


 

Schedule 2

Form of Master Swap Agreement

 

23


 

Schedule 8

Form of General Assignment

 

76


 

Private & Confidential

Dated          July 2010

 

 

  [LIKIEP SHIPPING COMPANY] [ORANGINA] INC.    (1)
  and   
  DNB NOR BANK ASA    (2)

 

 

GENERAL ASSIGNMENT

relating to m.v. [Sagitta] [Centaurus]

 

 

LOGO


 

Contents

 

Clause

   Page  

1Definitions

     1   

2Assignment and application of funds

     4   

3Continuing security and other matters

     7   

4Powers of Mortgagee to protect security and remedy defaults

     8   

5Powers of Mortgagee on Event of Default

     8   

6Attorney

     8   

7Further assurance

     9   

8Costs and indemnities

     9   

9Remedies cumulative and other provisions

     10   

10Notices

     10   

11Counterparts

     10   

12Law and jurisdiction

     10   

Schedule 1 Forms of Loss Payable Clauses

     12   

Schedule 2 Form of Notice of Assignment of Insurances

     14   


 

THIS DEED OF ASSIGNMENT is dated      July 2010 and made BETWEEN :

 

(1) [LIKIEP SHIPPING COMPANY] [ORANGINA] INC., a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Republic of Marshall Islands MH96960 (the “ Owner ”); and

 

(2) DNB NOR BANK ASA a bank organised under the laws of the Kingdom of Norway having its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Deed through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England as security agent and trustee for and on behalf of the Secured Creditors (as defined below) for the benefit of itself and the Secured Creditors (the “ Mortgagee ”).

WHEREAS:

 

(A) by a loan agreement dated      July 2010 (the “ Loan Agreement ”) and made between (1) the Owner and [Orangina] [Likiep Shipping Company] Inc. (together, the “ Borrowers ”), (2) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ”), (3) DnB NOR Bank ASA as agent (in such capacity, the “ Agent ”), (4) DnB NOR Bank ASA as security agent, (5) DnB NOR Bank ASA as arranger, (6) DnB NOR Bank ASA as account bank (in such capacity, the “ Account Bank ”) and (7) DnB NOR Bank ASA as swap provider (in such capacity, the “ Swap Provider ” and, together with the Banks and the Agent, the “ Secured Creditors ”), the Banks agreed (inter alia) to advance by way of loan to the Borrowers, upon the terms and conditions therein contained, the principal sum of up to Forty million Dollars ($40,000,000);

 

(B) by a 1992 ISDA Master Agreement dated      July 2010 (the “ Master Swap Agreement ”), made between the Borrowers and the Swap Provider, the Swap Provider agreed the terms and conditions upon which it would enter into (inter alia) one or more interest rate swap or other derivative transactions with the Borrowers in respect of the Loan, whether in whole or in part (as the case may be) from time to time;

 

(C) pursuant to clause 16.14 of the Loan Agreement, each of the Secured Creditors has appointed the Mortgagee as its security agent and trustee and pursuant to a Trust Deed dated      July 2010 executed by the Mortgagee (as trustee) in favour of the Secured Creditors, the Mortgagee (referred to in the Loan Agreement as the “ Security Agent ”) agreed to hold, receive, administer and enforce this Deed for and on behalf of itself and the Secured Creditors;

 

(D) pursuant to the Loan Agreement there has been or will be executed by the Owner in favour of the Mortgagee a first preferred Marshall Islands ship mortgage dated      July 2010 (the “ Mortgage ”) on the motor vessel [Sagitta] [Centaurus] documented in the name of the Owner under the laws and flag of the Republic of the Marshall Islands under Official Number [3988] [3987] (the “ Ship ”) and the Mortgage of even date herewith has been or will be registered under the provisions of Chapter 3 of the Maritime Act 1990 of the Marshall Islands as amended as security for the payment by the Owner of the Outstanding Indebtedness (as that expression is defined in the Mortgage); and

 

(E) this Deed is supplemental to the Loan Agreement, the Master Swap Agreement and the Mortgage and to the security thereby created and is the [Sagitta] [Centaurus] General Assignment referred to in the Loan Agreement but shall nonetheless continue in full force and effect notwithstanding any discharge of the Mortgage.

NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED as follows:

 

1 Definitions

 

1.1 Defined expressions

Words and expressions defined in the Loan Agreement or in the Mortgage shall, unless otherwise defined in this Deed, or the context otherwise requires, have the same meanings when used in this Deed.

 

1


 

1.2 Definitions

In this Deed, unless the context otherwise requires:

Agent ” includes its successors in title and/or replacements;

Assigned Property ” means:

 

  (a) the Earnings;

 

  (b) the Insurances; and

 

  (c) any Requisition Compensation;

Banks ” includes their Transferee Banks and their respective successors in title;

Casualty Amount ” means Seven hundred and fifty thousand Dollars ($750,000) (or the equivalent in any other currency);

Collateral Instruments ” means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Default ” means any Event of Default or any event or circumstance which with the giving of notice or lapse of time or the satisfaction of any other condition (or any combination thereof) would constitute an Event of Default;

Earnings ” means all moneys whatsoever from time to time due or payable to the Owner during the Security Period arising out of the use or operation of the Ship including (but without limiting the generality of the foregoing) all freight, hire and passage moneys, income arising under pooling arrangements, compensation payable to the Owner in event of requisition of the Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys, and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship;

Expenses ” means the aggregate at any relevant time (to the extent that the same have not been received or recovered by the Mortgagee) of:

 

  (a) all losses, liabilities, costs, charges, expenses, damages and outgoings of whatever nature (including without limitation Taxes, repair costs, registration fees and insurance premiums) suffered, incurred or paid by the Mortgagee or any Secured Creditor in connection with the exercise of the powers referred to in or granted by the Loan Agreement, the Master Swap Agreement, the Mortgage, this Deed or any other of the Security Documents or otherwise payable by the Owner in accordance with clause 10 of the Mortgage or clause 8; and

 

  (b) interest on all such losses, liabilities, costs, charges, expenses, damages and outgoings from the date on which the same were suffered, incurred or paid by the Mortgagee until the date of receipt or recovery thereof (whether before or after judgment) at a rate per annum calculated in accordance with clause 3.4 of the Loan Agreement (as conclusively certified by the Mortgagee);

 

2


 

Insurances ” means all policies and contracts of insurance (which expression includes all entries of the Ship in a protection and indemnity or war risks association) which are from time to time during the Security Period in place or taken out or entered into by or for the benefit of the Owner (whether in the sole name of the Owner, or in the joint names of the Owner and the Mortgagee or otherwise) in respect of the Ship and her Earnings or otherwise howsoever in connection with the Ship and all benefits thereof (including claims of whatsoever nature and return of premiums);

Loss Payable Clauses ” means the provisions regulating the manner of payment of sums receivable under the Insurances which are to be incorporated in the relevant insurance documents, such provisions to be in the forms set out in schedule 1 or in such other forms as may from time to time be required or agreed in writing by the Mortgagee;

Master Swap Agreement ” means the agreement referred to in Recital (B) hereto;

Master Swap Agreement Liabilities ” means at any relevant time all liabilities, actual or contingent, present or future, owing to the Swap Provider under the Master Swap Agreement;

Mortgagee ” includes its successors in title and/or replacements;

Notice of Assignment of Insurances ” means a notice of assignment in the form set out in schedule 2, or in such other form as may from time to time be required or agreed in writing by the Mortgagee;

Operating Account ” means an interest bearing Dollar account of the Owner opened by the Owner with the Account Bank with account number [64071001] [64072001] and includes any sub-accounts thereof and any other account designated in writing by the Agent to be an Operating Account for the purposes of this Deed;

Outstanding Indebtedness ” means the aggregate of the Loan and interest accrued and accruing thereon, the Master Swap Agreement Liabilities, the Expenses and all other sums of money from time to time owing by the Owner to the Secured Creditors and/or the Mortgagee or any of them, whether actually or contingently, under the Security Documents or any of them;

Requisition Compensation ” means all moneys or other compensation from time to time payable during the Security Period by reason of the Compulsory Acquisition of the Ship;

Secured Creditors ” means, together, the Agent, the Swap Provider and the Banks;

Security Documents ” means the Loan Agreement, the Mortgage, this Deed, the Master Swap Agreement and any other document which is defined in the Loan Agreement as a Security Document and such other documents as may have been or may hereafter be executed to guarantee and/or secure all or any part of the Loan, interest thereon, the Master Swap Agreement Liabilities and other moneys from time to time owing by the Borrowers or either of them or any other Security Party pursuant to the Loan Agreement and/or the Master Swap Agreement and/or any other Security Document (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Period ” means the period commencing on the date hereof and terminating upon discharge of the security created by the Security Documents by payment of all moneys payable thereunder; and

Swap Provider ” includes its successor in title.

 

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Deed.

 

3


 

1.4 Construction of certain terms

In this Deed, unless the context otherwise requires:

 

1.4.1 references to clauses and schedules are to be construed as references to clauses of and schedules to this Deed and references to this Deed include its schedules;

 

1.4.2 references to (or to any specified provision of) this Deed or any other document shall be construed as references to this Deed, that provision or that document as in force for the time being and as amended in accordance with the terms thereof, or, as the case may be, with the agreement of the relevant parties;

 

1.4.3 words importing the plural shall include the singular and vice versa;

 

1.4.4 references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

 

1.4.5 references to a “ guarantee ” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “ guaranteed ” shall be construed accordingly; and

 

1.4.6 references to statutory provisions shall be construed as references to those provisions as replaced or amended or re-enacted from time to time.

 

1.5 Conflict with Loan Agreement and Master Swap Agreement

This Deed shall be read together with the Loan Agreement and the Master Swap Agreement but in case of any conflict between (a) this Deed and (b) any of such two instruments, the provisions of the Loan Agreement or, as the case may be, the Master Swap Agreement shall prevail over those of this Deed.

 

2 Assignment and application of funds

 

2.1 Assignment

By way of security for payment of the Outstanding Indebtedness the Owner with full title guarantee hereby assigns and agrees to assign to the Mortgagee absolutely all its rights title and interest in and to the Assigned Property and all its benefits and interests present and future therein. Provided however that:

 

2.1.1 Earnings

the Earnings shall be payable to the Operating Account until such time as a Default shall occur and the Mortgagee shall direct to the contrary whereupon the Owner shall forthwith, and the Mortgagee may at any time thereafter, instruct the persons from whom the Earnings are then payable to pay the same to the Mortgagee or as it may direct and any Earnings then in the hands of the Owner’s brokers or other agents shall be deemed to have been received by them for the use and on behalf of the Mortgagee; and

 

2.1.2 Insurances

unless and until a Default shall occur (whereupon all insurance recoveries, other than any moneys payable under any loss of earnings insurance, shall be receivable by the Mortgagee and applied in accordance with clause 2.3 or clause 2.6 (as the case may be)):

 

  (a) any moneys payable under the Insurances, other than any moneys payable under any loss of earnings insurance, shall be payable in accordance with the terms of the relevant Loss Payable Clause and the Mortgagee will not in the meantime give any notification to the contrary to the insurers as contemplated by the Loss Payable Clauses;

 

4


 

  (b) any insurance moneys received by the Mortgagee in respect of any major casualty (as specified in the relevant Loss Payable Clause) shall, unless prior to receipt or whilst such moneys are in the hands of the Mortgagee there shall have occurred a Default (whereupon such insurance monies shall be applied in accordance with clause 2.3 or clause 2.6 (as the case may be)), be paid over to the Owner upon the Owner furnishing evidence satisfactory to the Mortgagee that all loss and damage resulting from such casualty has been properly made good and repaired, and that all repair accounts and other liabilities whatsoever in connection with the casualty have been fully paid and discharged by the Owner, provided however that the insurers with whom the fire and usual marine risks insurances are effected may, in the case of a major casualty, and with the previous consent in writing of the Mortgagee, make payment on account of repairs in the course of being effected; and

 

  (c) any moneys payable under any loss of earnings insurance shall be payable in accordance with the terms of the relevant Loss Payable Clause and shall be subject to such provisions of this clause 2 as shall apply to Earnings and the Mortgagee will not give any notification to the insurers as contemplated in such Loss Payable Clause unless and until the Mortgagee shall have become entitled under clause 2.1.1 to direct that the Earnings be paid to the Mortgagee.

 

2.2 Notice

The Owner hereby covenants and undertakes with the Mortgagee that it will from time to time upon the written request of the Mortgagee give written notice (in such form as the Mortgagee shall reasonably require) of the assignment herein contained to the persons from whom any part of the Assigned Property is or may be due.

 

2.3 Application

All moneys received by the Mortgagee in respect of:

 

2.3.1 recovery under the Insurances (other than under any loss of earnings insurance and any such sum or sums as may have been received by the Mortgagee in accordance with the relevant Loss Payable Clause in respect of a major casualty as therein defined and paid over to the Owner as provided in clause 2.1.2(b) or which fall to be otherwise applied under clause 2.6); and

 

2.3.2 Requisition Compensation,

shall be held by it upon trust in the first place to pay or make good the Expenses and the balance shall:

 

  (a) in the case of moneys received in respect of sale of the Ship or recovery under the Insurances in relation to a Total Loss of the Ship or Requisition Compensation:

 

  (i) if no Default has occurred, be applied in making such prepayment as the Agent may require in accordance with clause 4.3 of the Loan Agreement and any payments required pursuant to clause 4.4 of the Loan Agreement and the balance, if any, shall be paid to the Owner; or

 

  (ii)

if a Default has occurred and is continuing but no Event of Default has occurred, be retained by the Mortgagee until such time as such Default is remedied and no other Default has occurred and is continuing (whereupon such moneys shall be applied in making such prepayment as the Agent may require in accordance with clause 4.3 of the Loan Agreement and any payments required pursuant to clause 4.4 of the Loan Agreement and the balance, if any, shall be paid to the Owner) and/or shall be applied by the Mortgagee in or towards satisfaction of any sums

 

5


 

due and payable by the Owner under the Security Documents or any of them by virtue of payment demanded thereunder, in each case as the Mortgagee may in its absolute discretion determine; and

 

  (b) in all cases if an Event of Default has occurred, be applied by the Mortgagee in the manner specified in clause 13.1 of the Loan Agreement and/or sub-paragraph (a)(ii) above, as the Mortgagee may in its absolute discretion determine.

 

2.4 Shortfalls

In the event that the balance referred to in clause 2.3 is insufficient to pay in full the whole of the Outstanding Indebtedness, the Mortgagee shall be entitled to collect the shortfall from the Owner or any other person liable for the time being therefor.

 

2.5 Application of Earnings received by Mortgagee

Any moneys received by the Mortgagee in respect of the Earnings shall:

 

2.5.1 if received by the Mortgagee, or in the hands of the Mortgagee, after the occurrence of a Default but prior to the occurrence of an Event of Default, be retained by the Mortgagee and shall be paid over by the Mortgagee to the Operating Account at such times, in such amounts and for such purposes and/or shall be applied by the Mortgagee in or towards satisfaction of any sums from time to time accruing due and payable by the Owner under the Security Documents or any of them or by virtue of payment demanded thereunder, in each case as the Mortgagee may in its absolute discretion determine; and

 

2.5.2 if received by the Mortgagee, or in the hands of the Mortgagee, after the occurrence of an Event of Default, be applied by the Mortgagee in the manner specified in clause 2.3 and/or clause 2.5.1, as the Mortgagee may in its absolute discretion determine.

 

2.6 Application of Insurances received by Mortgagee

Subject to clause 2.3, any moneys received by the Mortgagee in respect of the Insurances (other than in respect of recovery under any loss of earnings insurance or in respect of a Total Loss) shall:

 

2.6.1 if received by the Mortgagee, or in the hands of the Mortgagee, after the occurrence of a Default but prior to the occurrence of an Event of Default, be retained by the Mortgagee and shall be paid over by the Mortgagee to the Owner at such times, in such amounts and for such purposes and/or shall be applied by the Mortgagee in or towards satisfaction of any sums from time to time accruing due and payable by the Owner under the Security Documents or any of them or by virtue of payment demanded thereunder, in each case as the Mortgagee may in its absolute discretion determine; and

 

2.6.2 if received by the Mortgagee, or in the hands of the Mortgagee, after the occurrence of an Event of Default, be applied by the Mortgagee in the manner specified in clause 2.3 and/or clause 2.6.1, as the Mortgagee may in its absolute discretion determine.

 

2.7 Use of Owner’s name

The Owner covenants and undertakes with the Mortgagee to do or permit to be done each and every act or thing which the Mortgagee may from time to time require to be done for the purpose of enforcing the Mortgagee’s rights under this Deed and to allow its name to be used as and when required by the Mortgagee for that purpose.

 

2.8 Reassignment

Upon payment and discharge in full to the satisfaction of the Mortgagee of the Outstanding Indebtedness, the Mortgagee shall, at the request and cost of the Owner, re-assign the Earnings, the Insurances and any Requisition Compensation to the Owner or as it may direct.

 

6


 

3 Continuing security and other matters

 

3.1 Continuing security

The security created by this Deed shall:

 

3.1.1 be held by the Mortgagee as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions contained in the Security Documents, express or implied, and that the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between the Owner or any other person who may be liable to the Mortgagee and/or the Secured Creditors or any of them in respect of the Outstanding Indebtedness or any part thereof and the Mortgagee and/or the Secured Creditors or any of them);

 

3.1.2 be in addition to, and shall not in any way prejudice or affect, and may be enforced by the Mortgagee without prior recourse to, the security created by any other of the Security Documents or by any present or future Collateral Instruments, right or remedy held by or available to the Mortgagee and/or the Secured Creditors or any of them or any right or remedy of the Mortgagee and/or the Secured Creditors or any of them thereunder; and

 

3.1.3 not be in any way prejudiced or affected by the existence of any of the other Security Documents or any such Collateral Instrument, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Mortgagee and/or the Secured Creditors or any of them dealing with, exchanging, varying or failing to perfect or enforce any of the same, or giving time for payment or performance or indulgence or compounding with any other person liable.

 

3.2 Rights additional

All the rights, powers and remedies vested in the Mortgagee hereunder shall be in addition to and not a limitation of any and every other right, power or remedy vested in the Mortgagee and/or the Secured Creditors or any of them under the Loan Agreement, the Master Swap Agreement, this Deed, the other Security Documents or any Collateral Instrument or at law and all the rights, powers and remedies so vested in the Mortgagee and/or the Secured Creditors or any of them may be exercised from time to time and as often as the Mortgagee and/or the Secured Creditors or any of them may deem expedient.

 

3.3 No enquiry

The Mortgagee shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it under the Mortgage and/or this Deed or to make any claim or take any action to collect any moneys hereby assigned or to enforce any rights or benefits hereby assigned to the Mortgagee or to which the Mortgagee may at any time be entitled under the Mortgage and/or this Deed.

 

3.4 Obligations of Owner and Mortgagee

The Owner shall remain liable to perform all the obligations assumed by it in relation to the Assigned Property and the Mortgagee shall be under no obligation of any kind whatsoever in respect thereof or be under any liability whatsoever in the event of any failure by the Owner to perform its obligations in respect thereof.

 

3.5 Discharge of Mortgage

Notwithstanding that this Deed is expressed to be supplemental to the Mortgage it shall continue in full force and effect after any discharge of the Mortgage.

 

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4 Powers of Mortgagee to protect security and remedy defaults

 

4.1 Protective action

The Mortgagee shall, without prejudice to its other rights, powers and remedies under any of the Security Documents, be entitled (but not bound) at any time, and as often as may be necessary, to take any such action as it may in its discretion think fit for the purpose of protecting or maintaining the security created by this Deed and the other Security Documents, and all Expenses attributable thereto shall be payable by the Owner on demand.

 

4.2 Remedy of defaults

Without prejudice to the generality of the provisions of clause 4.1, if the Owner fails to comply with the provisions of clause 5.1.1 of the Mortgage, the Mortgagee shall become forthwith entitled (but not bound) to effect and thereafter to maintain all such insurances upon the Ship as in its discretion it may think fit in order to procure the compliance with such provisions or alternatively, to require the Ship (at the Owner’s risk) to remain in, or to proceed to and remain in, a port designated by the Mortgagee until such provisions are fully complied with and the Expenses attributable to the exercise by the Mortgagee of any such powers shall be payable by the Owner on demand.

 

5 Powers of Mortgagee on Event of Default

 

5.1 Powers

At any time after the occurrence of an Event of Default the Mortgagee shall forthwith become entitled (but not bound) as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee and/or chargee of the Assigned Property (whether at law, by virtue of this Deed or otherwise) and in particular (without limiting the generality of the foregoing):

 

5.1.1 to require that all policies, contracts, certificates of entry and other records relating to the Insurances (including details of and correspondence concerning outstanding claims) be delivered forthwith to such adjusters and/or brokers and/or other insurers as the Mortgagee may nominate;

 

5.1.2 to collect, recover, compromise and give a good discharge for, all claims then outstanding or thereafter arising under the Insurances or any of them or in respect of the Earnings or Requisition Compensation or any part thereof, and to take over or institute (if necessary using the name of the Owner) all such proceedings in connection therewith as the Mortgagee in its absolute discretion thinks fit, and, in the case of the Insurances, to permit any brokers through whom collection or recovery is effected to charge the usual brokerage therefor;

 

5.1.3 to discharge, compound, release or compromise claims in respect of the Earnings, Insurances or Requisition Compensation or any part thereof which have given or may give rise to any charge or lien or other claim on the Earnings, Insurances or Requisition Compensation or any part thereof or which are or may be enforceable by proceedings against the Earnings, Insurances or Requisition Compensation or any part thereof; and

 

5.1.4 to recover from the Owner on demand all Expenses incurred or paid by the Mortgagee in connection with the exercise of the powers (or any of them) referred to in this clause 5.1.

 

6 Attorney

 

6.1 Appointment

By way of security, the Owner hereby irrevocably appoints the Mortgagee to be its attorney generally for and in the name and on behalf of the Owner, and as the act and deed or otherwise of the Owner to execute, seal and deliver and otherwise perfect and do all such deeds,

 

8


assurances, agreements, instruments, acts and things which may be required for the full exercise of all or any of the rights, powers or remedies conferred hereby or which may be deemed proper in or in connection with all or any of the purposes aforesaid. The power hereby conferred shall be a general power of attorney under the Powers of Attorney Act 1971, and the Owner ratifies and confirms, and agrees to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Mortgagee may execute or do pursuant thereto. Provided always that such power shall not be exercisable by or on behalf of the Mortgagee until the happening of any Event of Default.

 

6.2 Exercise of power

The exercise of such power by or on behalf of the Mortgagee shall not put any person dealing with the Mortgagee upon any enquiry as to whether any Event of Default has happened, nor shall such person be in any way affected by notice that no such Event of Default has happened, and the exercise by the Mortgagee of such power shall be conclusive evidence of the Mortgagee’s right to exercise the same.

 

6.3 Filings

The Owner hereby irrevocably appoints the Mortgagee to be its attorney in its name and on its behalf and as its act and deed or otherwise of it to agree the form of and to execute and do all deeds, instruments, acts and things in order to file, record, register or enrol this Deed in any court, public office or elsewhere which the Mortgagee may in its discretion consider necessary or advisable, now or in the future, to ensure the legality, validity, enforceability or admissibility in evidence thereof.

 

7 Further assurance

The Owner hereby further undertakes at its own expense from time to time to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Mortgagee may be necessary or desirable for the purpose of more effectually mortgaging and charging the Assigned Property or perfecting the security constituted or intended to be constituted by this Deed.

 

8 Costs and indemnities

 

8.1 Costs

The Owner shall pay to the Mortgagee on demand on a full indemnity basis all expenses or liabilities of whatever nature (including legal fees, fees of insurance advisers, printing, out-of-pocket expenses, stamp duties, registration fees and other duties or charges) together with any value added tax or similar tax payable in respect thereof, incurred by the Mortgagee in connection with the exercise or enforcement of, or preservation of any rights under this Deed or otherwise in respect of the Outstanding Indebtedness and the security therefor, or in connection with the preparation, completion, execution or registration of this Deed.

 

8.2 Mortgagee’s indemnity

The Owner hereby agrees and undertakes to indemnify the Mortgagee against all losses, actions, claims, expenses, demands, obligations and liabilities whatever and whenever arising which may now or hereafter be incurred by the Mortgagee or by any manager, agent, officer or employee for whose liability, act or omission the Mortgagee may be answerable in respect of, in relation to, or in connection with anything done or omitted in the exercise or purported exercise of the powers contained in this Deed or otherwise in connection with such powers or with this Deed or with the Ship, its Earnings, Requisition Compensation and Insurances or otherwise howsoever in relation to, or in connection with, any of the matters dealt with in this Deed.

 

9


 

9 Remedies cumulative and other provisions

 

9.1 No implied waivers; remedies cumulative

No failure or delay on the part of the Mortgagee or any Secured Creditor to exercise any right, power or remedy vested in it under this Deed, the Loan Agreement, the Master Swap Agreement, the Mortgage or any of the other Security Documents shall operate as a waiver thereof, nor shall any single or partial exercise by the Mortgagee of any right, power or remedy nor the discontinuance, abandonment or adverse determination of any proceedings taken by the Mortgagee to enforce any right, power or remedy preclude any other or further exercise thereof or proceedings to enforce the same or the exercise of any other right, power or remedy, nor shall the giving by the Mortgagee of any consent to any act which by the terms of this Deed requires such consent prejudice the right of the Mortgagee to give or withhold consent to the doing of any other similar act. The remedies provided in this Deed, the Loan Agreement, the Master Swap Agreement, the Mortgage and the other Security Documents are cumulative and are not exclusive of any remedies provided by law.

 

9.2 Delegation

The Mortgagee shall be entitled, at any time and as often as may be expedient, to delegate all or any of the powers and discretions vested in it by this Deed, the Loan Agreement, the Master Swap Agreement and the Mortgage (including the power vested in it by clause 11 of the Mortgage) or any of the other Security Documents in such manner, upon such terms, and to such persons as the Mortgagee in its absolute discretion may think fit.

 

9.3 Incidental powers

The Mortgagee shall be entitled to do all acts and things incidental or conducive to the exercise of any of the rights, powers or remedies possessed by it as mortgagee of the Ship (whether at law, under this Deed or otherwise) and in particular (but without prejudice to the generality of the foregoing) upon becoming entitled to exercise any of its powers under clause 7.1 of the Mortgage, the Mortgagee shall be entitled to discharge any cargo on board the Ship (whether the same shall belong to the Owner or any other person) and to enter into such other arrangements in respect of the Ship, the insurances, management, maintenance, repair, classification and employment in all respects as if the Mortgagee was the owner of the Ship, but without being responsible for any loss incurred as a result of the Mortgagee doing or omitting to do any such acts or things as aforesaid.

 

10 Notices

The provisions of clause 17.1 of the Loan Agreement shall apply mutatis mutandis in respect of any certificate, notice, demand or other communication given or made under this Deed save that any references in clause 17.1 of the Loan Agreement to the “ Borrowers or either of them ” and the “ Security Agent ” should be read as referring to the Owner and the Mortgagee, respectively.

 

11 Counterparts

This Deed may be entered into in the form of two counterparts, each executed by one of the parties, and, provided both the parties shall so execute this Deed, each of the executed counterparts, when duly exchanged or delivered, shall be deemed to be an original but, taken together, they shall constitute one instrument.

 

12 Law and jurisdiction

 

12.1 Law

This Deed and any non-contractual obligations connected with it are governed by, and shall be construed in accordance with, English law.

 

10


 

12.2 Submission to jurisdiction

For the benefit of the Mortgagee, the parties hereto irrevocably agree that any legal action or proceedings in connection with this Deed (including any non-contractual obligations connected with this Deed) may be brought in the English courts, or in the courts of any other country chosen by the Mortgagee, each of which shall have jurisdiction to settle any disputes arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed). The Owner irrevocably and unconditionally submits to the jurisdiction of the English courts and the courts of any country chosen by the Mortgagee and irrevocably designates, appoints and empowers A. Nicolaou & Co at present of 25 Heath Drive, Potters Bar, Herts EN6 1EN, United Kingdom to receive, for it and on its behalf, service of process issued out of the English courts in any legal action or proceedings arising out of or in connection with this Deed and any non-contractual obligations connected with this Deed (including any non-contractual obligations connected with this Deed). The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Mortgagee to take proceedings against the Owner in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

The parties further agree that only the courts of England and not those of any other State shall have jurisdiction to determine any claim which the Owner may have against the Mortgagee arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed).

 

12.3 Contracts (Rights of Third Parties) Act 1999

No term of this Deed is enforceable under the provisions of the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Deed.

IN WITNESS whereof this Deed has been duly executed as a deed the day and year first above written.

 

11


 

Schedule 1

Forms of Loss Payable Clauses

 

1 Hull and machinery (marine and war risks)

By a General Assignment dated [ ] July 2010 [LIKIEP SHIPPING COMPANY] [ORANGINA] INC. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Owner ”) has assigned to DNB NOR BANK ASA of 20 St. Dunstan’s Hill London EC3R 8HY, England (the “ Mortgagee ”) all the Owner’s rights, title and interest in and to all policies and contracts of insurance from time to time taken out or entered into by or for the benefit of the Owner in respect of m.v. [Sagitta] [Centaurus] and accordingly:

 

  (a) all claims hereunder in respect of an actual or constructive or compromised or arranged total loss and all claims in respect of a major casualty (that is to say any casualty the claim in respect of which exceeds Seven hundred and fifty thousand Dollars ($750,000) (or the equivalent in any other currency) inclusive of any deductible) shall be paid in full to the Mortgagee or to its order; and

 

  (b) all other claims hereunder shall be paid in full to the Owner or to its order, unless and until the Mortgagee shall have notified the insurers hereunder to the contrary, whereupon all such claims shall be paid to the Mortgagee or to its order.

 

2 Protection and indemnity risks

Payment of any recovery which [LIKIEP SHIPPING COMPANY] [ORANGINA] INC. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Owner ”) is entitled to make out of the funds of the Association in respect of any liability, costs or expenses incurred by the Owner, shall be made to the Owner or to its order, unless and until the Association receives notice to the contrary from DNB NOR BANK ASA of 20 St. Dunstan’s Hill London EC3R 8HY, England (the “ Mortgagee ”) in which event all recoveries shall thereafter be paid to the Mortgagee or its order; provided always that no liability whatsoever shall attach to the Association, its Managers or their agents for failure to comply with the latter obligation until the expiry of two (2) clear business days from the receipt of such notice.

 

3 War risks

It is noted that DNB NOR BANK ASA of 20 St. Dunstan’s Hill London EC3R 8HY, England (the “ Mortgagee ”) is interested as first mortgagee in the subject matter of this insurance. Save as hereinafter provided, all claims (whether in respect of actual, constructive, arranged or compromised total loss or otherwise) which, but for this Loss Payable Clause, would be payable to [LIKIEP SHIPPING COMPANY] [ORANGINA] INC. of Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Owner ”) shall be payable to the Mortgagee, provided always that unless and until notice in writing to the contrary has been received by the Association, claims (other than total loss claims) not exceeding Seven hundred and fifty thousand Dollars ($750,000) (or the equivalent in any other currency) in respect of any one claim shall be paid direct to the Owner or to its order.

 

4 Loss of earnings

By a General Assignment dated [ ] July 2010 [LIKIEP SHIPPING COMPANY] [ORANGINA] INC. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Owner ”) has assigned to DNB NOR BANK ASA of Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting through its branch at 20 St. Dunstan’s Hill London EC3R 8HY, England (the “ Mortgagee ”) all its rights, title and interest in and to all policies and contracts of insurance from time to time taken out or entered into by or for the benefit of the Owner in

 

12


respect of m.v. [Sagitta] [Centaurus] and her earnings and accordingly all claims hereunder shall be paid in full to account number [64071001] [64072001] held with the Mortgagee unless and until the Mortgagee shall have notified the insurers hereunder to the contrary, whereupon all such claims shall be paid to the Mortgagee or its order.

 

13


 

Schedule 2

Form of Notice of Assignment of Insurances

[LIKIEP SHIPPING COMPANY] [ORANGINA] INC. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960, the owner of the motor vessel [Sagitta] [Centaurus] , HEREBY GIVES NOTICE that by a General Assignment dated [ ] July 2010 and entered into by us with DNB NOR BANK ASA of 20 St. Dunstan’s Hill London EC3R 8HY, England there has been assigned by us to DNB NOR BANK ASA as first mortgagees of the said motor vessel all insurances in respect thereof, including the insurances constituted by the Policy whereon this notice is endorsed.

 

 

Signed
For and on behalf of
[LIKIEP SHIPPING COMPANY] [ORANGINA] INC.

Dated: [ ] July 2010

 

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EXECUTED as a DEED      )      
by      )      
for and on behalf of      )      

 

[LIKIEP SHIPPING COMPANY] [ORANGINA] INC.      )       Attorney-in-Fact
in the presence of:      )      

 

          
Witness           
Name:           
Address:           
Occupation:           
          
EXECUTED as a DEED      )      
by      )      
for and on behalf of      )      

 

DNB NOR BANK ASA      )       Attorney-in-Fact
in the presence of:      )      

 

          
Witness           
Name:           

Address:

Occupation:

          

 

15


 

Schedule 9

Form of Corporate Guarantee

 

77


Private & Confidential

Dated 7 July 2010

 

 

  DIANA CONTAINERSHIPS INC.    (1)
  and   
  DNB NOR BANK ASA    (2)

 

 

CORPORATE GUARANTEE

 

 

LOGO


 

Contents

 

Clause    Page  

1

  Interpretation      1   

2

  Guarantee      4   

3

  Payments and Taxes      7   

4

  Representations and warranties      8   

5

  Undertakings      11   

6

  Set-off      15   

7

  Benefit of this Guarantee      15   

8

  Notices and other matters      16   

9

  Law and jurisdiction      17   

Schedule 1 Form of Compliance Certificate

     18   


 

THIS GUARANTEE is dated 7 July 2010 and made BETWEEN:

 

(1) DIANA CONTAINERSHIPS INC. (the “ Guarantor ”); and

 

(2) DNB NOR BANK ASA as security agent and trustee for and on behalf of the Secured Creditors (as defined below) (the “ Security Agent ”).

WHEREAS :

 

(A) by a loan agreement dated 7 July 2010 (the “ Agreement ”) and made between (1) Likiep Shipping Company Inc. and Orangina Inc. as joint and several borrowers (therein and herein referred to as the “ Borrowers ”), (2) DnB NOR Bank ASA as arranger, agent (in such capacity the “ Agent ”), Security Agent and account bank, (3) DnB NOR Bank ASA as swap provider (the “ Swap Provider ”) and (4) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ” and, together with the Agent and the Swap Provider, the “ Secured Creditors ”), the Banks agreed ( inter alia ) to make available to the Borrowers upon the terms and conditions therein contained, a term loan of up to $40,000,000;

 

(B) by a 1992 ISDA master swap agreement (including the schedule thereto) dated 7 July 2010 (the “ Master Swap Agreement ”) and made between the Borrowers and the Swap Provider, the Swap Provider agreed the terms and conditions upon which it would enter into ( inter alia ) one or more interest rate swap or other derivative transactions with the Borrowers in respect of the Loan, whether in whole or in part (as the case may be) from time to time;

 

(C) pursuant to clause 16.14 of the Agreement, each of the Secured Creditors has appointed the Security Agent as its security agent and trustee and pursuant to a Trust Deed dated 7 July 2010 and executed by the Security Agent (as trustee) in favour of the Secured Creditors, the Security Agent agreed to hold, receive, administer and enforce this Guarantee for and on behalf of itself and the Secured Creditors; and

 

(D) the execution and delivery of this Guarantee (referred to as the Corporate Guarantee in the Agreement) is one of the conditions precedent to each of the Banks making its Commitment available under the Agreement.

IT IS AGREED as follows:

 

1 Interpretation

 

1.1 Defined expressions

In this Guarantee, unless the context otherwise requires or unless otherwise defined in this Guarantee, words and expressions defined in the Agreement and used in this Guarantee shall have the same meanings where used in this Guarantee.

 

1.2 Definitions

In this Guarantee, unless the context otherwise requires:

Accounting Information ” means the annual audited and semi-annual unaudited consolidated financial statements of the Group delivered by the Guarantor to the Agent pursuant to clause 5.1.4;

Accounting Period ” means each financial year and each financial half-year of the Guarantor for which Accounting Information is required to be delivered pursuant to clause 5.1.4;

Agent ” includes its successors in title and its replacements;

Applicable Accounting Principles ” means the then most recent and up-to-date US GAAP at any relevant time;

 

1


 

Banks ” includes their respective successors in title and Transferees;

Borrowed Money ” means, in relation to a person (the “ debtor ”), a liability of the debtor:

 

  (a) for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;

 

  (b) under any loan stock, bond, note or other security issued by the debtor;

 

  (c) under any acceptance credit, guarantee or letter of credit facility made available to the debtor;

 

  (d) under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor;

 

  (e) under any foreign exchange transaction, any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount (and when calculating the value of any such transaction, only the marked to market value as at any date shall be taken into account);

 

  (f) under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would fall within (a) to (e) if the references to the debtor referred to the other person; or

 

  (g) any other Indebtedness which would be regarded as debt pursuant to the Applicable Accounting Principles,

and, in calculating the Borrowed Money of any person, none of the above items shall be deducted or added or otherwise taken into account more than once in any such calculation;

Collateral Instruments ” means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Compliance Certificate ” means a certificate in the form set out in schedule 1;

Fleet Market Value ” means, as of the date of calculation, the aggregate market value of:

 

  (a) the Ships, as most recently determined pursuant to valuations obtained by the Agent (at the expense of the Borrowers) and made in accordance with the provisions of clause 8.2.2 of the Agreement; and

 

  (b) all other Fleet Vessels (other than the Ships), as most recently determined by the Security Agent in its discretion pursuant to valuations obtained by the Security Agent (at the expense of the Borrowers and/or the Guarantor) pursuant to clause 5.1.5 of this Guarantee;

Fleet Vessels ” means all the vessels (including, but not limited to, the Ships) from time to time owned by the members of the Group and “ Fleet Vessel ” means any of them;

Free Liquid Assets ” means, as at the end of an Accounting Period, the aggregate of any balance on any current or deposit account with a prime international bank which a member of the Group is entitled to withdraw, and which is free from Encumbrances (save for any Permitted Encumbrances), excluding any such amount to which the right of access or use by such company is blocked or restricted, as shown in the then latest Accounting Information relevant to such Accounting Period;

 

2


 

Funded Debt ” means, as at the end of an Accounting Period, the sum (without duplication) of the Group’s liabilities:

 

  (a) in respect of principal for any moneys borrowed by any member of the Group under a credit or loan facility;

 

  (b) under any loan stock, bond, note or obligations relating to joint venture liabilities outside the Group;

 

  (c) under any letter of credit facility made to any Group member;

 

  (d) under any finance lease or other agreement which shall have been or should be recorded as such in the relevant Accounting Information in accordance with the Applicable Accounting Principles consistently applied; or

 

  (e) as a result of guarantees given by a member of the Group,

as shown in the then latest Accounting Information relevant to such Accounting Period;

Group ” means, together, the Guarantor and its Subsidiaries from time to time (which, for the avoidance of doubt, includes the Borrowers) and “ member of the Group ” shall be construed accordingly;

Guarantee ” includes each separate or independent stipulation or agreement by the Guarantor contained in this Guarantee;

Guaranteed Liabilities ” means all moneys, obligations and liabilities expressed to be guaranteed by the Guarantor in clause 2.1;

Guarantor ” includes the successors in title of the Guarantor;

Incapacity ” means, in relation to a person, the death, bankruptcy, unsoundness of mind, insolvency, liquidation, dissolution, winding-up, administration, receivership, amalgamation, reconstruction or other incapacity of that person whatsoever (and, in the case of a partnership, includes the termination or change in the composition of the partnership);

Master Swap Agreement ” means the 1992 ISDA Master Agreement dated 7 July 2010 made between the Swap Provider and the Borrowers mentioned in recital (B) hereto, comprising a 1992 ISDA Master Agreement (and a schedule thereto) together with any Confirmations (as defined therein) supplemental thereto;

Net Funded Debt ” means, as at the end of an Accounting Period, the Funded Debt less the Free Liquid Assets, each as shown in the then latest Accounting Information relevant to such Accounting Period;

Relevant Jurisdiction ” means any jurisdiction in which or where the Guarantor is incorporated, resident, domiciled, has a permanent establishment, carries on, or has a place of business or is otherwise effectively connected;

Security Agent ” includes the successors in title and replacements of the Security Agent;

Swap Provider ” includes the successors in title of the Swap Provider; and

Total Net Assets ” means, at the end of an Accounting Period, the aggregate of (a) the value of the total assets of the Group (excluding Fleet Vessels) as shown in the then latest Accounting Information relevant to such Accounting Period plus (b) the Fleet Market Value, minus (c) the Free Liquid Assets as shown in the then latest Accounting Information relevant to such Accounting Period.

 

3


 

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Guarantee.

 

1.4 Construction of certain terms

In this Guarantee, unless the context otherwise requires:

 

1.4.1 references to clauses and the schedule are to be construed as references to the clauses of, and the schedule to, this Guarantee and references to this Guarantee include the schedule;

 

1.4.2 references to (or to any specified provision of) this Guarantee or any other document shall be construed as references to this Guarantee, that provision or that document as in force for the time being and as amended from time to time in accordance with the terms thereof, or, as the case may be, with the agreement of the relevant parties;

 

1.4.3 words importing the plural shall include the singular and vice versa;

 

1.4.4 references to a time of day are to London time;

 

1.4.5 references to a person shall be construed as including references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

 

1.4.6 references to a “ guarantee ” include references to an indemnity or other assurance against financial loss including, without limitation, any obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “ guaranteed ” shall be construed accordingly; and

 

1.4.7 references to any enactment shall be deemed to include reference to such enactment as re-enacted, amended or extended.

 

1.5 Third parties

No term of this Guarantee is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Guarantee.

 

2 Guarantee

 

2.1 Covenant to pay

In consideration of (a) the Banks making or continuing loans or advances to, or otherwise giving credit or granting banking facilities or accommodation or granting time to, the Borrowers pursuant to the Agreement, (b) the Swap Provider agreeing to enter into the Master Swap Agreement with the Borrowers and (c) other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the Guarantor), the Guarantor hereby irrevocably and unconditionally guarantees to pay to the Security Agent, for the account of the Secured Creditors, on demand by the Security Agent all moneys and discharge all obligations and liabilities now or hereafter due, owing or incurred by the Borrowers or either of them to the Secured Creditors or any of them under or pursuant to the Agreement, the Master Swap Agreement and the other Security Documents or any of them, when the same become due for payment or discharge whether by acceleration or otherwise, and whether such moneys, obligations or liabilities are express or implied, present, future or contingent, joint or several, incurred as principal or surety, originally owing to the Secured Creditors or any of them or purchased or otherwise acquired by any of them, denominated in Dollars or in any other currency, or incurred on any banking account or in any other manner whatsoever.

 

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Such liabilities shall, without limitation, include interest (as well after as before judgment) to date of payment at such rates and upon such terms as may from time to time be agreed, commission, fees and other charges and all legal and other costs, charges and expenses on a full and unqualified indemnity basis which may be incurred by the Secured Creditors or any of them in relation to any such moneys, obligations or liabilities or generally in respect of the Borrowers or either of them, the Guarantor or any Collateral Instrument.

 

2.2 Guarantor as principal debtor; indemnity

As a separate and independent stipulation, the Guarantor agrees that if any purported obligation or liability of the Borrowers or either of them which would have been the subject of this Guarantee had it been valid and enforceable is not or ceases to be valid or enforceable against the Borrowers or either of them on any ground whatsoever whether or not known to the Security Agent and/or the Secured Creditors or any of them (including, without limitation, any irregular exercise or absence of any corporate power or lack of authority of, or breach of duty by, any person purporting to act on behalf of the Borrowers or either of them or any legal or other limitation, whether under the Limitation Acts or otherwise or any disability or Incapacity or any change in the constitution of the Borrowers or either of them) the Guarantor shall nevertheless be liable to the Security Agent in respect of that purported obligation or liability as if the same were fully valid and enforceable and the Guarantor were the principal debtor in respect thereof. The Guarantor hereby agrees to keep the Security Agent fully indemnified on demand against all damages, losses, costs and expenses arising from any failure of the Borrowers or either of them to perform or discharge any such purported obligation or liability.

 

2.3 Statements of account conclusive

Any statement of account, signed as correct by an officer of the Security Agent, showing the amount of the Guaranteed Liabilities shall, in the absence of manifest error, be prima facie evidence against the Guarantor.

 

2.4 No security taken by Guarantor

The Guarantor warrants that it has not taken or received, and undertakes that until all the Guaranteed Liabilities of the Borrowers have been paid or discharged in full, it will not take or receive, the benefit of any security from the Borrowers or either of them or any other person in respect of its obligations under this Guarantee.

 

2.5 Interest

The Guarantor agrees to pay interest on each amount demanded of it under this Guarantee from the date of such demand until payment (as well after as before judgment) at the rate specified in clause 3.4 of the Agreement which shall apply to this Guarantee mutatis mutandis. Such interest shall be compounded at the end of each period determined for this purpose by the Security Agent in the event of it not being paid when demanded but without prejudice to any Secured Creditor’s right to require payment of such interest.

 

2.6 Continuing security and other matters

This Guarantee shall:

 

2.6.1 secure the ultimate balance from time to time owing to the Secured Creditors or any of them by the Borrowers or either of them and shall be a continuing security, notwithstanding any settlement of account or other matter whatsoever;

 

2.6.2 be in addition to any present or future Collateral Instrument, right or remedy held by or available to the Security Agent or any of the Secured Creditors; and

 

2.6.3 not be in any way prejudiced or affected by the existence of any such Collateral Instrument, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Security Agent or any of the Secured Creditors dealing with, exchanging, varying or failing to perfect or enforce any of the same or giving time for payment or indulgence or compounding with any other person liable.

 

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2.7 Liability unconditional

The liability of the Guarantor shall not be affected nor shall this Guarantee be discharged or reduced by reason of:

 

2.7.1 the Incapacity or any change in the name, style or constitution of the Borrowers or either of them or any other person liable;

 

2.7.2 the Security Agent or any of the Secured Creditors granting any time, indulgence or concession to, or compounding with, discharging, releasing or varying the liability of, the Borrowers or either of them or any other person liable or renewing, determining, varying or increasing any accommodation, facility or transaction or otherwise dealing with the same in any manner whatsoever or concurring in, accepting or varying any compromise, arrangement or settlement or omitting to claim or enforce payment from the Borrowers or either of them or any other person liable; or

 

2.7.3 any act or omission which would have discharged or affected the liability of the Guarantor had it been a principal debtor instead of a guarantor or by anything done or omitted which but for this provision might operate to exonerate the Guarantor.

 

2.8 Collateral Instruments

Neither the Security Agent nor any of the Secured Creditors shall be obliged to make any claim or demand on the Borrowers or either of them or to resort to any Collateral Instrument or other means of payment now or hereafter held by or available to it before the Security Agent enforcing this Guarantee and no action taken or omitted by the Security Agent or any of the Secured Creditors in connection with any such Collateral Instrument or other means of payment shall discharge, reduce, prejudice or affect the liability of the Guarantor under this Guarantee nor shall the Security Agent or any of the Secured Creditors be obliged to apply any moneys or other property received or recovered in consequence of any enforcement or realisation of any such Collateral Instrument or other means of payment in reduction of the Guaranteed Liabilities.

 

2.9 Waiver of Guarantor’s rights

Until all the Guaranteed Liabilities have been paid, discharged or satisfied in full (and notwithstanding payment of a dividend in any liquidation or under any compromise or arrangement) the Guarantor agrees that, without the prior written consent of the Security Agent (acting on the instructions of the Majority Banks), it will not:

 

2.9.1 exercise its rights of subrogation, reimbursement and indemnity against the Borrowers or either of them or any other person liable;

 

2.9.2 demand or accept repayment in whole or in part of any Indebtedness now or hereafter due to the Guarantor from the Borrowers or either of them or from any other person liable or demand or accept any Collateral Instrument in respect of the same or dispose of the same;

 

2.9.3 take any step to enforce any right against the Borrowers or either of them or any other person liable in respect of any Guaranteed Liabilities; or

 

2.9.4

claim any set-off or counterclaim against the Borrowers or either of them or any other person liable or claim or prove in competition with the Security Agent or any of the Secured Creditors in the liquidation of the Borrowers or either of them or any other person liable or have the benefit of, or share in, any payment from or composition with the Borrowers or either of them or any other person liable or any other Collateral Instrument now or hereafter held by the Security Agent or any of the Secured Creditors for any Guaranteed Liabilities or for the obligations or liabilities of any other person liable but so that, if so directed by the Security Agent, it will prove for the whole or any part of its claim in the liquidation of the

 

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Borrowers or either of them or any other person liable on terms that the benefit of such proof and of all money received by it in respect thereof shall be held on trust for the Security Agent and applied in or towards discharge of the Guaranteed Liabilities in such manner as the Security Agent shall deem appropriate.

 

2.10 Suspense accounts

Any moneys received in connection with this Guarantee (whether before or after any Incapacity of the Borrowers or either of them or the Guarantor) may be placed to the credit of a suspense account with a view to preserving the rights of the Security Agent or any of the Secured Creditors to prove for the whole of its claims against the Borrowers or either of them or any other person liable or may be applied in or towards satisfaction of such of the Guaranteed Liabilities as the Security Agent may from time to time conclusively determine in its absolute discretion.

 

2.11 Settlements conditional

Any release, discharge or settlement between the Guarantor and the Security Agent or any of the Secured Creditors shall be conditional upon no security, disposition or payment to the Security Agent or any of the Secured Creditors by the Borrowers or either of them or any other person liable being void, set aside or ordered to be refunded pursuant to any enactment or law relating to bankruptcy, liquidation, administration or insolvency or for any other reason whatsoever and if such condition shall not be fulfilled the Security Agent shall be entitled to enforce this Guarantee subsequently as if such release, discharge or settlement had not occurred and any such payment had not been made.

 

2.12 Guarantor to deliver up certain property

If, contrary to clauses 2.4 or 2.9, the Guarantor takes or receives the benefit of any security or receives or recovers any money or other property, such security, money or other property shall be held on trust for the Security Agent and shall be delivered to the Security Agent on demand.

 

2.13 Retention of this Guarantee

The Security Agent shall be entitled to retain this Guarantee after as well as before the payment or discharge of all the Guaranteed Liabilities for such period as the Security Agent may determine.

 

3 Payments and Taxes

 

3.1 No set off or counterclaim

All payments to be made by the Guarantor under this Guarantee shall be made in full, without any set-off or counterclaim whatsoever and, subject as provided in clause 3.2, free and clear of any deductions or withholdings, in Dollars on the due date to such account of the Security Agent as it may specify in writing to the Guarantor from time to time.

 

3.2 Grossing up for Taxes

If at any time the Guarantor is required to make any deduction or withholding in respect of Taxes from any payment due under this Guarantee for the account of the Security Agent (or if the Security Agent is required to make any such deduction or withholding from a payment to a Secured Creditor of moneys received under this Guarantee), the sum due from the Guarantor in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Security Agent or, as the case may be, such Secured Creditor receives on the due date for such payment (and retains, free from any liability in respect of such deduction or withholding) a net sum equal to the sum which it would have received had no such deduction or withholding been required to be made and the Guarantor shall indemnify the Security Agent against any losses or costs incurred by it by reason of any failure of the Guarantor to make any such deduction or withholding or by reason of any

 

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increased payment not being made on the due date for such payment. The Guarantor shall promptly deliver to the Security Agent any receipts, certificates or other proof evidencing the amounts (if any) paid or payable in respect of any deduction or withholding as aforesaid.

 

3.3 Currency indemnity

If any sum due from the Guarantor under this Guarantee or any order or judgment given or made in relation hereto has to be converted from the currency (the “ first currency ”) in which the same is payable under this Guarantee or under such order or judgment into another currency (the “ second currency ”) for the purpose of (a) making or filing a claim or proof against the Guarantor, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation to this Guarantee, the Guarantor shall indemnify and hold harmless the Security Agent from and against any loss suffered as a result of any difference between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the Security Agent may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof. Any amount due from the Guarantor under this clause 3.3 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Guarantee and the term “ rate of exchange ” includes any premium and costs of exchange payable in connection with the purchase of the first currency with the second currency.

 

4 Representations and warranties

 

4.1 Continuing representations and warranties

The Guarantor represents and warrants to the Security Agent that:

 

4.1.1 Due incorporation

the Guarantor is duly incorporated and validly existing in good standing under the laws of the Republic of the Marshall Islands and has power to carry on its business as it is now being conducted and to own its property and other assets;

 

4.1.2 Corporate power

the Guarantor has power to execute, deliver and perform its obligations under this Guarantee; all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same and no limitation on the powers of the Guarantor to borrow or give guarantees will be exceeded as a result of this Guarantee;

 

4.1.3 Binding obligations

this Guarantee constitutes valid and legally binding obligations of the Guarantor enforceable in accordance with its terms;

 

4.1.4 No conflict with other obligations

the execution and delivery of, the performance of its obligations under, and compliance with the provisions of, this Guarantee by the Guarantor will not:

 

  (a) contravene any existing applicable law, statute, rule or regulation or any judgment, decree or permit to which the Guarantor is subject; or

 

  (b) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which the Guarantor is a party or is subject or by which it or any of its property is bound; or

 

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  (c) contravene or conflict with any provision of the constitutional documents of the Guarantor; or

 

  (d) result in the creation or imposition of or oblige the Guarantor to create any Encumbrance (other than a Permitted Encumbrance) on any of the undertaking, assets, rights or revenues of the Guarantor;

 

4.1.5 No litigation

no litigation, arbitration or administrative proceeding is taking place, pending or, to the knowledge of the officers of the Guarantor, threatened against the Guarantor or any of its Subsidiaries or any other Security Party, which could have a material adverse effect on the business, assets or financial condition of the Guarantor;

 

4.1.6 No filings required

it is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of this Guarantee that it or any other instrument be notarised, filed, recorded, registered or enrolled in any court, public office or elsewhere in any Relevant Jurisdiction or that any stamp, registration or similar tax or charge be paid in any Relevant Jurisdiction on or in relation to this Guarantee and this Guarantee is in proper form for its enforcement in the courts of each Relevant Jurisdiction;

 

4.1.7 Choice of law

the choice of English law to govern this Guarantee and the submission by the Guarantor to the non-exclusive jurisdiction of the English courts are valid and binding;

 

4.1.8 No immunity

neither the Guarantor nor any of its assets is entitled to immunity on the grounds of sovereignty or otherwise from any legal action or proceeding (which shall include, without limitation, suit, attachment prior to judgement, execution or other enforcement);

 

4.1.9 Consents obtained

every consent, authorisation, licence or approval of, or registration with or declaration to, governmental or public bodies or authorities or courts required by the Guarantor to authorise, or required by the Guarantor in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Guarantee or the performance by the Guarantor of its obligations under this Guarantee has been obtained or made and is in full force and effect and there has been no default in the observance of any of the conditions or restrictions (if any) imposed in, or in connection with, this Guarantee;

 

4.1.10 Financial statements correct and complete

the proforma consolidated financial statements of the Group in respect of the financial half-year ended on 30 June 2010 as delivered to the Agent, have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the consolidated financial position of the Group as at the date they were prepared and the consolidated results of the operations of the Group for the financial period ended on such date and, as at such date, neither the Guarantor nor any other member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements;

 

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4.1.11 Shareholdings

 

  (a) no less than 51% of the total issued share voting share capital of the Guarantor and no less than 51% of the total issued share capital of the Guarantor is legally and beneficially owned by DSI; and

 

  (b) each of the Borrowers is a wholly-owned direct Subsidiary of the Guarantor;

 

4.1.12 Management

Mr Simeon Palios is the Chief Executive Officer, the Chairman and a member of the board of directors of the Guarantor;

 

4.1.13 Compliance with laws and regulations

the Guarantor is in compliance with the terms and conditions of all laws, regulations, agreements, licences and concessions material to the carrying on of its business (including in relation to Taxation);

 

4.1.14 No material adverse change

there has been no material adverse change in the business, management, assets, operations, results of operations, properties, performance, prospects or the condition (financial or otherwise) of the Guarantor or the Group as a whole, from that described by or on behalf of the Guarantor or any other Security Party to the Agent and/or the Arranger in the negotiation of this Guarantee; and

 

4.1.15 Taxation

 

  (a) the Guarantor is not (and no other member of the Group is) overdue in the filing of any tax returns and the Guarantor is not (and no other member of the Group is) overdue in the payment of any amounts in respect of Taxes (or its equivalent in any other currency);

 

  (b) no claims or investigations are being, or are reasonably likely to be, made or conducted against the Guarantor (or any other member of the Group) with respect to Taxes; and

 

  (c) the Guarantor (and each other member of the Group) is resident for taxation purposes only in the jurisdiction of its incorporation.

 

4.2 Initial representations and warranties

The Guarantor further represents and warrants to the Security Agent that:

 

4.2.1 Pari passu

the obligations of the Guarantor under this Guarantee are direct, general and unconditional obligations of the Guarantor and rank at least pari passu with all other present and future unsecured and unsubordinated Indebtedness of the Guarantor except for obligations which are mandatorily preferred by operation of law and not by contract;

 

4.2.2 No default under other Indebtedness

the Guarantor is not (nor would with the giving of notice or lapse of time or the satisfaction of any other condition or combination thereof be) in breach of or in default under any agreement relating to Indebtedness to which it is a party or by which it may be bound;

 

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4.2.3 Information

the information, exhibits and reports furnished by the Guarantor to the Creditors or any of them in connection with the negotiation and preparation of this Guarantee are true and accurate in all material respects and not misleading, do not omit material facts and all reasonable enquiries have been made to verify the facts and statements contained therein; there are no other facts the omission of which would make any fact or statement therein misleading;

 

4.2.4 No withholding Taxes

no Taxes are imposed by withholding or otherwise on any payment to be made by the Guarantor under this Guarantee or are imposed on or by virtue of the execution or delivery by the Guarantor of this Guarantee or any other document or instrument to be executed or delivered under this Guarantee; and

 

4.2.5 No Default

no Default has occurred and is continuing.

 

4.3 Repetition of representations and warranties

On and as of each Drawdown Date and (except in relation to the representations and warranties in clause 4.2) on each Interest Payment Date, the Guarantor shall (a) be deemed to repeat the representations and warranties in clause 4.1 (save for those set out in clauses 4.1.11(a) and 4.1.12) as if made with reference to the facts and circumstances existing on each such day and (b) be deemed to further represent and warrant that the then latest audited consolidated financial statements of the Group delivered to the Agent (if any) under clause 5.1 have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the consolidated financial position of the Group as at the end of the financial year to which the same relate and the consolidated results of the operations of the Group for the financial period to which the same relate and, as at the end of such financial period, neither the Guarantor nor any other member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements.

 

5 Undertakings

 

5.1 General

The Guarantor undertakes with the Security Agent that, from the date of this Guarantee and so long as any moneys are owing, whether actually or contingently, under any of the Security Documents (including this Guarantee) and while all or any part of the Total Commitment remains outstanding, it will:

 

5.1.1 Notice of Default

promptly inform the Security Agent of any occurrence of which it becomes aware which might adversely affect the ability of any Security Party to perform its obligations under any of the Security Documents or the Underlying Documents and, without limiting the generality of the foregoing, will inform the Security Agent of any Default forthwith upon becoming aware thereof and will from time to time, if so requested by the Security Agent, confirm to the Security Agent in writing that, save as otherwise stated in such confirmation, no Default has occurred and is continuing;

 

5.1.2 Consents and licences - compliance with laws and regulations

 

  (a)

without prejudice to clauses 4.1 of this Guarantee, obtain or cause to be obtained, maintain in full force and effect and comply in all material respects with the conditions and restrictions (if any) imposed in, or in connection with, every consent, authorisation,

 

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licence or approval of governmental or public bodies or authorities or courts and do, or cause to be done, all other acts and things which may from time to time be necessary or desirable under applicable law for the continued due performance of all the obligations of the Guarantor under this Guarantee; and

 

  (b) comply with all laws, regulations, agreements, licences and concessions material to the carrying on of its business (including in relation to Taxation);

 

5.1.3 Pari passu and subordination

without prejudice to the provisions of clause 5.2 ensure that:

 

  (a) its obligations under this Guarantee shall, without prejudice to the provisions of clause 5.2 and the security created or intended to be created by the Security Documents to which it is or is to be a party, at all times rank at least pari passu with all its other present and future unsecured and unsubordinated Indebtedness with the exception of any obligations which are mandatorily preferred by law and not by contract; and

 

  (b) its Indebtedness (if any) to its shareholders or its Related Companies is and shall remain at all times fully subordinated towards its obligations under this Guarantee;

 

5.1.4 Financial statements

prepare or cause to be prepared:

 

  (a) consolidated financial statements of the Group in accordance with the Applicable Accounting Principles consistently applied in respect of each financial year (but commencing with the financial year ended on 31 December 2010) and cause the same to be reported on by the Group’s auditors; and

 

  (b) unaudited consolidated financial statements of the Group on the same basis as the annual statements in respect of each financial half-year, including on a year to date basis) (but commencing with the financial half-year ending on 30 June 2010),

and deliver as many copies of the same to the Security Agent as the Security Agent may reasonably require as soon as practicable but not later than one hundred and twenty (120) days (in the case of the audited financial statements) or ninety (90) days (in the case of the unaudited financial statements) after the end of the financial period to which they relate;

 

5.1.5 Valuations and Compliance Certificate

 

  (a) deliver or cause to be delivered to the Security Agent a valuation (dated not earlier than 15 days previously) of each Fleet Vessel prepared in accordance with, and in the manner specified in, clause 8.2.2 of the Agreement (at the expense of the Borrowers and/or the Guarantor) at the time when any consolidated financial statements of the Group are delivered to the Agent and the Security Agent in accordance with clause 8.1.5(a) of the Agreement and clause 5.1.4 of this Guarantee (and clause 8.2.2 of the Agreement shall apply mutatis mutandis hereto for the purpose of the valuations of Fleet Vessels); and

 

  (b) deliver to the Agent and/or the Security Agent in sufficient copies for all the Banks, a Compliance Certificate for the relevant period executed by the Guarantor and countersigned by the Chief Financial Officer or two Directors of the Guarantor at the time when any unaudited or audited consolidated financial statements of the Group are delivered to the Agent and/or the Security Agent in accordance with clause 8.1.5(a) of the Agreement and clause 5.1.4 of this Guarantee;

 

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5.1.6 Delivery of reports

deliver to the Security Agent sufficient copies for all the Banks of every report, circular, notice or like document issued by the Guarantor to its shareholders or creditors generally; and

 

5.1.7 Provision of further information

provide the Security Agent with such financial or other information concerning the Guarantor, its Subsidiaries, the other Security Parties, any other member of the Group, the Group as a whole, DSI (but only if the shares of DSI are delisted from the New York Stock Exchange) and their respective affairs (including, without limitation, regarding their activities, financial standing, commitments, Indebtedness, operations, vessel sales and purchases, any new borrowings, the performance of the Ships and the other Fleet Vessels, any material litigation arbitration and administrative proceedings and all major financial developments in relation to each Security Party, any other member of the Group and the Group as a whole) as the Security Agent may from time to time reasonably require.

 

5.2 Negative undertakings

The Guarantor undertakes with the Security Agent that, from the date of this Guarantee and so long as any moneys are owing under the Security Documents and while all or any part of the Total Commitment remains outstanding, it will not, without the prior written consent of the Security Agent (acting on the instructions of the Majority Banks):

 

5.2.1 Negative pledge

permit any Encumbrance to subsist, arise or be created or extended over all or any part of its present or future undertaking, assets, rights or revenues (including its shares in the Borrowers) to secure or prefer any present or future Indebtedness or other liability or obligation of any Security Party or any other person (and, for the avoidance of doubt, the undertakings, assets, rights and revenues of the Guarantor’s Subsidiaries shall not be deemed included in the undertakings, assets, rights and revenues of the Guarantor for the purposes of this clause 5.2.1);

 

5.2.2 No merger

merge or consolidate with any other person or enter into any de-merger, amalgamation, corporate reconstruction or corporate redomiciliation of any kind whatsoever;

 

5.2.3 Other business

undertake any business other than that conducted by it at the date of this Guarantee;

 

5.2.4 Share capital and distribution

 

  (a) subject to paragraph (b) below, purchase or otherwise acquire for value any shares of its capital or declare or pay any dividends or distribute any of its present or future assets, undertaking, rights or revenues to any of its shareholders;

 

  (b) the Guarantor may declare or pay dividends to its shareholders at any time if no Default shall have occurred at the time of, or would occur as a result of, declaration or payment of such dividends;

 

5.2.5 Shareholdings

change, cause, permit or agree to any change in, the legal and/or beneficial ownership of any of the Borrowers or the Manager from that existing on the date of the Agreement as set out in clause 7.2.13 of the Agreement; and

 

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5.2.6 Financial year, auditors and constitutional documents

 

  (a) change, cause, permit or agree to any change in, the way of computation of its financial year;

 

  (b) change, permit or agree to any change of its auditors from those existing on the date of this Guarantee; or

 

  (c) change, amend or vary, or agree to or permit any change, amendment or variation of or to, its constitutional documents (except for amendments or variations made by the Guarantor for the purposes of an initial public offering and the listing of the Guarantor’s shares on an international stock exchange any follow on offering or further equity issuance through the capital markets, and then only such amendments or variations as are customary or necessary for such purpose and appropriate to a public company and provided that any such amendments or variations shall be notified by the Guarantor to the Security Agent in writing shortly after they are made).

 

5.3 Financial undertakings

 

5.3.1 The Guarantor undertakes with the Security Agent that, from the date of this Guarantee and so long as any moneys are owing under the Security Documents and while all or any part of the Total Commitment remains outstanding, it will ensure that:

 

  (a) Consolidated leverage ratio

at the end of each Accounting Period, the ratio of Net Funded Debt to Total Net Assets shall not be greater than 0.7:1.0; and

 

  (b) Liquidity

at the end of each Accounting Period, it maintains Free Liquid Assets in an amount which is no less than the amount in Dollars which is equal to 4% of the Funded Debt.

 

5.3.2 Interpretation

 

  (a) For the purposes of this clause 5.3, all the terms defined in clause 1.2 and used in this clause 5.3, and other accounting terms used in this clause 5.3, are to be determined on a consolidated basis in respect of the Group and (except as items are expressly included or excluded in the relevant definition or provision) are used and shall be construed in accordance with the Applicable Accounting Principles consistently applied and as determined from the relevant Accounting Information or any other information available to the Agent and/or the Security Agent at any relevant time.

 

  (b) The compliance of the Guarantor with the undertakings set out in clause 5.3.1 shall be determined by the Security Agent in its sole discretion on the basis of calculations made by the Agent (as communicated to the Security Agent) whether, at that time, any relevant Accounting Information which is due to be delivered, has been actually delivered to the Agent and/or the Security Agent pursuant to clause 5.1.4, or not.

 

  (c) Without prejudice to the other terms of this clause 5.3 and, in particular, the time when compliance with the financial undertakings of clause 5.3.1 is to be measured by the Security Agent pursuant to clause 5.3.3, the Guarantor hereby undertakes that the financial undertakings of clause 5.3.1 will be complied with at all times during the whole term of each Accounting Period.

 

  (d) For the purposes of this clause 5.3 (a) no item shall be deducted or credited more than once in any calculation; and (b) any amount expressed in a currency other than Dollars shall be converted into Dollars in accordance with the Applicable Accounting Principles consistently applied.

 

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5.3.3 Interest cover ratio

If at any time the Guarantor and/or any other member of the Group enters into any loan agreement, guarantee or other agreement or instrument regarding Borrowed Money owing by the Guarantor or any other member of the Group to any person, and under the terms of such agreement, guarantee or instrument, the Guarantor or other member of the Group grants as a financial covenant in favour of the lender of such Borrowed Money a minimum ratio of “EBITDA to interest expense” (or similar, and which is more commonly known as “interest cover ratio”), whether on a consolidated basis of the Group or otherwise, the Guarantor undertakes with the Agent:

 

  (a) to notify the Agent forthwith after it agrees to, or grants or agrees to grant (as the case may be) such financial covenant; and

 

  (b) to provide and grant such financial covenant also in favour of the Creditors under or in connection with the Loan Agreement and the Security Documents (and the transactions contemplated thereunder), by entering into such document as the Security Agent (acting on the instructions of the Majority Banks) shall require immediately after its request to the Guarantor (including, without limitation, an amendment to the Agreement and this Guarantee).

 

6 Set-off

The Guarantor authorises the Security Agent to apply any credit balance to which the Guarantor is then entitled on any account of the Guarantor with the Security Agent at any of its branches in or towards satisfaction of any sum then due and payable from the Guarantor to the Security Agent under this Guarantee. For this purpose the Security Agent is authorised to purchase with the moneys standing to the credit of such account such other currencies as may be necessary to effect such application. The Security Agent shall not be obliged to exercise any right given to it by this clause 6. The Security Agent shall notify the Guarantor and the Secured Creditors forthwith upon the exercise or purported exercise of any right of set-off giving full details in relation thereto.

 

7 Benefit of this Guarantee

 

7.1 Benefit and burden

This Guarantee shall be binding upon the Guarantor and its successors in title and shall enure for the benefit of the Security Agent and its successors in title and/or replacements. The Guarantor expressly acknowledges and accepts the provisions of clause 16 of the Agreement and agrees that any person who replaces the Security Agent in accordance with such clause shall be entitled to the benefit of this Guarantee.

 

7.2 Changes in constitution or reorganisation of Secured Creditors

For the avoidance of doubt and without prejudice to the provisions of clause 7.1, this Guarantee shall remain binding on the Guarantor notwithstanding any change in the constitution of any of the Secured Creditors or the Security Agent or its absorption in, or amalgamation with, or the acquisition of all or part of its undertaking or assets by, any other person, or any reconstruction or reorganisation of any kind, to the intent that this Guarantee shall remain valid and effective in all respects in favour of any successor in title or replacement of the Security Agent in the same manner as if such successor in title or replacement had been named in this Guarantee as a party instead of, or in addition to, the Security Agent.

 

7.3 No assignment by Guarantor

The Guarantor may not assign or transfer any of its rights or obligations under this Guarantee.

 

15


 

7.4 Disclosure of information

The Security Agent may, without the consent of the Guarantor, disclose to a prospective replacement of the Security Agent or a Transferee or to any other person who may propose entering into contractual relations with the Security Agent in relation to the Agreement such information about the Guarantor as the Security Agent shall consider appropriate.

 

8 Notices and other matters

 

8.1 Notice

Every notice, request, demands or other communication under this Guarantee shall:

 

8.1.1 be in writing delivered personally or by first-class prepaid letter (airmail if available) or facsimile transmission or other means of telecommunication in permanent written form;

 

8.1.2 be deemed to have been received, subject as otherwise provided in this Guarantee, in the case of a letter, when delivered personally or three (3) days after it has been put into the post, in the case of a facsimile transmission or other means of telecommunications in permanent written form, at the time of despatch (provided that if the date of despatch is not a business day in the country of the addressee or if the time of despatch is after the close of business in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day); and

 

8.1.3 be sent:

 

  (a) if to the Guarantor at:

c/o Diana Shipping Services S.A.

Pendelis 16

Palaio Faliro

175 64 Athens

Greece

Fax no: +30 210 942 4975

Attention: Mr Andreas Michalopoulos

 

  (b) if to the Security Agent at:

20 St. Dunstan’s Hill

London EC3R 8HY

England

Fax No: +44 207 626 5956

Attention: Shipping Department

or to such other address or facsimile number as is notified by the Guarantor or the Security Agent to the other party to this Guarantee.

 

8.2 No implied waivers, remedies cumulative

No failure or delay on the part of the Security Agent to exercise any power, right or remedy under this Guarantee shall operate as a waiver thereof, nor shall any single or partial exercise by the Security Agent of any power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy. The remedies provided in this Guarantee are cumulative and are not exclusive of any remedies provided by law.

 

16


 

8.3 English translations

All certificates, instruments and other documents to be delivered under or supplied in connection with this Guarantee shall be in the English language or shall be accompanied by a certified English translation upon which the Security Agent shall be entitled to rely.

 

8.4 Other guarantors

The Guarantor agrees to be bound by this Guarantee notwithstanding that any other person intended to execute or to be bound by any other guarantee or assurance under or pursuant to the Agreement may not do so or may not be effectually bound and notwithstanding that such other guarantee or assurance may be determined or be or become invalid or unenforceable against any other person, whether or not the deficiency is known to the Security Agent or any of the Secured Creditors.

 

8.5 Expenses

The Guarantor agrees to reimburse the Security Agent on demand for all legal and other costs, charges and expenses on a full and unqualified indemnity basis which may be incurred by the Security Agent in relation to the enforcement of this Guarantee against the Guarantor.

 

8.6 Partial invalidity

If, at any time, any provision of this Guarantee is or becomes illegal, invalid or unenforceable in any respect under any law or jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision in any other respect or under the law of any other jurisdiction will be affected or impaired in any way.

 

9 Law and jurisdiction

 

9.1 Law

This Guarantee and any non-contractual obligations in connection with this Guarantee are governed by, and shall be construed in accordance with, English law.

 

9.2 Submission to jurisdiction

The Guarantor agrees for the benefit of the Security Agent that any legal action or proceedings arising out of or in connection with this Guarantee (including any non-contractual obligations connected with this Guarantee) against the Guarantor or any of its assets may be brought in the English courts, irrevocably and unconditionally submits to the jurisdiction of such courts and irrevocably designates, appoints and empowers A. Nicolaou & Co. at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings. The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Security Agent to take proceedings against the Guarantor in the courts of any other competent jurisdiction, nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. The Guarantor further agrees that only the courts of England and not those of any other state shall have jurisdiction to determine any claim which the Guarantor may have against the Security Agent arising out of or in connection with this Guarantee (including any non-contractual obligations connected with this Guarantee).

IN WITNESS whereof the parties to this Guarantee have caused this Guarantee to be duly executed as a deed on the date first above written.

 

17


 

Schedule 1

Form of Compliance Certificate

 

To:   

DNB NOR BANK ASA

20, St. Dunstan’s Hill

London EC3R 8HY

England

(as Agent)

From:    DIANA CONTAINERSHIPS INC.

Dated: [ ]

US$40,000,000 Loan Agreement dated [ ] 2010 (the “Loan Agreement”) - Corporate Guarantee dated [ ] 2010 (the “Corporate Guarantee”)

Terms defined in the Corporate Guarantee shall have the same meaning when used herein.

We refer to clause 5.3.1 of the Corporate Guarantee and hereby certify that, as at [ insert date of accounts ] and on the date hereof:

 

1 Financial covenants

 

  (a) the ratio of Net Funded Debt to Total Net Assets is [ ]: 1.0, in each case calculated as follows:[  ]; and

 

  (b) the Free Liquid Assets are in the amount of $[ ] and the Funded Debt is $[ ], and, consequently, the Free Liquid Assets are [ ]% of the Funded Debt, each calculated as follows: [  ].

[and we hereby confirm that the above comply with the provisions of clause 5.3.1 of the Guarantee.]

 

2 Default

[No Default has occurred and is continuing]

or

[The following Default has occurred and is continuing: [ provide details of Default ]. [The following steps are being taken to remedy it: [ provide details of steps being taken to remedy Default ]].

 

Signed:

 

 

  
 

[Director[s]/Officer[s]] [or any other duly authorised representatives [or appropriate] ]

 

For and on behalf of:

DIANA CONTAINERSHIPS INC.

 
 

[I hereby confirm and certify that the above statements are correct and complete.

 

Signed:  

 

  
 

Chief Financial Officer

For and on behalf of

DIANA CONTAINERSHIPS INC. ]

 
 

 

18


 

EXECUTED as a DEED      )      
by      )      
for and on behalf of      )      

 

DIANA CONTAINERSHIPS INC.      )       Attorney-in-Fact
in the presence of:      )      

 

          
Witness           
Name:           
Address:           
Occupation:           
EXECUTED as a DEED      )      
by      )      
for and on behalf of      )      

 

DNB NOR BANK ASA      )       Attorney-in-Fact
in the presence of:      )      

 

          
Witness           
Name:           
Address:           
Occupation:           

 

19


 

Schedule 10

Form of Manager’s Undertaking

 

78


 

Private & Confidential

Manager’s Undertaking

 

To:  

DnB NOR Bank ASA

20 St. Dunstan’s Hill

London EC3R 8HY

England

(as Security Agent)

From:

 

Diana Shipping Services S.A.

Edificio Universal

Piso 12

Avenida Federico Boyd

Panama

July 2010

Dear Sirs

Loan of up to US$40,000,000 to Likiep Shipping Company Inc. and Orangina Inc.

 

1 Loan Agreement and Master Swap Agreement

 

1.1 We understand that under a loan agreement (the “ Loan Agreement ”) dated July 2010 between (1) Likiep Shipping Company Inc. and Orangina Inc. as joint and several borrowers (the “ Borrowers ”), (2) the banks and financial institutions listed in schedule 1 thereto as lenders (therein and herein together referred to as the “ Banks ”), (3) DnB NOR Bank ASA as agent (in such capacity, the “ Agent ”), (4) DnB NOR Bank ASA as security agent (in such capacity, the “ Security Agent ”), (5) DnB NOR Bank ASA as arranger and (6) DnB NOR Bank ASA as swap provider (in such capacity, the “ Swap Provider ” and, together with the Banks and the Agent, the “ Secured Creditors ”), the Banks have agreed to make available to the Borrowers a loan facility of up to $40,000,000 (the “ Loan ”) and that it is a condition precedent to the Banks making available their Commitment, that we, Diana Shipping Services S.A. (the “ Manager ”), enter into this letter of undertaking (the “ Letter ”) in favour of the Security Agent.

 

1.2 We also understand that under a 1992 ISDA Master Agreement dated July 2010 (the “ Master Swap Agreement ”) made between the Borrowers and the Swap Provider and comprising an ISDA Master Agreement (including the Schedule thereto) and the Confirmations (as defined therein) supplemental thereto and any Transactions governed thereby, the Swap Provider agreed the terms and conditions upon which it would enter into ( inter alia ) one or more interest rate swap or other derivative transactions with the Borrowers in respect of the Loan (whether in whole or in part, as the case may be) from time to time.

 

1.3 Pursuant to clause 16.14 of the Loan Agreement, each of the Secured Creditors has appointed the Security Agent as its security agent and trustee and pursuant to a Trust Deed dated July 2010 executed by the Security Agent (as trustee) in favour of the Secured Creditors, the Security Agent agreed to hold, receive, administer and enforce this Letter for and on behalf of itself and the Secured Creditors.

 

1.4 Words and expressions defined in the Loan Agreement shall, unless otherwise specified herein, have the same meanings when used herein.

 

1


 

2 Confirmation of appointment

We hereby confirm that we have been appointed as the manager of m.v. [ Sagitta ] [ Centaurus ] registered in the ownership of [Likiep Shipping Company] [Orangina] Inc. (the “ Owner ”) under the flag of the Marshall Islands (the “ Ship ”), pursuant to a Management Agreement dated 8 June 2010 (the “ Management Agreement ”) made between ourselves and the Owner and that we have accepted our appointment thereunder in accordance with the terms and conditions thereof.

 

3 Representations and warranties

 

3.1 We hereby represent and warrant that the copy of the Management Agreement set out in Appendix 1 to this Letter is a true and complete copy of the Management Agreement, that the Management Agreement constitutes valid and binding obligations of the Manager enforceable in accordance with its terms and that there have been no amendments or variations thereto or defaults thereunder by the Manager or, to the best of the Manager’s knowledge and belief, by the Owner.

 

3.2 We hereby confirm that the representations and warranties set out in clauses 7.2.9, 7.2.10 and 7.2.11 of the Loan Agreement are true and correct in all respects.

 

4 Undertakings

The Manager undertakes with the Security Agent that throughout the Security Period (as such term is defined in the general assignment dated July 2010 (the “ General Assignment ”) executed by the Owner in favour of the Security Agent):

 

4.1 the Manager will not agree or purport to agree to any amendment or variation of the Management Agreement without the prior written consent of the Security Agent;

 

4.2 the Manager will procure that any sub-manager appointed by the Manager pursuant to the provisions of the Management Agreement will, on or before the date of such appointment enter into an undertaking in favour of the Security Agent in substantially the same form (mutatis mutandis) as this Letter;

 

4.3 the Manager will not, without the prior written consent of the Security Agent, take any action or institute any proceedings or make or assert any claim on or in respect of the Ship or its policies and contracts of insurance (which expression includes all entries of the Ship in a protection and indemnity or war risks association) which are from time to time during the Security Period (as such term is defined in the General Assignment) in place or taken out or entered into by or for the benefit of the Owner (whether in the sole name of the Owner or in the joint names of the Owner and the Security Agent or otherwise) in respect of the Ship and her Earnings (as such term is defined below) or otherwise howsoever in connection with the Ship and all benefits thereof (including claims of whatsoever nature and return of premiums) (the “ Insurances ”) or any moneys whatsoever from time to time due or payable to the Owner during the Security Period (as such term is defined in the General Assignment) arising out of the use or operation of the Ship including (but without limiting the generality of the foregoing) all freight, hire and passage moneys, income arising under pooling arrangements, compensation payable to the Owner in event of requisition of the Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship (the “ Earnings ”) or any other property or other assets of the Owner which the Security Agent has previously advised the Manager are subject to any Encumbrance or right of set-off in favour of the Security Agent or the Secured Creditors or any of them by virtue of any of the Security Documents;

 

4.4 the Manager will discontinue any such action or proceedings or claim which may have been taken, instituted or made or asserted, promptly upon notice from the Security Agent to do so;

 

2


 

4.5 the Manager does hereby subordinate any claim that it may have against the Owner or otherwise in respect of the Ship and its Earnings, Insurances and Requisition Compensation (as such term is defined in the General Assignment) to the claims of the Security Agent and/or the Secured Creditors or any of them under the Loan Agreement, the Master Swap Agreement and the other Security Documents and undertakes not to exercise any right to which it may be entitled in respect of the Owner and/or the Ship and/or its Earnings and/or Insurances and/or Requisition Compensation (as such term is defined in the General Assignment) in competition with the Security Agent and/or the Secured Creditors or any of them;

 

4.6 the Manager will promptly notify the Security Agent if at any time the amount owed by the Owner to the Manager pursuant to the Management Agreement (whether in respect of the Manager’s remuneration or disbursements or otherwise) exceeds US$150,000 or the equivalent in other currencies; and

 

4.7 the Manager will provide the Security Agent with such information concerning the Ship as the Security Agent may from time to time reasonably require.

 

5 Insurance assignment

 

5.1 By way of security for the repayment of the aggregate of the Loan and interest accrued and accruing thereon, the Master Swap Agreement Liabilities (as such term is defined in the General Assignment), the Expenses (as such term is defined in the General Assignment) and all other sums of money from time to time owing by the Owner to the Security Agent and/or the Secured Creditors or any of them, whether actually or contingently, under the Loan Agreement, the Master Swap Agreement and the other Security Documents or any of them (the “ Outstanding Indebtedness ”), the Manager with full title guarantee hereby irrevocably and unconditionally assigns and agrees to assign to the Security Agent all of the Manager’s rights, title and interest in and to all the benefit of the Insurances.

 

5.2 The Manager hereby undertakes to procure that a duly completed notice in the form set out in Appendix 2 to this Letter is given to all insurers of the Ship and to procure that such notice is promptly endorsed on all policies and entries in respect of the Insurances and agrees promptly to authorise and/or instruct any broker, insurer or association with or through whom Insurances may be effected to endorse on any policy or entry or otherwise to give effect to such loss payable clause as may be stipulated by the Security Agent.

 

5.3 The Security Agent shall, at the Manager’s cost and request, re-assign to the Manager all the Manager’s right, title and interest in the Insurances upon the Outstanding Indebtedness being paid and discharged in full to the satisfaction of the Security Agent.

 

5.4 Any moneys in respect of the Insurances which would (but for the assignment contained in clause 5.1 above) be payable to the Manager shall be applied in accordance with clause 2.3 of the General Assignment and/or clause 2.6 of the General Assignment.

 

6 Acknowledgement

The Manager hereby acknowledges that it has seen and has reviewed the Loan Agreement, the Master Swap Agreement and the other Security Documents and agrees to (a) abide by and to observe the provisions thereof insofar as the same are applicable to it as therein provided and (b) perform its obligations under the Management Agreement in a manner which will not be contrary to the provisions of the Loan Agreement, the Master Swap Agreement and the other Security Documents.

 

7 Law and jurisdiction

 

7.1 The agreement constituted by this Letter and any non-contractual obligations connected with it are governed by, and shall be construed in accordance with, English law.

 

3


 

7.2 The Manager agrees, for the benefit of the Security Agent, that any legal action or proceedings arising out of or in connection with this Letter (including any non-contractual obligations connected with this Letter) against the Manager or any of its assets may be brought in the English courts. The Manager irrevocably and unconditionally submits to the jurisdiction of such courts and irrevocably designates, appoints and empowers A. Nicolaou & Co at present of 25 Heath Drive, Potters Bar, Herts EN6 1EN, United Kingdom to receive for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings. The submission to such jurisdiction shall not (and shall not be construed so as to) limit the rights of the Security Agent to take any proceedings against the Manager in the courts of any other competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

 

7.3 No term of this Letter is enforceable under the provisions of the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this undertaking or to whom this undertaking is not addressed.

Yours faithfully,

 

For and on behalf of

DIANA SHIPPING SERVICES S.A.

 

4


 

Appendix 1

Copy of the Management Agreement

 

5


 

Appendix 2

Notice of Assignment

We, DIANA SHIPPING SERVICES S.A. , the managers of the motor vessel [ Sagitta ] [ Centaurus ] HEREBY GIVE NOTICE that by a first assignment dated [ ] July 2010 and entered into by us with DNB NOR BANK ASA there has been assigned by us to the said DNB NOR BANK ASA as first assignees all of our right, title and interest in and to the insurances in respect of the said ship including the insurances constituted by the Policy whereon this notice is endorsed.

 

 

SIGNED

for and on behalf of

DIANA SHIPPING SERVICES S.A.

Dated: [ ] July 2010

 

6


 

Schedule 11

Form of Master Swap Agreement

 

79


 

(Multicurrency — Cross Border)

ISDA

International Swap Dealers Association, Inc.

MASTER AGREEMENT

dated      July 2010

DnB NOR Bank ASA (“ Party A ”) and Likiep Shipping Company Inc. and Orangina Inc. (acting jointly and severally as “ Party B ”) have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties confirming those Transactions.

Accordingly, the parties agree as follows: —

 

1. Interpretation

(a) Definitions . The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.

(b) Inconsistency . In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.

(c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions.

 

2. Obligations

(a) General Conditions .

(i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.

(ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.

(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.

Copyright © 1992 by International Swap Dealers Association, Inc.


 

(b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.

(c) Netting. If on any date amounts would otherwise be payable;—

(i) in the same currency; and

(ii) in respect of the same Transaction,

by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.

(d) Deduction or Withholding for Tax.

(i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party (“X”) will:—

(1) promptly notify the other party (“Y”) of such requirement;

(2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;

(3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and

(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:—

(A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or

(B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law.

 

  2   ISDA ® 1992


 

(ii) Liability. If: —

(1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4);

(2) X does not so deduct or withhold; and

(3) a liability resulting from such Tax is assessed directly against X,

then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).

(e) Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.

 

3. Representations

Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:—

(a) Basic Representations.

(i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing;

(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance;

(iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

(iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

 

  3   ISDA ® 1992


 

(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.

(c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.

(d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.

(e) Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this

Section 3(e) is accurate and true.

(f) Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this

Section 3(f) is accurate and true.

 

4. Agreements

Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:—

(a) Furnish Specified Information. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:—

(i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;

(ii) any other documents specified in the Schedule or any Confirmation; and

(iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,

in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.

(b) Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.

(c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.

(d) Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure.

(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated,

 

  4   ISDA ® 1992


organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located (“Stamp Tax Jurisdiction”) and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.

 

5. Events of Default and Termination Events

(a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an “Event of Default”) with respect to such party:—

(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;

(ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;

(iii) Credit Support Default.

(1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;

(2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or

(3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;

(iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;

(v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf);

(vi) Cross Default. If “Cross Default” is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however

 

  5   ISDA ® 1992


described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one ormore payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);

(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party: —

(1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or

(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer; —

(1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or

(2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.

 

  6   ISDA ® 1992


 

(b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:—

(i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such dale, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party): —

(1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or

(2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;

(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));

(iii) Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);

(iv) Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying to the party, such party (“X”), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or

(v) Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).

(c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.

 

  7   ISDA ® 1992


 

6. Early Termination

(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, “Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).

 

(b) Right to Terminate Following Termination Event.

(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.

(ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(l) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.

If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).

Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party’s policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.

(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(l) or a Tax Event occurs and there aTe two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.

(iv) Right to Terminate. If: —

(1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or

(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,

either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.

 

  8   ISDA ® 1992


 

(c) Effect of Designation.

(i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.

(ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).

(d) Calculations.

(i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.

(ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.

(e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties’ election in the Schedule of a payment measure, either “Market Quotation” or “Loss”, and a payment method, either the “First Method” or the “Second Method”. If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that “Market Quotation” or the “Second Method”, as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.

(i) Events of Default. If the Early Termination Date results from an Event of Default: —

(1) First Method and Market Quotation . If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.

(2) First Method and Loss . If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party’s Loss in respect of this Agreement.

(3) Second Method and Market Quotation . If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the

 

  9   ISDA ® 1992


Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.

(4) Second Method and Loss . If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party’s Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.

(ii) Termination Events. If the Early Termination Date results from a Termination Event: —

(1) One Affected Party . If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.

(2) Two Affected Parties . If there are two Affected Parties: —

(A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount (“X”) and the Settlement Amount of the party with the lower Settlement Amount (“Y”) and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and

(B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss (“X”) and the Loss of the party with the lower Loss (“Y”).

If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.

(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because “Automatic Early Termination” applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).

(iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses.

 

  10   ISDA ® 1992


 

7. Transfer

Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that: —

(a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and

(b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

 

8. Contractual Currency

(a) Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.

(b) Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term “rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.

(c) Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.

(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made.

 

  11   ISDA ® 1992


 

9. Miscellaneous

(a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.

(b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.

(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.

(d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.

(e) Counterparts and Confirmations.

(i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.

(ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.

(f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.

(g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.

 

10. Offices; Multibranch Parties

(a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.

(b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.

(c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation.

 

11. Expenses

A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.

 

  12   ISDA ® 1992


 

12. Notices

(a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:—

(i) if in writing and delivered in person or by courier, on the date it is delivered;

(ii) if sent by telex, on the date the recipient’s answerback is received;

(iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine);

(iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or

(v) if sent by electronic messaging system, on the date that electronic message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.

(b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications arc to be given to it.

 

13. Governing Law and Jurisdiction

(a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule.

(b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement (“Proceedings”), each party irrevocably:—

(i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and

(ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.

(c) Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any

 

  13   ISDA ® 1992


reason any party’s Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.

(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.

 

14. Definitions

As used in this Agreement:—

“Additional Termination Event” has the meaning specified in Section 5(b).

“Affected Party” has the meaning specified in Section 5(b).

“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.

“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting power of the entity or person.

“Applicable Rate” means:—

(a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b) in respect of an obligation to pay an amount under Section 6(c) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate;

(c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and

(d) in all other cases, the Termination Rate.

“Burdened Party” has the meaning specified in Section 5(b).

“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into.

“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent.

“Credit Event Upon Merger” has the meaning specified in Section 5(b).

“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.

“Credit Support Provider” has the meaning specified in the Schedule.

“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus l% per annum.

 

  14   ISDA ® 1992


 

“Defaulting Party” has the meaning specified in Section 6(a).

“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).

“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.

“Illegality” has the meaning specified in Section 5(b),

“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).

“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and “lawful” and “unlawful” will be construed accordingly.

“Local Business Day” means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.

“Loss” means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.

“Market Quotation” means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the “Replacement Transaction”) that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have

 

  15   ISDA ® 1992


been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will he the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.

“Non-default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.

“Non-defaulting Party” has the meaning specified in Section 6(a).

“Office” means a branch or office of a party, which may be such party’s head or home office.

“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Reference Market-makers” means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.

“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.

“Scheduled Payment Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.

“Set-off” means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.

“Settlement Amount” means, with respect to a party and any Early Termination Date, the sum of: —

(a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and

(b) such party’s Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.

“Specified Entity” has the meanings specified in the Schedule.

 

  16   ISDA ® 1992


 

“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.

“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.

“Stamp Tax” means any stamp, registration, documentation or similar tax.

“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.

“Tax Event” has the meaning specified in Section 5(b).

“Tax Event Upon Merger” has the meaning specified in Section 5(b).

“Terminated Transactions” means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if “Automatic Early Termination” applies, immediately before that Early Termination Date).

“Termination Currency” has the meaning specified in the Schedule.

“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.

“Termination Event” means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.

“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.

“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market

 

  17   ISDA ® 1992


value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.

IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.

 

DnB NOR Bank ASA   Likiep Shipping Company Inc.
By:  

 

  By:  

 

    Orangina Inc.
    By:  

 

 

  18   ISDA ® 1992


 

SCHEDULE

to the

MASTER AGREEMENT

dated      July 2010

between

DnB NOR Bank ASA (“ Party A ”)

and

Likiep Shipping Company Inc. and Orangina Inc. (acting jointly and severally as “ Party B ”)

This Agreement is entered into in connection with the loan agreement dated July 2010 entered into between (i) Party B as joint and several borrowers, (ii) DnB NOR Bank ASA as arranger, agent, security agent and account bank, (iii) Party A as swap provider and (iv) the banks and financial institutions set out in schedule 1 thereto as lenders (the “ Loan Agreement ”), relating to a loan agreement of up to $40,000,000 made available to Party B for the purposes specified therein. Capitalised terms used but not defined in this Agreement shall have the meanings given to them in the Loan Agreement.

Part 1

Termination Provisions

In this Agreement: -

 

(a) Specified Entity ” means in relation to Party A for the purpose of:

 

Section 5(a)(v),   Not Applicable
Section 5(a)(vi),   Not Applicable
Section 5(a)(vii),   Not Applicable
Section 5(b)(iv),   Not Applicable
and in relation to Party B for the purpose f:-  
Section 5(a)(v),   Any Affiliate
Section 5(a)(vi),   Any Affiliate
Section 5(a)(vii),   Any Affiliate
Section 5(b)(iv),   Any Affiliate

 

(b) Specified Transaction ” will have the meaning specified in Section 14.

 

(c) The “ Cross Default ” provisions of Section 5(a)(vi) will not apply to Party A and will apply to Party B.

If such provisions apply:-

Specified Indebtedness ” will have the meaning specified in Section 14, except that indebtedness in respect of deposits received and not repaid due to government action or intervention shall not constitute Specified Indebtedness, provided that such government action or intervention is not due to the bankruptcy, insolvency, or severe decline in creditworthiness of the party affected by this government action or intervention.

Threshold Amount ”:-

 

  (i) means in relation to Party A: not applicable; and

 

  (ii) means in relation to Party B: zero (0).


(d) The “ Credit Event Upon Merger ” provisions of Section 5(b)(iv) will apply to Party A and Party B.

 

(e) The “ Automatic Early Termination ” provision of Section 6(a):

 

  (i) will not apply to Party A; and

 

  (ii) will not apply to Party B.

 

(f) Payments on Early Termination ”. For the purpose of Section 6(e) of this Agreement:

 

  (i) Market Quotation will apply.

 

  (ii) The Second Method will apply.

 

(g) Termination Currency ” means the currency of a Terminated Transaction which is selected by the party that is not the Defaulting Party or the Affected Party, as the case may be, or, in circumstances where there are two Affected Parties, by Party A in agreement with Party B, or, failing such agreement, or, if any such currency is not freely available, the Termination Currency shall be United States Dollars.

 

(h) Additional Termination Events . The following shall constitute Additional Termination Events pursuant to Section 5 (b) of this Agreement as a new Section 5 (b)(vi):-

Impossibility . Due to the occurrence of a natural or man-made disaster, armed conflict, act of terrorism, riot, labor disruption or any other circumstance beyond its control after the date on which a Transaction is entered into, it becomes impossible (other than as a result of its own misconduct) for such party (which will be the Affected Party):

(i) to perform any absolute or contingent obligation, to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or

(ii) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction.”

Part 2

Tax Representations

Representations of both Party A and Party B

 

(a) Payer Tax Representations.

For the purpose of Section 3(e) of this Agreement, Party A and Party B shall make the following representation:

It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.

 

- 2 -


 

(b) Payee Tax Representations . For the purpose of Section 3 (f):

 

  (i) Party A makes no Payee Tax Representations.

 

  (ii) Party B makes no Payee Tax Representations.

Part 3

Documents to be Delivered

For the purpose of Section 4(a):-

 

(a) Tax forms, documents or certificates to be delivered are:

Each Party shall, as soon as practicable after demand, deliver to the other party any form or document reasonably requested by the other party which is required to enable such other party to make payments without any deductions or withholdings for or on account of Taxes, or subject to such withholding at a reduced rate.

 

(b) For the purpose of Section 3(d) other documents to be delivered by each party concurrently with the execution and delivery of the Agreement are:-

 

Party required to deliver

document

  Form/Document/ Certificate   Date by which to be delivered   Covered by Section 3(d) Representation
Party A and Party B   Registration Certificate   On signing of this Agreement   Yes
Party A and Party B   A list of the persons authorized to execute this Agreement and each Confirmation.   On signing of this Agreement   Yes
Party A and Party B   The most recently published and audited financial statements of Party A and Party B   On request   No
Party B   Opinion of Marshall Islands Counsel confirming Party B’s authority, power and capacity to enter into this Agreement, such opinion to be in a form acceptable to Party A.   On signing of this   Yes

 

- 3 -


 

Part 4

Miscellaneous

 

(a) Address for Notices . For the purpose of Section 12(a):-

Party A:

Address specified in a Confirmation or otherwise by the acting Office sending the same. If not specified, addresses for notices or communications to Party A are set out below; any notice or communication sent to Party A in connection with any matter arising under Section 5 or 6 shall be copied to Party As Oslo office.

 

Oslo:  

Stranden 21, NO-0021 Oslo, Norway

Telex: 78295 Answerback DNBFX N

Telefax: 47 22 94 84 90

Telephone: 47 91503000

Swift: DNBA NO KX

(only with respect to Transactions through that office)

London:  

20, St. Dunstan’s Hill, London EC3R 8HY, England

Telefax: 44 207 626 7400

Telephone: 44 207 621 1111

Swift: DNBA GB2L

Attention: Foreign Exchange Operations

(only with respect to Transactions through that office)

Singapore:  

Robinson Road, P.O. Box 1769, Singapore 903519

Telex: 21737 Answerback DNBSIN

Telefax: 656 22 49743

Telephone: 656 22 06144

Swift: DNBA SGSG

Attention: Foreign Exchange Operations

(only with respect to Transactions through that office)

New York:  

200 Park Avenue, New York, NY 10166, United States

Telefax: 1 212 681 3900

Telephone: 1 212 681 3800

Swift: DNBA US33

Attention: Foreign Exchange Operations

(only with respect to Transactions through that office)

Shanghai:  

901, Shanghai Central Plaza

381 Huai Hai Zhong Lu,

Shanghai 200020, P.R. China

Telefax: 86 21 6132 2999

Telephone: 86 21 6132 2888

Swift: DNBA CNSH

Attention: Foreign Exchange Operations

(only with respect to Transactions through that office)

Stockholm:  

Kungsgatan 18, PO Box 3042

103 63 Stockholm, Sweden

Telephone: 46 8 473 41 00

Swift: DNBA SE SX XXX

Attention: Foreign Exchange Operations

(only with respect to Transactions through that office)

 

Party B:  

c/o Diana Shipping Services S.A.

Pendelis 16

Palaio Faliro

175 64 Athens

Greece

Telefax: +30 210 942 4975

Telephone: +30 210 947 0100

Attention: Mr Andreas Michalopoulos

 

- 4 -


 

(b) Agent for Service of Process . For the purpose of Section 13(c):-

Party A irrevocably designates DnB NOR Bank ASA, London Branch with offices on the date hereof at 20, St. Dunstan’s Hill, London EC3R 8HY, England to receive for and on behalf of Party A Service of Process in England.

Party B irrevocably designates Messrs. A. Nicolaou & Co with offices on the date of this Agreement at 25 Heath Drive, Potters Bar, Herts EN6 1EN, England to receive for and on behalf of Party B Service of Process in England.

 

(c) Offices . The provisions of Section 10 (a) will apply to this Agreement.

 

(d) Multibranch Party . For the purpose of Section 10 (c):-

Party A is a Multibranch Party and may act through its offices in Oslo, London, Singapore, Shanghai, New York and Stockholm.

Party B is not a Multibranch Party and may act through the offices of Diana Shipping Services S.A. in Athens, Greece.

 

(e) Calculation Agent . The Calculation Agent is Party A.

 

(f) Credit Support Documents :

With respect to Party A: None.

With respect to Party B: the Operating Account Assignments, the General Assignments, the Trust Deed, the Swap Assignment, the Mortgages, the Manager’s Undertakings, the Corporate Guarantee and any other Security Documents.

 

(g) Credit Support Provider :

With respect to Party A: None.

With respect to Party B: each party (other than Party A) that executes and/or has obligations under the Security Documents (as such term is defined in the Loan Agreement) and also means any person that provides the other documents executed in accordance with clause 9 of the Loan Agreement.

 

(h) Governing Law . This Agreement and any non-contractual obligations in connection with this Agreement will be governed by and construed in accordance with the laws of England.

 

(i) Netting of Payments .

Section 2(c)(ii) of this Agreement will apply to any Transactions from the date of this Agreement. Nevertheless, to reduce settlement risk and operational costs, the parties agree that they will endeavour to net across as many Transactions as practicable wherever the parties can administratively do so.

 

(j) Affiliate ” will have the meaning specified in section 14 of this Agreement provided however that the reference to Affiliates in section 3(c) of this Agreement shall be deleted. Party A shall be deemed to have no Affiliates.

Part 5

Other Provisions

 

(a) Scope of Agreement . Any transaction of the kind set forth under the definition of “Specified Transaction” in this Agreement, between Party A and Party B, which the parties have entered or may enter into, shall be governed by this Agreement, unless the relevant document or other confirming evidence expressly exclude the application of this Agreement.

 

- 5 -


 

(b) Definitions .

This Master Agreement, each Confirmation, and each Transaction are subject to the 2000 ISDA Definitions and the Annex to the 2000 ISDA Definitions (collectively, as amended, supplemented, replaced, updated, restated or modified from time to time, the “ISDA Definitions”) and any other definitions specified in the relevant Confirmation for such Transaction (such other definitions, collectively with the ISDA, the “Definitions”), each as published by the International Swaps and Derivatives Association, Inc. (“ISDA”), and will be governed in all respects by the Definitions (except that references to “Swap Transactions” in the Definitions will be deemed to be references to “Transactions”). The Definitions, as so modified, are incorporated by reference in, and made part of, this Agreement and each Confirmation as if set forth in full in this Agreement and such Confirmation. In the event of any inconsistency between the provisions of this Master Agreement and the Definitions, this Master Agreement will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement or the Definitions, such Confirmation will prevail for the purpose of the relevant Transaction.

 

(c) Consent to Recording . Each party consents to the recording of the telephone conversations of the parties in connection with this Agreement or any potential or actual Transactions.

 

(d) Change of Account . Any change of account shall be to an account located in the same jurisdiction.

 

(e) Illegality and Default . A new Section 5 (c) shall be inserted in the Agreement with the following wording in lieu of existing Section 5(c):

Event of Default, Illegality and Impossibility . If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality or as the case may be an Impossibility, it will be treated as an Illegality or as the case may be an Impossibility and will not constitute an Event of Default.”

 

(f) Set off . A new Section 6 (f) shall be inserted in this Agreement with the following wording:

“Any amount (the “Early Termination Amount”) payable to one party (the “Payee”) by the other party (the “Payer”) under Section 6 (e) of this Agreement, in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5 (b) (iv) of this Agreement has occurred, will, at the option of the party (“X”) other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amounts (the “Other Agreement Amount”) payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreements between the Payee and the Payer or instruments or undertakings issued or executed by one party to, or in favour of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this Section 6 (f).

For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.

If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.

Nothing in this Section 6 (f) shall be effective to create a charge or other security interest. This Section 6 (f) shall be without prejudice and in addition to any right of set-off, counterclaim, withholding of payments, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).”

 

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(g) Escrow Payments . If (whether by reason of the time difference between the cities in which payments are to be made or otherwise) it is not possible for simultaneous payments to be made on any date on which both parties are required to make payments hereunder, either party may at its option and in its sole discretion notify the other party that payments on that date are to be made in escrow. In this case deposit of the payment due earlier on that date shall be made by 2.00 p.m. (local time at the place for the earlier payment) on that date with an escrow agent selected by the notifying party, but having at least an equal credit rating as the notifying party, accompanied by irrevocable payment instructions (i) to release the deposited payment to the intended recipient upon receipt by the escrow agent of the required deposit of the corresponding payment from the other party on the same date accompanied by irrevocable payment instructions to the same effect or (ii) if the required deposit of the corresponding payment is not made on that same date, to return the payment deposited to the party that paid it into escrow. The party that elects to have payments made in escrow shall pay all costs in connection with escrow arrangements.

 

(h) Relationship Between Parties . A new Section 15 shall be inserted in this Agreement with the following wording:

“Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):-

(i) Non-Reliance . It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction.

(ii) Assessment and Understanding . It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction.

(iii) Status of Parties . The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.”

 

(i) Waiver of Jury Trial . Each party waives, to the fullest extent permitted by applicable law, any right it may have to trial by jury in respect of any suit, action or proceeding relating to this Agreement or any Credit Support Document. Each party (i) certifies that no representative, agent or attorney of the other party or any Credit Support Provider has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into this Agreement and provide for any Credit Support Document, as applicable, by, among other things, the mutual waivers and certifications in this Section.

 

(j) Joint and Several Liability .

(i) All liabilities and obligations of each entity comprising Party B under this Agreement shall, whether expressed to be so or not, be several and, if and to the extent

 

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consistent with (ii) below, joint. Not in limitation of the immediately preceding sentence, (1) each entity comprising Party B makes the representations with respect to Party B set forth in Section 3 of this Agreement to Party A, (2) each such entity comprising Party B makes the agreements with respect to Party B set forth in Section 4 of this Agreement and undertakes joint and several liability with each of the other entities comprising Party B for the performance of such agreements, (3) an Event of Default or Termination Event shall be deemed to occur with respect to Party B if it occurs with respect to any such entity comprising Party B and (4) with respect to such joint and several liability, the submission set forth in Section 13(b) of this Agreement and the waiver set forth in Section 13(d) of this Agreement shall be applicable to each of the entities comprising Party B.

(ii) The liabilities and obligations of each entity comprising Party B shall not be impaired by:

 

  (1) this Agreement being or later becoming void, unenforceable or illegal as regards the other entities comprising Party B;

 

  (2) Party A entering into any rescheduling, refinancing or other arrangement of any kind with the other entities comprising Party B;

 

  (3) Party A releasing the other entities comprising Party B or any Encumbrance created by this Agreement or any Credit Support Document; or

 

  (4) any combination of the foregoing.

(iii) Each entity comprising Party B declares that it is and will, throughout the Security Period (as defined in the General Assignments), remain a principal debtor for all amounts owing under this Agreement and the Security Documents and none of the entities comprising Party B shall in any circumstances be construed to be a surety for the obligations of the other entity comprising Party B under this Agreement. Party A shall not be bound to exhaust its recourse or to take any action against any entity comprising Party B before being entitled to performance under this Agreement from any other entity comprising Party B but rather Party A may make such demands and take such actions as it deems advisable and may apply money received from any entity comprising Party B to discharge such part of the obligations arising under this Agreement as Party A may think best.

Part 6

FX Transactions and Currency Options

 

(a) Standard Terms and Conditions Applicable to FX Transactions and CurrencyOptions . Each FX Transaction or Currency Option outstanding at or entered into after the date hereof between the parties shall be governed by this Agreement, irrespective of any references in a Confirmation to any other master agreements (e.g., IFEMA, ICOM, any specified terms and conditions).

 

(b) Incorporation of ISDA FX and Currency Option Definitions . The 1998 FX and Currency Option Definitions (the “FX and Currency Option Definitions”), published by the International Swaps and Derivatives Association, Inc. (“ISDA”), are hereby incorporated by reference with respect to any “FX Transactions” and “Currency Options” as defined by the FX and Currency Option Definitions, except as otherwise specifically provided herein or in a Confirmation.

 

(c) Terms Relating to Payment of Premium of Currency Options .

If any Premium is not received on the Premium Payment Date, the Seller may elect;

 

  (i) to accept a late payment of such Premium;

 

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  (ii) to give written notice of such non-payment and, if such payment shall not be received within two (2) Local Business Days of such notice, treat the related Currency Option Transaction as void; or

 

  (iii) to give written notice of such non-payment and, if such payment shall not be received within two (2) Local Business Days of such notice, treat such non-payment as an Event of Default under Section 5(a)(i).

If the Seller elects to act under either clause (i) or (ii) of the preceding sentence, the Buyer shall pay all out-of-pocket costs and actual damages incurred in connection with such unpaid or late Premium or void Currency Option Transaction, including, without limitation, interest on such Premium in the same currency as such Premium at the then prevailing market rate and any other costs or expenses incurred by the Seller in covering its obligations (including, without limitation, a delta hedge) with respect to such Currency Option transaction.

 

(d) Netting, Discharge and Termination of Currency Options .

Unless otherwise agreed, any Call Option or any Put Option written by a party will automatically be terminated and discharged, in whole or in part, as applicable, against a Call Option or a Put Option, respectively, written by the other party, such termination and discharge to occur automatically upon the payment in full of the last Premium payable in respect of such Currency Option Transactions; provided that such termination and discharge may only occur in respect of Currency Option Transactions:

 

  (i) each being with respect to the same Put Currency and the same Call Currency;

 

  (ii) each having the same Expiration Date and Expiration Time;

 

  (iii) each being of the same style, i.e. either both being American style Currency Option Transactions or both being European style Currency Option Transactions;

 

  (iv) each having the same Strike Price; and

 

  (v) neither of which shall have been exercised by delivery of a Notice of Exercise;

and, upon the occurrence of such termination and discharge, neither party shall have any further obligation to the other party in respect of the relevant Currency Option Transactions or, as the case may be, parts thereof so terminated and discharged. In the case of a partial termination and discharge of a Currency Option Transaction (i.e. where the relevant Currency Option Transactions are for different amounts of the same Currency Pair), the remaining portion of such Currency Option Transaction shall continue to be a Currency Option Transaction for all purposes of this Agreement, including this provision.

 

(e) Electronic Confirmations . Where a Transaction is confirmed by means of an electronic messaging system that the parties have elected to use to confirm such Transaction: (i) such confirmation will constitute a “Confirmation” as referred to in this Agreement, (ii) such Confirmation will supplement, form part of, and be subject to this Agreement and all provisions in this Agreement will govern the Confirmation.

IN WITNESS WHEREOF the parties have executed this document as of the date specified on the first page of this document.

 

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DNB NOR BANK ASA

 

Date:
Name:
Title:
LIKIEP SHIPPING COMPANY INC.

 

Date:
Name:
Title:
ORANGINA INC.

 

Date:
Name:
Title:

 

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Schedule 12

Form of Swap Assignment

 

80


Private & Confidential

Dated    July 2010

 

 

 

   LIKIEP SHIPPING COMPANY INC.    (1)
   and   
   ORANGINA INC.   
   and   
   DNB NOR BANK ASA    (2)

 

 

SWAP ASSIGNMENT

 

 

LOGO


Contents

 

Clause

   Page
1   

Definitions

   1
2   

Covenant to pay and assignment

   4
3   

Undertakings

   5
4   

Continuing security and other matters

   6
5   

Powers of Security Agent to protect security

   7
6   

Powers of Security Agent on Event of Default

   7
7   

Attorney

   7
8   

Further assurance

   8
9   

Costs and indemnities

   8
10   

Remedies cumulative and other provisions

   8
11   

Notices

   9
12   

Counterparts

   9
13   

Borrowers’ obligations

   9
14   

Benefit of this Deed

   9
15   

Law and jurisdiction

   9

Schedule 1 Form of Notice of Swap Assignment and Acknowledgement

   11

 


 

THIS DEED OF ASSIGNMENT is      July 2010 and made BETWEEN:

 

(1) LIKIEP SHIPPING COMPANY INC. and ORANGINA INC., each a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Island, Majuro, Marshall Islands MH96960 (together, the “ Borrowers ”); and

 

(2) DNB NOR BANK ASA, a company incorporated in Norway whose registered office is at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway acting for the purposes of this Deed through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England, as security agent and trustee for and on behalf of the Secured Creditors (as defined below) (the “ Security Agent ”).

WHEREAS:

 

(A) by a loan agreement dated    July 2010 (the “ Loan Agreement ”) and made between (1) the Borrowers as joint and several borrowers, (2) DnB NOR Bank ASA as arranger, agent (in such capacity the “ Agent ”), Security Agent and account bank, (3) DnB NOR Bank ASA as swap provider (in such capacity the “ Swap Provider ”) and (4) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ” and, together with the Swap Provider and the Agent, the “ Secured Creditors ”), the Banks agreed (inter alia) to make available to the Borrowers, jointly and severally, upon the terms and conditions therein contained, a loan facility of up to Forty million United States Dollars ($40,000,000);

 

(B) by a 1992 ISDA master swap agreement dated July 2010 (the “ Master Swap Agreement ”) and made between the Borrowers and the Swap Provider, the Swap Provider agreed the terms and conditions upon which it would enter into (inter alia) one or more swap or other derivative transactions with the Borrowers, in respect of the Loan (whether in whole or in part as the case may be from time to time);

 

(C) pursuant to clause 16.14 of the Loan Agreement, each of the Secured Creditors has appointed the Security Agent as its security agent and trustee and pursuant to a Trust Deed dated July 2010 and executed by the Security Agent (as trustee) in favour of the Secured Creditors, the Security Agent agreed to hold, receive, administer and enforce this Deed as security agent and trustee for an on behalf of the Secured Creditors;

 

(D) it is a condition precedent to each of the Banks making its Commitment available under the Loan Agreement that the Borrowers as security for (inter alia) their obligations under the Loan Agreement and the Master Swap Agreement shall execute this Deed; and

 

(E) this Deed is supplemental to the Loan Agreement and to the security thereby created and is the Swap Assignment referred to in the Loan Agreement.

NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED as follows:

 

1 Definitions

 

1.1 Defined expressions

Words and expressions defined in the Loan Agreement shall, unless otherwise defined in this Deed, or the context otherwise requires, have the same meanings when used in this Deed.

 

1.2 Definitions

In this Deed, unless the context otherwise requires:

Agent ” includes its successors in title and its replacements;


 

Assigned Property ” means all of the Borrowers’ right, title and interest in and to:

 

  (a) the Swap Payments; and

 

  (b) all Swap Contract Rights;

Banks ” includes their respective successors in title and/or Transferee Banks;

Borrowers ” includes the successors in title of the Borrowers;

Collateral Instruments ” means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable under the Security Documents and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Default ” means any Event of Default or any event or circumstance which with the giving of notice or lapse of time or the satisfaction of any other condition (or any combination thereof) would constitute an Event of Default;

Event of Default ” means any of the events or circumstances described in clause 10.1 of the Loan Agreement;

Expenses ” means the aggregate at any relevant time (to the extent that the same have not been received by the Security Agent) of:

 

  (a) all losses, liabilities, costs, charges, expenses, damages and outgoings of whatever nature (including, without limitation, Taxes, repair costs, registration fees and insurance premiums) suffered, incurred or paid by the Security Agent in connection with the exercise of the powers referred to in or granted by the Loan Agreement, the Master Swap Agreement, this Deed or any other of the Security Documents; and

 

  (b) interest on all such losses, liabilities, costs, charges, expenses, damages and outgoings from the date on which the same were suffered, incurred or paid by the Security Agent until the date of receipt or recovery thereof (whether before or after judgment) at a rate per annum calculated in accordance with clause 3.4 of the Loan Agreement (as conclusively certified by the Security Agent);

Loan ” means the aggregate principal amount owing to the Banks under the Loan Agreement at any relevant time;

Loan Agreement ” means the loan agreement dated    July 2010 mentioned in recital (A) hereto;

Master Swap Agreement ” means the 1992 ISDA Master Agreement dated July 2010 made between the Swap Provider and the Borrowers mentioned in recital (B) hereto, comprising an ISDA Master Agreement (and a schedule thereto) together with any Confirmations (as defined therein) supplemental thereto;

Master Swap Agreement Liabilities ” means at any relevant time all liabilities, actual or contingent, present or future, owing to the Swap Provider under the Master Swap Agreement;

Notice of Assignment ” means a notice of assignment in the form set out in schedule 1 or in such other form as may from time to time be agreed in writing by the Security Agent;

Outstanding Indebtedness ” means the aggregate of the Loan and interest accrued and accruing thereon, the Master Swap Agreement Liabilities and all other sums of money from time


to time owing by the Borrowers or either of them to the Security Agent, the Secured Creditors or any of them, whether actually or contingently, present or future, under or pursuant to the Loan Agreement, the Master Swap Agreement and the other Security Documents or any of them;

Security Agent ” includes the successors in title and any replacements of the Security Agent;

Security Documents ” means the Loan Agreement, the Master Swap Agreement, this Deed and any other such document as is defined in the Loan Agreement as a Security Document or as may have been or may hereafter be executed to guarantee and/or secure all or any part of the Loan, interest thereon, the Master Swap Agreement Liabilities and other moneys from time to time owing by the Borrowers or either of them pursuant to the Loan Agreement and/or the Master Swap Agreement (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Period ” means the period commencing on the date hereof and terminating upon discharge of the security created by the Security Documents by payment of all moneys payable thereunder, whether actually or contingently;

Swap Contract Rights ” means all of the rights of the Borrowers under or pursuant to the Master Swap Agreement including (without limitation) the right to receive Swap Payments;

Swap Payments ” means all payments made or to be made to the Borrowers or either of them under the Master Swap Agreement by the Swap Provider including (but without prejudice to the generality of the foregoing) all claims for damages in respect of any breach by the Swap Provider of the Master Swap Agreement; and

Swap Provider ” includes its successors in title.

 

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Deed.

 

1.4 Construction of certain terms

In this Deed, unless the context otherwise requires:

 

1.4.1 references to clauses and Schedules are to be construed as references to clauses of and Schedules to this Deed and references to this Deed include its Schedules;

 

1.4.2 references to (or to any specified provision of) this Deed or any other document shall be construed as references to this Deed, that provision or that document as in force for the time being and as amended in accordance with the terms thereof, or, as the case may be, with the agreement of the relevant parties;

 

1.4.3 words importing the plural shall include the singular and vice versa;

 

1.4.4 references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

 

1.4.5 references to a “ guarantee ” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “ guaranteed ” shall be construed accordingly; and

 

1.4.6 references to statutory provisions shall be construed as references to those provisions as replaced or amended or re-enacted from time to time.


 

1.5 Conflict with Loan Agreement

This Deed shall be read together with the Loan Agreement but in case of any conflict between the two instruments, the provisions of the Loan Agreement shall prevail.

 

2 Covenant to pay and assignment

 

2.1 Covenant to pay

The Borrowers hereby jointly and severally covenant that they will pay on demand to the Security Agent for the account of the Secured Creditors and the Security Agent all moneys and discharge all the Outstanding Indebtedness now or hereafter due, owing or incurred to the Security Agent and/or any of the other Creditors under or in connection with the Loan Agreement, the Master Swap Agreement and/or this Deed or any of them when the same become due for payment, whether by acceleration or otherwise.

 

2.2 Assignment

By way of security for payment of the Outstanding Indebtedness, the Borrowers with full title guarantee hereby assign absolutely and charge to the Security Agent, and agree to assign absolutely and charge to the Security Agent, all their right, title and interest in and to the Assigned Property and all their benefits and interests present and future therein Provided however that the Swap Payments shall be payable to the Operating Accounts or either of them until such time as a Default shall occur and the Security Agent shall direct to the contrary whereupon the Borrowers shall forthwith, and the Security Agent may at any time thereafter, instruct the persons from whom the Swap Payments are then payable to pay the same to the Security Agent or as it may direct and any Swap Payments then in the hands of the Borrowers’ agents shall be deemed to have been received by them for the use and on behalf of the Security Agent.

 

2.3 Notice

The Borrowers hereby jointly and severally covenant and undertake with the Security Agent that they will give a Notice of Assignment in respect of the assignment herein contained to the persons from whom any part of the Assigned Property is or may be due and will procure that the Swap Provider shall deliver to the Security Agent as soon as possible thereafter copies thereof with the acknowledgement thereto duly executed by the Swap Provider.

 

2.4 Application

All moneys received by the Security Agent in respect of:

 

2.4.1 Swap Payments;

 

2.4.2 other sums paid by the Swap Provider under the Master Swap Agreement (including sums arising from any arbitration award);

 

2.4.3 the enforcement of its rights hereunder;

 

2.4.4 the determination, cancellation or rescission or other termination of the Master Swap Agreement and any Transactions thereunder; or

 

2.4.5 otherwise in respect of the Assigned Property,

shall be held by it upon trust in the first place to pay or make good the Expenses and the balance shall be applied in the manner specified in clause 13.1 of the Loan Agreement.


 

2.5 Shortfalls

In the event that the balance referred to in clause 2.4 is insufficient to pay in full the whole of the Outstanding Indebtedness, the Security Agent shall be entitled to collect the shortfall from the Borrowers or any other person liable for the time being therefor.

 

2.6 Use of Borrowers name

Each Borrower covenants and undertakes with the Security Agent to do or permit to be done each and every act or thing which the Security Agent may from time to time reasonably require to be done for the purpose of enforcing the Security Agent’s rights under this Deed and to allow its name to be used as and when reasonably required by the Security Agent for that purpose.

 

2.7 Reassignment

Upon payment and discharge in full of the Outstanding Indebtedness, the Security Agent shall at the request and cost of the Borrowers, promptly reassign the Assigned Property to the Borrowers or as they may direct.

 

3 Undertakings

 

3.1 Covenants and undertakings

Each Borrower hereby covenants and undertakes with the Security Agent that throughout the Security Period:

 

3.1.1 Negative undertakings

it will not, without the previous written consent of the Security Agent:

 

  (a) Variations

agree to any variation of the Master Swap Agreement;

 

  (b) Release and waivers

release the Swap Provider from any of its obligations under the Master Swap Agreement or waive any breach of the Swap Provider’s obligations thereunder or consent to any such act or omission of the Swap Provider as would otherwise constitute such breach;

 

  (c) Termination

terminate any Transaction entered into under the Master Swap Agreement for any reason whatsoever; or

 

  (d) Assignments

assign or otherwise dispose of the Assigned Property or any part thereof;

 

3.1.2 Swap Payments

it will ensure that any Swap Payments shall be paid to the Operating Accounts or either of them provided that, on the occurrence of a Default each Borrower shall forthwith, and the Security Agent may during such time, instruct the persons from whom any Swap Payments are then payable, to pay the same to the Security Agent or as it may direct and any Swap Payments which are then in the hands of the Borrowers’ agents shall be deemed to have been received by them for the use and on behalf of the Security Agent;


 

3.1.3 Performance of Master Swap Agreement obligations

it will perform its obligations under the Master Swap Agreement and use its best endeavours to procure that the Swap Provider shall perform its obligations under the Master Swap Agreement; and

 

3.1.4 Information

it will supply to the Security Agent all reasonable information, accounts and records that may be necessary or of assistance to enable the Security Agent to verify the amounts of all Swap Payments and any other amounts payable under the Master Swap Agreement.

 

4 Continuing security and other matters

 

4.1 Continuing security

The security created by this Deed shall:

 

4.1.1 be held by the Security Agent as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions contained in the Security Documents, express or implied, and that the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between the Borrowers or either of them or any other person who may be liable to the Security Agent and/or any of the other Creditors in respect of the Outstanding Indebtedness or any part thereof and the Security Agent and/or any of the other Creditors);

 

4.1.2 be in addition to, and shall not in any way prejudice or affect, and may be enforced by the Security Agent without prior recourse to, the security created by any other of the Security Documents or by any present or future Collateral Instruments, right or remedy held by or available to the Security Agent and/or any of the other Creditors or any right or remedy of the Security Agent and/or any of the other Creditors thereunder; and

 

4.1.3 not be in any way prejudiced or affected by the existence of any of the other Security Documents or any such Collateral Instrument, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Security Agent and/or any of the other Creditors dealing with, exchanging, varying or failing to perfect or enforce any of the same, or giving time for payment or performance or indulgence or compounding with any other person liable.

 

4.2 Rights additional

All the rights, powers and remedies vested in the Security Agent hereunder shall be an addition to and not a limitation of any and every other right, power or remedy vested in the Security Agent and/or any of the other Creditors under the Loan Agreement, this Deed, the other Security Documents or any Collateral Instrument or at law and all the rights, powers and remedies so vested in the Security Agent and/or any of the other Creditors may be exercised from time to time and as often as the Security Agent and/or any of the other Creditors may deem expedient.

 

4.3 No enquiry

The Agent shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it under this Deed or to make any claim or take any action to collect any moneys hereby assigned or to enforce any rights or benefits hereby assigned to the Security Agent or to which the Security Agent may at any time be entitled under this Deed.


 

4.4 Obligations of Borrowers and Security Agent

The Borrowers shall remain liable to perform all the obligations assumed by them in relation to the Assigned Property and the Security Agent shall be under no obligation of any kind whatsoever in respect thereof or be under any liability whatsoever in the event of any failure by the Borrowers to perform their obligations in respect thereof.

 

5 Powers of Security Agent to protect security

The Agent shall, without prejudice to its other rights, powers and remedies under any of the Security Documents, be entitled (but not bound) at any time, and as often as may be necessary, to take any such action as it deems necessary for the purpose of protecting or maintaining the security created by this Deed and the other Security Documents, and all Expenses attributable thereto shall be payable by the Borrowers on demand.

 

6 Powers of Security Agent on Event of Default

 

6.1 Powers

At any time after the occurrence of an Event of Default, the Security Agent shall forthwith become entitled (but not bound) as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee and/or chargee of the Assigned Property (whether at law, by virtue of this deed or otherwise) and in particular (without limiting the generality of the foregoing):

 

6.1.1 to collect, recover, compromise and give a good discharge for, all claims then outstanding or thereafter arising under the Assigned Property or the Master Swap Agreement or any part thereof, and to take over or institute (if necessary using the name of the Borrowers) all such proceedings in connection therewith as the Security Agent thinks fit;

 

6.1.2 to discharge, compound, release or compromise claims in respect of the Assigned Property or the Master Swap Agreement or any part thereof which have given or may give rise to any charge or lien or other claim on the Assigned Property or any part thereof or which are or may be enforceable by proceedings against the Assigned Property or any part thereof; and

 

6.1.3 to recover from the Borrowers on demand all Expenses incurred or paid by the Security Agent in connection with the exercise of the powers (or any of them) referred to in this clause 6.

 

7 Attorney

 

7.1 Appointment

By way of security, the Borrowers hereby irrevocably appoint the Security Agent to be their attorney generally for and in the name and on behalf of the Borrowers, and as the act and deed or otherwise of the Borrowers to execute, seal and deliver and otherwise perfect and do all such deeds, assurances, agreements, instruments, acts and things which are required for the full exercise of all or any of the rights, powers or remedies conferred hereby or which may be deemed proper in or in connection with all or any of the purposes aforesaid. The power hereby conferred shall be a general power of attorney under the Powers of Attorney Act 1971, and the Borrowers ratify and confirm, and agree to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Security Agent may execute or do pursuant thereto Provided always that such power shall not be exercisable by or on behalf of the Security Agent until the happening of any Event of Default.

 

7.2 Exercise of power

The exercise of such power by or on behalf of the Security Agent shall not put any person dealing with the Security Agent upon any enquiry as to whether any Event of Default has


occurred, nor shall such person be in any way affected by notice that no such Event of Default has happened and the exercise by the Security Agent of such power shall be conclusive evidence of the Security Agent’s right to exercise the same.

 

7.3 Filings

The Borrowers hereby irrevocably authorise and empower the Security Agent to be their attorney in their name and on their behalf and as their act and deed or otherwise of it to agree the form of and to execute and do all deeds, instruments, acts and things in order to file, record, register or enrol this Deed in any court, public office or elsewhere which the Security Agent may deem necessary or advisable, now or in the future, to ensure the legality, validity, enforceability or admissibility in evidence thereof and any other assurance, document, act or thing required to be executed by the Borrowers pursuant to clause 8.

 

8 Further assurance

The Borrowers hereby further undertake at their own expense from time to time to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Security Agent may be necessary or desirable for the purpose of more effectually mortgaging and charging the Assigned Property or perfecting the security constituted or intended to be constituted by this Deed.

 

9 Costs and indemnities

 

9.1 Costs

The Borrowers shall pay to the Security Agent on demand all expenses (including legal fees, fees of insurance advisers, printing, out-of-pocket expenses, stamp duties, registration fees and other duties or charges) together with any value added tax or similar tax payable in respect thereof incurred by the Security Agent and/or any of the Secured Creditors in connection with the exercise or enforcement of, or preservation of any rights under, this Deed or otherwise in respect of the Outstanding Indebtedness and the security therefor or the preparation, completion, execution or registration, release or reassignment of the Loan Agreement, the Master Swap Agreement, this Deed and any of the other Security Documents.

 

9.2 Security Agent’s indemnity

The Borrowers hereby, jointly and severally, agree and undertake to indemnify the Security Agent against all losses, actions, claims, expenses, demands, obligations and liabilities whatever and whenever arising which may now or hereafter be incurred by the Security Agent and/or any of the Secured Creditors or by any manager, agent, officer or employee for whose liability, act or omission the Security Agent and/or any of the Secured Creditors may be answerable in respect of, in relation to, or in connection with anything done or omitted in the exercise or purported exercise of the powers contained in this Deed or otherwise in connection with such powers or with any part of the Assigned Property or of the Master Swap Agreement or otherwise howsoever in relation to, or in connection with, any of the matters dealt with in this Deed.

 

10 Remedies cumulative and other provisions

 

10.1 No implied waivers; remedies cumulative

No failure or delay on the part of the Security Agent and/or any of the Secured Creditors to exercise any right, power or remedy vested in it or them under this Deed shall operate as a waiver thereof, nor shall any single or partial exercise by the Security Agent and/or any of the Secured Creditors of any right, power or remedy nor the discontinuance, abandonment or adverse determination of any proceedings taken by the Security Agent and/or any of the Secured Creditors to enforce any right, power or remedy preclude any other or further exercise thereof or proceedings to enforce the same or the exercise of any other right, power or remedy,


nor shall the giving by the Security Agent of any consent to any act which by the terms of this Deed requires such consent prejudice the right of the Security Agent to give or withhold consent to the doing of any other similar act. The remedies provided in this Deed are not exclusive of any remedies provided by law.

 

10.2 Delegation

The Agent shall be entitled, at any time and as often as may be expedient, to delegate all or any of the powers and discretions vested in it by this Deed (including the power vested in it by virtue of clause 7) in such manner, upon such terms, and to such persons as the Security Agent may think fit.

 

11 Notices

The provisions of clause 17.1 of the Loan Agreement shall apply mutatis mutandis in respect of any certificate, notice, demand or other communication given or made under this Deed.

 

12 Counterparts

This Deed may be entered into in the form of counterparts, each executed by one of the parties, and, provided each of the parties shall so execute this Deed, each of the executed counterparts, when duly exchanged or delivered, shall be deemed to be an original but, taken together, they shall constitute one instrument.

 

13 Borrowers’ obligations

Notwithstanding anything to the contrary contained in this Deed, the agreements, obligations and liabilities of the Borrowers herein contained are joint and shall be construed accordingly. The Borrowers agree and consent to be bound by this Deed notwithstanding that any other party who is intended to sign or to be bound may not do so or be effectually bound and notwithstanding that this Deed may be invalid or unenforceable against either Borrower whether or not the deficiency is known to the Security Agent. The Agent shall be at liberty to release either Borrower from this Deed and to compound with or otherwise vary and agree to vary the liability or to grant time and indulgence to make other arrangements with either Borrower without prejudicing or affecting the rights and remedies of the Security Agent against the other Borrower or increasing or otherwise affecting the nature of the obligations of the other Borrower.

 

14 Benefit of this Deed

This Deed shall be binding upon the Borrowers and their respective successors in title and shall enure for the benefit of the Security Agent and its successors in title and/or replacements. The Borrowers expressly acknowledge and accept the provisions of clause 16 of the Agreement and agree that any person who replaces the Security Agent in accordance with such clause shall be entitled to the benefit of this Deed.

 

15 Law and jurisdiction

 

15.1 Law

This Deed and any non-contractual obligations in connection with this Deed are governed by, and shall be construed in accordance with, English law.

 

15.2 Submission to jurisdiction

For the benefit of the Security Agent, the parties hereto irrevocably agree that any legal action or proceedings in connection with this Deed (including any non-contractual obligations connected with this Deed) may be brought in the English courts, or in the courts of any other country chosen by the Security Agent, each of which shall have jurisdiction to settle any disputes arising out of or in connection with this Deed. The Borrowers irrevocably and


unconditionally submit to the jurisdiction of the English courts and the courts of any country chosen by the Security Agent and irrevocably designate, appoint and empower A. Nicolaou & Co. at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive, for them and on their behalf, service of process issued out of the English courts in any legal action or proceedings arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed). The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Security Agent to take proceedings against the Borrowers or either of them in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

The parties further agree that only the courts of England and not those of any other state shall have jurisdiction to determine any claim which the Borrowers or either of them may have against the Security Agent arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed).

 

15.3 Contracts (Rights of Third Parties) Act 1999

No term of this Deed shall be enforceable pursuant to the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Deed.

IN WITNESS whereof this Deed has been duly executed as a deed the day and year first above written.


 

Schedule 1

Form of Notice of Swap Assignment and Acknowledgement

 

To: DnB NOR Bank ASA

20 St. Dunstan’s Hill

London EC3R 8HY

England

(as Swap Provider)

(Date)

We refer to the Master Swap Agreement (the “ Master Swap Agreement ”) dated [ ] July 2010 and made between ourselves and yourselves (the “ Swap Provider ”).

NOW WE HEREBY GIVE YOU NOTICE:

 

1 that, by an Assignment dated [ ] July 2010 (the “ Assignment ”) made between (1) us, Likiep Shipping Company Inc. and Orangina Inc. and (2) DnB NOR Bank ASA (the “ Assignee ”), we have assigned to the Assignee absolutely and charged with full title guarantee all our rights, title and interest to and in any moneys whatsoever payable to us under the Master Swap Agreement and all other rights and benefits whatsoever accruing to us under the Master Swap Agreement including (but without prejudice to the generality of the foregoing) all claims for damages in respect of any breach by the Swap Provider of the Master Swap Agreement (the “ Assigned Property ”);

 

2 that the Swap Provider is hereby irrevocably authorised and instructed to pay such moneys as aforesaid to the bank accounts with account numbers 64071001 and 64072001 or to either of them, which we have opened with DnB NOR Bank ASA or to such other account as the Assignee may from time to time direct;

 

3 that the Swap Provider is hereby irrevocably authorised and instructed not to deal with the Assigned Property except on the instructions of the Assignee and to pay all moneys whatsoever now or at any time hereafter due or owing to us under or by virtue of the Assigned Property to the Assignee on request by the Assignee (whose receipt shall be full and sufficient discharge to you for such payment); and

 

4 that the said Assignment includes provisions that no variations shall be made to the Master Swap Agreement (nor shall the Swap Provider be released from the Swap Provider’s obligations thereunder) without the previous written consent of the Assignee and the Assignee shall be under no obligation of any kind whatsoever in respect thereof.

The authority and instructions herein contained cannot be revoked or varied by us without the consent of the Assignee.


 

This letter and any non-contractual obligations connected with this letter are governed by English law.

 

 

duly authorised representative

for and on behalf of

LIKIEP SHIPPING COMPANY INC.

 

 

duly authorised representative

for and on behalf of

ORANGINA INC.

Dated: [ ] 2010


 

To:   

DnB NOR Bank ASA

(as Security Agent)

Cc:   

Likiep Shipping Company Inc.

Orangina Inc.

We acknowledge receipt of the notice set out above and consent to the assignment referred to therein and, in consideration of US$10 and other good and valuable consideration (the receipt and adequacy of which we hereby acknowledge), we hereby undertake with, and confirm to the Assignee as follows:

 

(a) to pay all amounts due from us under the Master Swap Agreement in full in Dollars in accordance with the terms of the Master Swap Agreement to the bank accounts referred to in the said notice set out above or to the Assignee or its order;

 

(b) to permit the Assignee to enforce all rights and benefits whatsoever accrued or accruing to Likiep Shipping Company Inc. and Orangina Inc. (together, the “ Borrowers ”) under the Master Swap Agreement and for this purpose to take over or institute proceedings in respect thereof;

 

(c) not, without the prior written consent of the Assignee, to agree to any variation of the Master Swap Agreement; and

 

(d) that we have not received any notice of any prior charge, assignment or encumbrance over the Borrowers’ right, title and interest in and to the Assigned Property or the Master Swap Agreement and hereby agree not to consent or agree to any other assignment of the Assigned Property or the Master Swap Agreement or the moneys payable by us thereunder and to advise you forthwith of any such attempted assignment, charge or disposal by the Borrowers or either of them that come to our attention.

This letter and any non-contractual obligations connected with this letter are governed by English law.

 

 

duly authorised signatory

for and on behalf of

DNB NOR BANK ASA

(as Swap Provider)

Dated: [ ] 2010


 

The Borrowers

 

EXECUTED as a DEED       )      
by       )      
for and on behalf of       )   

 

  
LIKIEP SHIPPING COMPANY INC.       )    Attorney-in-Fact   
in the presence of:       )      

 

           
Witness            
Name:            
Address:            
Occupation:            
EXECUTED as a DEED       )      
by       )      
for and on behalf of       )   

 

  
ORANGINA INC.       )    Attorney-in-Fact   
in the presence of:       )      

 

           
Witness            
Name:            
Address:            
Occupation:            
The Security Agent            
EXECUTED as a DEED       )      
by       )      
for and on behalf of       )   

 

  
DNB NOR BANK ASA       )    Attorney-in-Fact   
in the presence of:       )      

 

           

Witness

Name:

Address:

Occupation

           


 

Schedule 13

Form of Operating Account Assignment

 

81


Private & Confidential

Dated     July 2010

 

 

   [LIKIEP SHIPPING COMPANY INC.]  
   [ORANGINA INC.]   (1)
   and  
   DNB NOR BANK ASA   (2)

 

 

OPERATING ACCOUNT ASSIGNMENT

 

 

LOGO


 

Contents

 

Clause    Page  
1   

Definitions

     1   
2   

Assignment

     3   
3   

Covenants by the Account Holder

     4   
4   

Warranties and representations

     5   
5   

Continuing security and other matters

     5   
6   

Powers of the Security Agent

     6   
7   

Protections for the Security Agent

     6   
8   

Attorney

     7   
9   

Costs and indemnity

     7   
10   

Notices and other matters

     8   
11   

Benefit of this Deed

     8   
12   

Law and jurisdiction

     8   

Schedule 1 Form of Notice of Assignment and Acknowledgement

     9   


 

THIS DEED OF ASSIGNMENT is dated      July 2010 and made BETWEEN :

 

(1) [LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.] , a corporation incorporated in the Marshall Islands whose registered office is situated at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Account Holder ”); and

 

(2) DNB NOR BANK ASA , whose registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Deed through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (the “ Security Agent ”).

WHEREAS :

 

(A) by a loan agreement dated      July 2010 (the “ Loan Agreement ”) and made between (1) the Account Holder and [Orangina Inc.] [Likiep Shipping Company Inc.] (therein and herein together referred to as the “ Borrowers ”), (2) DnB NOR Bank ASA as arranger, agent (in such capacity the “ Agent ”), swap provider (in such capacity the “ Swap Provider ”) and account bank, (3) the Security Agent and (4) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ” and, together with the Agent and the Swap Provider, the “ Secured Creditors ”), the Banks agreed (inter alia) to make available to the Borrowers jointly and severally, upon the terms and conditions therein contained, a loan facility of up to Forty million United States Dollars (US$40,000,000);

 

(B) by a 1992 ISDA master swap agreement dated      July 2010 (the “ Master Swap Agreement ”) and made between the Borrowers and the Swap Provider, the Swap Provider agreed the terms and conditions upon which it would enter into ( inter alia ) one or more interest rate swap or other derivative transactions with the Borrowers in respect of the Loan (whether in whole or in part as the case may be) from time to time;

 

(C) pursuant to the Loan Agreement, each of the Secured Creditors has appointed the Security Agent as its security agent and trustee and pursuant to a Trust Deed dated      July 2010 executed by the Security Agent (as trustee) in favour of the Secured Creditors, the Security Agent agreed to hold, receive, administer and enforce this Deed for and on behalf of itself and the Secured Creditors; and

 

(D) the execution of this Deed and the opening by the Account Holder with DnB NOR Bank ASA of 20 St. Dunstan’s Hill, London EC3R 8HY, England (in such capacity the “ Account Bank ”) of a deposit account with account number [64071001] [64072001] and designated “[Sagitta] [Centaurus] Operating Account” are (inter alia) conditions precedent to each Bank making its Commitment available.

NOW THIS DEED WITNESSES as follows:

 

1 Definitions

 

1.1 Defined expressions

In this Deed, unless the context otherwise requires or unless otherwise defined in this Deed, words and expressions defined in the Loan Agreement shall have the same meanings when used in this Deed.

 

1.2 Definitions

In this Deed, unless the context otherwise requires:

Account Bank ” means DnB NOR Bank ASA of 20 St. Dunstan’s Hill, London EC3 8HY, England and includes its successors in title;

Account Holder ” includes its successors in title;

 

1


 

Agent ” includes it successors in title and its replacements;

Assigned Account ” means an interest bearing Dollar account of the Account Holder opened with the Account Bank with account number [64071001] [64072001] and designated “[Sagitta] [Centaurus] Operating Account” and includes any sub-accounts thereof and any other account designated in writing by the Agent to be the Assigned Account for the purposes of this Deed and it is the “[Sagitta] [Centaurus] Operating Account” referred to in the Loan Agreement;

Assigned Moneys ” means all moneys from time to time credited to, and for the time being standing to the credit of, the Assigned Account and all interest and other amounts from time to time payable in respect of, or accruing to, the Assigned Account;

Banks ” includes their respective successors in title and Transferees;

Collateral Instruments ” means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable under the Security Documents and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Encumbrance ” means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest or other encumbrance of any kind securing any obligation of any person or any type of preferential arrangement (including without limitation title transfer and/or retention arrangements having a similar effect);

Expenses ” means the aggregate at any relevant time (to the extent that the same have not been received or recovered by the Security Agent) of:

 

  (a) all losses, liabilities, costs, charges, expenses, damages and outgoings of whatever nature (including, without limitation, Taxes, repair costs, registration fees and insurance premiums) suffered, incurred or paid by the Security Agent in connection with the exercise of the powers referred to in or granted by the Loan Agreement, the Master Swap Agreement, this Deed or any of the other Security Documents or otherwise payable by the Account Holder in accordance with clause 9; and

 

  (b) interest on all such losses, liabilities, costs, charges, expenses, damages and outgoings from the date on which the same were suffered, incurred or paid by the Security Agent until the date of receipt or recovery thereof (whether before or after judgement) at a rate per annum calculated in accordance with clause 3.4 of the Loan Agreement (as conclusively certified by the Security Agent);

Loan ” means the aggregate principal amount (comprised of the Advances) owing to the Banks under the Loan Agreement at any relevant time;

Master Swap Agreement ” means the 1992 ISDA Master Agreement made between the Swap Provider and the Borrowers dated      July 2010 mentioned in Recital (B) hereto, comprising a 1992 ISDA Master Agreement (Multicurrency-Crossborder) (and a schedule thereto), together with any Confirmations (as defined therein) supplemental thereto;

Master Swap Agreement Liabilities ” means, at any relevant time, all liabilities, actual or contingent, present or future, owing to the Swap Provider under the Master Swap Agreement;

Outstanding Indebtedness ” means the aggregate of the Loan, all interest accrued and accruing thereon, the Master Swap Agreement Liabilities, the Expenses and all other sums of money from time to time owing to the Security Agent or any of the Secured Creditors, whether actually or contingently, under or pursuant to the Loan Agreement, the Master Swap Agreement or the other Security Documents or any of them;

 

2


 

Secured Creditors ” means the Banks, the Agent and the Swap Provider and “ Secured Creditor ” means any of them;

Security Agent ” includes its successors in title and its replacements;

Security Documents ” means the Loan Agreement, the Master Swap Agreement, this Deed and any other such document as is defined in the Loan Agreement as a Security Document or as may have been or may hereafter be executed to guarantee and/or secure all or any part of the Loan, interest thereon, the Master Swap Agreement Liabilities and other moneys from time to time owing by the Borrowers or either of them pursuant to the Loan Agreement and/or the Master Swap Agreement (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Period ” means the period commencing on the date hereof and terminating upon discharge of the security created by the Security Documents and payment of all moneys payable thereunder, whether actually or contingently;

Swap Provider ” includes its successors in title; and

Taxes ” includes all present and future taxes, levies, imposts, duties, fees or charges of whatever nature together with interest thereon and penalties in respect thereof and “ Taxation ” shall be construed accordingly.

 

1.3 Headings

Clause headings and the index are inserted for convenience of reference only and shall be ignored in the interpretation of this Deed.

 

1.4 Construction of certain terms

Clause 1.4 of the Loan Agreement shall apply to this Deed as if set out herein.

 

1.5 Conflict with Loan Agreement

This Deed shall be read together with the Loan Agreement but in case of any conflict between the instruments the provisions of the Loan Agreement shall prevail.

 

2 Assignment

 

2.1 Assignment

By way of security for the payment and discharge of the Outstanding Indebtedness and in consideration of (a) the agreement of the Banks to make their Commitments available to the Borrowers and (b) the agreement of the Swap Provider to enter into the Master Swap Agreement, the Account Holder, with full title guarantee, to the fullest extent possible by law, hereby assigns to the Security Agent absolutely and agrees to assign to the Security Agent absolutely all its rights, title and interest, present and future, in and to the Assigned Moneys and the Assigned Account together with any certificates of deposit, deposit receipts or other instruments or securities relating thereto.

 

2.2 Reassignment

Upon receipt by the Secured Creditors and the Security Agent in full of all amounts which may be due or become due to the Secured Creditors and the Security Agent or any of them under or pursuant to the Security Documents and the release of the Account Holder from, or the discharge of the Account Holder of, all the Outstanding Indebtedness, the Security Agent shall reassign to the Account Holder or its order (at the Account Holder’s cost and expense) the property hereby assigned to the extent that the same shall not have been realised and applied pursuant to clause 6 or otherwise released to the Account Holder pursuant to clause 14.3 of the Loan Agreement.

 

3


 

3 Covenants by the Account Holder

 

3.1 The Account Holder hereby covenants with the Security Agent that, throughout the Security Period, the Account Holder, will:

 

  (a) Notice

forthwith on execution of this Deed, deliver to the Account Bank, duly signed by the Account Holder, a notice of assignment in the form set out in the schedule and procure that the Account Bank forthwith executes and delivers to the Security Agent an acknowledgement thereof in the form also set out in the schedule;

 

  (b) Further payments

make, or procure to be made, the payments or further payments, as the case may be, to the Assigned Account as provided in clause 14.1.2 of the Loan Agreement;

 

  (c) Withdrawals and disposals

save as contemplated by clause 14.3 of the Loan Agreement, not (without the prior written consent of the Security Agent) make any withdrawal from the Assigned Account and neither sell, assign, discount, pledge, charge or otherwise dispose of, or deal with or permit third party rights to arise over, or create or permit to subsist any Encumbrance (other than this Deed) over, the Assigned Account or the Assigned Moneys or any part thereof nor attempt or agree or purport so to do;

 

  (d) Adverse rights

neither release, grant time or indulgence or compound with any third party or suffer to arise any set-off or other adverse rights against the Assigned Moneys or the Assigned Account nor do or omit to do anything which may delay or prejudice the right of the Security Agent to receive payment from the Assigned Account once the Security Agent or the Secured Creditors or any of them is entitled to such payment under the terms of the Loan Agreement, this Deed or the other Security Documents or any of them;

 

  (e) Certificates of deposit, etc.

deposit with the Security Agent and permit the Security Agent throughout the Security Period to retain all certificates of deposit, deposit receipts, or other instruments or securities relating to the Assigned Moneys and the Assigned Account and any other amounts hereby charged together, where appropriate, with such forms of transfer or other instructions duly executed as the Security Agent may from time to time require;

 

  (f) Notice of claims

forthwith inform the Security Agent of any claim or notice relating to the Assigned Account received from any other party and of all other matters relevant thereto; and

 

  (g) Further assurance

do all things and execute all such further assurances, deeds, assignments, charges, notices, instruments, authorities and documents as the Security Agent shall from time to time consider necessary for perfecting its title to or for vesting or enabling it to vest the full benefit of the Assigned Moneys and the Assigned Account in the Security Agent or its nominee or to enable the Security Agent to obtain payment from the Assigned Account or for perfecting the security intended to be created by this Deed or for exercising the rights and powers hereby conferred on the Security Agent.

 

4


 

4 Warranties and representations

 

4.1 Title

The Account Holder hereby warrants and represents to the Security Agent that it is and will at the time of deposit, be the beneficial owner of, and have good right and title, free of any Encumbrance (other than this Deed), to all of the Assigned Moneys and the Assigned Account which are, or which may at any time after the date of this Deed become, subject to the security constituted by this Deed.

 

4.2 Repetition of representations and warranties

The representation and warranty in clause 4.1 shall be deemed to be repeated by the Account Holder on and as of each day from the date of this Deed until the end of the Security Period as if made with reference to the facts and circumstances existing on each such date.

 

5 Continuing security and other matters

 

5.1 Continuing security

The security created by this Deed shall:

 

  (a) be held by the Security Agent as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions contained in the Security Documents express or implied and that the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between the Account Holder or any other person who may be liable to the Security Agent, the Secured Creditors or any of them in respect of the Outstanding Indebtedness or any part thereof and the Security Agent, the Secured Creditors or any of them);

 

  (b) be in addition to, and shall not in any way prejudice or affect, and may be enforced by the Security Agent without prior recourse to, the security created by any other of the Security Documents or by any present or future Collateral Instruments, right or remedy held by or available to the Security Agent, the Secured Creditors or any of them or any right or remedy of the Security Agent, the Secured Creditors or any of them thereunder; and

 

  (c) not be in any way prejudiced or affected by the existence of any of the other Security Documents or any such Collateral Instrument, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Security Agent, the Secured Creditors or any of them dealing with, exchanging, varying or failing to perfect or enforce any of the same, or giving time for payment or performance or indulgence or compounding with any other person liable.

 

5.2 Rights additional

All the rights, remedies and powers vested in the Security Agent hereunder shall be in addition to and not a limitation of any and every other right, power or remedy vested in the Security Agent, the Secured Creditors or any of them under the Loan Agreement, the Master Swap Agreement, this Deed, the other Security Documents or at law and that all the powers so vested in the Security Agent may be exercised from time to time and as often as the Security Agent may deem expedient.

 

5.3 Liability of Account Holder

The Account Holder shall remain liable to perform all the obligations assumed by it in relation to the Assigned Moneys and/or the Assigned Account and the Security Agent shall be under no obligation of any kind whatsoever in respect thereof or be under any liability whatsoever in the event of any failure by the Account Holder to perform its obligations in respect thereof.

 

5


 

6 Powers of the Security Agent

 

6.1 Events of Default

On the happening of an Event of Default or at any time thereafter or if requested by the Account Holder, the Security Agent may, without further notice and without the restrictions contained in section 103 of the Law of Property Act 1925 exercise in respect of the Assigned Moneys and/or the Assigned Account, all the powers conferred on mortgagees by the Law of Property Act 1925 as hereby varied or extended and all other powers which the Account Holder would have in respect thereof if the same were unencumbered, with full power to call in all or any part of the Assigned Moneys and/or the Assigned Account and interest thereon at such times and in such manner and generally on such terms and conditions as the Security Agent may think fit with power to give effectual receipts and do all other acts and things necessary or desirable in connection therewith. The Security Agent may apply all moneys it receives under this Deed in or towards satisfaction of such moneys, obligations and liabilities hereby secured in accordance with clause 13.1 of the Loan Agreement.

 

6.2 Conversion of currency

Without prejudice to clause 6.1, on the happening of an Event of Default or at any time thereafter, all the Assigned Moneys may be converted by the Security Agent from the currency (the “ first currency ”) in which the same are denominated into such other currency (the “ second currency ”) as the Security Agent considers necessary or desirable to cover the obligations and liabilities, actual or contingent, of the Account Holder in respect of the Outstanding Indebtedness in the second currency at the then prevailing spot rate of exchange of the Security Agent (as certified by the Security Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Account Holder) for purchasing the second currency with the first currency and the term “ rate of exchange ” includes any premium and costs of exchange payable in connection with the purchase of the second currency with the first currency.

 

6.3 Security Agent’s obligation

The Security Agent shall not be obliged to exercise any right or power or remedy given to it by or pursuant to this Deed.

 

7 Protections for the Security Agent

 

7.1 No enquiry

The Security Agent shall not be under any duty to make any enquiry about the nature or sufficiency of any payment received by it or to make any claim or take any other action or do any act or thing for the purpose of collecting any moneys hereby assigned or to enforce any rights or benefits hereby assigned or to which the Security Agent may at any time be entitled under this Deed nor shall the Security Agent be liable for any loss or damage occasioned by the exercise of or omission to exercise the powers conferred by this Deed.

 

7.2 No liability

The Security Agent shall not be responsible for any loss occasioned by the timing of the exercise of its powers under this Deed (including, but not limited to, its power to select fixed periods for which deposits of the Assigned Moneys are renewed, exchange rates or otherwise).

 

7.3 Section 93 Law of Property Act 1925

Section 93 of the Law of Property Act 1925 shall not apply to this security or to any security given to the Security Agent pursuant hereto.

 

6


 

8 Attorney

 

8.1 Power of attorney

By way of security the Account Holder hereby irrevocably appoints the Security Agent to be its attorney generally for and in the name and on behalf of the Account Holder, and as the act and deed or otherwise of the Account Holder, to execute, seal and deliver and otherwise perfect and do all such deeds, assurances, agreements, instruments, acts and things (including, but not limited to, all the matters referred to in clause 3.1(g)) which may be required for the full exercise of all or any of the rights, powers or remedies hereby conferred, or which may be deemed proper in or in connection with all or any of the purposes aforesaid. The power hereby conferred shall be a general power of attorney under the Powers of Attorney Act 1971, and the Account Holder ratifies and confirms and agrees to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Security Agent may execute or do pursuant thereto Provided always that such power shall not be exercisable by or on behalf of the Security Agent until the happening of an Event of Default.

 

8.2 Dealings with attorneys

The exercise of such power by or on behalf of the Security Agent shall not put any person dealing with the Security Agent upon any enquiry as to whether an Event of Default has happened, nor shall such person be in any way affected by notice that the security so created has not become so enforceable, and the exercise by the Security Agent of such power shall be conclusive evidence of its or his right to exercise the same.

 

8.3 Filings

The Account Holder hereby irrevocably appoints the Security Agent to be its attorney in its name and on its behalf and as its act or deed or otherwise of it to agree the form of, and to do and execute, all deeds, instruments, acts and things to file, record, register or enrol this Deed in any court, public office or elsewhere which the Security Agent may in its discretion consider necessary or advisable, now or in the future, to ensure the legality, validity, enforceability or admissibility in evidence thereof.

 

9 Costs and indemnity

 

9.1 Costs

The Account Holder shall pay to the Security Agent on demand on a full indemnity basis all expenses or liabilities of whatsoever nature together with any value added tax or similar tax payment in respect thereof, incurred by the Security Agent in connection with the exercise or enforcement of, or preservation of any rights under, this Deed, the other Security Documents or any of them or otherwise in respect of the Outstanding Indebtedness and the security therefore, or in connection with the preparation, completion, execution or registration of this Deed, the Loan Agreement or any of the other Security Documents.

 

9.2 Indemnity

The Account Holder hereby agrees and undertakes to indemnify the Security Agent against all obligations and liabilities whatsoever and whensoever arising which the Security Agent may incur in good faith in respect of, in relation to, or in connection with, the exercise by the Security Agent of its powers hereunder in relation to the Assigned Moneys or the Assigned Account or otherwise howsoever in relation to or in connection with the enforcement of its rights in relation to any of the matters dealt with in this Deed.

 

7


 

10 Notices and other matters

 

10.1 Notices

The provisions of clause 17.1 of the Loan Agreement shall apply mutatis mutandis in respect of any certificate, notice, demand or other communication given or made under this Deed.

 

10.2 No waiver

No failure or delay on the part of the Security Agent in exercising any right, power or remedy under this Deed shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or remedy preclude its further exercise or the exercise of any other right, power or remedy.

 

10.3 Severability

Each of the provisions of this Deed are severable and distinct from the others and if at any time one or more of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Deed shall not in any way be affected or impaired thereby.

 

11 Benefit of this Deed

This Deed shall be binding upon the Account Holder and its successors in title and shall enure for the benefit of the Security Agent and its successors in title or replacements. The Account Holder expressly acknowledges and accepts the provisions of clause 15 of the Loan Agreement and agrees that any person in favour of whom a transfer is made in accordance with such clause shall be entitled to the benefit of this Deed.

 

12 Law and jurisdiction

 

12.1 Law

This Deed and any non-contractual obligations connected with this Deed are governed by, and shall be construed in accordance with, English law.

 

12.2 Submission to jurisdiction

For the benefit of the Security Agent, both parties irrevocably agree that any legal action or proceedings arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed) against them or their assets may be brought in the English courts, which shall have jurisdiction to settle any disputes arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed). The Account Holder irrevocably and unconditionally submits to the jurisdiction of such courts, and irrevocably designates, appoints and empowers A. Nicolaou & Co at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive, for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings. The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Security Agent to take proceedings against the Account Holder in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. The parties further agree that only the courts of England and not those of any other State shall have jurisdiction to determine any claim which the Account Holder may have against the Security Agent arising out of or in connection with this Deed (including any non-contractual obligations connected with this Deed).

 

12.3 Contracts (Rights of Third Parties) Act 1999

No term of this Deed is enforceable under the provisions of the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Deed.

IN WITNESS whereof this Deed has been entered into the day and year first above written.

 

8


 

Schedule 1

Form of Notice of Assignment and Acknowledgement

 

To:   

DnB NOR Bank ASA

20 St. Dunstan’s Hill

London EC3 8HY

England

   (as Account Bank)

We refer to the deposit account opened by ourselves with you with account no. [64071001] [64072001] and designated “[Sagitta] [Centaurus] Operating Account”, including any sub-accounts thereof (the “ Assigned Account ”).

NOW WE HEREBY GIVE YOU NOTICE that:

 

(a) by a Deed of Assignment dated [ ] July 2010 (the “ Assignment ”) made between us and DnB NOR Bank ASA of 20 St. Dunstan’s Hill, London EC3 8HY, England as security agent and trustee for and on behalf of certain other banks (the “ Security Agent ”), we have assigned to the Security Agent all our rights, title and interest, present and future, in and to all moneys from time to time credited to, and for the time being standing to the credit of the Assigned Account and all interest and other amounts from time to time payable in respect of, or accruing to, the Assigned Account (the “ Assigned Moneys ”) and the Assigned Account together with any certificates of deposit, deposit receipts or other instruments or securities relating thereto;

 

(b) you are hereby irrevocably authorised and instructed to pay any Assigned Moneys to the Security Agent or its order at such place as the Security Agent may from time to time direct;

 

(c) Assigned Moneys may only be withdrawn from the Assigned Account pursuant to the provisions of clause 14.3 of the Loan Agreement dated [ ] July 2010 in respect of a loan facility of up to US$40,000,000, to which Loan Agreement you are a party; and

 

(d) you are hereby irrevocably authorised and instructed to hold to the order of the Security Agent, certificates of deposit, deposit receipts or other instruments or securities relating to the Assigned Moneys and the Assigned Account and to forward the same to the Security Agent or as it may direct.

The authority and instructions herein contained cannot be revoked or varied by us without the consent of the Security Agent.

 

 

For and on behalf of
[LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.]
Dated: [ ] 2010

 

9


 

(on duplicate)

 

To:   

DnB NOR Bank ASA

20 St. Dunstan’s Hill

London EC3 8HY

England

   (as Security Agent)
To:    [Likiep Shipping Company Inc.] [Orangina Inc.]

We acknowledge receipt of the notice set out above and in consideration of One U.S. Dollar (US$1) and other good and valuable consideration (the receipt and adequacy whereof is hereby acknowledged) we agree and confirm that we:

 

(a) consent to the assignment referred to in the notice;

 

(b) have received no notice of, and have not ourselves received, any prior charge, assignment or encumbrance of the property thereby stated to be assigned to you;

 

(c) will not without your prior written consent vary, rescind or otherwise alter or terminate the agreement between ourselves and [Likiep Shipping Company Inc.] [Orangina Inc.] (the “ Depositor ”) regulating the Assigned Account and the terms upon which Assigned Moneys are held by us or in any way prejudice the rights, titles and interests assigned to you;

 

(d) will neither claim to set-off to your prejudice any Assigned Moneys against any claim we may have against the Depositor howsoever arising nor exercise or attempt to exercise any right of set off or consolidation or combination of accounts or similar right in respect of or in relation to the Assigned Account, otherwise than following your instructions or in accordance with the provisions of the Loan Agreement referred to in the above notice; and

 

(e) will procure that payments are made to you or as you may direct in accordance with the authority and instruction contained in such notice.

 

 

For and on behalf of

DNB NOR BANK ASA

(as Account Bank)
Dated: [ ] 2010

 

10


 

The Account Holder      
EXECUTED as a DEED    )   
by    )   
for and on behalf of    )   

 

[LIKIEP SHIPPING COMPANY INC.]    )    Attorney-in-Fact
[ORANGINA INC.]    )   
in the presence of:    )   

 

 

Witness
Name:
Address:
Occupation:

 

The Security Agent      
EXECUTED as a DEED    )   
by    )   
for and on behalf of    )   

 

DNB NOR BANK ASA    )    Attorney-in-Fact
in the presence of:    )   

 

 

Witness
Name:
Address:
Occupation:

 

11


 

Schedule 14

Form of Charter Assignment

 

82


Private & Confidential

Dated      July 2010

 

[LIKIEP SHIPPING COMPANY INC.]

[ORANGINA INC.]

and

DNB NOR BANK ASA

 

 

CHARTER ASSIGNMENT

m.v. [Sagitta] [Centaurus]

 

 

LOGO


 

Contents

 

Clause

   Page  

1

 

Definitions

     2   

2

 

Warranty

     8   

3

 

Assignment and application of money

     4   

4

 

Undertakings

     5   

5

 

Continuing security

     6   

6

 

Powers of Mortgagee

     7   

7

 

Attorney

     7   

8

 

Further assurance

     8   

9

 

Notices

     8   

10

 

Law, jurisdiction and other provisions

     8   

Schedule 1 Forms of Notice of Assignment of Charter

     10   


 

THIS ASSIGNMENT is made the      day of July 2010 BETWEEN:

 

1 [LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.], a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the “ Owner ”); and

 

2 DNB NOR BANK ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Assignment through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England as security agent and trustee for and on behalf of the other Secured Creditors (as this term is defined herebelow) (the “ Mortgagee ”).

WHEREAS:

 

(A) by a [charterparty contract incorporated on the date of this Assignment in a recapitulation email dated 18 June 2010 and to be documented in more detail in a Boxtime Form time-charterparty of even date, as may be further amended and supplemented from time to time, which recapitulation email is addressed by intermediate brokers, Maersk Broker Hellas, acting on behalf of both A.P. Moller-Maersk A/S (the “ Charterer ”) and the Owner, to Diana Shipping Services S.A. acting as brokers on behalf of the Owner (the “ Charter ”)] [•], the Owner agreed to let to the Charterer, and the Charterer agreed to take on time charter, for the period and upon the terms and conditions therein mentioned, the Ship (as hereinafter defined);

 

(B) by a loan agreement dated July 2010 and made between (1) the Owner and [Likiep Shipping Company Inc.] [Orangina Inc.] as joint and several borrowers (therein and herein together referred to as the “ Borrowers ”), (2) DnB NOR Bank ASA as arranger, (3) DnB NOR Bank ASA as agent (in such capacity the “ Agent ”), security agent, swap provider (in such capacity the “ Swap Provider ”) and account bank and (4) the banks and financial institutions referred to in schedule 1 thereto as lenders (the “ Banks ” and, together with the Agent and the Swap Provider, the “ Secured Creditors ”), the Banks agreed (inter alia) to advance by way of loan to the Borrowers, jointly and severally, upon the terms and conditions therein contained, the principal sum of up to Forty million thousand Dollars ($40,000,000);

 

(C) by a 1992 ISDA Master Agreement (including the schedule thereto) dated as of July 2010 (the “ Master Swap Agreement ”) and made between the Borrowers and the Swap Provider, the Swap Provider agreed the terms and conditions upon which it would enter into (inter alia) one or more interest rate swap or other derivative transactions with the Borrowers in respect of the Loan (whether in whole or in part, as the case may be) from time to time, whether in whole or in part as the case may be from time to time;

 

(D) pursuant to clause 16.14 of the Loan Agreement, each of the Secured Creditors has appointed the Mortgagee as its security agent and trustee and pursuant to a Trust Deed dated July 2010 and executed by the Mortgagee (as trustee) in favour of the Secured Creditors, the Mortgagee agreed to hold, receive, administer and enforce this Assignment as security agent and trustee for and on behalf of itself and the Secured Creditors;

 

(E) pursuant to the Loan Agreement, the Owner has executed in favour of the Mortgagee a first preferred Marshall Islands mortgage dated July 2010 (the “ Mortgage ”) on the motor vessel [Sagitta] [Centaurus] documented in the name of the Owner under the laws and flag of the Marshall Islands under Official Number [3988] [3987] (the “ Ship ”) as security for the payment by the Owner of the Outstanding Indebtedness (as that expression is defined in the Mortgage);

 

(F) pursuant to the Loan Agreement, the Owner has executed in favour of the Mortgagee a first priority general assignment dated July 2010 (the “ General Assignment ”) collateral to the Mortgage, whereby the Owner has assigned and agreed to assign to the Mortgagee the Earnings and Insurances of, and any Requisition Compensation for, the Ship as security for the payment by the Owner of the Outstanding Indebtedness (as defined therein); and

 

(G) this Assignment is a Charter Assignment in respect of the Ship and is supplemental to the Loan Agreement, the Master Swap Agreement, the Mortgage and the General Assignment and to the security thereby created and shall nonetheless continue in full force and effect notwithstanding any discharge of the Mortgage.

 

1


 

NOW THIS ASSIGNMENT WITNESSES AND IT IS HEREBY AGREED as follows:

 

1 Definitions

 

1.1 Defined expressions

Words and expressions defined in the General Assignment (whether expressly or by reference to the Mortgage and/or the Loan Agreement) shall, unless otherwise defined in this Assignment, or the context otherwise requires, have the same meanings when used in this Assignment.

 

1.2 Definitions

In this Assignment, unless the context otherwise requires:

Agent ” includes its successors in title and its replacements;

Assigned Property ” means all of the Owner’s right, title and interest in and to:

 

  (a) the Charter Earnings; and

 

  (b) all other Charter Rights;

Banks ” includes their successors in title and Transferee Banks;

Charter ” means the charterparty referred to in Recital (A) hereto;

Charterer ” includes the successors in title of the Charterer;

Charter Earnings ” means all money whatsoever payable by the Charterer to the Owner under or pursuant to the Charter and/or any guarantee, security or other assurance given to the Owner at any time in respect of the Charterer’s obligations under or pursuant to the Charter including (but without prejudice to the generality of the foregoing) all claims for damages in respect of any breach by the Charterer of the Charter;

Charter Rights ” means all of the rights of the Owner under or pursuant to the Charter and any guarantee, security or other assurance given to the Owner at any time in respect of the Charterer’s obligations under or pursuant to the Charter including (without limitation) the right to receive the Charter Earnings;

Collateral Instrument ” means any note, bill of exchange, certificate of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for, any indebtedness or liabilities of the Borrowers or either of them or any other person liable under the Security Documents and includes any documents or instruments creating or evidencing a mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind;

Loan ” means the aggregate principal amount advanced by the Banks to the Borrowers pursuant to the Loan Agreement or, as the context may require, the amount thereof at any time outstanding;

Loan Agreement ” means the agreement dated      July 2010 mentioned in Recital (B) hereto as amended and supplemented from time to time;

Master Swap Agreement ” means the agreement referred to in recital (C) hereto;

 

2


Master Swap Agreement Liabilities ” means at any relevant time all liabilities, actual or contingent, present or future, owing by the Borrowers to the Swap Provider under the Master Swap Agreement;

Mortgagee ” includes its successors in title and its replacements;

Operating Account ” means an interest bearing Dollar account of the Owner opened by the Owner with the Account Bank and with account number [64071001] [64072001] and includes any sub-accounts thereof and any other account designated in writing by the Mortgagee to be an Operating Account for the purposes of this Assignment;

Outstanding Indebtedness ” means the aggregate of the Loan and interest accrued and accruing thereon, the Master Swap Agreement Liabilities, the Expenses and all other sums of money from time to time owing to the Mortgagee, the Secured Creditors or any of them, whether actually or contingently, under the Loan Agreement and the other Security Documents or any of them;

Owner ” includes its successors in title;

Security Documents ” means the Loan Agreement, the Master Swap Agreement, the Mortgage, the General Assignment, this Assignment and any other document which is defined as such in the Loan Agreement and such other documents as may have been or may hereafter be executed to guarantee and/or secure all or any part of the Loan, interest thereon, the Master Swap Agreement Liabilities, and other moneys from time to time owing by the Borrowers or either of them or any other Security Parties pursuant to the Loan Agreement or the Master Swap Agreement or the Security Documents or any of them (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

Security Party ” means the Owner, the other Borrower and any other party who may at any time be a party to any of the Security Documents (other than the Creditors);

Security Period ” means the period commencing on the date hereof and terminating upon discharge of the security created by the Security Documents by payment of all moneys payable thereunder; and

Swap Provider ” includes its successors in title.

 

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Assignment.

 

1.4 Construction of certain terms

The provisions of clause 1.4 of the General Assignment shall apply mutatis mutandis to this Assignment as if set out herein and as if references therein to “ this Deed ” were references to this Assignment.

 

1.5 Conflict with General Assignment

This Assignment shall be read together with the General Assignment but in case of any conflict between the two instruments the provisions of the General Assignment shall prevail.

 

2 Warranty

The Owner hereby represents and warrants to the Mortgagee that:

 

2.1 the Owner is the sole, legal and beneficial owner of the whole of the Assigned Property free from all Encumbrances and other interests and rights of every kind;

 

3


2.2 the executed certified copy of the Charter delivered by the Owner to the Mortgagee is a true and complete copy of such document, the Charter constitutes the valid and binding obligations of the parties thereto enforceable in accordance with its terms, is in full force and effect and there have been no amendments or variations thereof or defaults thereunder;

 

2.3 the Ship has been delivered to and accepted by the Charterer for service under the Charter; and

 

2.4 there are no commissions, rebates, premiums or other payments in connection with the Charter other than as disclosed by the Owner to the Mortgagee in writing prior to the date hereof.

 

3 Assignment and application of money

 

3.1 Assignment

By way of security for the Outstanding Indebtedness, the Owner with full title guarantee hereby assigns and agrees to assign to the Mortgagee absolutely all its rights title and interest to the Assigned Property and all its benefits and interests present and future therein Provided however that the Charter Earnings shall be payable to the Operating Account until such time as a Default shall occur and the Mortgagee shall direct to the contrary whereupon the Owner shall forthwith, and the Mortgagee may at any time thereafter, instruct the persons from whom the Charter Earnings are then payable to pay the same to the Mortgagee or as it may direct and any Charter Earnings then in the hands of the Owner’s brokers or other agents shall be deemed to have been received by them for the use and on behalf of the Mortgagee.

 

3.2 Notice

The Owner hereby covenants and undertakes with the Mortgagee that it will forthwith give written notice of the assignment contained in clause 3.1 to the Charterer in the form set out in schedule 1 and will procure that forthwith the Charterer delivers to the Mortgagee a copy thereof with the acknowledgement thereof set out in such schedule duly executed by the Charterer.

 

3.3 Application

All moneys received by the Mortgagee in respect of the Assigned Property shall be held and applied by it in accordance with the terms of clauses 2.3 and 2.5 of the General Assignment.

 

3.4 Shortfalls

In the event that the balance referred to in clause 2.3 of the General Assignment is insufficient to pay in full the whole of the Outstanding Indebtedness, the Mortgagee shall be entitled to collect the shortfall from the Owner or any other person liable for the time being therefor.

 

3.5 Use of Owner’s name

The Owner covenants and undertakes with the Mortgagee to do or permit to be done each and every act or thing which the Mortgagee may from time to time require to be done for the purpose of enforcing the Mortgagee’s rights under this Assignment and to allow its name to be used as and when required by the Mortgagee for that purpose.

 

3.6 Reassignment

Upon payment and discharge in full to the satisfaction of the Mortgagee of the Outstanding Indebtedness the Mortgagee (acting on the instructions of the Majority Banks) shall, at the request and cost of the Owner, re-assign the Assigned Property to the Owner or as it may direct.

 

4


4 Undertakings

 

4.1 Covenants and undertakings

The Owner hereby covenants and undertakes with the Mortgagee that throughout the Security Period:

 

4.1.1 Negative undertakings

it will not, without the previous written consent of the Mortgagee (acting on the instructions of the Majority Banks):

 

  (a) Variations

agree to any variation of the Charter; or

 

  (b) Releases and waivers

release the Charterer from any of the Charterer’s obligations under the Charter or waive any breach of the Charterer’s obligations thereunder or consent to any such act or omission of the Charterer as would otherwise constitute such breach;

 

  (c) Termination or extension

terminate the Charter or extend the Charter existing on the date of this Assignment for any reason whatsoever; or

 

  (d) Consents

grant any consent which may be required from the Owner under the Charter;

 

4.1.2 Performance of Charter obligations

it will perform its obligations under the Charter and use its best endeavours to procure that the Charterer shall perform its obligations under the Charter;

 

4.1.3 Information

it will supply to the Mortgagee all information, accounts and records that may be necessary or of assistance to enable the Mortgagee to verify the amount of all payments of charterhire and any other amount payable under the Charter; and

 

4.1.4 Original Charter

deliver to the Mortgagee (a) as soon as the Charter becomes documented, into a duly executed [Boxtime] [•] Form time charter, a certified time copy thereof, and (b) forthwith following a demand made by it, an original of the Charter.

 

4.2 Withdrawal

The Owner hereby covenants and undertakes with the Mortgagee that, in the event of any payment of charterhire or other amount owing to the Owner not being made by the Charterer on the due date (as such due date is determined pursuant to the terms of the Charter) and, as a result the Owner has the right to withdraw the Ship from service of the Charterer under the Charter, the Owner will, if so directed by the Mortgagee, exercise such right at such time and in such manner as the Mortgagee shall so direct.

 

5


5 Continuing security

 

5.1 Continuing security

The security created by this Assignment shall::

 

5.1.1 be held by the Mortgagee as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions in the Security Documents contained, express or implied and that the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between the Owner or any other person who may be liable to the Mortgagee and/or the Secured Creditors in respect of the Outstanding Indebtedness or any part thereof and the Mortgagee and/or the Secured Creditors or any of them);

 

5.1.2 be in addition to, and shall not in any way prejudice or affect and may be enforced by the Mortgagee without prior recourse to the security created by any of the other Security Documents or by any present or future Collateral Instruments, right or remedy held by or available to the Mortgagee and/or the Secured Creditors or any right or remedy of the Mortgagee and/or the Secured Creditors thereunder; and

 

5.1.3 not in any way be prejudiced or affected by the existence of any of the other Security Documents or any such Collateral Instrument, rights or remedies or by the same becoming wholly or in part void, voidable or unenforceable on any ground whatsoever or by the Mortgagee dealing with, exchanging, varying or failing to perfect or enforce any of the same or giving time for payment or performance or indulgence or compounding with any person liable.

 

5.2 Rights additional

All the rights, remedies and powers vested in the Mortgagee hereunder shall be an addition to and not a limitation of any and every other right, power or remedy vested in the Mortgagee and/or the Secured Creditors or any of them under the Loan Agreement, this Assignment, the other Security Documents or any Collateral Instrument or at law and that all the powers so vested in the Mortgagee and/or the Secured Creditors may be exercised from time to time and as often as the Mortgagee and/or the Secured Creditors may deem expedient.

 

5.3 No enquiry

The Mortgagee shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it under the Mortgage and/or this Assignment or to make any claim or take any action to collect any moneys hereby assigned or to enforce any rights or benefits hereby assigned to the Mortgagee or to which the Mortgagee may at any time be entitled under the Mortgage and/or this Assignment.

 

5.4 Obligations of the Owner

The Owner shall remain liable to perform all the obligations assumed by it in relation to the Assigned Property and the Mortgagee shall be under no obligation of any kind whatsoever in respect thereof or be under any liability whatsoever in the event of any failure by the Owner to perform its obligations in respect thereof.

 

5.5 Discharge of Mortgage

Notwithstanding that this Assignment is expressed to be supplemental to the Loan Agreement, the Master Swap Agreement and the Mortgage, it shall continue in full force and effect after any discharge of the Loan Agreement, the Master Swap Agreement or the Mortgage.

 

6


6 Powers of Mortgagee

 

6.1 Protective action

The provisions of clause 4.1 of the General Assignment shall apply mutatis mutandis to this Assignment as if set out herein and as if references therein to “ this Deed ” were references to this Assignment.

 

6.2 Powers on Event of Default

Upon the happening of an Event of Default (whether or not notice shall have been given to the Borrowers in accordance with clause 10.2 of the Loan Agreement declaring the Outstanding Indebtedness or part thereof to be due and payable immediately or in accordance with such notice), the Mortgagee shall become forthwith entitled, as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee and/or chargee of the Assigned Property (whether at law, by virtue of this Assignment or otherwise) and in particular (without limiting the generality of the foregoing):

 

6.2.1 to collect, recover, compromise and give a good discharge for, all claims then outstanding or thereafter arising in respect of the Charter and/or the property hereby assigned or any part thereof, and to take over or institute (if necessary using the name of the Owner) all such proceedings in connection therewith as the Mortgagee in its absolute discretion thinks fit;

 

6.2.2 to discharge, compound, release or compromise claims in respect of the Charter and/or the Assigned Property or any part thereof which have given or may give rise to any charge or lien or other claim on the Ship, her Earnings, Insurances or Requisition Compensation or any part thereof or which are or may be enforceable by proceedings against the Ship, her Earnings, Insurances or Requisition Compensation or any part thereof; and

 

6.2.3 to recover from the Owner on demand all Expenses incurred or paid by the Mortgagee in connection with the exercise of the powers (or any of them) referred to in this clause 6.2.

 

6.3 Liability of Mortgagee

The Mortgagee shall not be liable as mortgagee in possession in respect of any of the Assigned Property to account or be liable for any loss upon realisation or for any neglect or default of any nature whatsoever in connection therewith for which a mortgagee in possession may be liable as such.

 

7 Attorney

 

7.1 Appointment

By way of security, the Owner hereby irrevocably appoints the Mortgagee to be its attorney generally for and in the name and on behalf of the Owner, and as the act and deed or otherwise of the Owner to execute, seal and deliver and otherwise perfect and do all such deeds, assurances, agreements, instruments, acts and things (including, without limiting the generality of the foregoing, to ask, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due and to become due under or arising out of the Charter, to endorse any cheque or other instrument or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Mortgagee may deem to be necessary or advisable and otherwise to do any and all things which the Owner itself could do in relation to the Assigned Property) which may be required for the full exercise of all or any of the rights, powers or remedies conferred hereby or which may be deemed proper in or in connection with all or any of the purposes aforesaid. The power hereby conferred shall be a general power of attorney under the Powers of Attorney Act 1971, and the Owner ratifies and confirms, and agrees to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Mortgagee may execute or do pursuant thereto Provided always that such power shall not be exercisable by or on behalf of the Mortgagee until the happening of any Event of Default.

 

7


 

7.2 Exercise of power

The exercise of such power by or on behalf of the Mortgagee shall not put any person dealing with the Mortgagee upon any enquiry as to whether any Event of Default has happened, nor shall such person be in any way affected by notice that no such event has happened, and the exercise by the Mortgagee of such power shall be conclusive evidence of its right to exercise the same.

 

7.3 Filings

The Owner hereby irrevocably appoints the Mortgagee to be its attorney in its name and on its behalf and as its act and deed or otherwise, to agree the form of and to execute and do all deeds, instrument, acts and things in order to file, record, register or enrol this Assignment and/or any notice and/or acknowledgement of the assignment herein contained in any court, public office or elsewhere which the Mortgagee may in its discretion consider necessary or advisable, now or in the future, to ensure the legality, validity, enforceability or admissibility in evidence thereof and any other assurance, document, act or thing required to be executed by the Owner pursuant to clause 8.

 

8 Further assurance

The Owner hereby further undertakes at its own expense from time to time to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Mortgagee may be necessary or desirable for the purpose of more effectually assigning, mortgaging and charging the Assigned Property or perfecting the security constituted or intended to be constituted by this Assignment.

 

9 Notices

The provisions of clause 17.1 of the Loan Agreement shall apply mutatis mutandis in respect of any certificate, notice, demand or other communication given or made under this Assignment as if set out herein and as if references therein to the “Borrowers or either of them” and “the Security Agent” were references to the Owner and the Mortgagee, respectively.

 

10 Law, jurisdiction and other provisions

 

10.1 Law

This Assignment and any non-contractual obligations in connection with this Assignment are governed by, and shall be construed in accordance with, English law.

 

10.2 Submission to jurisdiction

For the benefit of the Mortgagee, the parties hereto irrevocably agree that any legal action or proceedings in connection with this Assignment (including any non-contractual obligations in connection with this Assignment) may be brought in the English courts or in the courts of any other country chosen by the Mortgagee, each of which shall have jurisdiction to settle any disputes arising out of or in connection with this Assignment (including any non-contractual obligations in connection with this Assignment). The Owner irrevocably and unconditionally submits to the jurisdiction of the English courts and the courts of any country chosen by the Mortgagee and irrevocably designates, appoints and empowers A. Nicolaou & Co. at present of Heath Drive, Potters Road, Herts EN6 1EN, England to receive, for it and on its behalf, service of process issued out of the English courts in any legal action or proceedings arising out of or in connection with this Assignment (including any non-contractual obligations in connection with this Assignment). The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Mortgagee to take proceedings against the Owner in any other court of competent jurisdiction nor shall the taking of proceedings by the Mortgagee in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. The parties further agree that only the courts of England and not those of

 

8


any other State shall have jurisdiction to determine any claim which the Owner may have against the Mortgagee arising out of, or in connection with, this Assignment (including any noncontractual obligations in connection with this Assignment).

 

10.3 Counterparts

This Assignment may be entered into in the form of two counterparts, each executed by one of the parties, and provided all the parties shall so execute this Assignment, each of the executed counterparts, when duly exchanged or delivered, shall be deemed to be an original but, taken together, they shall constitute one instrument.

 

10.4 English language

All certificates, instruments and other documents to be delivered under or supplied in connection with this Assignment or the Charter shall be in the English language or shall be accompanied by a certified English translation upon which the recipient shall be entitled to rely.

 

10.5 Severability of provisions

Each of the provisions of this Assignment are severable and distinct from the others and if at any time one or more of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Assignment shall not in any way be affected or impaired thereby.

 

10.6 Contracts (Rights of Third Parties) Act 1999

No term of this Assignment is enforceable under the provisions of the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Assignment.

IN WITNESS whereof this Assignment has been duly executed as a deed the day and year first above written.

 

9


 

Schedule 1

Forms of Notice of Assignment of Charter

 

To: [A. P. Moller - Maersk A/S] [•]

m.v. [Sagitta] [Centaurus]

We refer to a [charterparty contract incorporated on the date of this notice in a recapitulation email dated 18 June 2010 and to be documented in more detail in a Boxtime Form time-charterparty of even date, as may be further amended and supplemented from time to time, which recapitulation email is addressed by intermediate brokers, Maersk Broker Hellas, acting on behalf of both A.P. Moller-Maersk A/S (the “ Charterer ”) and the Owner, to Diana Shipping Services S.A. acting as brokers on behalf of the Owner (the “ Charter ”)] [•], whereby we agreed to let and you agreed to take on time charter, for the period and upon the terms and conditions therein mentioned, the motor vessel [Sagitta] [Centaurus], registered in our name under the flag of the Republic of the Marshall Islands (the “ Ship ”).

NOW WE HEREBY GIVE YOU NOTICE:

 

1 that by an Assignment dated [•] July 2010 (the “ Assignment ”) made between us and DnB NOR Bank ASA of 20 St. Dunstan’s Hill, London EC3R 8HY, England (the “ Assignee ”) as security agent and trustee for certain banks and financial institutions, we have assigned to the Assignee all our rights title and interest to and in any moneys whatsoever payable to us under the Charter and all other rights and benefits whatsoever accruing to us under the Charter including (but without prejudice to the generality of the foregoing) all claims for damages in respect of any breach by you of the Charter;

 

2 that you are hereby irrevocably authorised and instructed to pay such moneys as aforesaid to our bank account with account number [•] held with the Assignee or to such other account as the Assignee may from time to time direct; and

 

3 that the said Assignment includes provisions that no variations shall be made to the Charter (nor shall you be released from your obligations thereunder) without the previous written consent of the Assignee and we shall remain liable to perform all our obligations under the Charter and the Assignee shall be under no obligation of any kind whatsoever in respect thereof.

The authority and instructions herein contained cannot be revoked or varied by us without the consent of the Assignee.

This letter and any non-contractual obligations in connection with this letter are governed by, and shall be construed in accordance with, English law.

 

 

For and on behalf of

[LIKIEP SHIPPING COMPANY INC.] [ORANGINA INC.]

Dated: [•]

 

10


 

Form of Charterer’s Consent and Agreement

(on duplicate)

 

To: DnB NOR Bank ASA
To: [Likiep Shipping Company Inc.] [Orangina Inc.]

We acknowledge receipt of the notice set out above and consent to the assignment referred to therein and, in consideration of US$10 and other good and valuable consideration (the receipt and adequacy of which we hereby acknowledge), we hereby undertake with, and confirm to, the Assignee as follows:

 

(a) to pay all amounts due from us under the Charter in full in Dollars (and without any set-off or counterclaim whatsoever and free and clear of any deductions or withholdings) to your account held with DnB NOR Bank ASA at 20 St. Dunstan’s Hill, London EC3R 8HY, England with account number [64071001] [64072001] or to the order of the Assignee;

 

(b) to permit the Assignee to enforce all other rights and benefits whatsoever accrued or accruing to the Owner under the Charter and for this purpose to take over or institute proceedings in respect thereof;

 

(c) not, without the prior written consent of the Assignee to agree, to any variation of the Charter;

 

(d) to perform our obligations under the Charter; and

 

(e) that we have not received any notice of any prior charge, assignment or encumbrance over the Owner’s right, title and interest in and to the Charter.

This letter and any non-contractual obligations in connection with this letter are governed by, and shall be construed in accordance with, English law.

 

By:  

 

  for and on behalf of
  [A.P. MOLLER - MAERSK A/S] [ ]

Date: [•]

 

11


EXECUTED as a DEED    )   

 

  
by      )      
for and on behalf of    )      
[LIKIEP SHIPPING COMPANY INC.]    )    Attorney-in-Fact   
[ORANGINA INC.]      )      
in the presence of:      )      

 

          
Witness           
Name:           
Address:           
Occupation:           
EXECUTED as a DEED    )   

 

  
by      )      
for and on behalf of    )      

DNB NOR BANK ASA

in the presence of:

  

)

)

   Attorney-in-Fact   

 

Witness

          
Name:           
Address:           
Occupation:           

 

12


SIGNED by Loannis Zafirakis

for and on behalf of

 

)

)

 

LOGO

LIKIEP SHIPPING COMPANY INC.   )   Attorney-in-fact
as Borrower   )  

SIGNED by Margarita Veniou

for and on behalf of

 

)

)

 

LOGO

ORANGINA INC.

  )  

Attorney-in-fact

as Borrower   )  
SIGNED by Pinelopi-Anna Miliou   )  

LOGO

for and on behalf of   )   Attorney-in-fact
DNB NOR BANK ASA   )  
as Arranger, Agent, Security Agent,   )  
Swap Provider and Account Bank   )  

SIGNED by Pinelopi-Anna Miliou

for and on behalf of

 

)

)

 

LOGO

DNB NOR BANK ASA   )   Attorney-in-fact
as Bank   )  

 

83


SIGNED by Loannis Zafirakis

for and on behalf of

 

)

)

 

LOGO

LIKIEP SHIPPING COMPANY INC.   )   Attorney-in-fact
as Borrower   )  

SIGNED by Margarita Veniou

for and on behalf of

 

)

)

 

LOGO

ORANGINA INC.

  )  

Attorney-in-fact

as Borrower   )  
SIGNED by Pinelopi-Anna Miliou   )  

LOGO

for and on behalf of   )   Attorney-in-fact
DNB NOR BANK ASA   )  
as Arranger, Agent, Security Agent,   )  
Swap Provider and Account Bank   )  

SIGNED by Pinelopi-Anna Miliou

for and on behalf of

 

)

)

 

LOGO

DNB NOR BANK ASA   )   Attorney-in-fact
as Bank   )  

 

83

 

EXHIBIT 21.1

Subsidiaries

 

Name of Subsidiary    Place of Incorporation

Likiep Shipping Company Inc.

   Marshall Islands

Orangina Inc.

   Marshall Islands

Exhibit 23.1

LOGO

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated January 13, 2010 (except for Notes 4 (a) through 4(e), as to which the date is May 6, 2010, Note 4(f) as to which the date is June 28, 2010, Note 4(h) as to which the date is August 2, 2010 and Notes 4(g) and 4(i) as to which the date is September 7, 2010), in the Registration Statement (Form F-4) and related Prospectus of Diana Containerships Inc. for the registration of 2,558,997 shares of its common stock.

LOGO

October 15, 2010

Athens, Greece

 

EXHIBIT 23.2

LOGO

Drewry Shipping Consultants Ltd., Drewry House, Meridian Gate, 213 Marsh Wall, London E14 9FJ, England Telephone: +44 (0) 20 7538 0191 Facsimile: +44 (0) 20 7987 9396 Email: enquiries@drewry.co.uk Website: www.drewry.co.uk

October 15, 2010

Diana Containerships Inc.

Pendelis 16

175 64 Palaio Faliro

Athens, Greece

011 30 210 947 0000

Dear Sir/Madam:

Reference is made to the Form F-4 registration statement (the “Registration Statement”) and related prospectus (“Prospectus”) in connection with the share exchange of up to 2,558,997 of Diana Containerships Inc.’s (the “Company”) common shares sold previously in a private offering, par value $0.01 per share, for new registered common shares, par value $0.01 per share. We hereby consent to all references to our name in the Registration Statement and to the use of the statistical information supplied by us set forth in the sections of the Prospectus entitled “Prospectus Summary – Industry Trends,” “Risk Factors” and “The International Containership Industry.” We further advise the Company that our role has been limited to the provision of such statistical data supplied by us. With respect to such statistical data, we advise you that:

(1) we have accurately described the international containership industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented; and

(2) our methodologies for collecting information and data may differ from those of other sources and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the dry bulk shipping industry.

We hereby consent to the filing of this letter as an exhibit to the Registration Statement of the Company on Form F-4 to be filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended.

Yours faithfully,

/s/ Nigel Gardiner

Nigel Gardiner

Managing Director

Drewry Shipping Consultants Ltd.

Drewry Shipping Consultants Limited – registered in London, England No. 3289135

 

EXHIBIT 99.1

Letter of Transmittal

To Exchange Shares of Unregistered Common Stock

of

DIANA CONTAINERSHIPS INC.

for

Shares of Registered Common Stock

of

DIANA CONTAINERSHIPS INC.

Pursuant to the Prospectus dated                     , 2010

 

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME, ON                     , 2010 (the “EXPIRATION DATE”), UNLESS THE EXCHANGE OFFER IS EXTENDED.

The Exchange Agent for the Exchange Offer is:

BNY Mellon Shareowner Services

By Facsimile Transmission (for Eligible Institutions only): 201-680-4626

Confirm by Telephone: 201-680-4860

 

By Mail:   By Hand or Overnight Courier:

BNY Mellon Shareowner Services

Corporate Action Department

PO Box 3301

South Hackensack, NJ 07606

 

BNY Mellon Shareowner Services

Corporate Action Department

480 Washington Blvd., 27th Fl

Jersey City, NJ 07310

For Information, call:

1-800-777-3674 for calls within the U.S., Canada and Puerto Rico or

201-680-6579 for call outside of the U.S., Canada and Puerto Rico

 

 

DESCRIPTION OF SHARES TENDERED

 

Name(s) and Address(es) of Registered Holder(s) (Please fill in,
if blank, exactly as name(s) appear(s) on

Share Certificate(s))

 

 

Share Certificate(s) and Share(s) Tendered
(Attach additional list, if necessary)

If your shares are held in book entry form on the books of

the Transfer Agent, please note “book entry” below.

 

     

Share

Certificate
Number(s)*

 

  

Total Number of
Shares Evidenced By
Share Certificate(s)*

 

  

Number of
Shares
Tendered**

 

             
             
               
               
 

 

Total Shares

 

         

 

*Need not be completed by stockholders delivering Shares by book-entry transfer.

**Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Exchange Agent are being tendered hereby. See Instruction 4.

 

This Letter of Transmittal is to be used for the exchange of unregistered common shares, par value $0.01 per share (the “Original Shares”), of Diana Containerships Inc. (the “Company”), a Marshall Islands corporation, for registered shares of common stock, par value $0.01 per share, of Diana Containerships Inc. (“Exchange Shares”).

 

1


Tendering Company shareholders may use this form if certificates evidencing the Original Shares are to be forwarded herewith or, unless an Agent’s Message (as defined in Instruction 2 below) is utilized, if delivery of the Exchange Shares is to be made by book-entry transfer to the account of BNY Mellon Shareowner Services (the “Exchange Agent”) at the book-entry transfer facility pursuant to the procedures set forth in the section of the prospectus dated , 2010 (the “Prospectus”) entitled “The Exchange Offer—Procedures for Tendering.”

Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.

Stockholders whose Certificates are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Exchange Agent prior to the Expiration Date (as defined in the section of the Prospectus entitled “Summary of the Exchange Offer”) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Original Shares must do so pursuant to the guaranteed delivery procedure described in set forth in the section of the Prospectus entitled “Summary of the Exchange Offer – Guaranteed Delivery Procedures.” See Instruction 2 below.

LOST CERTIFICATES

 

¨ CHECK HERE IF CERTIFICATES(S) HAVE BEEN MUTILATED, LOST, STOLEN OR DESTROYED. SEE INSTRUCTION 9 BELOW.

 

¨ CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT’S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

 

  Name of Tendering Institution:                                                                                                                                                        

Account Number:                                                                                                                                                                                  

Transaction Code Number:                                                                                                                                                               

 

¨ CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s)                                                                                                                                                     

Window Ticket No. (if any)                                                                                                                                                              

Date of Execution of Notice of Guaranteed Delivery                                                                                                              

Name of Institution that Guaranteed Delivery                                                                                                                           

If delivery is by book-entry transfer, give the following information:                                                                               

Account Number:                                                                                                                                                                                  

Transaction Code Number:                                                                                                                                                               

DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE,

WILL NOT CONSTITUTE A VALID DELIVERY.

THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

NOTE: SIGNATURES MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

 

2


 

Ladies and Gentlemen:

The undersigned hereby tenders to Diana Containerships Inc. (the “Company”), a Marshall Islands corporation, each of the above described unregistered common shares, par value $0.01 per share (the “Shares”), of the Company, in exchange for registered common shares, par value $0.01 per share, of the Company, upon the terms and subject to the conditions set forth in the Prospectus dated , 2010, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together, as amended, supplemented or modified from time to time, constitute the “Exchange Offer”). The Exchange Offer expires at 5:00 p.m., New York City time (6:00 P.M. Atlantic time), on , 2010, unless extended as described in the Prospectus (as extended, the “expiration time of the Exchange Offer”). The undersigned understands that the Company reserves the right to transfer or assign, in whole at any time or in part from time to time, to one or more of its affiliates the right to exchange all or any portion of the Original Shares tendered pursuant to the Exchange Offer, but any such transfer or assignment will not relieve the Company of its obligations under the Exchange Offer or prejudice the undersigned’s rights to exchange the Original Shares validly tendered and accepted for exchange pursuant to the Exchange Offer.

Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), effective upon acceptance for the Original Shares tendered herewith, the undersigned (i) will have irrevocably sold, assigned and transferred to the Company all right, title and interest in, to and under all of the Original Shares tendered for exchange hereby; and (ii) appoints the Exchange Agent as the true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as agent for the Company) of such holder of Original Shares with respect to such Original Shares, with full power of substitution, to (x) transfer ownership of such Original Shares on the account books maintained by the Depositary Trust Company (the “Book-Entry Transfer Facility”) (together with all accompanying evidences of transfer and authenticity), (y) take any action necessary to transfer such Original Shares to the Company; and (z) receive all benefits and otherwise exercise all rights and incidents of ownership with respect to such Original Shares, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest.

The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Shares and to acquire Exchange Shares issuable upon the exchange of such tendered Original Shares, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Original Shares, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the tendered Original Shares or transfer ownership of such Original Shares on the account books maintained by the book-entry transfer facility. The undersigned has read and agrees to all terms of the Exchange Offer.

The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption “The Exchange Offer—Conditions of the Exchange Offer.” The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Original Shares tendered hereby and, in such event, the Original Shares not exchanged will be returned to the undersigned at the address shown above, promptly following the expiration or termination of the Exchange Offer. In addition, the Company may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set forth under “The Exchange Offer—Conditions of the Exchange Offer” occur. In the event of any material change in the Exchange Offer, including the waiver of a material condition of the Exchange Offer, the offer period will be extended for at least five business days following notice of the material change.

The undersigned understands that tenders of Original Shares pursuant to any one of the procedures described in the Prospectus and in the instructions attached hereto will, upon the Company’s acceptance for exchange of such tendered Original Shares, constitute a binding agreement between the undersigned and the

 

3


Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Original Shares.

By tendering Original Shares and executing this Letter of Transmittal, the undersigned represents that (1) the Exchange Shares acquired pursuant to the Exchange Offer will be, and the Original Shares being tendered were, acquired in the ordinary course of business of the undersigned, (2) the undersigned is not engaging in and does not intend to engage in a distribution of the Exchange Shares, (3) the undersigned does not have an arrangement or understanding with any person to participate in the distribution of such Exchange Shares, (4) the undersigned is not an “affiliate” of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended, and (5) the undersigned is not acting on behalf of any person who could not truthfully make the foregoing representations. If the undersigned is a broker-dealer that will receive Exchange Shares for its own account in exchange for Original Shares that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a Prospectus meeting the requirements of the Securities Act of 1933, as amended, in connection with any resale of such Exchange Shares to the extent required by applicable law or regulation or SEC pronouncement. By acknowledging that it will deliver and by delivering a Prospectus meeting the requirements of the Securities Act of 1933, as amended, in connection with any resale of such Exchange Shares, the undersigned is not deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933, as amended.

Any holder of Original Shares using the Exchange Offer to participate in a distribution of the Exchange Shares (i) cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available May 13, 1988) or similar interpretive letters and (ii) must comply with the registration and Prospectus delivery requirements of the Securities Act of 1933, as amended, in connection with a secondary resale transaction.

All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Original Shares may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. Except as stated in the Prospectus, this tender is irrevocable.

Certificates for all Exchange Shares delivered in exchange for tendered Original Shares and any Outstanding Shares delivered herewith but not exchanged, and registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned.

The undersigned, by completing the box entitled “Description of Shares Tendered” above and signing this letter, will be deemed to have tendered the Original Shares as set forth in such box.

 

4


   

SPECIAL ISSUANCE INSTRUCTIONS

(See Instructions 1, 5, 6 and 7)

 

To be completed ONLY if the Shares are to be issued in the name of someone other than the undersigned.

 

Issue Shares to:

 

   
    Name:            
      (Please Print)    
   
    Address:        
   
         
   
         
    (Zip Code)    
   
         
    (Taxpayer Identification or Social Security Number)
(See Form W-9)
   
   
    Account Number:        
         

 

   

SPECIAL DELIVERY INSTRUCTIONS

(See Instructions 1, 5, 6 and 7)

 

To be completed ONLY if the Shares are to be mailed to someone other than the undersigned, or the undersigned at an address other than that shown under “Description of Shares Tendered”.

 

Mail Shares to:

 

   
    Name:            
      (Please Print)    
   
    Address:        
   
         
   
         
   

(Zip Code)

   
   
         
   

(Taxpayer Identification or Social Security Number)
(See Form W-9)

   
         

 

5


 

IMPORTANT

 

STOCKHOLDERS: SIGN HERE

(Please Complete Form W-9 Below)

 

 

Signature(s) of Holder(s)

 

Dated:                      , 2010.

 

(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates or on a security position listing by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.)

 

Name(s):                                                                                                                                                                                                       

Please Print

 

Capacity (full title):                                                                                                                                                                                  

 

 

Address:                                                                                                                                                                                                       

 

Include Zip Code

 

Daytime Area Code and Telephone No:                                                                                                                                           

 

Taxpayer Identification or

Social Security No.:                                                                                                                                                                                  

(See Form W-9)

 

GUARANTEE OF SIGNATURE(S)

(See Instructions 1 and 5)

 

FOR USE BY FINANCIAL INSTITUTIONS ONLY.

FINANCIAL INSTITUTIONS: PLACE MEDALLION

GUARANTEE IN SPACE BELOW

 

####

 

6


 

Broker-Dealer Status

[    ] Check here if you are a broker-dealer that acquired your tendered shares for your own account as a result of market-making or other trading activities and wish to receive 10 additional copies of the Prospectus and any amendments or supplements thereto.

Name:                                                                                                                                                                                                                  

Address:                                                                                                                                                                                                              

 

7


 

INSTRUCTIONS

Forming Part of the Terms and Conditions of the Offer

1.     Guarantee of Signatures .    All signatures on this Letter of Transmittal must be guaranteed by a firm which is a member of the Security Transfer Agent Medallion Signature Program, or by any other “eligible guarantor institution”, as such term is defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended (each of the foregoing being an “Eligible Institution”) unless (i) this Letter of Transmittal is signed by the registered holder(s) of Original Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Original Shares) tendered hereby and such holder(s) has (have) not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the reverse hereof or (ii) such Original Shares are tendered for the account of an Eligible Institution. See Instruction 5.

2.     Requirements of Tender.     This Letter of Transmittal is to be completed by the Company shareholders either if certificates evidencing the Original Shares are to be forwarded herewith or, unless an Agent’s Message is utilized, if delivery of the Original Shares is to be made by book-entry transfer pursuant to the procedures set forth herein and in the Prospectus. For a shareholder to validly tender shares pursuant to the Exchange Offer, either (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with any required signature guarantees or an Agent’s Message (in connection with book-entry transfer of the shares) and any other required documents, must be received by the Exchange Agent at one of its addresses set forth herein prior to the Expiration Date of the Exchange Offer and either (i) certificates evidencing the Original Shares must be received by the Exchange Agent at one of such addresses prior to the Expiration Date of the Exchange Offer or (ii) all shares delivered electronically must be delivered pursuant to the procedures for book-entry transfer set forth herein and in the Prospectus, and a book-entry confirmation must be received by the Exchange Agent prior to the Expiration Date of the Exchange Offer or (b) the tendering shareholder must comply with the guaranteed delivery procedures set forth herein and in the Prospectus.

Shareholders whose certificates evidencing the Original Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent prior to the Expiration Date of the Exchange Offer or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Original Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth herein and in the Prospectus.

Pursuant to such guaranteed delivery procedures, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Company, must be received by the Exchange Agent prior to the Expiration Date of the Exchange Offer and (iii) certificates evidencing the Original Shares, in proper form for transfer (or a book-entry confirmation with respect to all tendered Original Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent’s Message and other documents required by this Letter of Transmittal must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. A “trading day” is any day on which the New York Stock Exchange is open for business.

The term “Agent’s Message” means a message, transmitted by the book-entry transfer facility to, and received by, the Exchange Agent and forming a part of the book-entry confirmation, which states that the book-entry transfer facility has received an express acknowledgement from the participant in the book-entry transfer facility tendering the Original Shares that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of this Letter of Transmittal and that the Company may enforce such agreement against the participant.

 

8


 

THE METHOD OF DELIVERY OF THE ORIGINAL SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK- ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

No alternative, conditional or contingent tenders will be accepted and no fractional Original Shares will be exchanged. By execution of this Letter of Transmittal (or a manually signed facsimile hereof), all tendering shareholders waive any right to receive any notice of the acceptance of their Original Shares for exchange.

3.     Inadequate Space .    If the space provided on the reverse hereof under “Description of Shares Tendered” is inadequate, the Share Certificate numbers, the number of Original Shares evidenced by such Share Certificates and the number of Original Shares tendered should be listed on a separate signed schedule and attached hereto.

4.     Partial Tenders (not applicable to stockholders who tender by book-entry transfer) .    If fewer than all Original Shares evidenced by any Share Certificate delivered to the Exchange Agent herewith are to be tendered hereby, fill in the number of Original Shares that are to be tendered in the box entitled “Number of Shares Tendered”. In such cases, new Share Certificate(s) evidencing the remainder of Original Shares that were evidenced by the Share Certificates delivered to the Exchange Agent herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled “Special Delivery Instructions” on the reverse hereof, as soon as practicable after the Expiration Date or the termination of the Offer. All Original Shares evidenced by Share Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated.

5.     Signatures on Letter of Transmittal; Stock Powers and Endorsements .    If this Letter of Transmittal is signed by the registered holder(s) of Original Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificates evidencing such Original Shares without alteration, enlargement or any other change whatsoever.

If any Original Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal.

If any Original Shares tendered hereby are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Original Shares.

If this Letter of Transmittal is signed by the registered holder(s) of Original Shares tendered hereby, no endorsements of Share Certificates or separate stock powers are required, unless Share Certificates evidencing Original Shares not tendered are to be issued in the name of, a person other than the registered holder(s).

If this Letter of Transmittal is signed by a person other than the registered holder(s) of Original Shares tendered hereby, the Share Certificate(s) evidencing Original Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution.

If this Letter of Transmittal or any Share Certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of such person’s authority so to act must be submitted.

 

9


 

6.     Stock Transfer Taxes .    Except as otherwise provided in this Instruction 6, the Company will pay all stock transfer taxes with respect to the sale and transfer of any Original Shares to it or its order pursuant to the Exchange Offer. If, however, Share Certificate(s) evidencing Original Shares not tendered are to be issued in the name of any person other than the registered holder(s) or if tendered certificates are registered in the name of any person other than the person(s) signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), or such other person, or otherwise) shall be payable by such tendering holder. If satisfactory evidence of the transfer taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to the tendering holder.

Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share Certificates evidencing Shares tendered hereby.

7.     Special Delivery Instructions .    If Share Certificate(s) evidencing Original Shares not tendered or not accepted for payment are to be issued in the name of and/or returned to, a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate is to be sent to a person other than the signor of this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled “Description of Shares Tendered” on the reverse hereof, the appropriate boxes herein must be completed.

8.     Requests for Assistance or Additional Copies .    Requests for assistance in tendering Original Shares, as well as additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer.

9.     Withdrawal of Tenders .    Except as otherwise provided in the Prospectus, tenders of Original Shares may be withdrawn at any time on or prior to the Expiration Date. For a withdrawal of tendered shares to be effective, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent on or prior to the Expiration Date at its address set forth on the cover of this Letter of Transmittal. Any such notice of withdrawal must (1) specify the name of the person who tendered the Original Shares to be withdrawn, (2) identify the Original Shares to be withdrawn, including the certificate number or numbers shown on the particular certificates evidencing such shares (unless such shares were tendered by book-entry transfer), and (3) be signed by the holder of such Original Shares in the same manner as the original signature on the Letter of Transmittal by which such Original Shares were tendered (including any required signature guarantees), or be accompanied by (i) documents of transfer sufficient to have the transfer agent of the Company register the transfer of the Original Shares into the name of the person withdrawing such Original Shares, and (ii) a properly completed irrevocable proxy authorizing such person to effect such withdrawal on behalf of such holder. If the Original Shares to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed notice of withdrawal is effective immediately upon written or facsimile notice of such withdrawal even if physical release is not yet effected.

Any permitted withdrawal of Original Shares may not be rescinded. Any Original Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer. However, properly withdrawn Original Shares may be re-tendered by following one of the procedures described in the Prospectus under the caption “The Exchange Offer Procedures for Tendering” at any time prior to the Expiration Date.

10.     Irregularities .    All questions as to the validity, form, eligibility, time of receipt, acceptance and withdrawal of any tenders of Original Shares pursuant to the procedures described in the Prospectus and the form and validity of all documents will be determined by the Company, in its sole discretion, which determination shall be final and binding on all parties. The Company reserves the absolute right, in its sole discretion, to reject any or all tenders of any Original Shares determined by it not to be in proper form or the acceptance of which may, in the opinion of the Company’s counsel, be unlawful. The Company also reserves the absolute right, in its sole discretion, to waive or amend any of the conditions of the Exchange Offer or to waive any defect or irregularity in the tender of any particular Original Shares, whether or not similar defects or irregularities are

 

10


waived in the case of other tenders. The Company’s interpretations of the terms and conditions of the Exchange Offer (including, without limitation, the instructions in this Letter of Transmittal) shall be final and binding. No alternative, conditional or contingent tenders will be accepted. Unless waived, any irregularities in connection with tenders must be cured within such time as the Company shall determine. None of the Company, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in such tenders or will incur any liability to holders for failure to give such notification. Tenders of such Original Shares shall not be deemed to have been made until such irregularities have been cured or waived. Any Original Shares received by the Exchange Agent that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless such holders have otherwise provided herein, promptly following the Expiration Date.

11.     Form W-9 .    Each tendering stockholder that is a “U.S. person” is required to provide the Exchange Agent with a correct Taxpayer Identification Number (“TIN”) on Form W-9, which is provided under “Important Tax Information” below. For this purpose, a stockholder is a U.S. person if he, she or it is (i) an individual who is a U.S. citizen or U.S. resident alien, (ii) a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States, (iii) an estate (other than a foreign estate), or (iv) a domestic trust. A stockholder that is not a U.S. person should not complete Form W-9 and should consult the instructions under “Important Tax Information” below.

To prevent backup withholding each stockholder tendering Original Shares must certify, under penalty of perjury, that (i) the TIN provided on Form W-9 is correct (or the stockholder is awaiting a TIN), (ii) the stockholder is not subject to backup withholding because (a) it is exempt from backup withholding, (b)it has not been notified by the Internal Revenue Service (the “IRS”) that it is subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified it that it is no longer subject to backup withholding, and (iii) such stockholder is a U.S. citizen or other U.S. person. If a tendering stockholder has been notified by the IRS that such stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification section of Form W-9, unless such stockholder has since been notified by the IRS that such stockholder is no longer subject to backup withholding. If the tendering stockholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such stockholder should write “Applied For” in the space provided for the TIN in Part I of Form W-9, and sign and date the Form W-9.

Important: This Letter of Transmittal (or manually signed facsimile hereof), properly completed and duly executed (together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent’s Message) and Share Certificates or confirmation of book-entry transfer and all other required documents) or a properly completed and duly executed Notice of Guaranteed Delivery must be received by the Exchange Agent prior to the Expiration Date (as defined in the Prospectus) or the expiration of a subsequent offering period, if applicable.

IMPORTANT TAX INFORMATION

Under U.S. federal income tax law, a stockholder who is a U.S. person and whose tendered Shares are accepted is generally required to provide the Exchange Agent (as payer) with such stockholder’s correct TIN on Form W-9 provided herewith. The stockholder is required to give the Exchange Agent the TIN of the record holder of Shares tendered hereby. If Shares are in more than one name or are not in the name of the actual owner, consult the enclosed instructions to Form W-9 for guidance on which number to report. If such stockholder is an individual, the TIN generally is such stockholder’s social security number. If the Exchange Agent is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the IRS. In addition, if a stockholder makes a false statement that results in no imposition of backup withholding, and there was no reasonable basis for making such statement, a $500 penalty may also be imposed by the IRS.

Certain stockholders (including, among others, corporations and certain foreign individuals and entities) are not subject to these backup withholding and reporting requirements. In order for a foreign individual or entity to qualify as an exempt recipient, such individual or entity generally must submit a statement on the appropriate

 

11


IRS Form W-8, signed under penalties of perjury, attesting to such individual’s or entity’s exempt status. Forms of such statements can be obtained from the Exchange Agent. See the enclosed instructions to Form W-9 for additional instructions. A stockholder should consult his or her tax advisor as to such stockholder’s qualification for exemption from backup withholding and the procedure for obtaining such exemption.

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the IRS in a timely manner.

 

12


 

[IRS Form W-9, including instructions to be inserted (4 pages in total).]

 

13


 

Facsimiles of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal and Share Certificates and any other required documents should be sent or delivered by each stockholder or such stockholder’s broker, dealer, commercial bank, trust company or other nominee to the Exchange Agent at one of its addresses or to the facsimile number set forth below.

The Exchange Agent for the Offer is:

BNY Mellon Shareowner Services

By Facsimile Transmission (for Eligible Institutions only): 201-680-4626

Confirm by Telephone: 201-680-4860

 

By Mail:    By Hand or Overnight Courier:

BNY Mellon Shareowner Services

Corporate Action Department

PO Box 3301

South Hackensack, NJ 07606

   BNY Mellon Shareowner Services

Corporate Action Department

480 Washington Blvd., 27th Fl

Jersey City, NJ 07310

For Information, call:

1-800-777-3674 for calls within the U.S., Canada and Puerto Rico or

201-680-6579 for call outside of the U.S., Canada and Puerto Rico

 

 

 

14

EXHIBIT 99.2

Notice of Guaranteed Delivery To Exchange Shares of Unregistered Common Stock

of

DIANA CONTAINERSHIPS INC.

for

Shares of Registered Common Stock.

of

DIANA CONTAINERSHIPS INC.

Pursuant to the Prospectus dated                    , 2010

(Not to be used for Signature Guarantees)

This Notice of Guaranteed delivery, or a form substantially equivalent hereto, must be used to tender Original Shares in the Exchange Offer (as defined below) (i) if certificates (“Share Certificates”), evidencing shares of common stock, par value $0.01 per share (“Original Shares”), of Diana Containerships Inc., a Marshall Islands corporation (the “Company”), are not immediately available, (ii) if Share Certificates and all other required documents cannot be delivered to BNY Mellon Shareowner Services, as Exchange Agent (the “Exchange Agent”), prior to the Expiration Date (as defined in the Prospectus (as defined below)) or (iii) if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram, or facsimile transmission to the Exchange Agent. Please see the section of the Prospectus entitled “The Exchange Offer—Procedures for Tendering.”

The Exchange Agent for the Offer is:

BNY Mellon Shareowner Services

By Facsimile Transmission (for Eligible Institutions only): 201-680-4626

Confirm by Telephone: 201-680-4860

 

By Mail:    By Hand or Overnight Courier:

BNY Mellon Shareowner Services

Corporate Action Department

PO Box 3301

South Hackensack, NJ 07606

  

BNY Mellon Shareowner Services

Corporate Action Department

480 Washington Blvd., 27th Fl

Jersey City, NJ 07310

For Information Call:

1-800-777-3674 for calls within the U.S., Canada and Puerto Rico or

201-680-6579 for calls outside of the U.S., Canada and Puerto Rico

DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.

This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an “Eligible Institution” under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal.


 

Ladies and Gentlemen:

The undersigned hereby tenders to Diana Containerships Inc., a Marshall Islands corporation, upon the terms and subject to the conditions set forth in the Prospectus, dated , 2010 (the “Prospectus”), and the related Letter of Transmittal (which, together with the Prospectus and any amendments or supplements thereto, collectively constitute the “Exchange Offer”), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedure set forth in the Prospectus under “The Exchange Offer-Guaranteed Delivery Procedures.”

 

       
   

Number of Shares:

 

 

   
   
    Certificate Nos. (If Available):    
   
   

 

   
   
   

¨ Check this box if Shares will be delivered by book-entry transfer:

   
   
    Book-Entry Transfer Facility    
   
    Account No.  

 

   
   
         
   
         
   
         
   
         
   
         
             
     
   

 

   
   
   

 

   
   
    Signature(s) of Holder(s)    
   
    Dated:                                                 , 200         
   
   

 

   
   
    Please Type or Print    
   
   

 

   
   
    Address    
   
   

 

   
   
    Zip Code    
   
   

 

   
   
   

Daytime Area Code and Telephone No.

 

   

 

GUARANTEE

(Not to be used for signature guarantee)

The undersigned, a participant in the Security Transfer Agents Medallion Program or an “eligible guarantor institution,” as such term is defined in Rule 17 Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees to deliver to the Exchange Agent either certificates representing the Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Exchange Agent’s account at The Depositary Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, confirmation of the book-entry transfer of such Shares in the Exchange Agent’s account and The Depositary Trust Company, together with an Agent’s Message (as defined in the Prospectus), in each case together with any other documents required by the Letter of Transmittal, within three New York Stock Exchange trading days after the date hereof.

 

2


 

The Eligible Institution that completes this form must communicate the guarantee to the Exchange Agent and must delivery the Letter of Transmittal and certificates for Shares to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution.

 

Name of Firm:                                                                                                                                                                                            
   Authorized Signature

 

Address:                                                                                             

  

 

Name:                                                                                           

 

                                                                                                                

Zip Code

   Please Type or Print
  

 

Title:                                                                                             

 

Area Code and Tel. No.:                                                             

  

 

Dated:                                                                              , 2010

DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.

SHARE CERTIFICATES SHOULD BE SENT WITH YOUR

LETTER OF TRANSMITTAL.

 

3

EXHIBIT 99.3

Offer to Exchange

Shares of Unregistered Common Stock

of

DIANA CONTAINERSHIPS INC.

for

Shares of Registered Common Stock

of

DIANA CONTAINERSHIPS INC.

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 PM,

NEW YORK CITY TIME, ON                     , 2010 UNLESS THE OFFER IS EXTENDED.

                     2010

To Brokers, Dealers, Commercial Banks,

Trust Companies and Other Nominees:

We have been appointed by Diana Containerships Inc., a Marshall Islands corporation (the “Company”), to act as Exchange Agent in connection with the Company’s offer to exchange shares of unregistered common stock, par value $0.01 per share (“Shares”), for registered shares of its common stock, par value $0.01 per share, upon the terms and subject to the conditions set forth in the Company’s Prospectus dated                     , 2010 (the “Prospectus”), and the related Letter of Transmittal (which, together with the Prospectus and any amendments or supplements thereto, collectively constitute the “Exchange Offer”) enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee.

For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents:

1. Prospectus, dated                     , 2010;

2. Letter of Transmittal for your use in tendering shares in the Exchange Offer and for the information of your clients;

3. Notice of Guaranteed Delivery to be used to accept the Exchange Offer if the Shares and all other required documents are not immediately available or cannot be delivered to BNY Mellon Shareowner Services (the “Exchange Agent”) prior to the Expiration Date (as defined in the Prospectus) or if the procedure for book-entry transfer cannot be completed prior to the Expiration Date;

4. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients’ instructions with regard to the Exchange Offer; and

5. Return envelope addressed to the Exchange Agent.

WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 PM, NEW YORK CITY TIME, ON                     , 2010, UNLESS THE EXCHANGE OFFER IS EXTENDED.

In all cases the exchange of shares pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates evidencing such Shares (or a confirmation of a book-entry transfer of such Shares into the Exchange Agent’s account at the Book-Entry Transfer Facility (as defined in the Letter of Transmittal)), (ii) a Letter of Transmittal (or a manually signed facsimile thereof) properly completed and duly executed with any required signature guarantees or, in the case of a book-entry transfer, an Agent’s Message (as defined in the Transmittal Letter) and (iii) any other required documents.


 

If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents prior to the expiration of the Exchange Offer, a tender may be effected by following the guaranteed delivery procedure described in the Prospectus.

The Company will not pay any fees or commissions to any broker, dealer or other person (other than the Exchange Agent) in connection with the solicitation of tenders of Shares pursuant to the Exchange Offer. However, the Company will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal.

Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be addressed to us at our address and telephone number set forth on the back cover page of the Prospectus.

Very truly yours,

BNY MELLON SHAREOWNER SERVICES

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF THE COMPANY OR THE EXCHANGE AGENT IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.

 

EXHIBIT 99.4

Offer to Exchange

Shares of Unregistered Common Stock

of

DIANA CONTAINERSHIPS INC.

for

Shares of Registered Common Stock

of

DIANA CONTAINERSHIPS INC.

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 PM,

NEW YORK CITY TIME,                     , 2010, UNLESS THE EXCHANGE OFFER IS EXTENDED.

                    , 2010

To Our Clients:

Enclosed for your consideration are a Prospectus, dated                     , 2010 (the “Prospectus”), and a related Letter of Transmittal (which, together with the Prospectus and any amendments or supplements thereto, collectively constitute the “Exchange Offer”) in connection with the offer by Diana Containerships Inc., a Marshall Islands corporation (the “Company”), to exchange unregistered shares of its common stock, par value $0.01 per share (“Shares”), for registered shares of its common stock, par value $0.01, upon the terms and subject to the conditions set forth in the Prospectus. We are (or our nominee is) the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account.

We request instructions as to whether you wish to have us tender on your behalf any or all Shares held by us for your account, upon the terms and subject to the conditions set forth in the Exchange Offer.

Your attention is invited to the following:

1. The Offer is being made for an aggregate of 2,558,997 common shares previously sold in a private offering for new registered shares.

2. The Exchange Offer and withdrawal rights will expire at 5:00 PM, New York City time, , 2010, unless the Exchange Offer is extended.

3. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the exchange of Shares in the Exchange Offer.

If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Exchange Offer.

The Exchange Offer is being made solely by the Prospectus and the related Letter of Transmittal and is being made to holders of Shares. The Company is not aware of any jurisdiction where the making of the Exchange Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Exchange Offer or the acceptance of Shares pursuant thereto, the Company will make a good faith effort to comply with such state statute. If, after such good faith effort, the Company cannot comply with such state statute, the Exchange Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer shall be deemed to be made on behalf of the Company by one or more registered brokers, dealers or agents licensed under the laws of such jurisdiction.


 

Instructions with Respect to the Offer to Exchange

Shares of Unregistered Common Stock

of

DIANA CONTAINERSHIPS INC.

for

Shares of Registered Common Stock

of

DIANA CONTAINERSHIPS INC.

The undersigned acknowledge(s) receipt of this letter and the enclosed Prospectus, dated                     , 2010, and the related Letter of Transmittal (which, together with the Prospectus and any amendments or supplements thereto, collectively constitute the “Exchange Offer”) in connection with the offer by Diana Containerships Inc., a Marshall Islands corporation (the “Company”), to exchange unregistered shares of its common stock, par value $0.01 per share (“Shares”) for registered shares of its common stock, par value $0.01.

 

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This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Exchange Offer.

Dated:                     , 2010

 

Number of Shares To Be Tendered:

             Shares 1

SIGN HERE

 

Signature(s)

 

Please type or print names(s)

 

Please type or print address

 

Area Code and Telephone Number

 

Taxpayer Identification or Social Security Number

 

1 Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered.

 

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