UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

_________________________


FORM 20-F
__________________________



  [_]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
OR
   
  [X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended December 31, 2014
   
  [_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from              to
   
  [_]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Date of event requiring this shell company report: Not applicable
Commission file number 001-33922
__________________________
 
DRYSHIPS INC.
(Exact name of Registrant as specified in its charter)
__________________________

(Translation of Registrant's name into English)

Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)

109 Kifisias Avenue and Sina Street
151 24, Marousi
Athens, Greece
(Address of principal executive offices)

Mr. George Economou
Tel: + 011 30 210-80 90-570, Fax: + 011 30 210 80 90 585
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of class
  
Name of exchange on which registered
Common Stock, $0.01 par value
  
The NASDAQ Stock Market LLC
Preferred Stock Purchase Rights
  
The NASDAQ Stock Market LLC

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

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None



Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2014, there were 669,964,321 shares of the registrant's common stock, $0.01 par value, outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes  ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ☐ Yes  ☒ No

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

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

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

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

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



 
US GAAP  ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other
  ☐


If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  ☐ Item 17  ☐ Item 18

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

FORWARD-LOOKING STATEMENTS

DryShips Inc. desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection therewith. This document and any other written or oral statements made by the Company or on its behalf may include forward-looking statements, which reflect its current views with respect to future events and financial performance. This document includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements". We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this document, the words "anticipate", "estimate", "project", "forecast", "plan", "potential", "may", "should", and "expect" reflect forward-looking statements.

All statements in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:

● our future operating or financial results;
● statements about planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking, surveys, upgrades and insurance costs;
● our ability to procure or have access to financing, our liquidity and the adequacy of cash flow for our operations;
● our continued borrowing availability under our debt agreements and compliance with the covenants contained therein;
● our substantial leverage, including our ability to generate sufficient cash flow to service our existing debt and the incurrence of substantial indebtedness in the future;
● our ability to successfully employ both our existing and newbuilding drybulk and tanker vessels and drilling units;
● our drilling contract backlog, drilling contract commencements, drilling contract terminations, drilling contract option exercises, drilling contract revenues, drilling contract awards and rig and drillship mobilizations and performance provisions,
● our future capital expenditures and investments in the construction, acquisition and refurbishment of our vessels and drilling units (including the amount and nature thereof and the timing of completion thereof, the delivery and commencement of operations dates, expected downtime and lost revenue);
● statements about drybulk and tanker shipping market trends, charter rates and factors affecting supply and demand;
● statements about the offshore drilling market, including supply and demand, utilization rates, dayrates,
● our expectations regarding the availability of vessel and drilling unit acquisitions; and
● anticipated developments with respect to pending litigation.
The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that it will achieve or accomplish these expectations, beliefs or projections described in the forward-looking statements contained in this annual report.

Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies; general market conditions, including changes in charter rates and dayrates and vessel and drilling unit values; the failure of a seller to deliver one or more vessels or drilling units; the failure of a buyer to accept delivery of one or more vessels or drilling units; inability to procure acquisition financing; repudiation, nullification, termination, modification or renegotiation of our contracts; default by one or more customers; changes in demand for drybulk commodities, oil or petroleum products; changes in demand that may affect attitudes of time charterers; scheduled and unscheduled drydocking; changes in our voyage and operating expenses, including bunker prices, dry-docking and insurance costs; complications associated with repairing and replacing equipment in remote locations; limitations on insurance coverage, such as war risk coverage, in certain areas; foreign and U.S. monetary policy and foreign currency fluctuations and devaluations; changes in governmental rules and regulations, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues; legal and regulatory matters, including results and effects of legal proceedings; customs and environmental matters; domestic and international political conditions; potential disruption of shipping routes due to accidents; international hostilities and political events or acts by terrorists; and other factors described in "Item 3.D. Risk Factors."


TABLE OF CONTENTS

PART I
  
1
Item 1.
Identity of Directors, Senior Management and Advisers
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
39
Item 4A.
Unresolved Staff Comments
63
Item 5.
Operating and Financial Review and Prospects
64
Item 6.
Directors and Senior Management
103
Item 7.
Major Shareholders and Related Party Transactions
109
Item 8.
Financial Information
114
Item 9.
The Offer and Listing
115
Item 10.
Additional Information
116
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
125
Item 12.
Description of Securities Other than Equity Securities
127
     
PART II
  
127
Item 13.
Defaults, Dividend Arrearages and Delinquencies
127
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
127
Item 15.
Controls and Procedures
127
Item 16A.
Audit Committee Financial Expert
128
Item 16B.
Code of Ethics
128
Item 16C.
Principal Accountant Fees and Services
128
Item 16D.
Exemptions from the Listing Standards for Audit Committees
129
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
129
Item 16F.
Changes in Registrant's Certifying Accountant
129
Item 16G.
Corporate Governance
129
Item 16H.
Mine Safety Disclosure
129
     
PART III.
  
130
Item 17.
Financial Statements
130
Item 18.
Financial Statements
130
Item 18.1.
Schedule I – Condensed Financial Information of Dryships Inc. (Parent Company only)
130
Item 19.
Exhibits
130



Please note in this annual report, "we", "us", "our", "DryShips" and "the Company", all refer to DryShips Inc. and its subsidiaries, unless otherwise stated or the context otherwise requires.


PART I

Item 1.      Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.      Offer Statistics and Expected Timetable

Not applicable.

Item 3.          Key Information

A.           Selected Financial Data

The following table sets forth our selected consolidated financial data and other operating data as of and for the years ended December 31, 2010, 2011, 2012, 2013 and 2014. The following information should be read in conjunction with "Item 5. Operating and Financial Review and Prospects" and the consolidated financial statements and related notes included herein. The following selected consolidated financial data are derived from our audited consolidated financial statements and the notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.

3.A.(i)  STATEMENT OF OPERATIONS


   
Year Ended December 31,
  
(In thousands of U.S. dollars except per share and  share data)
  
2010
    
2011
    
2012
    
2013
    
2014
  
STATEMENT OF OPERATIONS
                    
Total revenues
  
$
859,745
    
$
1,077,662
    
$
1,210,139
    
$
1,492,014
    
$
2,185,524
  
Voyage expenses
    
27,433
      
20,573
      
30,012
      
103,211
      
117,165
  
Vessels, drilling rigs and drillships operating expenses
    
190,614
      
373,122
      
649,722
      
609,765
      
844,260
  
Depreciation and amortization
    
192,891
      
274,281
      
335,458
      
357,372
      
449,792
  
Loss/(gain) on sale of assets, net
    
(9,435
)
    
3,357
)
    
1,179
      
—
      
-
  
Gain on contract cancellation
    
—
      
(6,202
)
    
—
      
—
      
-
  
Contract termination fees and other
    
—
      
—
      
41,339
      
33,293
      
1,307
  
Vessel impairment charge
    
3,588
      
144,688
      
—
      
43,490
      
38,148
  
Gain from vessel insurance proceeds
    
—
      
(25,064
)
    
—
      
—
      
-
  
General and administrative expenses – cash(1)
    
64,376
      
96,679
      
132,636
      
173,298
      
182,593
  
General and administrative expenses – non-cash
    
24,200
      
26,568
      
13,299
      
11,424
      
11,093
  
Legal settlements and other, net
    
—
      
—
      
(9,360
)
    
4,585
      
(2,013
)


1
Operating income
    
366,078
      
169,660
      
15,854
      
155,576
      
543,179
  
Interest and finance costs
    
(66,825
)
    
(146,173
)
    
(210,128
)
    
(332,129
)
    
(411,021
)
Interest income
    
21,866
      
16,575
      
4,203
      
12,498
      
12,146
  
Gain/(loss) on interest rate swaps
    
(120,505
)
    
(68,943
)
    
(54,073
)
    
8,373
      
(15,528
)
Other, net
    
10,272
      
9,023
      
(492
)
    
2,245
      
7,067
  
                                         
Income/(loss) before income taxes
    
210,886
      
(19,858
)
    
(244,636
)
    
(153,437
)
    
135,843
  
Income taxes
    
(20,436
)
    
(27,428
)
    
(43,957
)
    
(44,591
)
    
(77,823
)
                                         
Net Income/(loss)
    
190,450
      
(47,286
)
    
(288,593
)
    
(198,028
)
    
58,020
  
Less: Net (income)/loss attribute to non-controlling interests
    
(2,123
)
    
(22,842
)
    
41,815
      
(25,065
)
    
(105,532
)
                                         
Net income/(loss) attributable to DryShips Inc.
    
188,327
      
(70,128
)
    
(246,778
)
    
(223,093
)
    
(47,512
)
Net Income/ (loss) attributable to common stockholders
    
172,564
      
(74,594
)
    
(246,778
)
    
(223,149
)
    
(48,209
)
Earnings/(loss) per common share attributable to DryShips Inc. common stockholders, basic
  
$
0.64
    
$
(0.21
)
  
$
(0.65
)
  
$
(0.58
)
  
$
(0.11
)
                                         
Weighted average number of common shares, basic
    
268,858,688
      
355,144,764
      
380,159,088
      
384,063,306
      
456,031,628
  
Earning / (loss) per common share attributable to DryShips Inc. common stockholders, diluted
  
$
0.61
    
$
(0.21
)
  
$
(0.65
)
  
$
(0.58
)
  
$
(0.11
)
Weighted average number of common shares, diluted
    
305,425,852
      
355,144,764
      
380,159,088
      
384,063,306
      
456,031,628
  
_______________________
(1)
Cash compensation to members of our senior management and our directors amounted to $11.8 million, $6.8 million, $5.7 million, $4.8 million, and $5.8 million for the years ended December 31, 2010, 2011, 2012, 2013 and 2014, respectively.

3.A.(ii)  BALANCE SHEET AND OTHER FINANCIAL DATA
 
 
As of and for the
Year Ended December 31,
 
(In thousands of U.S. dollars except per share and  share data and fleet data)
  
2010
    
2011
    
2012
    
2013
    
2014
  
 
Total current assets
  
$
1,065,110
      
570,077
      
903,529
      
1,184,199
      
1,227,277
  
Total assets
    
6,984,494
      
8,621,689
      
8,878,491
      
10,123,692
      
10,371,603
  
Current liabilities, including current portion of long-term debt, net of deferred finance cost
    
935,435
      
756,263
      
1,573,529
      
2,171,714
      
1,621,760
  
Total long-term debt, including current portion
    
2,719,692
      
4,241,835
      
4,386,715
      
5,568,003
      
5,517,613
  
DryShips common stock
    
3,696
      
4,247
      
4,247
      
4,326
      
7,060
  
Number of shares issued
    
369,649,777
      
424,762,094
      
424,762,244
      
432,654,477
      
706,064,321
  
Total DryShips Inc. stockholders' equity
    
3,255,827
      
3,145,328
      
2,846,460
      
2,613,636
      
2,992,821
  
OTHER FINANCIAL DATA
                                        
Net cash provided by operating activities
    
476,801
      
349,205
      
237,529
      
245,980
      
475,108
  
Net cash used in investing activities
    
(1,680,748
)
    
(1,822,394
)
    
(389,947
)
    
(1,234,330
)
    
(754,717
)
Net cash provided by financing activities
    
902,308
      
1,332,802
      
243,225
      
1,241,542
      
250,709
  
 
EBITDA (1)
    
449,736
      
384,021
      
296,747
      
523,566
      
984,510
  
 
DRYBULK FLEET DATA:
                                        
Average number of vessels (2)
    
37.21
      
35.80
      
35.67
      
37.15
      
38.69
  
Total voyage days for drybulk carrier fleet (3)
    
13,430
      
12,831
      
13,027
      
13,442
      
13,889
  
Total calendar days for drybulk carrier fleet (4)
    
13,583
      
13,068
      
13,056
      
13,560
      
14,122
  
Drybulk carrier fleet utilization (5)
    
98.87
%
    
98.19
%
    
99.78
%
    
99.13
%
    
98.35
%
 
(In Dollars)
                                        
AVERAGE DAILY RESULTS:
                                        
Time charter equivalent (6)
    
32,045
      
26,912
      
15,896
      
12,062
      
12,354
  
Vessel operating expenses (7)
    
5,245
      
6,271
      
5,334
      
5,796
      
6,400
  
 
TANKER FLEET DATA:
                                        
Average number of vessels (2)
    
—
      
2.64
      
6.27
      
9.86
      
10.00
  
Total voyage days for tanker fleet (3)
    
—
      
963
      
2,293
      
3,598
      
3,650
  
Total calendar days for tanker fleet (4)
    
—
      
963
      
2,293
      
3,598
      
3,650
  
Tanker fleet utilization
    
—
      
100
%
    
100
%
    
100
%
    
100
%
 
(In Dollars)
                                        
 
AVERAGE DAILY RESULTS:
                                        
Time Charter Equivalent (6)
    
—
      
12,592
      
13,584
      
12,900
      
21,835
  
Vessel Operating Expenses (7)
    
—
      
9,701
      
7,195
      
7,286
      
7,138
  
 
 ________________________________
(1)
EBITDA, a non-U.S. GAAP measure, represents net income before interest, taxes, depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by U.S. GAAP and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is included herein because it is a basis upon which the Company measures its operations. Please see below for a reconciliation of EBITDA to net income attributable to DryShips, the most directly comparable financial measure calculated in accordance with U.S. GAAP.
 
2
 
(2)
Average number of vessels is the number of vessels that constituted the respective fleet for the relevant period, as measured by the sum of the number of days each vessel in that fleet was a part of the fleet during the period divided by the number of calendar days in that period.
(3)
Total voyage days for the respective fleet are the total days the vessels in that fleet were in the Company's possession for the relevant period net of off-hire days associated with drydockings or special or intermediate surveys.
(4)
Calendar days are the total days the vessels in that fleet were in the Company's possession for the relevant period including off-hire days associated with major repairs, drydockings or special or intermediate surveys.
(5)
Fleet utilization is the percentage of time that the vessels in that fleet were available for revenue-generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period.
(6)
Time charter equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. The Company's method of calculating TCE is determined by dividing voyage revenues (net of voyage expenses) by voyage days for 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 the charterer under a time charter contract, as well as commissions. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from our vessels, the most directly comparable U.S. GAAP measure, because it assists Company's management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. TCE is also a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented.
(7)
Daily vessel operating expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.
 
 
For the Year Ended December 31,
(U.S. dollars in thousands) 2010 2011 2012 2013 2014
 
Net income/(loss) attributable to DryShips Inc.
    
188,327
      
(70,128
)
    
(246,778
)
    
(223,093
)
    
(47,512
)
Add: Net interest expense/income
    
45,959
      
129,598
      
205,925
      
319,631
      
398,875
  
Add: Depreciation and amortization
    
192,891
      
274,281
      
335,458
      
357,372
      
449,792
  
Add: Income taxes
    
20,436
      
27,428
      
43,957
      
44,591
      
77,823
  
Add: Net income/(loss) attributable to Non controlling interests
    
2,123
      
22,842
      
(41,815
)
    
25,065
      
105,532
  
EBITDA
    
449,736
      
384,021
      
296,747
      
523,566
      
984,510
  
 
 
 Drybulk Carrier Segment Year Ended December 31,
 (In thousands of U.S. dollars, except for TCE rates,
 which are expressed in U.S. dollars and voyage days) 2010 2011 2012 2013 2014
 
Voyage revenues
    
457,804
      
365,361
      
227,141
      
191,024
      
205,630
  
Voyage expenses
    
(27,433
)
    
(20,047
)
    
(20,064
)
    
(28,886
)
    
(34,044
)
Time charter equivalent revenues
    
430,371
      
345,314
      
207,077
      
162,138
      
171,586
  
Total voyage days for drybulk fleet
    
13,430
      
12,831
      
13,027
      
13,442
      
13,889
  
Time charter equivalent (TCE) rate
    
32,045
      
26,912
      
15,896
      
12,062
      
12,354
  
 
 
 Tanker Segment Year Ended December 31,
 (In thousands of U.S. dollars, except for TCE rates, which are
 expressed in U.S. dollars and voyage days) 2010 2011 2012 2013 2014
 
Voyage revenues
    
-
      
12,652
      
41,095
      
120,740
      
162,817
  
Voyage expenses
    
-
      
(526
)
    
(9,948
)
    
(74,325
)
    
(83,121
)
Time charter equivalent revenues
    
-
      
12,126
      
31,147
      
46,415
      
79,696
  
Total voyage days for drybulk fleet
    
-
      
963
      
2,293
      
3,598
      
3,650
  
Time charter equivalent (TCE) rate
    
-
      
12,592
      
13,584
      
12,900
      
21,835
  
 

B.           Capitalization and Indebtedness

Not applicable.

C.           Reasons for the Offer and Use of Proceeds

Not applicable.

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D.           Risk Factors
 
Some of the following risks relate principally to the industries in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common shares. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results, cash flows or our ability to pay dividends, if any, in the future, or the trading price of our common shares.

Risk Factors Relating to the Drybulk Shipping Industry

Charterhire rates for drybulk carriers are volatile and remain significantly below their high in 2008, which has had and may continue to have an adverse effect on our revenues, earnings and profitability and our ability to comply with our loan covenants.

The degree of charterhire rate volatility among different types of drybulk vessels has varied widely; however, the prolonged downturn in the drybulk charter market has severely affected the entire drybulk shipping industry and charterhire rates for drybulk vessels have declined significantly from historically high levels. The Baltic Dry Index, or the BDI, an index published daily by the Baltic Exchange Limited, a London-based membership organization that provides daily shipping market information to the global investing community, is a daily average of charter rates for key drybulk routes, which has long been viewed as the main benchmark to monitor the movements of the drybulk vessel charter market and the performance of the overall drybulk shipping market. The BDI declined 94% in 2008 from a peak of 11,793 in May 2008 to a low of 663 in December 2008 and has remained volatile since then.  The BDI recorded an all time low of 516 on February 17, 2015 and there can be no assurance that the drybulk charter market will increase, and the market could decline further.

The decline and volatility in charter rates has been due to various factors, including the over-supply of drybulk vessels, the lack of trade financing for purchases of commodities carried by sea, which resulted in a significant decline in cargo shipments. The decline and volatility in charter rates in the drybulk market also affects the value of our drybulk vessels, which follows the trends of drybulk charter rates, and earnings on our charters, and similarly, affects our cash flows, liquidity and compliance with the covenants contained in our loan agreements.  If low charter rates in the drybulk market continue or decline further for any significant period, this could have an adverse effect on our vessel values and our ability to continue as a going concern and comply with the financial covenants in our loan agreements. In such a situation, unless our lenders were willing to provide waivers of covenant compliance or modifications to our covenants, our lenders could accelerate our debt and we could face the loss of our vessels. In addition, the decline in the drybulk carrier charter market has had and may continue to have additional adverse consequences for the drybulk shipping industry, including an absence of financing for vessels, no active secondhand market for the sale of vessels, charterers seeking to renegotiate the rates for existing time charters, and widespread loan covenant defaults in the drybulk shipping industry. Accordingly, the value of our common shares could be substantially reduced or eliminated.

Because we currently employ 21 of our vessels in the spot market and pursuant to short-term time charters, we are exposed to changes in spot market and short-term charter rates for drybulk carriers and such changes may affect our earnings and the value of our drybulk carriers at any given time. In addition, we have two vessels scheduled to come off of their current charters in 2015 for which we will be seeking new employment. We may not be able to successfully charter our vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations. Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. Because the factors affecting the supply of and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.

Factors that influence demand for vessel capacity include:

● supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;

● changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;

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

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

● the globalization of production and manufacturing;

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

● natural disasters and other disruptions in international trade;
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● developments in international trade;
 
● changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;

● environmental and other regulatory developments;

● currency exchange rates; and

● weather.

The factors that influence the supply of vessel capacity include:

● the number of newbuilding deliveries;

● port and canal congestion;

● the scrapping rate of older vessels;

● vessel casualties; and

● the number of vessels that are out of service.

In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing drybulk fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.

We anticipate that the future demand for our drybulk carriers will be dependent upon continued economic growth in the world's economies, including China and India, seasonal and regional changes in demand, changes in the capacity of the global drybulk carrier fleet and the sources and supply of drybulk cargoes to be transported by sea. Given the large number of new drybulk carriers currently on order with shipyards, the capacity of the global drybulk carrier fleet seems likely to increase and economic growth may not continue. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.

An over-supply of drybulk carrier capacity may prolong or further depress the current low charter rates and, in turn, adversely affect our profitability.

The market supply of drybulk carriers has been increasing as a result of the delivery of numerous newbuilding orders over the last few years. Newbuildings have been delivered in significant numbers since the beginning of 2006 and, as of January 1, 2015, newbuilding orders had been placed for an aggregate of more than 22% of the existing global drybulk fleet, with deliveries expected during the next three years. Due to lack of financing many analysts expect significant cancellations and/or slippage of newbuilding orders. While vessel supply will continue to be affected by the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or accidental losses, an over-supply of dry bulk carrier capacity could exacerbate the recent decrease in charter rates or prolong the period during which low charter rates prevail. Currently, some of our spot market-related time charterers are at times unprofitable due the volatility associated with dry cargo freight rates. If market conditions persist or worsen, upon the expiration or termination of our vessels' current non-spot charters, we may only be able to re-charter our vessels at reduced or unprofitable rates, or we may not be able to charter these vessels at all. The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. Currently, two of the charters for our drybulk vessels are scheduled to expire in 2015.

The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or cause us to breach certain covenants in our credit facilities and we may incur a loss if we sell vessels following a decline in their market value.

The fair market values of our vessels are related to prevailing freight charter rates. However, while the fair market values of vessels and the freight charter market have a very close relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary.

The fair market values of our vessels have generally experienced high volatility, and you should expect the market values of our vessels to fluctuate depending on a number of factors including:

● prevailing level of charter rates;
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● general economic and market conditions affecting the shipping industry;

● types and sizes of vessels;

● supply of and demand for vessels;

● other modes of transportation;

● cost of newbuildings;

● governmental and other regulations; and

● technological advances.

In addition, as vessels grow older, they generally decline in value. If the market values of our vessels, which are at relatively low levels, decrease further, we may not be in compliance with certain covenants in our credit facilities secured by mortgages on our drybulk vessels, and our lenders could accelerate our indebtedness or require us to pay down our indebtedness to a level where we are again in compliance with our loan covenants. If our indebtedness is accelerated, we may not be able to refinance our debt or obtain additional financing.

In addition, if we sell one or more of our vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our consolidated financial statements, the sale proceeds may be less than the vessel's carrying value on our consolidated financial statements, resulting in a loss and a reduction in earnings. Furthermore, if vessel values persist at their current levels or decline further, we may have to record an impairment adjustment in our financial statements which could adversely affect our financial results. Due to our decision to sell certain vessels and based on the agreed-upon sales price, an impairment charge of $0 and $43.5 million, for each of the years ended December 31, 2012 and 2013, respectively, was recognized. Furthermore, as a result of the impairment review for the year ended December 31, 2014 it was determnined that the carrying amount of one of our assets was not recoverable and, therefore, an impairment loss of $38.1 million was recognized.

A further economic slowdown or changes in the economic and political environment in the Asia Pacific region could exacerbate the effect of recent slowdowns in the economies of the European Union and may have a material adverse effect on our business, financial condition and results of operations.

We anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging of drybulk commodities and oil in ports in the Asia Pacific region. As a result, any negative changes in economic conditions in any Asia Pacific country, particularly in China, may exacerbate the effect of recent slowdowns in the economies of the European Union and may have a material adverse effect on our business, financial condition and results of operations, as well as our future prospects. 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. The quarterly year-over-year growth rate of China's GDP decreased to approximately 7.3% for the year ended December 31, 2014, as compared to approximately 7.7% for the year ended December 31, 2013, and continues to remain below pre-2008 levels. We cannot assure you that the Chinese economy will not experience a significant contraction in the future.  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. Notwithstanding economic reform, the Chinese government may adopt policies that favor domestic drybulk shipping and oil tanker companies and may hinder our ability to compete with them effectively. Moreover, the current economic slowdown in the economies of the European Union and other Asian countries may further adversely affect economic growth in China and elsewhere. In addition, concerns regarding the possibility of sovereign debt defaults by European Union member countries, including Greece, have disrupted financial markets throughout the world, may lead to weaker consumer demand in the European Union, the United States, and other parts of the world. The possibility of sovereign debt defaults by European Union member countries, including Greece, and the possibility of market reforms to float the Chinese renminbi, either of which development could weaken the Euro against the Chinese renminbi, could adversely affect consumer demand in the European Union. Moreover, the revaluation of the renminbi may negatively impact the United States' demand for imported goods, many of which are shipped from China. Such weak economic conditions could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends to our stockholders. Our business, financial condition, results of operations, ability to pay dividends as well as our future prospects, will likely be materially and adversely affected by a further economic downturn in any of these countries.
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If economic conditions throughout the world do not improve, this will impede our results of operations, financial condition and cash flows.

Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In addition, the world economy is currently facing a number of new challenges, including uncertainty related to the continuing discussions in the United States regarding the federal debt ceiling and recent turmoil and hostilities in the Middle East, North Africa and other geographic areas and countries. The deterioration in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods and, thus, shipping.

The United States, the European Union and other parts of the world have recently been or are currently in a recession and continue to exhibit weak economic trends. The current sovereign debt crisis in certain Eurozone countries, such as Greece and Cyprus, and concerns over debt levels of certain other European Union member states and in other countries around the world, as well as concerns about international banks, have led to increased volatility in global credit and equity markets. The credit markets in the United States and Europe have experienced significant contraction, deleveraging and reduced liquidity, and the United States federal and state governments and European authorities have implemented a broad variety of governmental action and/or new regulation of the financial markets and may implement additional regulations in the future.  Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The United States 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 and the uncertainty surrounding the future of the credit markets in the United States and the rest of the world has resulted in reduced access to credit worldwide.

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

In addition, as a result of the ongoing economic turmoil in Greece resulting from the sovereign debt crisis and the related austerity measures implemented by the Greek government, our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees. We also face the risk that strikes, work stoppages, civil unrest and violence within Greece may disrupt our shoreside operations and those of our managers located in Greece.

The current state of global financial markets and current economic conditions may adversely impact our ability to obtain additional 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 will likely continue to make, it difficult to obtain additional 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 margins or 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. Furthermore, certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending to the shipping industry. Due to these factors, we cannot be certain that additional financing will be available if needed and to the extent required, on acceptable terms or at all. If additional 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 additional drilling unit acquisitions or otherwise take advantage of business opportunities as they arise.
 
 
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The instability of the euro or the inability of Eurozone countries to refinance their debts could have a material adverse effect on our revenue, profitability and financial position.

As a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and Spain, the European Commission created the European Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism, or the ESM, which was activated by mutual agreement, to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries after June 2013. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for drybulk cargoes and oil and gas and for our services. These potential developments, or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.

 Charterers have been placed under significant financial pressure, thereby increasing our charter counterparty risk.

The continuing weakness in demand for drybulk shipping services and any future declines in such demand could result in financial challenges faced by our charterers and may increase the likelihood of one or more of our charterers being unable or unwilling to pay us contracted charter rates. We expect to generate most of our revenues from these charters and if our charterers fail to meet their obligations to us, we will sustain significant losses which could have a material adverse effect on our financial condition and results of operations.

Acts of piracy on ocean-going vessels have had and may continue to have an adverse effect on our business.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as South China Sea, Arabian Sea, Red Sea, the Gulf of Aden off the coast of Somalia, the Indian Ocean and the Gulf of Guinea. Sea piracy incidents continue to occur, particularly in the Gulf of Aden, the Indian Ocean, and increasingly in the Gulf of Guinea, with tankers particularly vulnerable to such attacks.   In February 2009, the drybulk vessel Saldanha, which is owned by our subsidiary, Team-Up Owning Company Limited, was seized by pirates while transporting coal through the Gulf of Aden.  If piracy attacks result in regions in which our vessels are deployed being characterized as "war risk" zones by insurers 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 and security equipment costs, including costs which may be incurred to employ onboard security armed guards, to comply with Best Management Practices for Protection against Somalia Based Piracy, or BMP4, or any updated version, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention or hijacking as a result of an act of piracy against our vessels, increased costs associated with seeking to avoid such events (including increased bunker costs resulting from vessels being rerouted or travelling at increased speeds as recommended by BMP4), or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations and cash flows, and ability to pay dividends, and may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.

Political instability, terrorist attacks and international hostilities can affect the seaborne transportation industry, which could adversely affect our business.

We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political instability in the Middle East, North Africa and other geographic countries and areas, terrorist or other attacks, war or international hostilities. Terrorist attacks such as those in New York on September 11, 2001, in London on July 7, 2005, and in Mumbai on November 26, 2008, and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in the Middle East and North Africa, and the presence of U.S. or other armed forces in Iraq, Afghanistan and various other regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, such as the attack on the MT Limburg, a vessel unaffiliated with us, in October 2002, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia.  Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

Our revenues are subject to seasonal fluctuations, which could affect our operating results and our ability to pay dividends, if any, in the future.

We operate our drybulk vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. This seasonality may result in quarter-to-quarter volatility in our operating results, which could affect our ability to pay dividends, if any, in the future from quarter to quarter. The drybulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues have historically been weaker during the fiscal quarters ended June 30 and September 30, and, conversely, our revenues have historically been stronger in fiscal quarters ended December 31 and March 31. This seasonality may adversely affect our operating results and our ability to pay dividends, if any, in the future.
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Rising fuel prices may adversely affect our profits.

While we do not directly bear the cost of fuel or bunkers under our time charters, fuel is a significant factor in negotiating charter rates.  Fuel is also a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation. 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, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. 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.

We are subject to international safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in our vessels being denied access to, or detained in, certain ports.

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

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

The operation of our vessels is affected by the requirements set forth in the United Nations' International Maritime Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Currently, all of our vessels are ISM Code-certified and we expect that any vessels that we acquire in the future will be ISM Code-certified when delivered to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. If we are subject to increased liability for non-compliance or if our insurance coverage is adversely impacted as a result of non-compliance, it may negatively affect our ability to pay dividends, if any, in the future. If any of our vessels are denied access to, or are detained in, certain ports, this may decrease our revenues.

We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.

Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessel. These regulations include, but are not limited to, the International Maritime Organization, or IMO, International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, including designation of Emission Control Areas, or ECAs, thereunder, the IMO International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred to as SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the IMO International Convention on Load Lines of 1966, as from time to time amended, the International Convention for the Control and Management of Ships' Ballast Water and Sediments in February 2004, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, requirements of the U.S. Coast Guard, or USCG, and the U.S. Environmental Protection Agency, or EPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, the U.S. Clean Air Act, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, European Union regulations, and Brazil's National Environmental Policy Law (6938/81), Environmental Crimes Law (9605/98) and Law (9966/2000) relating to pollution in Brazilian waters.
 
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Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. Moreover, the manner in which these laws are enforced and interpreted is constantly evolving. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions, including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault.

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

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

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

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

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

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

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

In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources and, as a result, we may be unable to employ our vessels profitably.

We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of drybulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the drybulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. If we are unable to successfully compete with other drybulk shipping companies, this would have an adverse impact on our results of operations.

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

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

● marine disaster;

● environmental accidents;

● cargo and property losses or damage;

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

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

The shipping industry has inherent operational risks that may not be adequately covered by our insurance.

We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We may not be adequately insured against all risks or our insurers may not pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs.

The operation of drybulk carriers has certain unique operational risks.

The operation of certain ship types, such as drybulk carriers, has certain unique risks. With a drybulk carrier, the cargo itself and its interaction with the ship can be a risk factor. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, drybulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach to the sea. Furthermore, any defects or flaws in the design of a drybulk carrier may contribute to vessel damage. Hull breaches in drybulk carriers may lead to the flooding of the vessels holds. If a drybulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel's bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain our vessels we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition, results of operations and our ability to pay dividends, if any, in the future. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.

Risk Factors Relating to the Offshore Drilling Industry

Our business in the offshore drilling sector depends on the level of activity in the offshore oil and gas industry, which is significantly affected by, among other things, volatile oil and gas prices and may be materially and adversely affected by a decline in the offshore oil and gas industry.

The offshore contract drilling industry is cyclical and volatile. Our business in the offshore drilling sector depends on the level of activity in oil and gas exploration, development and production in offshore areas worldwide. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments affect customers' drilling programs. Oil and gas prices and market expectations of potential changes in these prices also significantly affect this level of activity and demand for drilling units.

Oil and gas prices are extremely volatile and are affected by numerous factors beyond our control, including the following:

● worldwide production and demand for oil and gas and any geographical dislocations in supply and demand;

● the cost of exploring for, developing, producing and delivering oil and gas;

● expectations regarding future energy prices;

● advances in exploration, development and production technology;

● the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain levels and pricing;

● the level of production in non-OPEC countries;

● government regulations;

● local and international political, economic and weather conditions;
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● domestic and foreign tax policies;
 
● development and exploitation of alternative fuels;

● the policies of various governments regarding exploration and development of their oil and gas reserves; and

● the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities, insurrection or other crises in the Middle East or other geographic areas or further acts of terrorism in the United States, or elsewhere.

Declines in oil and gas prices for an extended period of time, or market expectations of potential decreases in these prices, could negatively affect our business in the offshore drilling sector. Crude oil inventories remain at high levels compared to historical levels, which may place downward pressure on the price of crude oil and demand for offshore drilling units. Sustained periods of low oil prices typically result in reduced exploration and drilling because oil and gas companies' capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a dramatic effect on rig demand, and periods of low demand can cause excess rig supply and intensify the competition in the industry which often results in drilling units, particularly lower specification drilling units, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and gas industry. Any decrease in exploration, development or production expenditures by oil and gas companies could reduce our revenues and materially harm our business and results of operations.

In addition to oil and gas prices, the offshore drilling industry is influenced by additional factors, including:

● the availability of competing offshore drilling vessels and the level of newbuilding activity for drilling vessels;

● the level of costs for associated offshore oilfield and construction services;

● oil and gas transportation costs;

● the discovery of new oil and gas reserves;

● the cost of non-conventional hydrocarbons, such as the exploitation of oil sands; and

● regulatory restrictions on offshore drilling.

Any of these factors could reduce demand for our services and adversely affect our business and results of operations.

The offshore drilling industry is highly competitive with intense price competition and, as a result, we may be unable to compete successfully with other providers of contract drilling services that have greater resources than we have.

The offshore contract drilling industry is highly competitive with several industry participants, none of which has a dominant market share, and is characterized by high capital and maintenance requirements. Drilling contracts are traditionally awarded on a competitive bid basis. Price competition is often the primary factor in determining which qualified contractor is awarded the drilling contract, although drilling unit availability, location and suitability, the quality and technical capability of service and equipment, reputation and industry standing are key factors which are considered. Mergers among oil and natural gas exploration and production companies have reduced, and may from time to time further reduce, the number of available customers, which would increase the ability of potential customers to achieve pricing terms favorable to them.

Many of our competitors in the offshore drilling industry are significantly larger than we are and have more diverse drilling assets and significantly greater financial and other resources than we have. In addition, because of our relatively small offshore drilling fleet, we may be unable to take advantage of economies of scale to the same extent as some of our larger competitors. Given the high capital requirements that are inherent in the offshore drilling industry, we may also be unable to invest in new technologies or expand in the future as may be necessary for us to succeed in this industry, while our larger competitors with superior financial resources, and in many cases less leverage than we have, may be able to respond more rapidly to changing market demands and compete more efficiently on price for drillship and drilling rig employment. We may not be able to maintain our competitive position, and we believe that competition for contracts will continue to be intense in the future. Our inability to compete successfully in the offshore drilling industry may reduce our revenues and profitability.

An over-supply of drilling units may lead to a reduction in dayrates and therefore may materially impact our profitability.

During the recent period of high utilization and high dayrates, industry participants have increased the supply of drilling units by ordering the construction of new drilling units. Historically, this has resulted in an over-supply of drilling units and has caused a subsequent decline in utilization and dayrates when the drilling units enter the market, sometimes for extended periods of time until the units have been absorbed into the active fleet. According to industry sources, the worldwide fleet of ultra-deepwater drilling units as of February 2015 consisted of 165 units, comprised of 66 semi-submersible rigs and 99 drillships. An additional 13 semi-submersible rigs and 50 drillships were under construction or on order as of February 2015, which would bring the total fleet to 228 drilling units by the end of 2020. A relatively large number of the drilling units currently under construction have been contracted for future work, which may intensify price competition as scheduled delivery dates occur. The entry into service of these new, upgraded or reactivated drilling units will increase supply and has already led to a reduction in dayrates as drilling units are absorbed into the active fleet. In addition, the new construction of high-specification drilling units, as well as changes in our competitors' drilling unit fleets, could require us to make material additional capital investments to keep our fleet competitive. Lower utilization and dayrates could adversely affect our revenues and profitability. Prolonged periods of low utilization and dayrates could also result in the recognition of impairment charges on our drilling units if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these drilling units may not be recoverable.
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Consolidation of suppliers may increase the cost of obtaining supplies, which may have a material adverse effect on our results of operations and financial condition.

We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including, but not limited to, drilling equipment suppliers and catering and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. Such consolidation, combined with a high volume of drilling units under construction, may result in a shortage of supplies and services thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time, or at all. These cost increases, delays or unavailability could have a material adverse effect on our results of operations and result in drilling unit downtime, and delays in the repair and maintenance of our drilling units.

Our international operations in the offshore drilling sector involve additional risks, including piracy, which could adversely affect our business.

Our drilling units operate throughout the world, including on the Norwegian Continental Shelf and offshore of the Falkland Islands, Brazil, Angola.  In the past our drilling units have also operated in the Gulf of Mexico, in the North Sea and offshore of Canada, Norway, the United Kingdom, Ghana, West Africa, the Ivory Coast, Greenland, West Africa, Turkey, Ireland, the Shetland Islands, the Falkland Islands, Norway, and Tanzania.  As a result of our international operations, we may be exposed to political and other uncertainties, including risks of:

● terrorist and environmental activist acts, armed hostilities, war and civil disturbances;

● acts of piracy;

● significant governmental influence over many aspects of local economies;

● seizure, nationalization or expropriation of property or equipment;

● repudiation, nullification, modification or renegotiation of contracts;

● limitations on insurance coverage, such as war risk coverage, in certain areas;

● political unrest;

● foreign and U.S. monetary policy, government debt downgrades and potential defaults and foreign currency fluctuations and devaluations;

● the inability to repatriate income or capital;

● complications associated with repairing and replacing equipment in remote locations;

● import-export quotas, wage and price controls, imposition of trade barriers;

● regulatory or financial requirements to comply with foreign bureaucratic actions;

● changing taxation policies, including confiscatory taxation;

● other forms of government regulation and economic conditions that are beyond our control; and

● governmental corruption.
 

 
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In addition, international contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to:
 
● the equipping and operation of drilling units;
 
● repatriation of foreign earnings;

● oil and gas exploration and development;

● taxation of offshore earnings and earnings of expatriate personnel; and

● use and compensation of local employees and suppliers by foreign contractors.

Some foreign governments favor or effectively require (i) the awarding of drilling contracts to local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete in those regions. It is difficult to predict what governmental regulations may be enacted in the future that could adversely affect the international drilling industry. The actions of foreign governments, including initiatives by OPEC, may adversely affect our ability to compete. Failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject us to criminal sanctions or civil remedies, including fines, denial of export privileges, injunctions or seizures of assets.

Our business and operations involve numerous operating hazards.

Our offshore drilling operations are subject to hazards inherent in the drilling industry, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punch throughs, craterings, fires, explosions and pollution, including spills similar to the events on April 20, 2010 related to the Deepwater Horizon, in which we were not involved. Contract drilling and well servicing require the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers and suspension of operations. Our offshore fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as capsizing, sinking, grounding, collision, damage from severe weather and marine life infestations. Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, personnel shortages or failure of subcontractors to perform or supply goods or services.

Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in drilling operations, leaks and blowouts or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and gas companies. Our insurance policies and contractual indemnity rights with our customers may not adequately cover losses, and we do not have insurance coverage or rights to indemnity for all the risks to which we are exposed. Consistent with standard industry practice, our customers generally assume, and indemnify us against, well control and subsurface risks under dayrate drilling contracts, including pollution damage in connection with reservoir fluids stemming from operations under the contract, damage to the well or reservoir, loss of subsurface oil and gas and the cost of bringing the well under control. We generally indemnify our customers against pollution from substances in our control that originate from the drilling unit (e.g., diesel used onboard the unit or other fluids stored onboard the unit and above the water surface). However, our drilling contracts are individually negotiated, and the degree of indemnification we receive from the customer against the liabilities discussed above can vary from contract to contract, based on market conditions and customer requirements existing when the contract was negotiated. Notwithstanding a contractual indemnity from a customer, there can be no assurance that our customers will be financially able to indemnify us or will otherwise honor their contractual indemnity obligations. We maintain insurance coverage for property damage, occupational injury and illness, and general and marine third-party liabilities. However, pollution and environmental risks generally are not totally insurable. Furthermore, we have no insurance coverage for named storms in the Gulf of Mexico and while trading within war risks excluded areas.

Our insurance coverage relating to our offshore drilling operations may not adequately protect us from certain operational risks inherent in the drilling industry.

Our insurance relating to our offshore drilling operations is intended to cover normal risks in our current operations, including insurance against property damage, occupational injury and illness, loss of hire, certain war risks and third-party liability, including pollution liability. For example, the amount of risk we are subject to might increase regarding occupational injuries because on January 12, 2012, the U.S. Supreme Court ruled that the Longshore and Harbor Worker's Compensation Act, whose provisions are incorporated in the U.S. Outer Continental Shelf Lands Act could cover occupational injuries.

Insurance coverage may not, under certain circumstances, be available, and if available, may not provide sufficient funds to protect us from all losses and liabilities that could result from our operations. We have also obtained loss of hire insurance which becomes effective after 45 days of downtime with coverage that extends for approximately one year. This loss of hire insurance is recoverable only if there is physical damage to the rig or equipment which is caused by a peril against which we are insured. The principal risks which may not be insurable are various environmental liabilities and liabilities resulting from reservoir damage caused by our gross negligence. Moreover, our insurance provides for premium adjustments based on claims and is subject to deductibles and aggregate recovery limits. In the case of pollution liabilities, our deductible is $10,000 per event and $250,000 for protection and indemnity claims brought before any U.S. jurisdiction. Our aggregate recovery limit is $500.0 million for all claims arising out of any event covered by our protection and indemnity insurance. Our deductible is $1.5 million per hull and machinery insurance claim. In addition, insurance policies covering physical damage claims due to a named windstorm in the Gulf of Mexico generally impose strict recovery limits. Our insurance coverage may not protect fully against losses resulting from a required cessation of drilling unit operations for environmental or other reasons. Insurance may not be available to us at all or on terms acceptable to us, we may not maintain insurance or, if we are so insured, our policy may not be adequate to cover our loss or liability in all cases. The occurrence of a casualty, loss or liability against, which we may not be fully insured against, could significantly reduce our revenues, make it financially impossible for us to obtain a replacement drilling unit or to repair a damaged drilling unit, cause us to pay fines or damages which are generally not insurable and that may have priority over the payment obligations under our indebtedness or otherwise impair our ability to meet our obligations under our indebtedness and to operate profitably.
 
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Governmental laws and regulations, including environmental laws and regulations, may add to our costs or limit our drilling activity.

Our business in the offshore drilling industry is affected by laws and regulations relating to the energy industry and the environment in the geographic areas where we operate. The offshore drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and, accordingly, we are directly affected by the adoption of laws and regulations that, for economic, environmental or other policy reasons, curtail exploration and development drilling for oil and gas. We may be required to make significant capital expenditures to comply with governmental laws and regulations. It is also possible that these laws and regulations may, in the future, add significantly to our operating costs or significantly limit drilling activity. Our ability to compete in international contract drilling markets may be limited by foreign governmental regulations that favor or require the awarding of contracts to local contractors or by regulations requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Governments in some countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. Offshore drilling in certain areas has been curtailed and, in certain cases, prohibited because of concerns over protection of the environment. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.

To the extent new laws are enacted or other governmental actions are taken that prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or the offshore drilling industry, in particular, our business or prospects could be materially adversely affected. The operation of our drilling units will require certain governmental approvals, the number and prerequisites of which cannot be determined until we identify the jurisdictions in which we will operate on securing contracts for the drilling units. Depending on the jurisdiction, these governmental approvals may involve public hearings and conditions that result in costly undertakings on our part. We may not obtain such approvals or such approvals may not be obtained in a timely manner. If we fail to timely secure the necessary approvals or permits, our customers may have the right to terminate or seek to renegotiate their drilling contracts to our detriment. The amendment or modification of existing laws and regulations or the adoption of new laws and regulations curtailing or further regulating exploratory or development drilling and production of oil and gas could have a material adverse effect on our business, operating results or financial condition. Future earnings may be negatively affected by compliance with any such new legislation or regulations.

We are subject to complex laws and regulations, including environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.

Our offshore drilling operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our drilling units. These requirements include, but are not limited to, the International Convention for the Prevention of Pollution from Ships, or MARPOL, the International Convention on Civil Liability for Oil Pollution Damage of 1969, generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the International Convention for the Control and Management of Ships' Ballast Water and Sediments in February 2004, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, the U.S. Clean Air Act, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, European Union regulations, and Brazil's National Environmental Policy Law (6938/81), Environmental Crimes Law (9605/98) and Law (9966/2000) relating to pollution in Brazilian waters.

Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. Moreover, the manner in which these laws are enforced and interpreted is constantly evolving. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions, including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents and our insurance may not be sufficient to cover all such risks. As a result, claims against us could result in a material adverse effect on our business, results of operations, cash flows and financial condition.
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Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents and our insurance may not be sufficient to cover all such risks. As a result, claims against us could result in a material adverse effect on our business, results of operations, cash flows and financial condition.

Although our drilling units are separately owned by our subsidiaries, under certain circumstances a parent company and all of the ship-owning affiliates in a group under common control engaged in a joint venture could be held liable for damages or debts owed by one of the affiliates, including liabilities for oil spills under OPA or other environmental laws. Therefore, it is possible that we could be subject to liability upon a judgment against us or any one of our subsidiaries.

Our drilling units could cause the release of oil or hazardous substances, especially as our drilling units age. Any releases may be large in quantity, above our permitted limits or occur in protected or sensitive areas where public interest groups or governmental authorities have special interests. Any releases of oil or hazardous substances could result in fines and other costs to us, such as costs to upgrade our drilling rigs, clean up the releases, and comply with more stringent requirements in our discharge permits. Moreover, these releases may result in our customers or governmental authorities suspending or terminating our operations in the affected area, which could have a material adverse effect on our business, results of operation and financial condition.

If we are able to obtain from our customers some degree of contractual indemnification against pollution and environmental damages in our contracts, such indemnification may not be enforceable in all instances or the customer may not be financially able to comply with its indemnity obligations in all cases. In addition, we may not be able to obtain such indemnification agreements in the future.

Our insurance coverage may not be available in the future or we may not obtain certain insurance coverage. If it is available and we have the coverage, it may not be adequate to cover our liabilities. Any of these scenarios could have a material adverse effect on our business, operating results and financial condition.

Regulation of greenhouse gases and climate change could have a negative impact on our business.

Currently, emissions of greenhouse gases from ships involved in international transport are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. As of January 1, 2013, all ships (including drilling rigs and drillships) must comply with mandatory requirements adopted by the MEPC in July 2011 relating to greenhouse gas emissions. Currently operating ships are now required to develop and implement the Ship Energy Efficiency Management Plans, or SEEMPs, and the new ships are required to be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index, or EEDI. These requirements could cause us to incur additional compliance costs. The IMO is also considering the implementation of market-based mechanisms to reduce greenhouse gas emissions from ships. The European Parliament and Council of Ministers are expected to endorse regulations that would require the monitoring and reporting of greenhouse gas emissions from marine vessels in 2015. In the United States, the EPA has issued a finding that greenhouse gases endanger public health and safety and has adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. The EPA enforces both the The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), or the CAA, and the international standards found in Annex VI of MARPOL concerning marine diesel engines, their emissions, and the sulphur content in marine fuel. Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time.
 

 
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Because our business depends on the level of activity in the offshore oil and gas industry, existing or future laws, regulations, treaties or international agreements related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws, regulations, treaties or international agreements reduce the worldwide demand for oil and gas. In addition, such laws, regulations, treaties or international agreements could result in increased compliance costs or additional operating restrictions, which may have a negative impact on our business.

The Deepwater Horizon oil spill in the Gulf of Mexico may result in more stringent laws and regulations governing deepwater drilling, which could have a material adverse effect on our business, operating results or financial condition.

On April 20, 2010, there was an explosion and a related fire on the Deepwater Horizon, an ultra-deepwater semi-submersible drilling unit that is not connected to us, while it was servicing the Macondo well in the Gulf of Mexico. This catastrophic event resulted in the death of 11 workers and the total loss of that drilling unit, as well as the release of large amounts of oil into the Gulf of Mexico, severely impacting the environment and the region's key industries. This event is being investigated by several federal agencies, including the U.S. Department of Justice, and by the U.S. Congress, and is also the subject of numerous lawsuits. On January 11, 2011, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling released its final report, with recommendations for new regulations.

We do not currently operate our drilling units in these regions, but we may do so in the future. In any event, changes to leasing and drilling activity requirements as a result of the Deepwater Horizon incident could have a substantial impact on the offshore oil and gas industry worldwide. All drilling activity in the U.S. Gulf of Mexico must be in compliance with enhanced safety requirements contained in the Notice to Lessees 2015-N01. Effective October 22, 2012 all drilling in the U.S. Gulf of Mexico must also comply with the Final Drilling Safety Rule as adopted on August 15, 2012, which enhances safety measures for energy development on the outer continental shelf. All drilling must also comply with the Workplace Safety Rule on Safety and Environmental Management Systems. Also, on February 24, 2014, the Bureau of Ocean Energy Management, or BOEM, proposed a rule increasing the limits of liability of damages for offshore facilities under OPA based on inflation.  We continue to evaluate these requirements to ensure that our rigs and equipment are in full compliance, where applicable. Additional requirements could be forthcoming based on further recommendations by regulatory agencies investigating the Macondo well incident.

We are not able to predict the extent of future leasing plans or the likelihood, nature or extent of additional rulemaking. Nor are we able to predict when the Bureau of Ocean Energy Management (or the "BOEM") will enter into leases with our customers or when the Bureau of Safety and Environmental Enforcement, (or "BSEE"), will issue drilling permits to our customers. We are not able to predict the future impact of these events on our operations. The current and future regulatory environment in the Gulf of Mexico could impact the demand for drilling units in the Gulf of Mexico in terms of overall number of rigs in operations and the technical specification required for offshore rigs to operate in the Gulf of Mexico. It is possible that short-term potential migration of rigs from the Gulf of Mexico could adversely impact dayrates levels and fleet utilization in other regions. In addition, insurance costs across the industry have increased as a result of the Macondo well incident and certain insurance coverage has become more costly, less available, and not available at all from certain insurance companies.

Hurricanes may impact our ability to operate our drilling units in the Gulf of Mexico or other U.S. coastal waters, which could reduce our revenues and profitability.

Hurricanes Ivan, Katrina, Rita, Gustav and Ike caused damage to a number of drilling units unaffiliated with us in the U.S. Gulf of Mexico. Drilling units that moved off their locations during the hurricanes damaged platforms, pipelines, wellheads and other drilling units. BOEM and the BSEE, the U.S. organizations that issue a significant number of relevant guidelines for the drilling units' activities, have guidelines in place for tie-downs on drilling units and permanent equipment and facilities attached to outer continental shelf production platforms, and moored drilling unit fitness during hurricane season. These guidelines effectively impose requirements on the offshore oil and natural gas industry in an attempt to increase the likelihood of survival of offshore drilling units during a hurricane. The guidelines also provide for enhanced information and data requirements from oil and natural gas companies that operate properties in the Gulf of Mexico region of the Outer Continental Shelf. BOEM and BSEE may issue similar guidelines for future hurricane seasons and may take other steps that could increase the cost of operations or reduce the area of operations for our ultra-deepwater drilling units, thereby reducing their marketability. Implementation of new guidelines or regulations that may apply to ultra-deepwater drilling units may subject us to increased costs and limit the operational capabilities of our drilling units. Our drilling units do not currently operate in the Gulf of Mexico or other U.S. coastal waters but may do so in the future.

Risk Factors Relating to the Tanker Industry

If the tanker industry, which historically has been cyclical and volatile, continues to be depressed or declines further in the future, our revenues, earnings and available cash flow may be adversely affected

Historically, the tanker industry has been highly cyclical, with volatility in profitability, charter rates and asset values resulting from changes in the supply of, and demand for, tanker capacity. After reaching highs during the summer of 2008, charter rates for crude oil carriers fell dramatically in connection with the commencement of the global financial crisis and current rates continue to remain at relatively low levels compared to the rates achieved in the years preceding the global financial crisis.  Fluctuations in charter rates and tanker values result from changes in the supply of and demand for tanker capacity and changes in the supply of and demand for oil and oil products.
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The factors that influence demand for tanker capacity include:

● supply of and demand for oil and oil products;

● global and regional economic and political conditions, including developments in international trade, national oil reserves policies, fluctuations in industrial and agricultural production and armed conflicts, which, among other things, could impact the supply of oil as well as trading patterns and the demand for various types of vessels;

● regional availability of refining capacity;

● environmental and other legal and regulatory developments;

● the distance oil and oil products are to be moved by sea;

● changes in seaborne and other transportation patterns, including changes in the distances over which tanker cargoes are transported by sea;

● increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-oil pipelines to oil pipelines in those markets;

● currency exchange rates;

● weather and acts of God and natural disasters;

● competition from alternative sources of energy and from other shipping companies and other modes of transport;

● international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars; and

● regulatory changes including regulations adopted by supranational authorities and/or industry bodies, such as safety and environmental regulations and requirements by major oil companies.

The factors that influence the supply of tanker capacity include:

● current and expected purchase orders for tankers;

● the number of tanker newbuilding deliveries;

● any potential delays in the delivery of newbuilding vessels and/or cancellations of newbuilding orders;

● the scrapping rate of older tankers;

● the successful implementation of the phase-out of single-hull tankers;

● technological advances in tanker design and capacity;

● tanker freight rates, which are affected by factors that may effect the rate of newbuilding, swapping and laying up of tankers;

● port and canal congestion;

● price of steel and vessel equipment;

● conversion of tankers to other uses or conversion of other vessels to tankers;

● the number of tankers that are out of service; and

● changes in environmental and other regulations that may limit the useful lives of tankers.
 

 
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The factors affecting the supply of and demand for tankers have been volatile and are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable, including those discussed above. The current global economic downturn may reduce demand for transportation of oil over longer distances and increase supply of tankers to carry that oil, which may have a material adverse effect on our business, financial condition, results of operations, and cash flows.

If the number of new ships delivered exceeds the number of tankers being scrapped and lost, tanker capacity will increase. In addition the total newbuilding order books for Suezmax and Aframax vessels scheduled to enter the fleet through 2015 currently stand at 3.4% and 6.1% respectively, and there can be no assurance that the order books will not increase further in proportion to the existing fleets. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline and the value of our vessels could be adversely affected.

The market value of our vessels may fluctuate significantly, and we may incur losses when we sell vessels following a decline in their market value.

The fair market value of our tanker vessels may have declined recently, and may decrease further depending on a number of factors including:

● general economic and market conditions affecting the shipping industry;

● competition from other shipping companies;

● supply of and demand for tankers and the types and sizes of tankers we own;

● alternative modes of transportation;

● ages of vessels;

● cost of newbuildings;

● governmental or other regulations;

● prevailing level of charter rates; and

● technological advances.

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

We estimate the recoverable amount as the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If the recoverable amount is less than the carrying amount of the vessel, the vessel is deemed impaired.  The carrying values of our vessels may not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings.  Any impairment charges incurred as a result of further declines in charter rates could negatively affect our business, financial condition or operating results.

Due to the cyclical nature of the tanker market, the market value of one or more of our vessels may at various times be lower than their book value, and sales of those vessels during those times would result in losses.  If we determine at any time that a vessel's future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and the reduction of our shareholders' equity.  If for any reason we sell vessels at a time when vessel prices have fallen, the sale proceeds may be at less than the vessel's carrying amount on our financial statements, with the result that we would also incur a loss and a reduction in earnings.

Declining tanker values could affect our ability to raise cash by limiting our ability to refinance vessels and thereby adversely impact our liquidity.  In addition, declining vessel values could result in the reduction in lending commitments, the pledging of unencumbered vessels as additional collateral, the requirement to repay outstanding amounts or a breach of loan covenants, which could give rise to an event of default under our credit facilities.
 

 
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Changes in the crude oil and petroleum products markets could result in decreased demand for our vessels and services.

Demand for our vessels and services in transporting crude oil and petroleum products will depend upon world and regional crude oil and petroleum products markets. Any decrease in shipments of crude oil or petroleum products in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of crude oil and petroleum products, including competition from alternative energy sources. In the long-term it is possible that crude oil and petroleum products demand may be reduced by an increased reliance on alternative energy sources, by a drive for increased efficiency in the use of crude oil and petroleum products as a result of environmental concerns, or by high oil prices. The recent recession affecting the U.S. and world economies may result in protracted reduced consumption of crude oil and petroleum products and a decreased demand for our vessels and lower charter rates, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.

An over-supply of tanker capacity may prolong currently low charter rates and vessel values or lead to further reductions in charter rates, vessel values, and profitability.

The market supply of tankers is affected by a number of factors such as demand for energy resources, oil, and petroleum products, as well as strong overall economic growth in parts of the world economy including Asia. If the capacity of new ships delivered exceeds the capacity of tankers being scrapped and lost, tanker capacity will increase. In January 2015 the orderbook as a percentage of the global fleet for crude oil tankers was 11.6%, compared to a peak of just over 50.0% in 2008, according to industry sources and the order book may increase further in proportion to the existing fleet. If the supply of tanker capacity increases and if the demand for tanker capacity does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations and available cash once we take delivery of our newbuilding tankers.

The tanker sector is highly competitive, and we may not be able to compete successfully for charters with new entrants or established companies with greater resources.

The tanker industry is highly competitive, capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of petroleum products and oil can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources than we have could operate larger fleets than our tanker fleet and, thus, may be able to offer lower charter rates and higher quality vessels than we are able to offer. If this were to occur, we may be unable to attract new customers, which could adversely affect our business and operations.

Our operating results may be adversely affected by seasonal fluctuations in the tanker industry.

The tanker sector has historically exhibited seasonal variations in demand and, as a result, in charter rates. This seasonality may result in quarter-to-quarter volatility in our operating results. The tanker sector is typically stronger in the fall and winter months in anticipation of increased consumption of oil and petroleum products in the northern hemisphere during the winter months. As a result, our revenues from our tankers may be weaker during the fiscal quarters ended June 30 and September 30, and, conversely, revenues may be stronger in fiscal quarters ended December 31 and March 31. This seasonality could materially affect our operating results and cash available for dividends in the future.

Company Specific Risk Factors

We are not in compliance with certain financial and other covenants contained in our credit facilities relating to our shipping segments, which could adversely affect our business.

Our credit facilities require us to satisfy certain financial covenants. In general, these financial covenants require us to maintain (i) minimum liquidity; (ii) a minimum market adjusted equity ratio; (iii) a minimum interest coverage ratio; (iv) a minimum market adjusted net worth; (v) a minimum debt service coverage ratio and (vi) a minimum working capital level.  In addition, our credit facilities, which are secured by mortgages on our vessels and drillships, require us to maintain specified financial ratios, mainly to ensure that the market value of the mortgaged vessels and drillships under the applicable credit facility, determined in accordance with the terms of that facility, does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as a value maintenance clause or a loan-to-value ratio.  Events beyond our control, including changes in the economic and business conditions in the international drybulk, tanker or offshore drilling markets in which we operate, may affect our ability to comply with the financial covenants and loan-to-value ratios required by our credit facilities. Our ability to maintain compliance also depends substantially on the value of our assets, our charterhire and dayrates, our ability to obtain charters and drilling contracts, our success at keeping our costs low and our ability to successfully implement our overall business strategy.

A violation of any of the financial covenants in our credit facilities, absent a waiver of the breach from our lenders, or a violation of the loan-to-value ratios in our credit facilities, if not waived by our lenders or cured by providing additional collateral or prepaying the amount of outstanding indebtedness required to eliminate the shortfall, could result in an event of default under our credit facilities that would allow all amounts outstanding thereunder to be declared immediately due and payable. In addition, all of our credit facilities relating to our drybulk and tanker fleet contain cross-acceleration or cross-default provisions that may be triggered by a default under one of our other credit facilities relating to our drybulk and tanker fleet. Furthermore, our debt agreements relating to our offshore drilling fleet also contain cross-default or cross-acceleration provisions that may be triggered by a default under one of our other debt agreements relating to our offshore drilling fleet.  If the amounts outstanding under our indebtedness relating to our drybulk and tanker fleet or our offshore drilling fleet were to be become accelerated or were to become the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.
 
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As of December 31, 2014, we were in compliance with the financial covenants contained our debt agreements relating to our offshore drilling segment, but we were in breach of certain financial covenants, contained in our loan agreements relating to our shipping segments, under which a total of $259.5 million was outstanding as of December 31, 2014. Even though as of the date of this annual report, none of the lenders had declared an event of default under the relevant loan agreements for which we were not in compliance as of December 31, 2014, these breaches constitute potential events of default that may result in the lenders requiring immediate repayment of the loans. As a result of the aforementioned non-compliance and due to the cross-acceleration and cross-default provisions contained in our credit facilities relating to our drybulk and tanker fleet, all of our outstanding indebtedness relating to our drybulk and tanker fleet, amounting to approximately $1,163.3 million as of December 31, 2014, has been classified as current.  As a result, we reported a working capital deficit of $394.5 million at December 31, 2014. See Note 3 to our consolidated financial statements included in this annual report.

On March 28, 2014, we entered into a supplemental agreement relating to the loan agreement dated March 19, 2012, to amend certain financial covenants.
On April 14, 2014, we obtained a waiver letter relating to the term loan facility dated June 20, 2008, to amend certain financial covenants. The waiver is subject to definitive documentation.
On May 29, 2014, we entered into a supplemental agreement to the loan agreement dated February 14, 2012 to amend certain definitions.
On July 7, 2014, we entered into an agreement with Commerzbank under the $35.0 million Senior Secured Credit Facility dated October 2, 2007, under which we agreed to make a cash prepayment of $2.7 million to avoid a loan-to-value covenant breach.
On July 11, 2014, we entered into a supplemental agreement under the secured term loan facility dated July 23, 2008, to among other things, release the vessel Woolloomoloo from the collateral package under this loan.
On July 17, 2014, we signed a supplemental agreement under the secured term loan facility dated October 26, 2011 for a waiver of a certain financial covenant until December 31, 2014.
On July 31, 2014, we signed a supplemental agreement under the secured term loan facility dated October 24, 2012, for the relaxation of a certain financial covenant until December 31, 2014.
On November 12, 2014, we signed a supplemental agreement under the secured loan facility dated June 20, 2008 for relaxation of certain financial covenants.
On December 23, 2014, we entered into an agreement with the lender under its two Senior Secured Credit Facilities, dated October 5, 2007 and March 13, 2008. Under the terms of these agreements, among other things, the lender has agreed to waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity, and we agreed to provide a pledge over 8,775,055 Ocean Rig shares owned by us until December 31, 2014.
We are currently in negotiations with our lenders to obtain waivers of our covenant breaches and extend existing waivers of covenant breaches, or to restructure the affected debt. We cannot guarantee that we will be able to obtain our lenders' waiver or consent, or extensions of existing waivers, with respect to the aforementioned noncompliance under our credit facilities relating to our drybulk and tanker fleet, or any non-compliance with specified financial ratios or financial covenants under future financial obligations we may enter into, or that we will be able to refinance or restructure any such indebtedness.  If we fail to remedy, or obtain a waiver of, the breaches of the covenants discussed above, our lenders may accelerate our indebtedness under the relevant credit facilities, which could trigger the cross-acceleration or cross-default provisions contained in our other credit facilities relating to our drybulk and tanker fleet, under which a total of $1,163.3 million was outstanding as of December 31, 2014. If our indebtedness is accelerated, it will be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens, which would impair our ability to conduct our business and continue as a going concern. Further, as discussed below, our independent registered public accounting firm has issued its opinion with an explanatory paragraph in connection with our audited financial statements included in this report that expresses substantial doubt about our ability to continue as a going concern. In addition, if the value of our vessels deteriorates significantly from their currently depressed levels, we may have to record an impairment adjustment to our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital.

Moreover, in connection with any additional amendments to our credit facilities, or waivers or extensions of waivers of covenant breaches, that we obtain, or if we enter into any future credit agreements or debt instruments, our lenders may impose additional operating and financial restrictions on us. These restrictions may further restrict our ability to, among other things, fund our operations or capital needs, make acquisitions or pursue available business opportunities, which in turn may adversely affect our financial condition. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the margin and lending rates they charge us on our outstanding indebtedness.
 

 
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As of March 2, 2015, none of our lenders had declared an event of default under the relevant loan agreements. However, our breaches under certain of those loan agreements constitute potential events of default that may result in acceleration of such indebtedness and potential cross-acceleration or cross-default events under our other credit facilities relating to our drybulk and tanker fleet.

We expect that our lenders will not demand payment of the loans relating to our drybulk and tanker fleet under which we are in breach of certain financial and loan-to-value ratio covenants before their maturity, provided that we pay scheduled loan installments and accumulated or accrued interest as they fall due under the existing credit facilities. We plan to settle the loan interest and scheduled loan repayments with cash expected to be generated from operations and firm financing agreements that are currently in place.   We do not expect that cash on hand and cash expected to be generated from operations will be sufficient to repay our loans relating to our drybulk and tanker fleet with cross-default provisions which amounted to approximately $1,163.3 million in the aggregate as of December 31, 2014, if such debt is accelerated by our lenders, as discussed above. In such a scenario, we would have to seek to access the capital markets to fund the mandatory payments.

Our inability to comply with certain financial and other covenants under our loan agreements relating to our shipping segments and our working capital deficit raise substantial doubt about our ability to continue as a going concern.

As of December 31, 2014, we were in breach of certain financial and other covenants contained in our loan agreements relating to our shipping segments and our lenders may choose to accelerate our indebtedness relating to such segments. As a result, we reported a working capital deficit of $394.5 million at December 31, 2014. Therefore, our ability to continue as a going concern is dependent on management's ability to successfully generate revenue and enter into firm financing agreements to meet our scheduled obligations as they become due and the continued support of our lenders. These conditions raise significant doubt about our ability to continue as a going concern and, therefore, we may be unable to realize our assets and discharge our liabilities in the normal course of business. Our independent registered public accounting firm has issued its opinion with an explanatory paragraph in connection with our financial statements included in this annual report that expresses substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of our inability to continue as a going concern except for the shipping segments' bank debt and the restricted cash classification under current liabilities and current assets, respectively.

Our credit facilities impose operating and financial restrictions on us, and if we receive additional waivers of covenant breaches and/or further amend our loan agreements in the future, our lenders may impose additional operating and financial restrictions on us and/or modify the terms of our existing credit facilities.

In addition to the loan-to-value ratio requirements and financial covenants relating to our financial position, operating performance and liquidity contained in our credit facilities, our credit facilities also contain restrictions on our ability to, among other things:

● enter into other financing arrangements;

● incur or guarantee additional indebtedness;

● create or permit liens on our assets;

● consummate a merger, consolidation or sale of our all or substantially all of our assets or the shares of our subsidiaries;

● make investments;

● change the general nature of our business;

● pay dividends, redeem capital stock or subordinated indebtedness or make other restricted payments;

● incur dividend or other payment restrictions affecting the restricted subsidiaries under the indenture governing our Senior Secured Notes (as defined below);

● change the management and/or ownership of our vessels and drilling units;

● enter into transactions with affiliates;

● transfer or sell assets;

● amend, modify or change our organizational documents;
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● make capital expenditures;

● change the flag, class or management of our vessels or drilling units;

● drop below certain minimum cash deposits, as defined in our credit facilities; and

● compete effectively to the extent our competitors are subject to less onerous restrictions.

Therefore, we will need to seek permission from our lenders in order to engage in certain corporate and commercial actions that we believe would be in the best interest of our business, and a denial of permission may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. Our lenders' interests may be different from our interests, and we cannot guarantee that we will be able to obtain our lenders' permission when needed. In addition to the above restrictions, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness. These potential restrictions and requirements may limit our ability to pay dividends, if any, in the future to you, finance our future operations, make acquisitions or pursue business opportunities.

Our ability to comply with the covenants and restrictions contained in our credit facilities may be affected by economic, financial and industry conditions and other factors beyond our control. Any default under the agreements governing our indebtedness, including a default under our credit facilities, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying dividends in the future. If we are unable to repay indebtedness, the lenders under our credit facilities could proceed against the collateral securing that indebtedness. In any such case, we may be unable to repay the amounts due under our credit facilities. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent. Our ability to comply with these covenants in future periods will also depend substantially on the value of our assets, our charter rates and dayrates, our ability to obtain charters and drilling contracts, our success at keeping our costs low and our ability to successfully implement our overall business strategy. Any future credit agreement or amendment or debt instrument may contain similar or more restrictive covenants.

We have substantial indebtedness, and expect to incur substantial additional indebtedness, which could adversely affect our financial health.

As of December 31, 2014, on a consolidated basis, we had $5.6 billion in aggregate principal amount of indebtedness outstanding and $0 million in additional credit available to us under our credit facilities. We expect to incur substantial additional indebtedness in order to fund the estimated remaining contractual obligations, excluding financing costs, amounting to $1.8 billion in the aggregate for our additional three newbuilding drillships as of March 2, 2015, and any further growth of our fleet.

This substantial level of debt and other obligations could have significant adverse consequences on our business and future prospects, including the following:

● we may not be able to satisfy our financial obligations under our indebtedness and our contractual and commercial commitments, which may result in possible defaults on and acceleration of such indebtedness;

● we may not be able to obtain financing in the future for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;

● we may not be able to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;

● we could become more vulnerable to general adverse economic and industry conditions, including increases in interest rates, particularly given our substantial indebtedness, some of which bears interest at variable rates;

● our ability to refinance indebtedness may be limited or the associated costs may increase;

● less leveraged competitors could have a competitive advantage because they have lower debt service requirements and, as a result, we may not be better positioned to withstand economic downturns; and

● we may be less able to take advantage of significant business opportunities and to react to changes in market or industry conditions than our competitors and our management's discretion in operating our business may be limited.
 

 
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Each of these factors may have a material and adverse effect on our financial condition and viability. Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating income is not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity capital. Any or all of these actions may be insufficient to allow us to service our debt obligations. Further, we may not be able to effect any of these remedies on satisfactory terms, or at all. In addition, a lack of liquidity in the debt and equity markets could hinder our ability to refinance our debt or obtain additional financing on favorable terms in the future.

We may not be able to generate sufficient cash flow to meet our debt service and other obligations due to events beyond our control.

Our ability to make scheduled payments on our outstanding indebtedness will depend on our ability to generate cash from operations in the future. Our future financial and operating performance will be affected by a range of economic, financial, competitive, regulatory, business and other factors that we cannot control, such as general economic and financial conditions in the drybulk and tanker shipping and offshore drilling industries or the economy generally. In particular, our ability to generate steady cash flow will depend on our ability to secure time charters and drilling contracts at acceptable rates. Our ability to renew our existing time charters and drilling contracts or obtain new time charters and drilling contracts at acceptable charterhire and dayrates or at all will depend on the prevailing economic and competitive conditions.

Furthermore, our financial and operating performance, and our ability to service our indebtedness, is also dependent on our subsidiaries' ability to make distributions to us, whether in the form of dividends, loans or otherwise. The timing and amount of such distributions will depend on our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our various debt agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors.

If our operating cash flows are insufficient to service our debt and to fund our other liquidity needs, we may be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness, seeking additional capital, or any combination of the foregoing. We cannot assure you that any of these actions could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on our outstanding indebtedness and to fund our other liquidity needs. Also, the terms of existing or future debt agreements may restrict us from pursuing any of these actions. Furthermore, reducing or delaying capital expenditures or selling assets could impair future cash flows and our ability to service our debt in the future.

If for any reason we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing such indebtedness, which would allow creditors at that time to declare all such indebtedness then outstanding to be due and payable. This would likely in turn trigger cross-acceleration or cross-default rights among certain of our other debt agreements. Under these circumstances, lenders could compel us to apply all of our available cash to repay borrowings or they could prevent us from making payments on the notes. If the amounts outstanding under our existing and future debt agreements were to be accelerated, or were the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.

The failure of our counterparties to meet their obligations under our time charter agreements, or their exercise of a purchase option under certain of those agreements, could cause us to suffer losses or otherwise adversely affect our business.

As of December 31, 2014, 19 of our vessels were employed under time charters and 11 of these vessels were employed by one charterer. The ability and willingness of each of our counterparties to perform its obligations under a 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 drybulk shipping industry and the overall financial condition of the counterparties. In addition, in challenging market conditions, there have been reports of charterers, including some of our charterers, renegotiating their charters or defaulting on their obligations under charters and our customers may fail to pay charterhire or attempt to renegotiate charter rates.

13 of the vessels in our fleet provide for charter rates that are significantly above current market rates. Should any of our counterparties under these charters fail to honor its obligations under our charter agreements, it may be difficult to secure substitute employment for such vessels, and any new charter arrangements we secure in the spot market or on time charters could be at lower rates given currently decreased charter rate levels, particularly in the drybulk carrier market. In addition under seven of our charter contracts, the charterer has the option to (i) acquire the vessels at fair market value as determined by two independent brokers, at the date that the options are exercised, less $5.0 million per vessel or, (ii) to require a cash payout of $5.0 million per charter agreement in which case the charter agreement will automatically be terminated on the date of completion of the current voyage. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, or exercise their option to acquire the vessels they have on contract as applicable, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with covenants in our credit facilities.

Our ability to renew the charters on our vessels upon the expiration or termination of our current charters, two of which are scheduled to expire in 2015, or on vessels that we may acquire in the future, the charter rates payable under any replacement charters and vessel values will depend upon, among other things, economic conditions in the sectors in which our vessels operate at that time, changes in the supply and demand for vessel capacity and changes in the supply and demand for the seaborne transportation of energy resources.
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A drop in spot charter rates may provide an incentive for some charterers to default on their charters

When we enter into a time charter, charter rates under that charter are fixed for the term of the charter. If the spot charter rates or short-term time charter rates in the drybulk shipping industry remain significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our ability to operate our vessels profitably and may affect our ability to comply with covenants contained in any loan agreements we may enter into in the future.

Some of our offshore drilling contracts may be terminated early due to certain events.

Some of our customers under our drilling contracts have the right to terminate our drilling contracts upon the payment of an early termination or cancellation fee. However, such payments may not fully compensate us for the loss of the contract. In addition, our contracts permit our customers to terminate the contracts early without the payment of any termination fees under certain circumstances, including as a result of major non-performance, longer periods of downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to piracy or force majeure events beyond our control.

In addition, during periods of challenging market conditions, our customers may no longer need a drilling unit that is currently under contract or may be able to obtain a comparable drilling unit at a lower dayrate. As a result, we may be subject to an increased risk of our clients seeking to renegotiate the terms of their existing contracts or repudiate their contracts, including through claims of non-performance. Our customers' ability to perform their obligations under their drilling contracts with us may also be negatively impacted by the prevailing uncertainty surrounding the development of the world economy and the credit markets. If our customers cancel some of our contracts, and we are unable to secure new contracts on a timely basis and on substantially similar terms, or if contracts are suspended for an extended period of time or if a number of our contracts are renegotiated, it could adversely affect our consolidated statement of financial position, results of operations or cash flows.

Our future contracted revenue for our fleet of drilling units may not be ultimately realized.

As of February 24, 2015, the future contracted revenue for our fleet of operating drilling units, or our drilling contract backlog, was approximately $5.2 billion under firm commitments. We may not be able to perform under our drilling contracts due to events beyond our control, and our customers may seek to cancel or renegotiate our drilling contracts for various reasons, including adverse conditions, resulting in lower daily rates. Our inability, or the inability of our customers, to perform under the respective contractual obligations may have a material adverse effect on our financial position, results of operations and cash flows.

We may be unable to secure ongoing drilling contracts, including for the Ocean Rig Santorini, our uncontracted seventh generation drillship to be delivered in June 2016, due to strong competition, and the contracts that we enter into may not provide sufficient cash flow to meet our debt service obligations with respect to our indebtedness.

Assuming no exercise of any options to extend the terms of our existing drilling contracts, our operating drilling units are contracted from the first quarter of 2015 to the third quarter of 2021.  We cannot guarantee that we will be able to secure employment for the Ocean Rig Santorini, our seventh generation drillship scheduled for delivery in June 2016 and the two new integrated design drillships scheduled for delivery in February 2017 and June 2017.

Our ability to renew the drilling contracts or obtain new drilling contracts for our drilling units, including our seventh generation drillship for which we have not yet secured employment, will depend on prevailing market conditions. We cannot guarantee we will be able to enter into new drilling contracts upon the expiration or termination of the contracts we have in place or at all or that there will not be a gap in employment between our current drilling contracts and subsequent contracts. In particular, if the price of crude oil is low, or it is expected that the price of crude oil will decrease in the future, at a time when we are seeking to arrange employment contracts for our drilling units, we may not be able to obtain employment contracts at attractive rates or at all.

If the rates we receive for the reemployment of our drilling units upon the expiration or termination of our existing drilling contracts are lower than the rates under our existing contracts, we will recognize less revenue from the operations of our drilling units. In addition, delays under existing drilling contracts could cause us to lose future contracts if a drilling unit is not available to start work at the agreed date. Our ability to meet our cash flow obligations will depend on our ability to consistently secure drilling contracts for our drilling units at sufficiently high dayrates. We cannot predict the future level of demand for our services or future conditions in the oil and gas industry. If the oil and gas companies do not continue to increase exploration, development and production expenditures, we may have difficulty securing drilling contracts, including for the seventh generation drillships under construction, or we may be forced to enter into drilling contracts at unattractive dayrates. Either of these events could impair our ability to generate sufficient cash flow to make principal and interest payments under our indebtedness and meet our capital expenditure and other obligations.
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We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.

We currently operate a fleet of 39 drybulk vessels, of which 21 vessels are employed in the spot market, exposing us to fluctuations in spot market charter rates. In addition, we currently employ all of our tankers in the spot market. Further, we may employ in the spot market any additional vessels that we may acquire in the future or existing vessels upon the expiration of related time charters.

Although the number of vessels in our fleet that participate in the spot market will vary from time to time, we anticipate that a significant portion of our fleet will participate in this market. As a result, our financial performance will be significantly affected by conditions in the drybulk and oil tanker spot market and only our vessels that operate under fixed-rate time charters may, during the period such vessels operate under such time charters, provide a fixed source of revenue to us.

Historically, the drybulk and tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for drybulk and tanker capacity. The recent global economic crisis may further reduce demand for transportation of drybulk cargoes and oil over longer distances and supply of drybulk vessels and tankers to carry such drybulk cargoes and oil, respectively, which may materially affect our revenues, profitability and cash flows. The spot charter market may fluctuate significantly based upon supply of and demand of vessels and cargoes. The successful operation of our vessels in the competitive spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or to pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

We depend upon the spot market in our tanker segment and any decrease in spot charter rates may adversely affect our financial condition and results of operations.

We currently employ all of our tankers in the spot market. As a result, our results of operations in our tanker segment will be significantly affected by conditions in the oil tanker spot market. The spot market is highly volatile and fluctuates based on tanker and oil supply and demand. The successful operation of our tankers in the spot market depends on, among other things, our commercial and technical manager's ability to obtain profitable charters and minimizing, to the extent possible, time spent waiting for charters and traveling unladen to pick up cargo. In the past, there have been periods when spot rates have declined below operating costs of vessels. Future spot rates may decline significantly and may not be sufficient for us to operate our tankers profitably, which would have an adverse impact on our financial condition and results of operations.

The tanker sector is currently at depressed levels and conditions in the tanker market could have an adverse effect on our business, results of operation and financial condition.

The charter markets for crude oil carriers and product tankers have deteriorated significantly since summer 2008 and are currently at depressed levels. These markets may continue to be depressed through 2015 given the significant number of newbuilding vessels scheduled to be delivered. Attractive investment opportunities in these sectors may reflect these depressed conditions, however, the return on any such investment is highly uncertain in this extremely challenging operating environment.

The tanker sector, which is intensely competitive, has unique operational risks and is highly dependent on the availability of and demand for crude oil and petroleum products as well as being significantly impacted by the availability of modern tanker capacity and the scrapping, conversion or loss of older vessels.

Our ability to maintain oil tanker industry relationships and a reputation for customer service and safety, as well as to acquire and renew charters, will depend on a number of factors, including our ability to man our vessels with experienced oil tanker crews and the ability to manage such risks. There is no assurance that we will be able to address the variety of vessel management risks in the oil tanker sector maintain commercial relationships with leading charter companies, which could adversely affect our business the oil tanker sector.

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

The Company reviews for impairment long-lived assets and intangible long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value of the asset. In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels', rigs' and drillships' future performance, with the significant assumptions being related to charter and drilling rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel, rig and drillship. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. The projected net operating cash flows are determined by considering the charter revenues and drilling revenues from existing time charters and drilling contracts for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days. In making estimates concerning the daily time charter equivalent for the unfixed days, the Company utilizes the most recent ten year historical average for similar vessels and other available market data over the remaining estimated life of the vessel, assumed to be 25 years from the delivery of the vessel from the shipyard.
 
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As a result of the impairment review as of December 31, 2014, the Company determined that the carrying amounts of its assets held for use were recoverable, except for one drybulk vessel for which an impairment charge of $38.1 million was recognized, and, concluded that no further impairment loss was necessary for 2014. However, due to the Company's decision to sell certain vessels during the years and or subsequent to the balance sheet dates and based on the agreed-upon sales price, an impairment charge of $0, $43.5 million and $0 million, for each of the years ended December 31, 2012, 2013 and 2014, respectively, was recognized.

Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. Set forth below is an analysis that shows the impact on the Company's impairment analysis of its shipping segment, if the Company were to utilize the most recent five year, three year or one year historical average rates for similar vessels for purposes of estimating future cash flows for unfixed days over the remaining life of the vessel.


Amounts in thousand of US dollars
2014
  
Level of impairment
5 year
  
3 year
  
1 year
  
Drybulk carriers
  
$
704,461
    
$
735,691
    
$
735,518
  
Tankers
    
14,451
      
14,671
      
-
  
Total
  
$
718,912
    
$
750,362
    
$
735,518
  

Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition or operating results or the trading price of our common shares.

We will need to procure significant additional financing, which may be difficult to obtain on acceptable terms, in order to complete the construction of our drillships, tankers and drybulk carriers under construction.

We, through our majority-owned subsidiary, Ocean Rig UDW, have entered into contracts with Samsung Heavy Industries Co. Ltd., or Samsung, for the construction of three seventh generation drillships two of which are new integrated design drillships and all are equiped with two blow-out preventers that are scheduled to be delivered to us in June 2016, February 2017 and June 2017, respectively. The estimated total project cost for our three seventh generation drillships, excluding financing costs, is approximately $2.1 billion, of which an aggregate of approximately $1.8 billion was outstanding as of December 31, 2014.  We expect to finance the remaining delivery payments of these seventh generation drillships with cash on hand, operating cash flow, equity financing and additional bank debt.

We cannot be certain that additional financing to complete the construction of the remaining three newbuilding drillships will be available on acceptable terms or at all.  If additional bank financing is not available when needed, or is available only on unfavorable terms, we may be unable to take delivery of one or more of our three newbuilding drillships, in which case we would be prevented from realizing potential revenues from the applicable drillship and we could lose our deposit money, which amounted to $280.2 million in the aggregate, as of December 31, 2014. We may also incur additional costs and liability to the shipyards, which may pursue claims against us under our newbuilding construction contracts and retain and sell our newbuilding drillships to third parties to the extent completed.

Construction of vessels and drilling units is subject to risks, including delays and cost overruns, which could have an adverse impact on our available cash resources and results of operations.

As of March 5, 2015, we had entered into contracts for the construction of three seventh generation drillships, two of which are new integrated design drillships and all are equiped with two blow-out preventers, scheduled for delivery in June 2016, February 2017 and June 2017, respectively.

From time to time in the future, we may also undertake new construction projects and conversion projects. In addition, we may make significant upgrade, refurbishment, conversion and repair expenditures for our fleet from time to time, particularly as our vessels and drilling units become older. Some of these expenditures are unplanned. These projects together with our existing construction projects and other efforts of this type are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following:

● shipyard unavailability;
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● shortages of equipment, materials or skilled labor for completion of repairs or upgrades to our equipment;
 
● unscheduled delays in the delivery of ordered materials and equipment or shipyard construction;

● financial or operating difficulties experienced by equipment vendors or the shipyard;

● unanticipated actual or purported change orders;

● local customs strikes or related work slowdowns that could delay importation of equipment or materials;

● engineering problems, including those relating to the commissioning of newly designed equipment;

● design or engineering changes;

● latent damages or deterioration to the hull, equipment and machinery in excess of engineering estimates and assumptions;

● work stoppages;

● client acceptance delays;

● weather interference, storm damage or other events of force majeure;

● disputes with shipyards and suppliers;

● shipyard failures and difficulties;

● failure or delay of third-party equipment vendors or service providers;

● unanticipated cost increases; and

● difficulty in obtaining necessary permits or approvals or in meeting permit or approval conditions.

These factors may contribute to cost variations and delays in the delivery of our newbuilding vessels and drillships. Delays in the delivery of these newbuilding vessels or drillships or the inability to complete construction in accordance with their design specifications may, in some circumstances, result in a delay in contract commencement, resulting in a loss of revenue to us, and may also cause customers to renegotiate, terminate or shorten the term of a charter agreement or drilling contract, pursuant to applicable late delivery clauses. In the event of termination of one of these contracts, we may not be able to secure a replacement contract on as favorable terms. Additionally, capital expenditures for vessel or drilling unit upgrades, refurbishment and construction projects could materially exceed our planned capital expenditures. Moreover, our vessels and drilling units that may undergo upgrade, refurbishment and repair may not earn a dayrate or charterhire, respectively, during the periods they are out of service. In addition, in the event of a shipyard failure or other difficulty, we may be unable to enforce certain provisions under our newbuilding contracts such as our refund guarantee, to recover amounts paid as installments under such contracts. The occurrence of any of these events may have a material adverse effect on our results of operations, financial condition or cash flows.

In the event our counterparties do not perform under their agreements with us for the construction of our newbuilding vessels and drillships and we are unable to enforce certain refund guarantees, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.

As of March 5, 2015, we had paid an aggregate of $280.2 million to Samsung in connection with our seventh generation drillships currently scheduled for delivery in June 2016, February 2017 and June 2017.

In the event our counterparties under the construction contracts discussed above do not perform under their agreements with us and we are unable to enforce certain refund guarantees with third party banks due to an outbreak of war, bankruptcy or otherwise, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.

Currently, our revenues in the offshore drilling segment depend on two ultra-deepwater drilling rigs and eight drillships, which are designed to operate in harsh environments. The damage or loss of any of our drilling units could have a material adverse effect on our results of operations and financial condition.

Our revenues in the offshore drilling segment are dependent on the drilling rig Leiv Eiriksson, which is currently drilling on the Norwegian Continental Shelf, the drilling rig Eirik Raude, which is currently undergoing the acceptance testing and it is expected to commence operations for drilling offshore Falkland Islands, and the drillships Ocean Rig Corcovado, Ocean Rig Mykonos and Ocean Rig Mylos, which are currently operating offshore Brazil, Ocean Rig Olympia, Ocean Rig Poseidon and Ocean Rig Athena which are currently operating offshore Angola, the Ocean Rig Skyros and the Ocean Rig Apollo which are expected to commence drilling operations during 2015. Our drilling units may be exposed to risks inherent in deepwater drilling and operating in harsh environments that may cause damage or loss. The drilling of oil and gas wells, particularly exploratory wells where little is known of the subsurface formations involves risks, such as extreme pressure and temperature, blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punch throughs, craterings, fires, explosions, pollution and natural disasters such as hurricanes and tropical storms.
 
 
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In addition, offshore drilling operations are subject to perils peculiar to marine operations, either while on-site or during mobilization, including capsizing, sinking, grounding, collision, marine life infestations, and loss or damage from severe weather. The replacement or repair of a rig or drillship could take a significant amount of time, and we may not have any right to compensation for lost revenues during that time. As long as we have only ten drilling units in operation, loss of or serious damage to one of the drilling units could materially reduce our revenues for the time that drilling unit is out of operation. In view of the sophisticated design of the drilling units, we may be unable to obtain a replacement unit that could perform under the conditions that our drilling units are expected to operate, which could have a material adverse effect on our results of operations and financial condition.

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

While we have the right to inspect previously owned vessels prior to our purchase of them and we intend to inspect all secondhand vessels that we acquire in the future, such an inspection does not provide us with the same knowledge about their condition that we would have if these vessels had been built for and operated exclusively by us. A secondhand vessel may have conditions or defects that we were not aware of when we bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock which would reduce our fleet utilization. Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.

We may have difficulty managing our planned growth properly.

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

● locate and acquire suitable vessels and drilling units;

● identify and consummate acquisitions or joint ventures;

● enhance our customer base;

● manage our expansion; and

● obtain required financing on acceptable terms.

Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, the possibility that indemnification agreements will be unenforceable or insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies, obtaining additional qualified personnel, managing relationships with customers and integrating newly acquired assets and operations into existing infrastructure. We may be unable to successfully execute our growth plans or we may incur significant expenses and losses in connection with our future growth which would have an adverse impact on our financial condition and results of operations.

If any of our vessels or drilling units fail to maintain their class certification and/or fail any annual survey, intermediate survey, drydocking or special survey, that vessel or unit would be unable to carry cargo or operate, thereby reducing our revenues and profitability and violating certain covenants under our credit facilities.

The hull and machinery of every commercial drybulk vessel, tanker and drilling unit 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 SOLAS. All of our drybulk vessels are certified as being "in class" by all the major Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping). Each of our operating drillships is certified as being "in class" by American Bureau of Shipping. The Leiv Eiriksson was credited with completing its last Special Periodical Survey in April 2011 and the Eirik Raude completed the same in 2012. Our four operating six generation drillships are due for their first Special Periodical Surveys in 2016. Our four operating seventh generation drillships are due for their first Special Periodical Surveys in 2018, 2019 and 2020.

A vessel must undergo annual surveys, intermediate surveys, drydockings 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. Every vessel is also required to be drydocked every two to three years for inspection of the underwater parts of such vessel.
 
 
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If any vessel or drilling unit does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports, or operate, and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our credit facilities. Any such inability to carry cargo or be employed, or operate, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.

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

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As of February 24, 2015, the 39 vessels in our drybulk carrier fleet had an average age of 9.5 years. As our fleet ages we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

In addition, charterers actively discriminate against hiring older vessels. For example, Rightship, the ship vetting service founded by Rio Tinto and BHP-Billiton which has become the major vetting service in the drybulk shipping industry, ranks the suitability of vessels based on a scale of one to five stars. Most major carriers will not charter a vessel that Rightship has vetted with fewer than three stars. Rightship automatically downgrades any vessel over 18 years of age to two stars, which significantly decreases its chances of entering into a charter. Therefore, as our vessels approach and exceed 18 years of age, we may not be able to operate these vessels profitably during the remainder of their useful lives.

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

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

If our drilling units suffer damage, they may need to be repaired at a yard facility. The costs of discontinued operations due to repairs are unpredictable and can be substantial. The loss of earnings while our drilling units are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings and reduce the amount of dividends, if any, in the future. We may not have insurance that is sufficient to cover all or any of these costs or losses and may have to pay repair costs not covered by our insurance.

We may not be able to maintain or replace our drilling units as they age.

The capital associated with the repair and maintenance of our fleet increases with age. We may not be able to maintain our existing drilling units to compete effectively in the market, and our financial resources may not be sufficient to enable us to make expenditures necessary for these purposes or to acquire or build replacement drilling units.

Our board of directors has determined to suspend the payment of cash dividends as a result of market conditions in the international shipping industry, and until such market conditions improve, it is unlikely that we will reinstate the payment of dividends.

In light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning with the fourth quarter of 2008, has suspended our common share dividend. Our dividend policy will be assessed by the board of directors from time to time. The suspension allows us to preserve capital and use the preserved capital to capitalize on market opportunities as they may arise. Until market conditions improve, it is unlikely that we will reinstate the payment of dividends. In addition, other external factors, such as our lenders imposing restrictions on our ability to pay dividends under the terms of our loan agreements, may limit our ability to pay dividends. Further, we may not be permitted to pay dividends if we are in breach of the covenants contained in our loan agreements and any waivers related thereto.  We do not intend to obtain funds from other sources to pay dividends, if any, in the future. In addition, the declaration and payment of dividends, if any, in the future will depend on the provisions of Marshall Islands law affecting the payment of dividends. Marshall Islands law generally prohibits the payment of dividends if the company is insolvent or would be rendered insolvent upon payment of such dividend and dividends may be declared and paid out of our operating surplus; but in this case, there is no such surplus. Dividends may be declared or paid out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year.
 
 
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We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations or pay dividends, if any, in the future.
 
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to make dividend payments, if any, in the future depends on our subsidiaries and their ability to distribute funds to us. Furthermore, certain of our subsidiaries are obligated to use their surplus cash to prepay the balance on their long-term loans. If we are unable to obtain funds from our subsidiaries, our board of directors may not exercise its discretion to pay dividends in the future.

Investment in derivative instruments such as freight forward agreements could result in losses.

From time to time, we may take positions in derivative instruments including freight forward agreements, or FFAs. FFAs and other derivative instruments may be used to hedge a vessel owner's exposure to the charter market by providing for the sale of a contracted charter rate along a specified route and period of time. Upon settlement, if the contracted charter rate is less than the average of the rates, as reported by an identified index, for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we take positions in FFAs or other derivative instruments and do not correctly anticipate charter rate movements over the specified route and time period, we could suffer losses in the settling or termination of the FFA. This could adversely affect our results of operations and cash flows.

The derivative contracts we have entered into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income.

As of December 31, 2014, we had entered into 24 interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our credit facilities, which were advanced at a floating rate based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations. Our existing interest rate swaps as of December 31, 2014 did not, and our future derivative contracts may not, qualify for treatment as hedges for accounting purposes. We recognized fluctuations in the fair value of these contracts in our statement of operations. At December 31, 2014, the fair value of our interest rate swaps was a net liability of $29.8 million.

Our financial condition could be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements, under which loans have been advanced at a floating rate based on LIBOR and for which we have not entered into an interest rate swap or other hedging arrangement. Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or results of operations. See "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

Because we generate most of our revenues in U.S. Dollars, but incur a significant portion of our employee salary and administrative and other expenses in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations.

Our principal currency for our operations and financing is the U.S. Dollar. A substantial portion of the operating dayrates for the drilling units, our principal source of revenues, are quoted and received in U.S. Dollars; however, a portion of our revenue under our contracts with Petroleo Brasileiro S.A., or Petrobras Brazil, for the Ocean Rig Corcovado and the Ocean Rig Mykonos is, and with Repsol Sinopec Brasil S.A., or Repsol, for the Ocean Rig Mylos is receivable in Brazilian Real. The principal currency for operating expenses is also the U.S. Dollar; however, a significant portion of employee salaries and administration expenses, as well as parts of the consumables and repair and maintenance expenses for the drilling rigs, may be paid in Norwegian Kroner, Great British Pounds, Canadian dollars, Euros or other currencies depending in part on the location of our drilling operations. For the year ended December 31, 2014, approximately 51% of our expenses were incurred in currencies other than the U.S. Dollars. This exposure to foreign currency could lead to fluctuations in net income and net revenue due to changes in the value of the U.S. Dollar relative to the other currencies. Revenues paid in foreign currencies against which the U.S. Dollar rises in value can decrease, resulting in lower U.S. Dollar denominated revenues. Expenses incurred in foreign currencies against which the U.S. Dollar falls in value can increase, resulting in higher U.S. Dollar denominated expenses. We have employed derivative instruments in order to economically hedge our currency exposure; however, we may not be successful in hedging our future currency exposure and our U.S. Dollar denominated results of operations could be materially and adversely affected upon exchange rate fluctuations determined by events outside of our control.

If volatility in LIBOR occurs, it could affect our profitability, earnings and cash flow.

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

Furthermore, interest in most loan agreements in our industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
 
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An increase in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.

Our debt under certain of our credit facilities bears interest at variable rates. We may also incur indebtedness in the future with variable interest rates. As a result, an increase in market interest rates would increase the cost of servicing our indebtedness and could materially reduce our profitability and cash flows. The impact of such an increase would be more significant for us than it would be for some other companies because of our substantial indebtedness.

We depend entirely on TMS Bulkers and TMS Tankers to manage and charter our drybulk fleet and tankers fleet, respectively.

With respect to our operations in the drybulk and tanker shipping sectors, we currently have 19 employees, including our President and Chief Executive Officer, our Executive Vice President, our Chief Financial Officer and our Senior Vice President Head of Accounting and Reporting. Since January 1, 2011, we have subcontracted the commercial and technical management of our drybulk and tanker vessels, including crewing, maintenance and repair, to TMS Bulkers, and TMS Tankers Ltd., or TMS Tankers, respectively. TMS Bulkers and TMS Tankers are beneficially majority-owned by our Chairman, President and Chief Executive Officer, Mr. George Economou. The loss of the services or TMS Bulkers or TMS Tankers or their failure to perform their obligations to us could materially and adversely affect the results of our operations. Although we may have rights against TMS Bulkers and TMS Tankers if they default on their obligations to us, you will have no recourse against either of them. Further, we are required to seek approval from our lenders to change our manager.

Under our management agreements with TMS Bulkers and TMS Tankers, TMS Bulkers and TMS Tankers shall not be liable to us for any losses or damages arising in the course of its performance under the agreement unless such loss or damage is proved to have resulted from the negligence, gross negligence or willful default by TMS Bulkers and TMS Tankers, its employees or agents and in such case TMS Bulkers' and TMS Tankers' liability per incident or series of incidents is limited to a total of ten times the annual management fee payable under the relevant agreement. The management agreements further provide that TMS Bulkers and TMS Tankers shall not be liable for any of the actions of the crew, even if such actions are negligent, grossly negligent or willful, except to the extent that they are shown to have resulted from a failure by TMS Bulkers and TMS Tankers to perform their obligations with respect to management of the crew. Except to the extent of the liability cap described above, we have agreed to indemnify TMS Bulkers and TMS Tankers and their employees and agents against any losses incurred in the course of the performance of the agreement.

TMS Bulkers and TMS Tankers are privately held company and there is little or no publicly available information about them.

The ability of TMS Bulkers and TMS Tankers to continue providing services for our benefit will depend in part on their own financial strength. Circumstances beyond our control could impair TMS Bulkers' and TMS Tankers' financial strength, and because it is privately held it is unlikely that information about its financial strength would become public unless TMS Bulkers or TMS Tankers began to default on their obligations. As a result, an investor in our shares might have little advance warning of problems affecting TMS Bulkers and TMS Tankers, even though these problems could have a material adverse effect on us.

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

Our success will depend in large part on our ability and the ability of TMS Bulkers and TMS Tankers to attract and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense. If we are not able to increase our rates to compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. Any inability we, or TMS Bulkers or TMS Tankers, 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.

We are dependent upon key management personnel, particularly our Chairman, President and Chief Executive Officer Mr. George Economou.

Our continued operations depend to a significant extent upon the abilities and efforts of our Chairman, President and Chief Executive Officer, Mr. George Economou. The loss of Mr. Economou's services to our Company could adversely affect our discussions with our lenders and management of our fleet during this difficult economic period and, therefore, could adversely affect our business prospects, financial condition and results of operations. We do not currently, nor do we intend to, maintain "key man" life insurance on any of our personnel, including Mr. Economou.

Our Chairman, Chief Executive Officer has affiliations with TMS Bulkers and TMS Tankers which could create conflicts of interest.

Our major shareholder is controlled by Mr. George Economou, who controls four entities that, in the aggregate, were deemed to beneficially own, directly or indirectly, approximately 17.6% of our outstanding common shares as of March 2, 2015.  Mr. Economou controls TMS Bulkers and TMS Tankers. Mr. Economou is also our Chairman, Chief Executive Officer and a director of our Company. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and TMS Bulkers and TMS Tankers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus drybulk carriers and tankers managed by TMS Tanker and/ or other companies affiliated with TMS Bulkers or TMS Tankers and Mr. Economou.
 

 
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In particular, TMS Bulkers or TMS Tankers may give preferential treatment to vessels that are beneficially owned by related parties because Mr. Economou and members of his family may receive greater economic benefits.

Failure to attract or retain key personnel, labor disruptions or an increase in labor costs could adversely affect our operations in the offshore drilling sector.

We require highly skilled personnel to operate and provide technical services and support for our business in the offshore drilling sector worldwide. As of December 31, 2014, through the subsidiaries of Ocean Rig UDW, we employed 2,320 employees, the majority of whom are full-time crew employed on our drilling units. Under certain of our employment contracts, we are required to have a minimum number of local crew members of our drillships. We will need to recruit additional qualified personnel as we take delivery of our newbuilding drillships. Competition for the labor required for drilling operations has intensified as the number of drilling units activated, added to worldwide fleets or under construction has increased, leading to shortages of qualified personnel in the industry and creating upward pressure on wages and higher turnover. If turnover increases, we could see a reduction in the experience level of our personnel, which could lead to higher downtime, more operating incidents and personal injury and other claims, which in turn could decrease revenues and increase costs. In response to these labor market conditions, we are increasing efforts in our recruitment, training, development and retention programs as required to meet our anticipated personnel needs. If these labor trends continue, we may experience further increases in costs or limits on our offshore drilling operations.

Currently, our employees in Brazil and Norway, are covered by collective bargaining agreements. In the future, some of our employees or contracted labor may be covered by collective bargaining agreements in certain jurisdictions such as Nigeriaand the United Kingdom. As part of the legal obligations in some of these agreements, we may be required to contribute certain amounts to retirement funds and pension plans and have restricted ability to dismiss employees. In addition, many of these represented individuals could be working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance. Labor disruptions could hinder our operations from being carried out normally and if not resolved in a timely cost-effective manner, could have a material impact on our business. If we choose to cease operations in one of those countries or if the market conditions reduce the demand for our drilling services in such a country, we would incur costs, which may be material, associated with workforce reductions.

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

Our current operating and financial systems may not be adequate as we expand the size of our fleet and our attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will need to recruit suitable additional seafarers and shoreside administrative and management personnel. We may be unable to hire suitable employees as we expand our fleet. If we or our crewing agent encounters business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet, our financial performance and our ability to pay dividends, if any, in the future may be adversely affected.

U.S. tax authorities could treat us as a "passive foreign investment company," which could have adverse U.S. federal income tax consequences to U.S. shareholders.

A foreign corporation will be treated as a "passive foreign investment company," or a 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, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." U.S. shareholders of 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 shares in the PFIC.

Based on our method of operation, we do not believe that we are, have been or will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time and voyage chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time and voyage chartering activities does not constitute passive income, and the assets that we own and operate in connection with the production of that income do not constitute assets that produce or are held for production of passive income.
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There is substantial legal authority supporting this position consisting of case law and U.S. Internal Revenue Service, or the 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 this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations changed.

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders will face adverse U.S. federal income tax consequences and information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the U.S. shareholder's holding period of our common shares. See "Item 10. Additional Information—E. Taxation" for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.

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

Under the U.S. Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel-owning or -chartering corporation, such as ourselves and certain of 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% U.S. federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.

We expect that we and each of our vessel-owning subsidiaries qualify for this statutory tax exemption and we have taken and intend to continue to take this position for U.S. federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to U.S. federal income tax on our U.S. source shipping income. For example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders, resident in jurisdictions other than "qualified foreign countries", with a five percent or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half of the days during the taxable year. Due to the factual nature of the issues involved, it is possible that our tax-exempt status or that of any of our subsidiaries may change.

If we or our vessel-owning subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries could be subject for those years to an effective 2% (i.e., 50% of 4%) U.S. federal income tax on our gross shipping income attributable to transportation that begins or ends, but that does not both begin and end, in the United States. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.

A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate our drilling units could result in a high tax rate on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.

We conduct our worldwide drilling operations through various subsidiaries. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate. Our income tax expense is based upon our interpretation of tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the interpretation thereof, or in the valuation of our deferred tax assets, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings in our offshore drilling segment, and such change could be significant to our financial results. If any tax authority successfully challenges our operational structure, inter-company pricing policies or the taxable presence of our key subsidiaries in certain countries; or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure; or if we lose a material tax dispute in any country, particularly in the United States, Canada, the United Kingdom, or Norway, our effective tax rate on our worldwide earnings from our offshore drilling operations could increase substantially and our earnings and cash flows from these operations could be materially adversely affected.

Our subsidiaries that provide services relating to drilling may be subject to taxation in the jurisdictions in which such activities are conducted. Such taxation would result in decreased earnings available to our shareholders.

Investors are encouraged to consult their own tax advisors concerning the overall tax consequences of the ownership of our common shares arising in an investor's particular situation under U.S. federal, state, local and foreign law.
 

 
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Our vessels may call on ports located in, and our drilling units may operate in, countries that are subject to restrictions imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common shares.
 
During the year ended December 31, 2014, none of our vessels has called on ports located in, and none of our drilling units has operated in, countries subject to sanctions and embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Cuba, Iran, Sudan and Syria; however our vessels and drilling units may call on ports or operate in these countries from time to time in the future on our charterers' instructions. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which amended the Iran Sanctions Act. Among other things, CISADA introduced limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.

Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common shares may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the "Joint Plan of Action" ("JPOA"). Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and EU would voluntarily suspend certain sanctions for a period of six months.

On January 20, 2014, the U.S. and E.U. indicated that they would begin implementing the temporary relief measures provided for under the JPOA. These measures include, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20, 2014. The U.S. initially extended the JPOA until November 24, 2014, and has since extended it until June 30, 2015.  These regulations and U.S. sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JPOA.

Although it is our intention to comply with the provisions of the JPOA, there can be no assurance that we will be in compliance in the future as such regulations and U.S. Sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JPOA.

We may be subject to premium payment calls because we obtain some of our insurance through protection and indemnity associations.

For our drybulk and tanker vessels, 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. Although there is no cap to the amount of such supplemental calls, historically, supplemental calls for our fleet have ranged from 0% to 40% of the annual insurance premiums, and in no year were such amounts material to the results of our operations. For the drilling units, we may be subject to increased premium payments, or calls, in amounts based on our claim records.
 
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Our customers may be involved in the handling of environmentally hazardous substances and if discharged into the ocean may subject us to pollution liability which could have a negative impact on our cash flows, results of operations and ability to pay dividends, if any, in the future.

Our operations may involve the use or handling of materials that may be classified as environmentally hazardous substances. Environmental laws and regulations applicable in the countries in which we conduct operations have generally become more stringent. Such laws and regulations may expose us to liability for the conduct of or for conditions caused by others, or for our acts that were in compliance with all applicable laws at the time such actions were taken.

While we conduct maintenance on our drilling units in an effort to prevent such releases, future releases could occur, especially as our rigs age. Such releases may be large in quantity, above our permitted limits or in protected or other areas in which public interest groups or governmental authorities have an interest. These releases could result in fines and other costs to us, such as costs to upgrade our drilling units, costs to clean up the pollution, and costs to comply with more stringent requirements in our discharge permits. Moreover, these releases may result in our customers or governmental authorities suspending or terminating our operations in the affected area, which could have a material adverse effect on our business, results of operation and financial condition.

We expect that we will be able to obtain some degree of contractual indemnification from our customers in most of our drilling contracts against pollution and environmental damages. But such indemnification may not be enforceable in all instances, the customer may not be financially capable in all cases of complying with its indemnity obligations or we may not be able to obtain such indemnification agreements in the future.

Our operating and maintenance costs with respect to our offshore drilling units will not necessarily fluctuate in proportion to changes in operating revenues, which may have a material adverse effect on our results of operations, financial condition and cash flows.

Operating revenues may fluctuate as a function of changes in dayrates. However, costs for operating a drilling unit are generally fixed regardless of the dayrate being earned. Therefore, our operating and maintenance costs with respect to our offshore drilling units will not necessarily fluctuate in proportion to changes in operating revenues. In addition, should our drilling units incur idle time between contracts, we typically will not de-man those drilling units but rather use the crew to prepare the rig for its next contract. During times of reduced activity, reductions in costs may not be immediate, as portions of the crew may be required to prepare rigs for stacking, after which time the crew members are assigned to active rigs or dismissed. In addition, as our drilling units are mobilized from one geographic location to another, labor and other operating and maintenance costs can vary significantly. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance expenses fluctuate depending upon the type of activity the unit is performing and the age and condition of the equipment. Contract preparation expenses vary based on the scope and length of contract preparation required and the duration of the firm contractual period over which such expenditures are incurred. If we experience increased operating costs without a corresponding increase in earnings, this may have a material adverse effect on our results of operations, financial condition and cash flows.

We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.

We have been and may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.

Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, drilling contract terminations and an adverse effect on our business.

We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
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Risks Relating to Our Common Shares

Our Chairman, President and Chief Executive Officer, who may be deemed to beneficially own, directly or indirectly, approximately 17.6% of our outstanding common shares, may have the power to exert control over us, which may limit your ability to influence our actions.

As of March 2, 2015, our Chairman, President and Chief Executive Officer, Mr. George Economou, may be deemed to have beneficially owned, directly or indirectly, approximately 17.6% of our outstanding common shares and therefore may have the power to exert considerable influence over our actions. The interests of our Chairman, President and Chief Executive Officer may be different from your interests.

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

The market price of our common shares could decline due to sales, or the announcements of proposed sales, of a large number of common shares in the market, including sales of common shares by our large shareholders, or the perception that these sales could occur. These sales, or the perception that these sales could occur, could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common shares.

Our Amended and Restated Articles of Incorporation authorize our board of directors to, among other things, issue additional shares of common or preferred stock or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred stock or convertible securities could be substantially dilutive to our shareholders. Moreover, to the extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common shares in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of shares of our common shares have no preemptive rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.

There is no guarantee of a continuing public market for you to resell our common shares.

Our common shares commenced trading on the NASDAQ National Market, now the NASDAQ Global Market, in February 2005. Our common shares now trade on the NASDAQ Global Select Market. We cannot assure you that an active and liquid public market for our common shares will continue. The price of our common shares may be volatile and may fluctuate due to factors such as:

●            actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;

●            mergers and strategic alliances in the drybulk shipping industry;

●            market conditions in the drybulk shipping industry and the general state of the securities markets;

●            changes in government regulation;

●            shortfalls in our operating results from levels forecast by securities analysts; and

●            announcements concerning us or our competitors.

The trading price of our common shares is below $5.00 and if it remains below that level, under stock exchange rules, our stockholders will not be able to use such shares as collateral for borrowing in margin accounts. This inability to use our common shares as collateral may depress demand as certain institutional investors are restricted from investing in shares priced below $5.00 and lead to sales of such shares creating downward pressure on and increased volatility in the market price of our common shares.

You may not be able to sell your shares of our common shares in the future at the price that you paid for them or at all.
 

 
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Anti-takeover provisions in our organizational documents could make it difficult for our stockholders 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 market price of our common shares.

Several provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws could make it difficult for our stockholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable.

These provisions include:

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

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

● 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 a majority of the outstanding shares of our common shares entitled to vote for the directors;

● prohibiting stockholder action by written consent unless the written consent is signed by all shareholders entitled to vote on the action;

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

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

● restricting business combinations with interested shareholders.

In addition, we have entered into a stockholders rights agreement that will make it more difficult for a third party to acquire us without the support of our board of directors. See "Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Plan."

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

We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law, and as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.

Our corporate affairs are governed by our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and by the Marshall Islands Business Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic 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 United States jurisdictions. 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 management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

Because the Public Company Accounting Oversight Board is not currently permitted to inspect our independent accounting firm, you may not benefit from such inspections.

Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board, or PCAOB, inspections that assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. Certain European Union countries, including Greece, do not currently permit the PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they are part of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB is prevented from evaluating our auditor's performance of audits and its quality control procedures, and, unlike shareholders of most U.S. public companies, we and our shareholders are deprived of the possible benefits of such inspections.

We are a "foreign private issuer", which could make our common shares less attractive to some investors or otherwise harm our stock price.

We are a "foreign private issuer," as such term is defined in Rule 405 under the Securities Act.  As a "foreign private issuer" the rules governing the information that we disclose differ from those governing U.S. corporations pursuant to the Securities and Exchange Act of 1934, as amended, or the Exchange Act. We are not required to file quarterly reports on Form 10Q or provide current reports on Form 8-K disclosing significant events within four days of their occurrence. In addition, our officers and directors are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchase and sales of our securities. Our exemption from the rules of Section 16 of the Exchange Act regarding sales of ordinary shares by insiders means that you will have less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act. Moreover, we are exempt from the proxy rules, and proxy statements that we distribute will not be subject to review by the SEC. Accordingly there may be less publicly available information concerning us than there is for other U.S. public companies.  These factors could make our common shares less attractive to some investors or otherwise harm our stock price.
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Item 4.   Information on the Company

A.           History and Development of the Company

DryShips Inc., a corporation organized under the laws of the Republic of the Marshall Islands, was formed on September 9, 2004. Our principal executive offices are located at 109 Kifisias Avenue and Sina Street, Amaroussion, GR 151 24 Greece. Our telephone number at that address is 0030-210-809-0570.

Business Development

 In December 2010, Ocean Rig UDW completed the sale of an aggregate of 28,571,428 of its common shares (representing approximately 22% of Ocean Rig UDW's then outstanding common shares) in a private offering to eligible purchasers at a price of $17.50 per share, or the Ocean Rig UDW Private Placement. A company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, purchased 2,869,428 common shares, or 2.38% of Ocean Rig UDW's then outstanding common shares, in the Ocean Rig UDW Private Placement at the offering price of $17.50 per share. We received approximately $488.3 million of net proceeds from the Ocean Rig UDW Private Placement. Following the completion of the Ocean Rig UDW Private Placement, we owned approximately 78% of the outstanding common shares of Ocean Rig UDW.

On April 27, 2011, Ocean Rig UDW completed the issuance and sale of $500.0 million aggregate principal amount of its 9.5% senior unsecured notes due 2016, or Senior Unsecured Notes, in a private offering to eligible purchasers. The net proceeds from the offering of the Senior Unsecured Notes amounted to approximately $487.5 million.

On August 26, 2011, Ocean Rig UDW commenced an offer to exchange up to 28,571,428 of its common shares that were registered under the U.S. Securities Act of 1933, as amended, or the Securities Act, pursuant to a registration statement on Form F-4 (Registration No. 333-175940), for an equivalent number of its common shares previously sold in the Ocean Rig UDW Private Placement, or the Ocean Rig UDW Exchange Offer. On September 29, 2011, an aggregate of 28,505,786 common shares were exchanged in the Ocean Rig UDW Exchange Offer.

On October 5, 2011, we completed the partial spin off of Ocean Rig UDW by distributing an aggregate of 2,967,291 common shares of Ocean Rig UDW, representing approximately a 2.25% stake in Ocean Rig UDW, after giving effect to the treatment of fractional shares, on a pro rata basis to our shareholders of record as of September 21, 2011. In lieu of fractional shares, our transfer agent aggregated all fractional shares that would otherwise be distributable to our shareholders and sold a total of 105 common shares on behalf of those shareholders who would otherwise be entitled to receive a fractional share of Ocean Rig UDW. Following the distribution, each such shareholder received a cash payment in an amount equal to its pro rata share of the total net proceeds of the sale of fractional shares. On September 19, 2011, Ocean Rig UDW's common shares commenced "when issued" trading on the NASDAQ Global Select Market under the ticker "ORIGV." Ocean Rig UDW's common shares commenced "regular way" trading on the NASDAQ Global Select Market under the ticker symbol "ORIG" on October 6, 2011.

The conditions for the mandatory conversion of 25% of our 52,238,806 outstanding shares of Series A Convertible Preferred Stock into 10,242,903 of our common shares, at the conversion price set forth in the Certificate of Designations, were met on each of December 31, 2010, March 31, 2011, July 31, 2011 and September 30, 2011, the contractual delivery dates of the Ocean Rig Corcovado, the Ocean Rig Olympia, the Ocean Rig Poseidon and the Ocean Rig Mykonos, respectively. Accordingly, we issued a total of 46,095,517 common shares in connection with the conversion of our shares of Series A Convertible Preferred Stock, including 5,123,905 common shares issued in October 2011 upon the conversion, at the conversion price set forth in the Certificate of Designations, of an aggregate of 6,532,979 dividend shares of Series A Convertible Preferred Stock accrued quarterly from July 9, 2009 through September 30, 2011 and held by each shareholder.

On November 3, 2011, the merger of Pelican Stockholdings Inc., or Pelican Stockholdings, our wholly-owned subsidiary, and OceanFreight Inc., or OceanFreight, was completed, following approval by shareholders of OceanFreight at a special meeting of shareholders held on November 3, 2011. Following the completion of the merger, OceanFreight is our wholly-owned subsidiary. We refer to this transaction as the OceanFreight acquisition. Under the terms of the merger agreement, OceanFreight shareholders received $11.25 cash and 0.52326 of a common share of Ocean Rig UDW per common share of OceanFreight previously owned. Following the closing of the OceanFreight acquisition, we transferred $33.1 million in cash and 1,541,159 common shares of Ocean Rig UDW to shareholders of OceanFreight, other than the entities controlled by Mr. Anthony Kandylidis, the Chief Executive Officer of OceanFreight, as discussed below. The common shares of Ocean Rig UDW that comprised the stock portion of the merger consideration were currently outstanding shares that were owned by us. Prior to the completion of the merger, we acquired from the entities controlled by Mr. Kandylidis all of their shares of OceanFreight, representing a majority of the outstanding shares of OceanFreight, for the same consideration per share that the OceanFreight shareholders received in the OceanFreight acquisition, which amounted to approximately $33.8 million in cash and 1,570,226 common shares of Ocean Rig UDW. Mr. Kandylidis is the Executive Vice President of Dryships Inc. as well as of Ocean Rig UDW and the son of one of our directors.
39
 

On December 6, 2011, we announced that the board of directors of Ocean Rig UDW had approved a repurchase program through December 31, 2013 for up to a total of $500.0 million of Ocean Rig UDW's common shares and Senior Unsecured Notes. As of December 31, 2014, no repurchases had been made under the repurchase program.

On April 17, 2012, DryShips Inc. completed the sale of an aggregate of 11,500,000 common shares of Ocean Rig UDW owned by DryShips Inc. in a public offering amounting to net proceeds to us of $180.5 million. Companies affiliated with our Chairman, President and Chief Executive Officer purchased a total of 2,185,000 common shares of Ocean Rig UDW from DryShips at the public offering price of $16.25 per share.

On September 20, 2012, Drill Rigs Holdings, our majority-owned subsidiary and a wholly-owned subsidiary of Ocean Rig UDW, completed the issuance of $800 million of aggregate principal amount of Senior Secured Notes, in a private offering to eligible purchasers, or the Drill Rigs Holdings Secured Bond Offering.

On February 14, 2013, DryShips Inc. completed the sale of an aggregate of 7,500,000 common shares of Ocean Rig UDW owned by DryShips Inc. in a public offering amounting to net proceeds to us of $123.0 million.

On October 4, 2013, we filed a prospectus supplement to the universal shelf registration statement on Form F-3 filed on August 30, 2013, pursuant to an at-the-market offering for up to $200 million of our common shares. In connection with the offering, we entered into a Sales Agreement with Evercore Group L.L.C., ("Evercore"), the sales agent, dated October 4, 2013. During 2013, 6,892,233 common shares were issued and sold pursuant to the at-the-market offering, resulting in net proceeds of $23.7 million, after deducting commissions, while in 2014, 22,209,844 common shares were issued and sold pursuant to the at-the-market offering, resulting in net proceeds of $90.0 million, after deducting commissions.

On October 29, 2014, we completed the issuance of 250,000,000 of our common shares in a public offering amounting to net proceeds to us of $332.9 million.

As of March 2, 2015, we had 669,964,321 common shares outstanding and we owned 78,301,755 shares, or 59.2%, of Ocean Rig UDW's outstanding common shares.

We may sell a minority voting and economic interest in our wholly-owned subsidiary, Tankships Investment Holdings Inc., the indirect owner and operator of our oil tankers, which on February 20, 2015 filed a registration statement on Form F-1 with the SEC relating to a possible initial public offering. Alternatively, we may distribute, or spin off, a minority voting and economic interest in Tankships Investment Holdings Inc. to holders of our voting stock (including holders of our preferred shares), or complete some combination of a public offering and distribution to holders of our voting stock. There can be no assurance, however, that we will complete any such transaction, which, among other things, will be subject to market conditions.

Vessel Acquisitions and Dispositions

During 2012, we: (i) sold the drybulk vessels Avoca, Padre and Positano for an aggregate sales price of $118.0 million; (ii) took delivery of one of our newbuilding VLOCs, Fakarava, and paid construction costs of $36.4 million in the aggregate in connection with the delivery of the vessel; (iii) took delivery of our newbuilding Aframax tanker, Calida, and two of our newbuilding Suezmax tankers, Lipari and Petalidi, and paid construction costs of $135.1 million in the aggregate in connection with the delivery of the vessels; (iv) took delivery of two newbuilding Panamax vessels, the Woolloomooloo and the Raraka, and paid construction costs of $33.1 million in the aggregate in connection with the delivery of the vessels; (v) exercised the fourth of our six newbuilding drillship options under our option agreement with Samsung and, as a result, entered into a shipbuilding contract for our fourth seventh generation drillship; and novated the construction contracts relating to our two remaining newbuilding Suezmax tankers, Esperona and Blanca, to a third-party buyer for cash consideration of $21.4 million in the aggregate paid by us to the buyer and were released from all of our obligations under the construction contracts.

During 2013, we (i) took delivery of our two newbuilding Aframax tankers, Alicante and Mareta, and one newbuilding Suezmax tanker, Bordeira, and paid construction costs of an aggregate of $111.8 million in connection with the delivery of the vessels;(ii) took delivery of our newbuilding VLOC's Negonego (ex. H1229) and Rangiroa (ex. H1228), respectively, and paid construction costs of an aggregate of $99.4 million in connection with the delivery of the vessels;(iii) concluded two Memoranda of Agreements for the sale of two Capesize newbuildings, H1241 and H1242, for a sale price of $71.0 million in the aggregate; (iv) accepted an offer from an entity affiliated with George Economou for the novation of the shipbuilding contracts of two VLOC under construction, H1239 and H1240; and (v) through our majority owned subsidiary, Ocean Rig, took delivery of the Ocean Rig Mylos, and the Ocean Rig Skyros.
 

 
40
During 2014, we (i) took delivery of one second hand Capesize vessel with an attached time charter, Raiatea (ex. Conches), for a purchase price of $53.0 million; (ii) canceled the construction of the four newbuilding Ice class Panamax vessels and received all installments previously paid to the shipyard of $11.6 million, plus interest, which resulted to a loss of $1.3 million; and (iii) through our majority owned subsidiary, Ocean Rig, took delivery of the Ocean Rig Athena.

As of March 5, 2015, we had contracts for the construction of three seventh generation drillships, two of which are new integrated design drillships and all are equiped with two blow-out preventers, scheduled for delivery in June 2016, February 2017 and June 2017.

As of March 2, 2015, we had made pre-delivery payments of $280.2 million in the aggregate for our three seventh generation drillships under construction. The total estimated remaining construction payments for these drillships amounted to approximately $1.8 billion in the aggregate, excluding financing costs, as of March 2, 2015. We plan to finance these costs with cash on hand, operating cash flow, equity financing and additional bank debt.  We have not yet arranged financing for the remaining construction payments relating to the construction of our three seventh generation drillships. We cannot be certain that we will be able to obtain the additional financing we need to complete the acquisition of our seventh generation drillships on acceptable terms or at all.

B.           Business Overview

Overview

We are an international provider of ocean transportation services for drybulk and petroleum cargoes through our ownership and operation of drybulk carrier vessels and oil tankers and offshore drilling services through the ownership and operation by our majority-owned subsidiary, Ocean Rig UDW, of ultra-deepwater drilling units.

As of March 5, 2015, we owned a fleet of (i) 39 drybulk carriers, comprised of 13 Capesize, 24 Panamax and 2 Supramax vessels, which have a combined deadweight tonnage of approximately 4.3 million dwt and an average age of approximately 9.5 years, (ii) 10 tankers, comprisied of 4 Suezmax and 6 Aframax vessels, which have a combined deadweight tonnage of approximately 1.3 million dwt and an average age of approximatel 2.9 years and (iii) 10 drilling units, comprised of two modern, fifth generation, advanced capability ultra-deepwater semisubmersible offshore drilling rigs, our sixth generation, advanced capability ultra-deepwater drillships and four seventh generation, advanced capability ultra-deepwater drillships.

As of March 5, 2015, we had entered into contracts for the construction of three seventh generation drillships, two of which are new integrated design drillships and all are equiped with two blow-out preventers, scheduled for delivery in June 2016, February 2017 and June 2017, respectively. See "—Our Offshore Drilling Operations—Newbuilding Drillships and Operations to Purchase Newbuilding Drillships."

Our drybulk carriers, drilling units and oil tankers operate worldwide within the trading limits imposed by our insurance terms and do not operate in areas where United States, European Union or United Nations sanctions have been imposed.

Ocean Rig UDW comprises our entire offshore drilling segment, which represented approximately 78.1% of our total assets and approximately 83.1% of our total revenues for the year ended December 31, 2014. As we have done in the past, we may, in the future, sell a minority voting and economic interest in Ocean Rig UDW in a public offering or distribute, or spin off, a minority voting and economic interest in Ocean Rig UDW to holders of our voting stock. There can be no assurance, however, that we will complete any such transaction, which, among other things, will be subject to market conditions.

In addition, we may sell a minority voting and economic interest in our wholly-owned subsidiary, Tankships Investment Holdings Inc., the indirect owner and operator of our oil tankers, which on February 20, 2015 filed a registration statement on Form F-1 with the SEC relating to a possible initial public offering. Alternatively, we may distribute, or spin off, a minority voting and economic interest in Tankships Investment Holdings Inc. to holders of our voting stock (including holders of our preferred shares), or complete some combination of a public offering and distribution to holders of our voting stock. There can be no assurance, however, that we will complete any such transaction, which, among other things, will be subject to market conditions.

41

Our Fleet

Set forth below is summary information concerning our fleet as of February 24, 2015.

Drybulk Vessels
 
                       
Redelivery
 
Year
Built
    
DWT
  
Type
  
Current employment
or employment
upon delivery
  
Gross
rate
per day
  
Earliest
  
Latest
                       
Capesize:
                              
Rangiroa
2013
    
206,026
  
Capesize
  
T/C (1)
    
$23,000
  
May-18
  
Dec-23
Negonego
2013
    
206,097
  
Capesize
  
T/C (1)
    
$21,500
  
Mar-20
  
Feb-28
Fakarava
2012
    
206,152
  
Capesize
  
T/C
    
$25,000
  
Sept-15
  
Sept-20
Raiatea
2011
    
179,078
  
Capesize
  
T/C (1)
    
$23,500
  
Oct-19
  
Dec-19
Mystic
2008
    
170,040
  
Capesize
  
T/C
    
$52,310
  
Aug-18
  
Dec-18
Robusto
2006
    
173,949
  
Capesize
  
T/C (1)
    
$23,500
  
Jul-19
  
Sep-19
Cohiba
2006
    
174,234
  
Capesize
  
T/C (1)
    
$23,500
  
Sep-19
  
Nov-19
Montecristo
2005
    
180,263
  
Capesize
  
T/C (1)
    
$23,500
  
Jul-19
  
Sep-19
Flecha
2004
    
170,012
  
Capesize
  
T/C
    
$55,000
  
Jul-18
  
Nov-18
Manasota
2004
    
171,061
  
Capesize
  
T/C
    
$30,000
  
Jan-18
  
Aug-18
Partagas
2004
    
173,880
  
Capesize
  
T/C (1)
    
$23,500
  
Sep-19
  
Nov-19
Alameda
2001
    
170,662
  
Capesize
  
T/C
    
$27,500
  
Nov-15
  
Jan-16
Capri
2001
    
172,579
  
Capesize
  
T/C
    
$20,000
  
Jan-16
  
May-16
                               
Average age based on year built/ Sum of DWT/ Total number of vessels
7.6 years
    
2,354,033
  
13
                  

 
42
                         
 Redelivery
 
Year
Built
    
DWT
  
Type
  
Current employment
or employment
upon delivery
    
Gross
rate
per day
  
Earliest
  
Latest
Panamax:
                              
Raraka
2012
    
76,037
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Woolloomooloo
2012
    
76,064
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Amalfi
2009
    
75,206
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Rapallo
2009
    
75,123
  
Panamax
  
T/C Index  linked
    
T/C Index linked
  
Jul-16
  
Sep-16
Catalina
2005
    
74,432
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Majorca
2005
    
74,477
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Ligari
2004
    
75,583
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Saldanha
2004
    
75,707
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Sorrento
2004
    
76,633
  
Panamax
  
T/C
    
$24,500
  
Aug-21
  
Dec-21
Mendocino
2002
    
76,623
  
Panamax
  
T/C Index  linked
    
T/C Index linked
  
Sep-16
  
Nov-16
Bargara
2002
    
74,832
  
Panamax
  
T/C Index  linked
    
T/C Index linked
  
Sep-16
  
Nov-16
Oregon
2002
    
74,204
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Ecola
2001
    
73,931
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Samatan
2001
    
74,823
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Sonoma
2001
    
74,786
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Capitola
2001
    
74,816
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Levanto
2001
    
73,925
  
Panamax
  
T/C Index  linked
    
T/C Index linked
  
Aug-16
  
Oct-16
Maganari
2001
    
75,941
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Coronado
2000
    
75,706
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Marbella
2000
    
72,561
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Redondo
2000
    
74,716
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Topeka
2000
    
74,716
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Ocean Crystal
1999
    
73,688
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Helena
1999
    
73,744
  
Panamax
  
Spot
    
Spot
  
N/A
  
N/A
Average age based on year built / Sum of DWT/ Total number of vessels
11.7 years
    
1,798,274
  
24
                  
                       
Supramax:
                              
Byron
2003
    
51,118
  
Supramax
  
Spot
    
Spot
  
N/A
  
N/A
Galveston
2002
    
51,201
  
Supramax
  
Spot
    
Spot
  
N/A
  
N/A
Average age based on year built / Sum of DWT/ Total number of vessels
12.5 years
    
102,319
  
2
                  
Totals (38)
                              
Average age based on year built / Sum of DWT/ Total number of vessels
 9.5 years
    
4,254,626
  
39
                  
 
(1) Time charter includes purchase options for the charterer, see also "Item 3. Key Information—D. Risk Factors—Company Specific Risk Factors—The failure of our counterparties to meet their obligations under our time charter agreements, or their exercise of a purchase option under certain of those agreements, could cause us to suffer losses or otherwise adversely affect our business."


43
Drilling Units
 
Drilling Unit Operating
Drilling Rigs
Year Built or
Scheduled
Delivery/
Generation
  
Water
Depth to the
Wellhead
(ft)
  
Drilling
Depth to the
Oil Field
(ft)
  
Customer
  
Expected Contract Term(1)
    
Average
Maximum
Dayrate
  
Drilling
Location
Leiv Eiriksson
2001/5th
  
10,000
  
30,000
  
Rig Management Norway AS(2)
  
Q2 2013–Q1 2016
    
$
545,000
  
Norwegian Continental Shelf
Eirik Raude
2002/5th
  
10,000
  
30,000
  
Premier Oil Exploration and Production Ltd.(3)
  
Q1 2015 – Q4 2015
    
$
561,350
  
Falkland Islands
 
Operating Drillships
                                    
 
Ocean Rig Corcovado
2011/6th
  
10,000
  
40,000
  
Petroleo Brasileiro S.A.
  
Q2 2012–Q2 2015
    
$
439,402
(4)
Brazil
             
Petroleo Brasileiro S.A.
  
Q2 2015–Q2 2018
    
$
523,306
(5)
Brazil
Ocean Rig Olympia
2011/6th
  
10,000
  
40,000
  
Total E&P Angola
  
Q3 2012–Q3 2015
(6)
  
$
585,437
  
Angola
             
ENI Angola S.p.A.(7)
  
Q4 2015-Q4 2015
    
$
355,000
  
Angola
Ocean Rig Poseidon
2011/6th
  
10,000
  
40,000
  
ENI Angola S.p.A.
  
Q2 2013–Q2 2016
    
$
690,300
(8)
Angola
             
ENI Angola S.p.A.(10)
  
Q2 2016-Q2 2017
    
$
539,150
  
Angola
Ocean Rig Mykonos
2011/6th
  
10,000
  
40,000
  
Petroleo Brasileiro S.A.
  
Q1 2012–Q1 2015
    
$
433,044
(4)
Brazil
             
Petroleo Brasileiro S.A.
  
Q1 2015–Q1 2018
    
$
514,090
(5)
Brazil
Ocean Rig Mylos
2013/7th
  
12,000
  
40,000
  
Repsol Sinopec Brasil S.A.
  
Q3 2013–Q3 2016
    
$
637,270
(9)
Brazil
Ocean Rig Skyros
2013/7th
  
12,000
  
40,000
  
ENI Angola S.p.A.(7)
  
Q2 2015-Q3 2015
    
$
355,000
  
Nigeria, Angola
             
Total E&P Angola
  
Q4 2015-Q3 2021
    
$
592,834
  
Angola
Ocean Rig Athena
2014/7th
  
12,000
  
40,000
  
ConocoPhillips Angola 36 & 37 Ltd
  
Q1 2014–Q2 2017
    
$
662,523
(10)
Angola
 Ocean Rig Apollo
Q1 2015/7th
12,000
40,000
Total E&P Congo
Q1 2015-Q2 2018
 $
594,646
 (11)
West Africa
 
Newbuilding Drillships
                                    
       
 
    
$
 
(11)
 
Ocean Rig Santorini
Q2 2016/7th
  
12,000
  
40,000
                       
Ocean Rig TBN#1
Q1 2017/7th
  
12,000
  
40,000
                       
Ocean Rig TBN#2
Q2 2017/7th
  
12,000
  
40,000
                       
 
 
(1)           Not including the exercise of any applicable options to extend the term of the contract.

(2)           Rig Management Norway is the coordinator for the consortium under the contract. The contract has a minimum duration of 1,070 days and includes three options of up to six wells each that must be exercised prior to the expiration of the firm contract period in the first quarter of 2016.

(3)           The contract has a minimum duration of 260 days and includes two options of up to eight wells each, the first of which must be exercised prior to the commencement of the contract and the other one must be exercised before the expiration of the firm and option contract period.

(4)           Approximately 20% of the maximum dayrates are service fees paid to us in Brazilian Real (R$). The maximum dayrate disclosed in this table is based on the February 24, 2015 exchange rate of R$2.87:$1.00.

(5)                We have been awarded extensions of the drilling contracts for the Ocean Rig Corcovado and the Ocean Rig Mykonos by Petrobras for drilling offshore Brazil. The term of each extension is for 1,095 excluding reimbursement by Petrobras for contract related equipment upgrades. The new contracts will commence in direct continuation from the end of the current agreements with Petrobras, in the first and second quarter of 2015, respectively.

(6)           Total E&P Angola has notified us its intentions to redeliver the Ocean Rig Olympia on completion of its present well expected in the first quarter of 2015 and ahead of the contractual redelivery date of August 2015. We are presently in discussions with Total EP Angola and intend to legally defend our rights should we fail to reach an amicable solution.

(7)                On January 8, 2015, we, entered into an Omnibus Agreement with ENI Angola S.p.A pursuant to which pursuant to which ENI has exercised its option to extend the contract for the drillship Ocean Rig Poseidon for a further one year until the second quarter of 2017. As part of the contract extension for the Ocean Rig Poseidon, Ocean Rig has agreed to adjust the existing dayrate of the Ocean Rig Poseidon contract in exchange for ENI agreeing to enter into two contracts (the "ENI contracts") for the employment of one or more of Ocean Rig's available drillships in West Africa starting in the first quarter of 2015 for an aggregate period of approximately 8 months. The Agreement outlined above remains subject to customary closing conditions including the approval by national authorities which we expect will be obtained before the end of the first quarter of 2015.

(8)           The maximum dayrate of $690,300 is the average maximum dayrate applicable during the initial three-year term of the contract. Under the contract, the initial maximum dayrate of $670,000 will increase annually at a rate of 3%, beginning twelve months after the commencement date, during the term of the contract. ENI has the option to extend the term of the contract by two optional periods of one-year each.

(9)           On November 4, 2013 the Ocean Rig Mylos commenced drilling operations with Repsol at an average maximum dayrate of approximately $637,270 over the initial term of the contract. Under the contract, Repsol has options to extend the contract for up to two years beyond the initial three-year contract period.
 
(10)         On June 7, 2014, the Ocean Rig Athena commenced drilling operations with ConocoPhillips at an average maximum dayrate of $662,523 which is the average maximum dayrate applicable during the initial three-year term of the contract. Under the contract, the initial maximum dayrate is subject to a fixed annual escalation of approximately 6% during the contract period. Under the contract, ConocoPhillips has the option to extend the initial contract period by up to two years.

(11)         The maximum dayrate of approximately $594,646 is the average maximum dayrate applicable during the initial three-year term of the contract. Under the contract, the initial maximum dayrate of $580,000 is subject to a fixed escalation of 2% during the contract period. Under the contract, the counterparty has the option to extend the initial contract period by up to two years.
44
 
Tankers
 
           
Redelivery
 
Year Built
DWT
Type
Current employment or
employment upon delivery
Gross rate
per day
Earliest
Latest
Suezmax:
                    
Bordeira
2013
158,513
Suezmax
Spot
N/A
  
N/A
  
N/A
  
Petalidi
2012
158,532
Suezmax
Spot
N/A
  
N/A
  
N/A
  
Lipari
2012
158,425
Suezmax
Spot
N/A
  
N/A
  
N/A
  
Vilamoura
2011
158,622
Suezmax
Spot
N/A
  
N/A
  
N/A
  
Aframax
                    
Alicante
2013
115,708
Aframax
Spot
N/A
  
N/A
  
N/A
  
Mareta
2013
115,796
Aframax
Spot
N/A
  
N/A
  
N/A
  
Calida
2012
115,812
Aframax
Spot
N/A
  
N/A
  
N/A
  
Saga
2011
115,738
Aframax
Spot
N/A
  
N/A
  
N/A
  
Daytona
2011
115,896
Aframax
Spot
N/A
  
N/A
  
N/A
  
Belmar
2011
115,904
Aframax
Spot
N/A
  
N/A
  
N/A
  
 
 
Our Drybulk Operations

Management of our Drybulk Vessels

We do not employ personnel to run our vessel operating and chartering business on a day-to-day basis. Prior to January 1, 2011, Cardiff Marine Inc., or Cardiff, a company affiliated with our Chairman, President and Chief Executive Officer, Mr. George Economou, served as our technical and commercial manager pursuant to separate management agreements with each of our drybulk vessel-owning subsidiaries. Effective January 1, 2011, we entered into new management agreements with TMS Bulkers, a related party entity, that replaced our management agreements with Cardiff, on the same terms as our management agreements with Cardiff, as a result of an internal restructuring of Cardiff for the purpose of enhancing Cardiff's efficiency and the quality of its ship-management services. For a description of the terms of our management agreements with TMS Bulkers, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Drybulk Vessels."

We believe that TMS Bulkers has established a reputation in the international shipping industry for operating and maintaining a fleet with high standards of performance, reliability and safety.

TMS Bulkers utilizes the same experienced personnel utilized by Cardiff in providing us with comprehensive ship management services, including technical supervision, such as repairs, maintenance and inspections, safety and quality, crewing and training as well as supply provisioning. TMS Bulkers' commercial management services include operations, chartering, sale and purchase, post-fixture administration, accounting, freight invoicing and insurance.

TMS Bulkers' completed implementation of the ISM Code, in 2010. TMS Bulkers has obtained documents of compliance for its office and safety management certificates for our vessels as required by the ISM Code and is ISO 14001 certified in recognition of its commitment to overall quality.

TMS Bulkers is beneficially owned by our Chairman, President and Chief Executive Officer, Mr. George Economou, and, under the guidance of our board of directors, manages our business as a holding company, including our own administrative functions, and we monitor TMS Bulkers' performance under the management agreements.
45
Chartering of our Drybulk Vessels

We actively manage the deployment of our drybulk fleet between long-term time charters and short-term time charters or spot charters, which generally last from several weeks to several days, and long-term time charters and bareboat charters, which can last up to several years.

As of March 2, 2015, 18 of our drybulk vessels were employed under time charters and 21 of our drybulk vessels were employed in the spot market.

Time Charters

A time charter is a contract to charter a vessel for a fixed period of time at a specified or floating daily or index-based daily rate and can last from a few days to several years. Under a time charter, the charterer pays for the voyage expenses, such as port, canal and fuel costs, while the shipowner pays for vessel operating expenses, including, among other costs, crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs and costs relating to a vessel's intermediate and special surveys.

Spot Charters

A spot charter generally refers to a voyage charter or a trip charter or a short-term time charter.

Vessels operating in the spot market typically are chartered for a single voyage, which may last up to several weeks. Under a typical voyage charter in the spot market, the shipowner is paid an agreed-upon total amount on the basis of moving cargo from a loading port to a discharge port. In voyage charters, the charterer generally is responsible for any delay at the loading or discharging ports, and the shipowner is generally responsible for paying both vessel operating expenses and voyage expenses, including any bunker expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.

Bareboat Charter

Under a bareboat charter, the vessel is chartered for a stipulated period of time, which gives the charterer possession and control of the vessel, including the right to appoint the master and the crew. Under bareboat charters, all voyage costs are paid by the charterer.

Competition

Demand for drybulk carriers fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and demand for these items. We compete with other owners of drybulk carriers in the Capesize, Panamax and Supramax size sectors. Ownership of drybulk carriers is highly fragmented and is divided among approximately 1,600 independent drybulk carrier owners. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator.

Customers

Our assessment of a charterer's financial condition, creditworthiness, reliability and track record are important factors in negotiating employment for our vessels. We believe that our management team's network of relationships and more generally TMS Bulker's reputation and experience in the shipping industry  will continue to provide competitive employment opportunities for our vessels in the future.

During the year ended December 31, 2014, two of our customers accounted for more than ten percent of our total drybulk revenues: Customer A (42%), Customer B (18%).  During the year ended December 31, 2013, two of our customers accounted for more than ten percent of our total drybulk revenues: Customer C (38%), Customer D (20%). During the year ended December 31, 2012, four of our customers accounted for more than ten percent of our total drybulk revenues: Customer E (32%), Customer F (13%), Customer G (13%) and Customer H (17%). Given our exposure to, and focus on, the long-term and short-term, or spot, time charter markets, we do not foresee any one customer providing a significant percentage of our income over an extended period of time.

Seasonality

Demand for vessel capacity has historically exhibited seasonal variations and, as a result, fluctuations in charter rates. This seasonality may result in quarter-to-quarter volatility in our operating results for our vessels trading in the spot market. The drybulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities.

To the extent that we must enter into new charters or renew an existing charters for vessels in our fleet during a time when seasonal variations have reduced prevailing charter rates, our operating results may be adversely affected.
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Charterhire Rates

Charterhire rates fluctuate by varying degrees amongst the drybulk carrier size categories. The volume and pattern of trade in a small number of commodities (major bulks) affect demand for larger vessels. Because demand for larger drybulk vessels is affected by the volume and pattern of trade in a relatively small number of commodities, charterhire rates (and vessel values) of larger ships tend to be more volatile. Conversely, trade in a greater number of commodities (minor bulks) drives demand for smaller drybulk carriers. Accordingly, charter rates and vessel values for those vessels are subject to less volatility. Charterhire rates paid for drybulk carriers are primarily a function of the underlying balance between vessel supply and demand. In addition, time charter rates will vary depending on the length of the charter period and vessel-specific factors, such as container capacity, age, speed and fuel consumption. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and between the different drybulk carrier categories.

In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption. In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit.

Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.

Within the drybulk shipping industry, the charterhire rate references most likely to be monitored are the freight rate indices issued by the Baltic Exchange, such as the BDI. These references are based on actual charterhire rates under charter entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin.

The BDI declined 94% in 2008 from a peak of 11,793 in May 2008 to a low of 663 in December 2008 and has remained volatile since then.  The BDI recorded an all time low of 516 on February 17, 2015, there can be no assurance that the drybulk charter market will increase, and the market could decline further.

 Vessel Prices

Drybulk vessel prices, both for newbuildings and secondhand vessels, have decreased significantly since the year ended 2008 as a result of the weakening of the drybulk shipping industry. The vessel values have also declined as a result of a slowdown in the availability of global credit. The lack of credit has resulted in the restriction to fund both vessel purchases and purchases of commodities carried by sea. There can be no assurance as to how long charterhire rates and vessel values will remain depressed or whether they will drop any further. Should the charterhire rates remain at these depressed levels for some time, our revenue and profitability will be adversely affected.

The International Drybulk Shipping Industry

Drybulk cargo is shipped in quantities and can be easily stowed in a single hold with little risk of cargo damage. According to industry sources, in 2014, approximately 4,503 million tons of cargo was transported by drybulk carriers, including iron ore, coal and grains representing 29.5%, 26.5% and 9.2% of the total drybulk trade, respectively.

The demand for drybulk carrier capacity is determined by the underlying demand for commodities transported in drybulk carriers, which in turn is influenced by trends in the global economy. Between 2001 and 2007, trade in all drybulk commodities increased from 2,237 million tons to 3,204 million tons, an increase of 43.2%. One of the main reasons for that increase in drybulk trade was the growth in imports by China of iron ore, coal and steel products during the last eight years. Chinese imports of iron ore alone increased from 92.5 million tons in 2001 to approximately 383.7 million tons in 2007. In 2008, seaborne trade in all drybulk commodities increased to 3,298 million tons. However, demand for drybulk shipping decreased dramatically in the second quarter of 2008 evidenced by the decrease in Chinese iron ore imports which decreased from a high of 119.6 million tons in the second quarter of 2008 to a low of 97.7 million tons during the fourth quarter of 2008 representing a decrease of 18.3%. In 2009, seaborne trade in all drybulk commodities increased to 3,193 million tons as demand for drybulk shipping picked up following mainly an increase in Chinese iron ore imports from 444.3 million tons in 2008 to 628.4 million tons in 2009. In 2010 and 2011, seaborne trade in all drybulk commodities increased to about 3,594 million tons and 3,828 million tons, respectively, representing an increase since 2009 of 12.6% and 16.6% respectively. During 2012, seaborne trade increased by 6.8% and Chinese iron ore imports rose by 8.5%. During 2013, seaborne trade increased by 5.4% and Chinese iron ore imports rose by 0.2%. During 2014, seaborne trade increased by 3.97% and Chinese iron ore imports rose by 14.84%. Demand for drybulk carrier capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market since 2004, absorbing tonnage and therefore leading to a tighter balance between supply and demand. In evaluating demand factors for drybulk carrier capacity, we believe that drybulk carriers can be the most versatile element of the global shipping fleets in terms of employment alternatives. Drybulk carriers seldom operate on round trip voyages. Rather, the norm is triangular or multi-leg voyages. Hence, trade distances assume greater importance in the demand equation.
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The global drybulk carrier fleet may be divided into five categories based on a vessel's carrying capacity. These categories consist of:

● Very Large Ore Carriers, or VLOCs, have a carrying capacity of more than 200,000 dwt and are a comparatively new sector of the drybulk carrier fleet. VLOCs are built to exploit economies of scale on long-haul iron ore routes.

● Capesize vessels, have carrying capacities of 110,000 – 199,999 dwt. These vessels generally operate along long-haul iron ore and coal trade routes. There are relatively few ports around the world with the infrastructure to accommodate vessels of this size.

● Panamax vessels, have a carrying capacity of between 60,000 and 85,000 dwt. These vessels carry coal, grains, and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers. Panamax vessels are able to pass through the Panama Canal making them more versatile than larger vessels.

● Handymax vessels, have a carrying capacity of between 35,000 and 60,000 dwt. The subcategory of vessels that have a carrying capacity of between 45,000 and 60,000 dwt are called Supramax. These vessels operate along a large number of geographically dispersed global trade routes mainly carrying grains and minor bulks. Vessels below 60,000 dwt are sometimes built with on-board cranes enabling them to load and discharge cargo in countries and ports with limited infrastructure.

● Handysize vessels, have a carrying capacity of up to 35,000 dwt. These vessels carry exclusively minor bulk cargo. Increasingly, these vessels have operated along regional trading routes. Handysize vessels are well suited for small ports with length and draft restrictions that may lack the infrastructure for cargo loading and unloading.

The supply of drybulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. The orderbook of new drybulk vessels scheduled to be delivered in 2015 represents approximately 11.25% of the world drybulk fleet as of January 1, 2015. The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs. Drybulk carriers at or over 25 years old are considered to be scrapping candidate vessels.

Our Offshore Drilling Operations

Employment of our Drilling Units

The Leiv Eiriksson commenced a drilling contract in April 2013 with a consortium coordinated by Rig Management Norway, or Rig Management, for the drilling of 15 wells on the Norwegian Continental Shelf at a maximum dayrate of $545,000.  We received approximately $83.0 million under the contract to cover mobilization and fuel costs as well as the cost of equipment upgrades to operate in the Norwegian Continental Shelf. The contract has a minimum duration of 1,070 days and includes three options of up to six wells each that must be exercised prior to the expiration of the firm contract period in the first quarter of 2016.

The Eirik Raude is currently undergoing the acceptance testing and it is expected to commence a six well drilling contract for drilling offshore Falkland Islands with Premier Oil Exploration and Production Ltd, or Premier, with a duration of approximately 260 days at a maximum dayrate of $561,350 under the initial term of the contract, plus a mobilization fee of $18.0 million. Under the contract, Premier has two options to extend the term of the contract by 8 additional wells each.

The Ocean Rig Corcovado is currently employed under a three-year drilling contract, plus a mobilization period with Petrobras Brazil for drilling operations offshore Brazil at a maximum dayrate of $439,402 (including service fees of $67,722 per day, based on the contracted rate in Real per day and the February 24, 2015 exchange rate of R$2.87:USD $1.00), plus a mobilization fee of $30.0 million. The contract has been extended for 1,095 at an average dayrate of $523,306, plus reimbursement by Petrobras for contract related equipment upgrades of $30.0 million.

The Ocean Rig Olympia commenced a three-year drilling contract with Total E&P Angola in July 2012 for drilling operations offshore West Africa at a maximum dayrate of $585,437, plus mobilization and demobilization fees of $9.0 million and $3.5 million, respectively, plus the cost of fuel. Total E&P Angola has notified us its intentions to redeliver the Ocean Rig Olympia on completion of its present well expected in the first quarter of 2015 and ahead of the contractual redelivery date of August 2015. We are presently in discussions with Total EP Angola and intend to legally defend our rights should we fail to reach an amicable solution. The Ocean Rig Olympia will be employed under the ENI contracts for drilling operations offshore Angola in November 2015 with an estimated backlog of approximately $21.7 million.
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 The Ocean Rig Poseidon commenced a three-year drilling contract with ENI Angola S.p.A., or ENI, in May 2013 for drilling operations offshore Angola at a maximum dayrate of $690,300, which is the average maximum dayrate applicable during the initial three-year term of the contract.  During the term of the contract, the initial maximum dayrate of $670,000 will increase annual at a rate of 3%, beginning twelve months after the commencement date.  The contract also includes a mobilization rate of $656,600 per day, plus reimbursement for the cost of fuel, and a demobilization fee of $5.0 million.  In January 2015, ENI has exercised its option to extend the contract for the drillship Ocean Rig Poseidon for a further one year until the second quarter of 2017 with an adjusted dayrate in exchange of the ENI contracts. The new average maximum dayrate, under the extension, will be $539,750.

The Ocean Rig Mykonos commenced a three-year drilling contract, plus a mobilization period, with Petrobras Brazil, on September 30, 2011, for drilling operations offshore Brazil at a maximum dayrate of $433,044 (including service fees of $ 65,404 per day, based on the contracted rate in Real and the February 24, 2015 exchange rate of R$2.87: $1.00), plus a mobilization fee of $30.0 million. The contract is scheduled to expire in March 2015. The contract has been extended for 1,095 at an average dayrate of $514,090 , plus reimbursement by Petrobras for contract related equipment upgrades of $30.0 million.

The Ocean Rig Mylos commenced a three-year drilling contract with Repsol for drilling operations offshore Brazil in August 2013 at a maximum dayrate of $ 637,270, which is the average maximum dayrate applicable during the initial three-year term of the contract, plus a mobilization fee of $40.0 million. Under the contract, Repsol has options to extend the contract for one year beyond the initial three-year contract period.

The Ocean Rig Skyros , which is currently idle, will be employed under the ENI contracts for drilling operations offshore Nigeria and Angola in March 2015 with an estimated backlog of approximately $68.6 million. In November 2015, the Ocean Rig Skyros will commence its six year contract with Total for drilling operations offshore Angola. Under the contract, we are entitled to a maximum dayrate of approximately $592,834, which is the average maximum dayrate applicable during the initial six-year term of the contract, plus mobilization fees of $20 million. Under the contract, the initial maximum dayrate is subject to a fixed annual escalation of 2% during the contract period.

The Ocean Rig Athena commenced a three-year drilling contract with ConocoPhillips for drilling operations offshore Angola in March 2014 at a maximum dayrate of $662,523, which is the average maximum dayrate applicable during the initial three-year term of the contract, plus a lump-sum mobilization fee of $35.2 million, exclusive of fuel costs. Under the contract, the initial maximum dayrate is subject to a fixed annual escalation of approximately 2% during the contract period. In addition, ConocoPhillips has the option to extend the duration of the contract for two years.

We have also entered into a three-year contract with Total E&P Congo for drilling operations offshore West Africa with an estimated backlog of approximately $692.6 million, including mobilization, for the Ocean Rig Apollo, our seventh generation drillship delivered on March 5, 2015. The contract is scheduled to commence in the first quarter of 2015. In addition, Total has the option to extend the term of the contract for four periods of six months each, with the first option exercisable not less than one year before completion date.

The total contracted backlog under our drilling contracts for our drilling units, including our drilling rigs, as of February 24, 2015, was $5.2 billion. We calculate our contract backlog by multiplying the contractual dayrate under all of our employment contracts for which we have firm commitments as of February 24, 2015, by the minimum expected number of days committed under such contracts (excluding any options to extend), assuming full utilization. There can be no assurance that the counterparties to such contracts will fulfill their obligations under the contracts. See the section of this annual report entitled "Item 3. Key Information—Risk Factors—Risks Relating to Our Company—Our future contracted revenue for our fleet of drilling units may not be ultimately realized."

Unless otherwise stated, all references to maximum dayrates included in this annual report are exclusive of any applicable annual contract revenue adjustments, which generally result in the escalation of the dayrates payable under the drilling contracts.

Newbuilding Drillships

We have entered into contracts for the construction of three seventh generation drillships, two of which are new integrated design drillships and all are equiped with two blow-out preventers, scheduled for delivery in June 2016, February 2017 and June 2017, respectively, in connection with which we had made total payments of $280.2 million to Samsung, as of December 31, 2014. The estimated total project cost for these drillships is approximately $2.1 billion.

Management of Our Offshore Drilling Operations

Management Agreements

Up to October 2013, Ocean Rig's wholly-owned subsidiary, Ocean Rig AS, provided supervisory management services including onshore management, to our operating drilling rigs and drillships pursuant to separate management agreements entered into with each of the drilling unit-owning subsidiaries. In addition, Ocean Rig AS provided supervisory management services for our seventh generation drillships under construction.
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From October 2013, the above services are provided by Ocean Rig's wholly owned subsidiary, Ocean Rig Management Inc., pursuant to separate management agreements entered/to be entered with each of the drilling unit-owning subsidiaries.

Under the terms of these management agreements, Ocean Rig Management Inc, through its affiliates, is responsible for, among other things, (i) assisting in construction contract technical negotiations, (ii) securing contracts for the future employment of the drilling units, and (iii) providing commercial, technical and operational management for the drillships.

Effective  January 1, 2013, Ocean Rig Management Inc., or Ocean Rig Management, our majority-owned subsidiary and a wholly-owned subsidiary of Ocean Rig UDW, entered into a new services agreement with an affiliate of Cardiff.

Effective from September 1, 2010, DryShips Inc. entered into a consultancy agreement, or the DryShips Consultancy Agreement, with Vivid Finance Ltd., or Vivid Finance, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, pursuant to which Vivid Finance provides consulting services relating to (i) the identification, sourcing, negotiation and arrangement of new loan and credit facilities, interest swap agreements, foreign currency contracts and forward exchange contracts; (ii) the raising of equity or debt in the public capital markets; and (iii) the renegotiation of existing loan facilities and other debt instruments. Effective January 1, 2013, Ocean Rig Management entered into a separate consultancy agreement, or the Ocean Rig Consultancy Agreement, with Vivid Finance, on the same terms and conditions as the DryShips Consultancy Agreement.

For more information on the services agreements discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Drilling Units—Services Agreement."

Contract Drilling Services

Our contracts to provide offshore drilling services and drilling units are individually negotiated and vary in their terms and provisions. We generally obtain our contracts through competitive bidding against other contractors. The contracts for our drilling units typically provide for compensation on a "dayrate" basis under which we are paid a fixed amount for each day that the vessel is operating under a contract at full efficiency, with higher rates while the drilling unit is operating and lower rates for periods of mobilization or when drilling operations are interrupted or restricted by equipment breakdowns, adverse environmental conditions or other conditions beyond our control. Under most dayrate contracts, we pay the operating expenses of the rig or drillship, including planned rig maintenance, crew wages, insurance and the cost of supplies.

A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term, as do the current contracts under which our drilling units are employed. Currently, there is no spot market for offshore drilling units. The length of shorter-term contracts is typically from 60 to 365 days and the longer-term contracts are typically from two to five years. The contract term in some instances may be extended by the client exercising options for the drilling of additional wells or for an additional term. Our contracts also typically include a provision that allows the client to extend the contract to finish drilling a well-in-progress.

From time to time, contracts with customers in the offshore drilling industry may contain terms whereby the customer has an option to cancel upon payment of an early termination payment, but where such payments may not fully compensate for the loss of the contract. Contracts also customarily provide for either automatic termination or termination at the option of the customer typically without the payment of any termination fee, under various circumstances such as major nonperformance, in the event of substantial downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to force majeure events. Many of these events are beyond our control.

We expect that provisions of future contracts will be similar to those in our current contracts for our drilling units. See "—Employment of our Drilling Units."

Competition

The offshore contract drilling industry is competitive with numerous industry participants, few of which at the present time have a dominant market share. The drilling industry has experienced consolidation in recent years and may experience additional consolidation, which could create additional large competitors. Many of our competitors have significantly greater financial and other resources, including more drilling units, than us. We compete with offshore drilling contractors that, as of February 2015, together have approximately 165 ultra-deepwater drilling units worldwide, defined as units with water depth capacity of 7,500 feet or more.

The offshore contract drilling industry is influenced by a number of factors, including global demand for oil and natural gas, current and anticipated prices of oil and natural gas, expenditures by oil and gas companies for exploration and development of oil and natural gas and the availability of drilling rigs. In addition, mergers among oil and natural gas exploration and production companies have reduced, and may from time to time reduce, the number of available customers.
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Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition is often the primary factor in determining which qualified contractor is awarded a contract. Customers may also consider unit availability, location and suitability, a drilling contractor's operational and safety performance record, and condition and suitability of equipment. We believe that we compete favorably with respect to these factors.

We compete on a worldwide basis, but competition may vary significantly by region at any particular time. Competition for offshore units generally takes place on a global basis, as these units are highly mobile and may be moved from one region to another, at a cost that may be substantial. Competing contractors are able to adjust localized supply and demand imbalances by moving units from areas of low utilization and dayrates to areas of greater activity and relatively higher dayrates. Significant new unit construction and upgrades of existing drilling units could also intensify price competition.

Customers

Our customers in the offshore drilling segment are generally major oil companies, integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies. Ocean Rig UDW, together with its predecessor, Ocean Rig ASA, have an established history with 237 wells drilled in 20 countries for 31 different customers, as of February 2015.

For the years ended December 31, 2012, 2013 and 2014, the following customers, which represent all of our customers for the years indicated, accounted for more than 10% of our drilling revenues:

Customer
  
Year ended
December 31, 2012
    
Year ended
December 31, 2013
    
Year ended
December 31, 2014
  
Customer A
    
-
      
-
      
14%
  
Customer B
    
49%
      
33%
      
18%
  
Customer C
    
18%
      
-
      
-
  
Customer D
    
12%
      
-
      
-
  
Customer E
    
-
      
13%
      
12%
  
Customer F
    
-
      
18%
      
30%
  
Customer G
    
-
      
12%
      
14%
  

Seasonality

In general, seasonal factors do not have a significant direct effect on our offshore drilling business as most of our drilling units are contracted for periods of at least 12 months. However, our drilling units may perform drilling operations in certain parts of the world where weather conditions during parts of the year could adversely impact the operational utilization of our drilling units and our ability to relocate units between drilling locations, and as such, limit contract opportunities in the short term. Such adverse weather could include the hurricane season for our operations in the Gulf of Mexico, the winter season in offshore Norway, and the monsoon season in Southeast Asia.

The Offshore Drilling Industry

In recent years, the international drilling market has seen an increasing trend towards deep and ultra-deepwater oil and gas exploration. As shallow water resources mature, deep and ultra-deepwater regions are expected to play an increasing role in offshore oil and gas exploration and production. According to industry sources, the industry-wide global ultra-deepwater market has seen rapid development over the last six years, with dayrates increasing from approximately $180,000 in 2004 to above $600,000 in 2008 and as of February 2015, the market level is approximately $530,000. The ultra-deepwater market rig utilization rate has been stable, above 80% since 2000 and above 97% since 2006. The operating units capable of drilling in ultra-deepwater depths of greater than 7,500 feet consist mainly of fifth, sixth and seventh generation units, and also include certain older upgraded units. The in-service ultra-deepwater fleet as of February 2015 totaled 165 units, and is expected to grow to 228 units upon the scheduled delivery of the current newbuild orderbook by the end of 2020. Historically, an increase in supply has caused a decline in utilization and dayrates until drilling units are absorbed into the market. Accordingly, dayrates have been very cyclical. We believe that the largest undiscovered offshore reserves are mostly located in ultra-deepwater fields and primarily located in the "golden triangle" between West Africa, Brazil and the Gulf of Mexico, as well as in East Africa, Australia and Southeast Asia. The location of these large offshore reserves has resulted in more than 90% of the floating drilling unit, or floater, orderbook being represented by ultra-deepwater units. Furthermore, due to increased focus on technically challenging operations and the inherent risk of developing offshore fields in ultra-deepwater, particularly in light of the Deepwater Horizon accident in the Gulf of Mexico, in which we were not involved, oil companies have already begun to show a preference for modern units more capable of drilling in these challenging environments.
 
 

 
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Markets

Our operations in the offshore drilling industry are geographically dispersed in oil and gas exploration and development areas worldwide. Although the cost of moving a drilling unit and the availability of drilling unit-moving vessels may cause the balance between supply and demand to vary between regions, significant variations do not tend to exist long-term because of rig mobility. Consequently, we operate in a single, global offshore drilling market. Because our drilling units are mobile assets and are able to be moved according to prevailing market conditions, we cannot predict the percentage of our offshore drilling revenues that will be derived from particular geographic or political areas in future periods.

In recent years, there has been increased emphasis by oil companies to expand their proven reserves and thus focus on exploring for hydrocarbons in deeper waters. This deepwater focus is due, in part, to technological developments that have made such exploration more feasible and cost-effective. Therefore, water-depth capability is a key component in determining rig suitability for a particular drilling project. Another distinguishing feature in some drilling market sectors is a rig's ability to operate in harsh environments, including extreme marine and climatic conditions and temperatures.

Our drilling units service the ultra-deepwater sector of the offshore drilling market. Although the term "deepwater" as used in the drilling industry to denote a particular sector of the market can vary and continues to evolve with technological improvements, we generally view the deepwater market sector as that which begins in water depths of approximately 4,500 feet and extends to the maximum water depths in which seventh generation rigs are capable of drilling, which is currently approximately 12,000 feet.

Our Tanker Operations

Management of our Tankers

Since January 1, 2011, TMS Tankers, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, has provided the commercial and technical management functions of our tankers, including while our tankers were under construction, pursuant to separate management agreements entered into with TMS Tankers for each of our tankers.  For more information on our management agreements with TMS Tankers, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Tankers."

TMS Tankers is beneficially owned by our Chairman, President and Chief Executive Officer, Mr. George Economou. Mr. Economou, and, under the guidance of our board of directors, manages our business as a holding company, including our own administrative functions, and we monitor TMS Tankers' performance under the management agreements. We believe that TMS Tankers has established a reputation in the international shipping industry for operating and maintaining a fleet with high standards of performance, reliability and safety.

Employment of our Tankers

We operate our tankers in the spot market. As of March 2, 2015, none of our tankers operates in pool. In the past, four of our other Aframax tankers operated in the Sigma tanker pool and three of our Suezmax tankers operated in the Blue Fin tanker pool.

TMS Tankers may seek to hedge our spot exposure through the use of freight forward agreements or other financial instruments. In addition, we may employ our tankers on fixed-rate time charters in the future. Accordingly, we actively monitor macroeconomic trends and governmental rules and regulations that may affect tanker rates in an attempt to optimize the deployment of our fleet.

Voyage Charters

Tankers operating in the spot market typically are chartered for a single voyage, which may last up to several weeks. Spot market revenues may generate increased profit margins during times when tanker rates are increasing, while tankers operating under fixed-rate time charters generally provide more predictable cash flows. Under a typical voyage charter in the spot market, the shipowner is paid on the basis of moving cargo from a loading port to a discharge port. The shipowner is responsible for paying both vessel operating costs and voyage expenses, and the charterer is responsible for any delay at the loading or discharging ports. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. When the vessel is "off hire," or not available for service, the shipowner generally is not entitled to payment, unless the charterer is responsible for the circumstances giving rise to the lack of availability. Under a voyage charter, the shipowner is generally required, among other things, to keep the vessel seaworthy, to crew and maintain the vessel and to comply with applicable regulations.
 
 

 
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Pool Arrangements

To increase vessel utilization and thereby revenues, we have participated in the past, and may participate in the future, in commercial pools with other like-minded shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools consist of experienced commercial owners and operators, while technical management is arranged by each shipowner. Pools negotiate charters with customers primarily in the spot market. Vessel pool arrangements provide the benefits of large-scale operating and chartering efficiencies that might not be available to smaller fleets. Under these pooling arrangements, the vessels operate under a spot charter agreement whereby the cost of bunkers and port expenses are borne by the pool and operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel. Members of the pool share in the revenue generated by the entire group of vessels in the pool. When the vessel is off-hire, the vessel's owner generally is not entitled to payment for the period of off-hire, unless the charterer of a vessel in the pool is responsible for the circumstances giving rise to the lack of availability.

Each pool participant that commits vessels to the pool must be accepted into the pool in accordance with the terms and conditions of the pool agreements entered into by each of the other participants. Pool participants are responsible for, among other things:

● maintaining their pool vessels in seaworthy condition and to the agreed technical and operational standards of the pool;

● maintaining all required ISM certificates and keeping the pool vessel classed with a classification society that is a member of the International Association of Classification Societies, or the IACS;

● obtaining and maintaining a minimum number of agreed oil major approvals in accordance with the pool agreement;

● providing for inspections to insure that ship inspection reports are obtained at least every six months;

● obtaining, for its own account, in accordance with standards consistent with prudent first class owners of vessels, all relevant insurance policies for its pool vessels, including hull and machinery, protection and indemnity and war risk insurance policies; and

● providing for the technical management of its pool vessels, including all matters related to vessel seaworthiness, crewing and crew administration, victualling, maintenance and repairs, drydocking, provisioning (lube oils, stores and spare parts), compliance with class requirements and compliance with the requirements of relevant authorities.

The pool manager is responsible for the commercial management of each pool vessel, which includes, among other things:

● marketing the vessels;

● trading pattern analysis;

● handling of charters and employment contracts;

● commercial operations and payment and collection of expenses and revenues relating to commercial operations;

● handling of any post-fixture claims; and

● budgeting, accounting and performance of the pool.

The pool manager has sole authority to fix employment for the pool vessels. The pool manager has the authority to commit each pool vessel to an employment contract, on a voyage basis or on a time charter that is consistent with the pool agreement.

As of March 2, 2015, none of our tankers operated in pool. For information regarding our former pooling arrangements with the Blue Fin and Sigma tanker pools discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Pooling Arrangements."

Time Charters

A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. A customer generally selects a time charter if it wants a dedicated vessel for a period of time, and the customer is commercially responsible for the use of the vessel. Under a typical time charter, the shipowner provides crewing and other services related to the vessel's operation, the cost of which is included in the daily rate, while the customer is responsible for substantially all of the voyage expenses. When the vessel is off hire, the customer generally is not required to pay the hire rate and the owner is responsible for all costs. "Hire rate" refers to the basic payment from the charterer for the use of the vessel. Hire payments may be reduced, or under some time charters the shipowner must pay liquidated damages, if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls below a guaranteed level or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed amount. When the vessel is "off hire," or not available for service, the charterer generally is not required to pay the hire rate, and the shipowner is responsible for all costs, including the cost of fuel bunkers, unless the charterer is responsible for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off hire if there is an occurrence preventing the full working of the vessel.
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Customers

During the year ended December 31, 2014, one of our customers accounted for more than ten percent of our total tanker revenues. During the year ended December 31, 2013, none of our customers accounted for more than ten percent of our total tanker revenues.

No other customers accounted for more than 10% of our consolidated revenues during 2014 or 2013.

Seasonality

Historically, oil trade and therefore charter rates have increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere has risen in colder weather and fallen in warmer weather. The tanker industry in general is less dependent on the seasonal transport of heating oil than a decade ago, as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles.

Competition

The market for international seaborne crude oil transportation services is highly fragmented and competitive. Seaborne crude oil transportation services generally are provided by two main types of operators: major oil company captive fleets (both private and state-owned) and independent ship-owner fleets. In addition, several owners and operators pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by us, also operate their own vessels and use such vessels not only to transport their own crude oil but also to transport crude oil for third party charterers in direct competition with independent owners and operators in the tanker charter market. Competition for charters is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which the Company engages. Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.

The International Tanker Market

International seaborne oil and petroleum products transportation services are mainly provided by two types of operators: major oil company captive fleets (both private and state-owned) and independent shipowner fleets. Both types of operators transport oil under short-term contracts (including single-voyage "spot charters") and long-term time charters with oil companies, oil traders, large oil consumers, petroleum product producers and government agencies. The oil companies own, or control through long-term time charters, approximately one third of the current world tanker capacity, while independent companies own or control the balance of the fleet. The oil companies use their fleets not only to transport their own oil, but also to transport oil for third-party charterers in direct competition with independent owners and operators in the tanker charter market.

            In the second half of 2012 average crude tanker spot freight rates were weaker as compared to historical averages. An oversupply of vessels relative to tanker demand was the main factor which weighed upon tanker rates. The oversupply is attributed to a relatively high number of new tanker deliveries over the course of the last few years, coupled with limited demolition activity mainly due to the relatively young age of the fleet. Some strength in spot tanker rates was seen towards the end of 2012 when cold winter weather in Europe and North America led to an increase in both oil demand and weather related transit delays. Rates subsequently weakened, however, in January 2013 upon easing of weather related seasonal factors and have remained mostly at depressed levels.  More recently, in 2014 and early 2015, the tanker shipping market is reported to be benefiting from rising charter rates, but still faces the problem of oversupply.

The oil transportation industry has historically been subject to regulation by national authorities and through international conventions. In recent years, however, an environmental protection regime has evolved which has a significant impact on the operations of participants in the industry in the form of increasingly more stringent inspection requirements, closer monitoring of pollution-related events, and generally higher costs and potential liabilities for the owners and operators of tankers.

In order to benefit from economies of scale, tanker charterers will typically charter the largest possible vessel to transport oil or products, consistent with port and canal dimensional restrictions and optimal cargo lot sizes. A tanker's carrying capacity is measured in deadweight tons, or dwt, which is the amount of crude oil measured in metric tons that the vessel is capable of loading. The oil tanker fleet is generally divided into the following five major types of vessels, based on vessel carrying capacity: (i) Ultra Large Crude Carrier, or ULCC, with a size range of approximately 320,000 to 450,000 dwt; (ii) Very Large Crude Carrier, or VLCC, with a size range of approximately 200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to 200,000 dwt; (iv) Aframax-size range of approximately 80,000 to 120,000 dwt; (v) Panamax-size range of approximately 50,000 to 80,000 dwt; and (v) small tankers of less than approximately 50,000 dwt. ULCCs and VLCCs normally transport crude oil in long-haul trades, such as from the Arabian Gulf to the United States or Western Europe via Asia or the Cape of Good Hope. Suezmax tankers also engage in long-haul crude oil trades as well as in medium-haul crude oil trades, such as from West Africa to the East Coast of the United States. Aframax-size vessels generally engage in both medium-and short-haul trades of less than 1,500 miles and carry crude oil or petroleum products.  Smaller tankers mostly transport petroleum products in short-haul to medium-haul trades.
 

 
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Environmental and Other Regulations in the Shipping Industry

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

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

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

International Maritime Organization

The United Nations' International Maritime Organization, or the IMO, has adopted the International Convention for the Prevention of Pollution from Ships of 1973, or MARPOL. MARPOL entered into force on October 2, 1983. It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate. MARPOL sets forth pollution-prevention requirements applicable to drybulk carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.

Air Emissions

In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits "deliberate emissions" of "ozone depleting substances," defined to include certain halons and chlorofluorocarbons. "Deliberate emissions" are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair and maintenance. Emissions of "volatile organic compounds" from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls , or PCBs)) are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil (see below). We believe that all our vessels are currently compliant in all material respects with these regulations.

The MEPC adopted amendments to Annex VI on October 10, 2008, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur (from the current cap of 4.50%). By January 1, 2020, sulfur content must not exceed 0.50%, subject to a feasibility review to be completed no later than 2018.  The United States ratified the Annex VI amendments in October 2008, and the EPA, promulgated equivalent emissions standards in late 2009.
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Sulfur content standards are even stricter within certain Emission Control Areas, or ECAs. As of July 1, 2010, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 1.0% (from 1.50%), which was further reduced to 0.10% on January 1, 2015. Amended Annex VI establishes procedures for designating new ECAs. The Baltic Sea and the North Sea have been so designated. Effective August 1, 2012, certain coastal areas of North America were designated ECAs and on January 1, 2014, the United States Caribbean Sea was designated ECA. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs.  If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. It makes the limits of the Energy Efficiency Design Index, or EEDI, apply to new ships, and all ships must develop and implement Ship Energy Efficiency Management Plans, or SEEMPs.

Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The U.S. Environmental Protection Agency promulgated equivalent (and in some senses stricter) emissions standards in late 2009.

We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.

Safety Management System Requirements

The IMO also adopted the International Convention for the Safety of Life at Sea of 1974, or SOLAS, and the International Convention on Load Lines, or the LL Convention, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL Convention standards. May 2012 SOLAS amendments entered into force as of January 1, 2014.  We believe that all our vessels are in substantial compliance with SOLAS and LL Convention standards. The Convention of Limitation of Liability for Maritime Claims, or LLMC, was recently amended and the amendments are expected to go into effect on June 8, 2015. The amendments alter the limits of liability for a loss of life or personal injury claim or a property claim against ship owners.

The operation of our ships is also affected by the requirements set forth in Chapter IX of SOLAS, which sets forth the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We rely upon the safety management system that we and our technical manager have developed for compliance with the ISM Code.  The failure of a ship owner or bareboat charter to comply with the ISM Code may subject such party to increased liability, may decrease the availability of 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 obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.


Pollution Control and Liability Requirements

The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. To date, there has not been sufficient adoption of this standard for it to take force. Many of the implementation dates in the BWM Convention have already passed, so that once the BWM Convention enters into force, the period of installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems, or BWMS. For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels constructed before the entry into force date "existing vessels" and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force of the convention.  Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers.   Although we do not believe that the costs of such compliance would be material, it is difficult to predict the overall impact of such a requirement on our operations.
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The IMO has also adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000, or the CLC. Under the CLC and, depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions and limitations. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the ship owner's actual fault and under the 1992 Protocol where the spill is caused by the ship owner's intentional or reckless act or omission where the ship owner knew pollution damage would probably result. The CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner's liability for a single incident.

The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001, 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 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.

Compliance Enforcement

Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future.

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

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

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all "owners and operators" whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its 200 nautical mile exclusive economic zone around the United States. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil except in certain limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner and operator" in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.

Under OPA, vessel owners and operators are responsible parties who 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 oil spills from their vessels. OPA limits the liability of responsible parties with respect to tankers over 3,000 gross tons to the greater of $2,000 per gross ton or $17,088,000 per double hull tanker, and with respect to non-tank vessels, the greater of $1,000 per gross ton or $854,400 for any non-tank vessel, respectively. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.

CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
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OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.

OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard, or USCG, evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We have complied with the USCG's financial responsibility regulations by providing a certificate of responsibility evidencing sufficient self-insurance.

The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. For example on August 15, 2012 the U.S. Bureau of Safety and Economic Enforcement, or BSEE, issued a final drilling safety rule for offshore oil and gas operations, which became effective on October 22, 2012, and strengthened the requirements for safety equipment, well control systems, and blowout prevention practices.  On February 24, 2014, the U.S. Bureau of Ocean Energy Management, or BOEM, proposed a rule increasing the limits of liability of damages for offshore facilities under the OPA based on inflation. Additional legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.

We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation.

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

Other Environmental Initiatives

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water 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. Furthermore, many U.S. States that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.

The United States Environmental Protection Agency, or the EPA, has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or the VGP. For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent, or the NOI, at least 30 days before the vessel operates in United States waters. On March 28, 2013, EPA re-issued the VGP for another five years; this 2013 VGP took effect December 19, 2013. The 2013 VGP contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants. We have submitted NOIs for our vessels where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.

The USCG, regulations adopted under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters which require the installation of equipment to treat ballast water before it is discharged in U.S. waters or, in the alternative, the implementation of other port facility disposal arrangements or procedures.  Vessels not complying with these regulations are restricted from entering U.S. waters. The USCG must approve any technology before it is placed on a vessel, but has not yet approved the technology necessary for vessels to meet these standards.

The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.
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Compliance with the EPA and other USCG regulations could require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.

European Union Regulations

In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.

The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply.

International Labour Organization

The International Labour Organization, or the ILO, is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006, or the MLC 2006. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 entered into force on August 20, 2013. The ratification of MLC 2006 requires us to develop new procedures to ensure full compliance with its requirements.

Environmental and Other Regulations in the Offshore Drilling Industry

Our offshore drilling operations include activities that are subject to numerous international, federal, state and local laws and regulations, including, the United Nations' International Maritime Organization, or IMO, International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, including designation of Emission Control Areas thereunder, the IMO International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred to as SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the IMO International Convention on Load Lines of 1966, as from time to time amended, the International Convention for the Control and Management of Ships' Ballast Water and Sediments in February 2004, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, requirements of the U.S. Coast Guard and the U.S. Environmental Protection Agency, or EPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, the U.S. Clean Air Act, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, European Union regulations, and Brazil's National Environmental Policy Law (6938/81), Environmental Crimes Law (9605/98) and federal Law (9966/2000) relating to pollution in Brazilian waters. These laws govern the discharge of materials into the environment or otherwise relate to environmental protection. In certain circumstances, these laws may impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part.

The IMO adopted MARPOL Annex VI to regulate harmful air emissions from ships, which include rigs and drillships. Amendments to the Annex VI regulations which entered into force on July 1, 2010, require a progressive reduction of sulfur oxide levels in heavy bunker fuels and create more stringent nitrogen oxide emissions standards for marine engines in the future. As additional areas are designated ECAs, with stricter stricter sulfur content standards, we may incur costs to comply with these revised standards. Rigs and drillships must comply with MARPOL limits on emissions of sulfur oxide, nitrogen oxide, chlorofluorocarbons and other air pollutants, except that the MARPOL limits do not apply to emissions that are directly related to drilling, production, or processing activities. We believe that all of our drilling units are currently compliant in all material respects with these regulations.

Our drilling units are subject not only to MARPOL regulation of air emissions, but also to the Bunker Convention's strict liability for pollution damage caused by discharges of bunker fuel in jurisdictional waters of ratifying states.

Furthermore, any drillships that we may operate in United States waters, including the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States, would have to comply with OPA and CERCLA requirements, among others, that impose liability (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 of oil or other hazardous substances, other than discharges related to drilling.
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The U.S. BSEE periodically issues guidelines for rig fitness requirements in the Gulf of Mexico and may take other steps that could increase the cost of operations or reduce the area of operations for our units, thus reducing their marketability. Implementation of BSEE guidelines or regulations may subject us to increased costs or limit the operational capabilities of our units and could materially and adversely affect our operations and financial condition.

Numerous governmental agencies issue regulations to implement and enforce the laws of the applicable jurisdiction, which often involve lengthy permitting procedures, impose difficult and costly compliance measures, particularly in ecologically sensitive areas, and subject operators to substantial injunctive relief and administrative, civil and criminal penalties for failure to comply. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly compliance or limit contract drilling opportunities, including changes in response to a serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact, such as the April 2010 Deepwater Horizon oil spill in the Gulf of Mexico, in which we were not involved, could adversely affect our financial results. While we believe that we are in substantial compliance with the current laws and regulations, there is no assurance that compliance can be maintained in the future.

In addition to the MARPOL, OPA, and CERCLA requirements described above, our international operations are subject to various other international conventions and laws and regulations in countries in which we operate, including laws and regulations relating to the importation of and operation of drilling units and equipment, currency conversions and repatriation, oil and gas exploration and development, environmental protection, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of drilling units and other equipment. New environmental or safety laws and regulations could be enacted, which could adversely affect our ability to operate in certain jurisdictions. Governments in some countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.

Implementation of new environmental laws or regulations that may apply to ultra-deepwater drilling units may subject us to increased costs or limit the operational capabilities of our drilling units and could materially and adversely affect our operations and financial condition.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 , or MTSA. To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.

Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code, or IMDG Code.  To trade internationally, a vessel must attain an International Ship Security Certificate, or the ISSC, 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;
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●
 a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
 
● compliance with flag state security certification requirements.

Ships operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.

Furthermore, additional security measures could be required in the future which could have a significant financial impact on us. The USCG  regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel's compliance with SOLAS security requirements and the ISPS Code. Our managers intend to implement the various security measures addressed by MTSA, SOLAS and the ISPS Code, and we intend that our fleet will comply with applicable security requirements. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code.

Inspection by Classification Societies

Every seagoing 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, 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, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate.

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

Class Renewal Surveys: Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, at 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 vessel owner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle.

At an owner's application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.

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

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

For mobile offshore drilling units, plans are submitted to classification societies for inspections in lieu of drydocking.
 

 
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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 our vessels are certified as being "in class" by all the major Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping). In December 2013, International Association of Classification Societies, or IACS, adopted new harmonized Common Structural Rules, or the Rules, which will apply to oil tankers and bulk carriers to be constructed on or after July 1, 2015.  The Rules attempt to create a level of consistency between IACS Socities.  All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel.

Class Surveys—mobile offshore drilling units. Class renewal surveys, also known as special surveys or class work, are carried out for the unit's hull, machinery, drilling equipment, and for any special equipment classed, at the intervals indicated by the character of classification, normally every five years. At the special survey the unit is thoroughly examined. The classification society may grant a grace period for completion of the entire or parts of the special survey. This is normally not longer than 3 months.

Substantial amounts of money have to be spent for renewals and repairs to pass a special survey, as several spares and components have a defined lifetime of 5 to 15 years. This is accelerated if the unit experiences excessive wear and tear.

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.

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. Both our drilling rigs are certified as being "in class" by De Norske Veritas. The Leiv Eiriksson completed the 5-year class in May 2011 and the Eirik Raude completed the same in December 2012. Our four operating drillships are due for their first Special Periodical Survey in 2016 and our four seventh generation drillships are due for their first Special Periodical Survey in 2018, 2019 and 2020.

Insurance for our Drybulk Carriers and Tankers

Risk of Loss and Liability Insurance

The operation of any vessel includes risks such as mechanical failure, hull damage, collision, property loss 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 incidents, 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 shipowners and operators trading in the United States market.

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

Hull & Machinery and War Risks Insurance

We maintain marine hull and machinery and war risks insurance, which includes the risk of actual or constructive total loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles of $100,000—$150,000 per vessel per incident. We also maintain increased value coverage for most of our vessels. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover the sum insured under the increased value policy in addition to the sum insured under the hull and machinery policy. Increased value insurance also covers excess liabilities which are not recoverable under our hull and machinery policy by reason of under insurance.

Protection and Indemnity Insurance

Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure liabilities to third parties in connection with our shipping activities. This includes third-party liability and other related expenses, including but not limited to, those 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. Our protection and indemnity coverage is subject to and in accordance with the rules of protection and indemnity association in which the vessel is entered. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs." Our coverage is limited for pollution to $1 billion and passenger and crew which is limited to $3 billion.

 
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Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The thirteen protection and indemnity 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 protection and indemnity 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 protection and indemnity associations comprising the International Group.

Insurance for our Offshore Drilling Units

We maintain insurance for our drilling units in accordance with industry standards. Our insurance is intended to cover normal risks in our current operations, including insurance against property damage, loss of hire, war risk and third-party liability, including pollution liability. The insurance coverage is established according to the Norwegian Marine Insurance Plan of 1996, version 2010, but excluding collision liabilities which are covered by the Protection and Indemnity insurance. We have obtained insurance for the full assessed market value of our drilling units, as assessed by rig brokers. Our insurance provides for premium adjustments based on claims and is subject to deductibles and aggregate recovery limits. In the case of pollution liabilities, our deductible is $10,000 per event and in the case of other hull and machinery claims, our deductible is $1.5 million per event. Our insurance coverage may not protect fully against losses resulting from a required cessation of drilling unit operations for environmental or other reasons. We also have loss of hire insurance cover for approximately one year which becomes effective after 45 days. This loss of hire insurance is recoverable only if there is physical damage to the rig or equipment which is caused by a peril against which we are insured. The principal risks which may not be insurable are various environmental liabilities and liabilities resulting from reservoir damage caused by our negligence. In addition, insurance may not be available to us at all or on terms acceptable to us, and there is no guarantee that even if we are insured, our policy will be adequate to cover our loss or liability in all cases. We plan to maintain insurance for our seventh generation drillships upon their delivery to us in accordance with the Norwegian Marine Insurance Plan of 1996, version 2010. This insurance would also be intended to cover normal risks in our current operations, including insurance against property damage, loss of hire and war risks. Third-party liability, including pollution liability and collision liability, is covered under our protection and indemnity insurance.

Permits and Authorizations

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

C.           Organizational Structure

As of March 2, 2015, we owned all of our drybulk and tanker vessels through our wholly-owned subsidiaries and we owned our drilling units through our majority-owned subsidiary, Ocean Rig UDW. As of March 2, 2015, we owned approximately 59.2% of the outstanding common shares of Ocean Rig UDW. Please see Exhibit 8.1 to this annual report for a list of our significant subsidiaries.

We may sell a minority voting and economic interest in our wholly-owned subsidiary, Tankships Investment Holdings Inc., the indirect owner and operator of our oil tankers, which on February 20, 2015 filed a registration statement on Form F-1 with the SEC relating to a possible initial public offering. Alternatively, we may distribute, or spin off, a minority voting and economic interest in Tankships Investment Holdings Inc. to holders of our voting stock (including holders of our preferred shares), or complete some combination of a public offering and distribution to holders of our voting stock. There can be no assurance, however, that we will complete any such transaction, which, among other things, will be subject to market conditions.

D.           Property, Plant and Equipment

We do not own any real property. We maintain our principal executive offices at 109 Kifisias Avenue and Sina Street, Amaroussion, GR 151 24 Greece.

Through our subsidiaries, we lease office space from unaffiliated third parties in Nicosia, Cyprus; Stavanger, Norway; Houston, Texas; Aberdeen, United Kingdom; Accra, Ghana and Rio de Janeiro, Brazil.

Our interests in our drybulk and tanker vessels and drilling units in our fleet are our only material properties. See "—B. Business Overview—Our Fleet."  Also see "—B. Business Overview—Environmental and Other Regulations in the Shipping Industry" for a description of environmental issues that may impact the use of our fleet.

Item 4A. Unresolved Staff Comments

None.
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Item 5.   Operating and Financial Review and Prospects

A.           Operating Results

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in "Item 3. Key Information—Risk Factors."

Our Drybulk Carrier Segment

Factors Affecting Our Results of Operations—Drybulk Carrier Segment

We charter our drybulk carriers to customers primarily pursuant to time charters. Under our time charters, the charterer typically pays us a fixed daily charterhire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter. The vessels in our fleet are employed on long term time charters and in the spot market. We believe that the important measures for analyzing trends in the results of our operations consist of the following:

● Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar 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 that period.

● Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with drydockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels are available to generate revenues.


● Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that 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 such as scheduled repairs, vessel upgrades, drydockings or special or intermediate surveys.

● Spot charter rates. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. Fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.

● 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-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from our drybulk carriers, the most directly comparable U.S. GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. TCE rate is also 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 charterhire rates for vessels on voyage charters are generally not expressed in per day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
 

 
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The following table reflects our voyage days, calendar days, fleet utilization and TCE rates for our drybulk carrier segment for the periods indicated.

(Dollars in thousands except Average number of vessels)
 
   
 Year Ended December 31,
  
     
2010
      
2011
      
2012
      
 2013
      
2014
    
                                           
Average number of vessels
    
37.21
      
35.80
      
35.67
      
37.15
      
38.69
    
Total voyage days for fleet
    
13,430
      
12,831
      
13,027
      
 13,442
      
13,889
    
Total calendar days for fleet
    
13,583
      
13,068
      
13,056
      
13,560
      
14,122
    
Fleet Utilization
    
 98.87
%
    
 98.19
%
    
 99.78
%
    
 99.13
%
    
98.35
  %  
Time charter equivalent
    
32,045
      
26,912
      
15,896
      
12,062
      
12,354
    
 
Voyage Revenues

Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the drybulk transportation market and other factors affecting spot market charter rates for drybulk carriers.

Vessels operating on period time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the short-term, or 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 us to capture increased profit margins during periods of improvements in charter rates although we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.

Voyage Expenses and Voyage Expenses—Related Party

Voyage expenses and voyage expenses—related party primarily consists of commissions paid.

Vessel Operating Expenses

Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically increased as a result of the increase in the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase.

Depreciation

We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 25 years from the date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value.

Management Fees—Related Party

Management Agreements

Prior to January 1, 2011, Cardiff, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, served as our technical and commercial manager pursuant to separate management agreements with each of our drybulk vessel-owning subsidiaries. Effective January 1, 2011, we entered into new management agreements , with TMS Bulkers, a related party, that replaced our management agreements with Cardiff, on the same terms as our management agreements with Cardiff, as a result of an internal restructuring of Cardiff for the purpose of enhancing its efficiency and the quality of its ship-management services.

For more information on the agreements discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Drybulk Vessels."

Consultancy Agreement—Drybulk carrier, offshore drilling and tanker segments

We have entered into consultancy agreements with Vivid Finance Limited, or Vivid Finance, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, pursuant to which Vivid Finance provides consulting services relating to (i) the identification, sourcing, negotiation and arrangement of new loan and credit facilities, interest swap agreements, foreign currency contracts and forward exchange contracts; (ii) the raising of equity or debt in the public capital markets; and (iii) the renegotiation of existing loan facilities and other debt instruments. See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Consultancy Agreements."
 

 
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General and Administrative Expenses

Our general and administrative expenses mainly include executive compensation and the fees paid to Fabiana Services S.A., or Fabiana, a related party entity incorporated in the Marshall Islands. Fabiana provides the services relating to our Chief Executive Officer and is beneficially owned by our Chief Executive Officer.

Interest and finance costs

We have historically incurred interest expense and financing costs in connection with our debt agreements. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness from time to time with the net proceeds of future equity issuances.

Inflation—Drybulk Carrier, Offshore Drilling and Tanker Segments

Inflation has not had a material effect on our expenses given the current economic conditions. In the event that significant global inflationary pressures appear, these pressures could increase our operating, voyage, administrative and financing costs.

Our Offshore Drilling Segment

Factors Affecting Our Results of Operations—Offshore Drilling Segment

We charter our drilling units to customers primarily pursuant to long-term drilling contracts. Under the drilling contracts, the customer typically pays us a fixed daily rate, depending on the activity and up-time of the drilling unit. The customer bears all fuel costs and logistics costs related to transport to and from the unit. We remain responsible for paying the unit's operating expenses, including the cost of crewing, catering, insuring, repairing and maintaining the unit, the costs of spares and consumable stores and other miscellaneous expenses.

We believe that the most important measures for analyzing trends in the results of our operations consist of the following:

● Employment Days: We define employment days as the total number of days the drilling units are employed on a drilling contract.

● Dayrates or maximum dayrates: Unless otherwise stated, we define drilling dayrates as the maximum rate in U.S. Dollars possible to earn for drilling services for one 24 hour day at 100% efficiency under the drilling contract.  Such dayrate may be measured by quarter-hour, half-hour or hourly basis and may be reduced depending on the activity performed according to the drilling contract.

● Economic utilization: We measure our revenue earning performance over a period as a percentage of the maximum revenues that we could earn under our drilling contracts in such period.More specifically, all drilling contracts provide for an operating or base rate that applies for the period during which the drillship is operational and at the client's drilling location.Furthermore,drilling contracts generally provide for a general repair allowance for preventive maintenance or repair of equipment;such allowance varies from contract to contract,and we may be compensated at the full operating dayrate or at a reduced operating day rate for such general repair allowance.Inaddition,drilling contracts typically provide for situations where the drillships would operate at reduced operating dayrates,such as, among other things:a standby rate,where the drillship is prevented from commencing operations for reasons such as bad weather,waiting for customer orders, waiting on other contractors; a moving rate, where the drillship is in transit betweenl ocations; a reduced performance rate in the eventofmajor equipment failure;or a force majeure rate in the event of a force majeure that causes the suspension of operations.At these instances we are compensated with a portion of the base rate. In addition there are circumstances that due to equipment failure or other events defined in our drilling contracts, we do not earn the base rate.

● Mobilization / demobilization fees: In connection with drilling contracts, we may receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling vessels, dayrate or fixed price mobilization and demobilization fees.

● Revenue: For each contract, we determine whether the contract, for accounting purposes, is a multiple element arrangement, meaning it contains both a lease element and a drilling services element, and, if so, identify all deliverables (elements). For each element we determine how and when to recognize revenue.

Term contracts: These are contracts pursuant to which we agree to operate the unit for a specified period of time. For these types of contracts, we determine whether the arrangement is a multiple element arrangement. For revenues derived from contracts that contain a lease, the lease elements are recognized as "Leasing revenues" in the statement of operations on a basis approximating straight line over the lease period. The drilling services element is recognized as "Service revenues" in the period in which the services are rendered at fair value rates.
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Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services are deferred and recognized over the estimated duration of the drilling period.
 
Well contracts: These are contracts pursuant to which we agree to drill a certain number of wells. Revenue from dayrate based compensation for drilling operations is recognized in the period during which the services are rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling period.

Revenue from Drilling Contracts

Our drilling revenues are driven primarily by the number of drilling units in our fleet, the contractual dayrates and the utilization of the drilling units. This, in turn, is affected by a number of factors, including the amount of time that our drilling units spend on planned off-hire class work, unplanned off-hire maintenance and repair, off-hire upgrade and modification work, reduced dayrates due to reduced efficiency or non-productive time, the age, condition and specifications of our drilling units, levels of supply and demand in the rig market, the price of oil and other factors affecting the market dayrates for drilling units. Historically, industry participants have increased supply of drilling units in periods of high utilization and dayrates. This has resulted in an oversupply and caused a decline in utilization dayrates. Therefore, dayrates have historically been very cyclical.

Drilling rigs and drillships operating expenses

Drilling rigs and drillships operating expenses include crew wages and related costs, catering, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, shore based costs and other miscellaneous expenses. Our rig operating expenses, which generally represent fixed costs, have historically increased as a result of the business climate in the offshore drilling sector. Specifically, wages and vendor supplied spares, parts and services have experienced a significant price increase over the previous two to three years. Other factors beyond our control, some of which may affect the offshore drilling industry in general, including developments relating to market prices for insurance, may also cause these expenses to increase. In addition, these rig operating expenses are higher when operating in harsh environments, though an increase in expenses is typically offset by the higher dayrates we receive when operating in these conditions.

Depreciation

We depreciate our drilling units on a straight-line basis over their estimated useful lives. Specifically, we depreciate bare-decks over 30 years and other asset parts over five to 15 years. We expense the costs associated with a five-year periodic class work.

Management Fees to Related Party

Services Agreements

On December 1, 2010, DryShips Inc. entered into the Global Services Agreement with Cardiff, effective December 21, 2010, pursuant to which we engaged Cardiff to act as consultant on matters of chartering and sale and purchase transactions for our offshore drilling units. Effective January 1, 2013, the Global Services Agreement was terminated by mutual agreement of the parties.  Also effective January 1, 2013, Ocean Rig Management Inc., or Ocean Rig Management, our majority-owned subsidiary and a wholly-owned subsidiary of Ocean Rig UDW, entered into a new services agreement with an affiliate of Cardiff.

For a description of the services agreements discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Drilling Units—Services Agreement."

Management Fees of our Fleet

Up to October 2013, Ocean Rig's wholly-owned subsidiary, Ocean Rig AS, provided supervisory management services including onshore management, to our operating drilling rigs and drillships pursuant to separate management agreements entered into with each of the drilling unit-owning subsidiaries. In addition, Ocean Rig AS provided supervisory management services for our seventh generation hulls under construction.

 As from October 2013, the above services are provided by our wholly owned subsidiary, Ocean Rig Management Inc., pursuant to separate management agreements entered/to be entered with each of the drilling unit – owning subsidiaries.

Under the terms of these management agreements, Ocean Rig Management Inc., through its offices in Stavanger, Norway, Aberdeen, United Kingdom and Houston, Texas, is responsible for, among other things, (i) assisting in construction contract technical negotiations, (ii) securing contracts for the future employment of the drillships, and (iii) providing commercial, technical and operational management for the drillships.
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General and Administrative Expenses

Our general and administrative expenses mainly include the costs of our offices, including salary and related costs for members of senior management and our shore-side employees.

Interest and finance costs

As of December 31, 2014, 2013 and 2012, we had total indebtedness of $4.5 billion, $4.1 billion and $2.9 billion, respectively. We capitalize our interest on the debt we have incurred in connection with our drillships under construction.

Tanker Segment

The successful operation of our tanker vessels in spot market-related vessel pools will depend on, among other things, the age, dwt, carrying capacity, speed and fuel consumption of our vessels, which will determine the pool points we receive. The number of pool points we receive, together with, among other things, each of our vessels' operating days during the month will determine our share of the pool's net revenue. Our pool points for our vessels are calculated at the time that each respective vessel is entered into the pool and adjusted every six months. Our pool points may be reduced if certain pool requirements are not met, including if we do not maintain a minimum number of oil major approvals and if we fail to provide for ship inspection reports at least every six months. If the vessels entered into the pool in the future differ significantly in the performance characteristics relevant to the pool allocation formula, our vessels' share may be affected either positively or negatively.

Factors Affecting our Future Results of Operations—Tanker Segment

We believe that the most important measures for analyzing trends in the results of our future operations consist of the following:

● Vessel Revenues: Vessel revenues primarily include revenues from spot and pool revenues. Vessel revenues are affected by spot rates and the number of days a vessel operates. Vessel revenues are also affected by the mix of business between vessels on spot and vessels in pools. Revenues from vessels in pools are more volatile, as they are typically tied to prevailing market rates.

● Voyage related and vessel operating costs: Voyage expenses, primarily consisting of commissions, port, canal and bunker expenses that are unique to a particular charter, are paid for by the Company under voyage charter arrangements, except for commissions, which are either paid for by the Company or are deducted from the freight revenue. All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned.

● Depreciation: Depreciation expense typically consists of charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of the vessels.

● Drydocking: We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, each vessel is required to be drydocked every 30 months. We directly expense costs incurred during drydocking and costs for routine repairs and maintenance performed during drydocking that do not improve or extend the useful lives of the assets. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.

● Time Charter Equivalent Rates: Time charter equivalent, or TCE, rates, are a standard industry measure of the average daily revenue performance of a vessel. The TCE rate achieved on a given voyage is expressed in U.S. dollars/day and is generally calculated by subtracting voyage expenses, including bunkers and port charges, from voyage revenue and dividing the net amount (time charter equivalent revenues) by the number of days in the period.

● Revenue Days: Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs or drydockings. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when a vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in net voyage revenues between periods.

● Average Number of Vessels: Historical average number of vessels consists of the average number of vessels that were in our possession during a period. We use average number of vessels primarily to highlight changes in vessel operating costs and depreciation and amortization.
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● .Commercial Pools: To increase vessel utilization to gain economies of scale and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers.
      
Management Fees to Related Party

Since January 1, 2011, TMS Tankers, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, has provided the commercial and technical management functions of our tankers, including technical supervision, while our tankers were under construction, pursuant to separate management agreements entered into with TMS Tankers for each of our tankers.  See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers and TMS Tankers—Management Agreements—Tankers."

General and Administrative Expenses

Our general and administrative expenses mainly include executive compensation and the fees paid to Fabiana, a related party entity incorporated in the Marshall Islands. Fabiana provides the services of our Chief Executive Officer and is beneficially owned by our Chief Executive Officer.

Interest and finance costs

We have historically incurred interest expense and financing costs in connection with our debt agreements. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness from time to time with the net proceeds of future equity issuances.

Lack of Historical Operating Data for Vessels Before Their Acquisition

Although vessels are generally acquired free of charter, we have acquired (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. 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 entering into a separate direct agreement (called a novation 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.

Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where we have assumed an existing charter obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability, based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel to the extent the vessel's capitalized cost would not exceed its fair value without a time charter. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above market charter rates, we record an asset, based on the difference between the market charter rate for an equivalent vessel and the contracted charter rate. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to revenue over the remaining period of the charter.

During 2014, 2013 and 2012, we did not acquire any vessels that were under existing bareboat or time charter contracts.

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;

● in some cases, obtain the charterer's consent to a new flag for the vessel;

● arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be approved by the charterer;

● replace all hired equipment on board, such as gas cylinders and communication equipment;
69

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

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

● implement a new planned maintenance program for the vessel; and

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

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

Our business is comprised of the following main elements:

● employment and operation of our drybulk and tanker vessels and drilling units; and

● management of the financial, general and administrative elements involved in the conduct of our business and ownership of our drybulk and tanker vessels and drilling units.

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;

● onboard safety procedures auditing;

● accounting;

● vessel insurance arrangement;

● vessel chartering;

● vessel security training and security response plans (ISPS);

● obtain ISM certification and audit for each vessel within the six months of taking over a vessel;

● 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 our vessels 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 affect our profitability, cash flows and shareholders' return on investment include:

● Charter rates and periods of charterhire for our drybulk and tanker vessels;
70
 
● dayrates and duration of drilling contracts;
 
● utilization of drilling units (earnings efficiency);

● levels of drybulk and tanker vessel and drilling unit operating expenses;

● depreciation and amortization expenses;

● financing costs; and

● fluctuations in foreign exchange rates.

Our Fleet—Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels

In "—Critical Accounting Policies—Impairment of Long Lived Assets," we discuss our policy for impairing the carrying values of our vessels. Historically, the market values of vessels have experienced volatility, which from time to time may be substantial. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels' carrying value, even though we would not impair those vessels' carrying value under our accounting impairment policy, due to our belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels' carrying amounts.

Based on: (i) the carrying value of each of our vessels as of December 31, 2014 and (ii) what we believe was the charter free market value of each of our vessels as of December 31, 2014, the aggregate carrying value of the vessels in our fleet as of December 31, 2014 exceeded their aggregate charter-free market value by approximately $750.6 million, as noted in the table below.

Based on: (i) the carrying value of each of our vessels as of December 31, 2013 and (ii) what we believe was the charter free market value of each of our vessels as of December 31, 2013, the aggregate carrying value of the vessels in our fleet as of December 31, 2013 exceeded their aggregate charter-free market value by approximately $847.5 million, as noted in the table below.

This aggregate difference between (i) the carrying value of each of our vessels and (ii) what we believe was the charter free market value of our vessels as of the relevant balance sheet date represents the approximate analysis of the amount by which we believe we would have to reduce our net income if we sold all of such vessels at December 31, 2014 and 2013, respectively, on industry standard terms, in cash transactions, and to a willing buyer where we were not under any compulsion to sell, and where the buyer was not under any compulsion to buy. For purposes of this calculation, we have assumed that these vessels would be sold at a price that reflects our estimate of their charter-free market values as of December 31, 2014 and 2013, respectively. However, as of those dates, some of our vessels were employed under time charters that we believe were above market levels. We believe that if the vessels were sold with those charters attached, we would have received a premium over their charter-free market value. However, as of December 31, 2014, December 31, 2013 and as of the date of this report, we were not and are not holding any of our vessels for sale.

Our estimates of charter-free market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:

● reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;

● news and industry reports of similar vessel sales;

● news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;

● approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;

● offers that we may have received from potential purchasers of our vessels; and

● vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
 

 
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As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future charter-free market value of our vessels or prices that we could achieve if we were to sell them. We also refer you to the risk factor in "Item 3. Key Information—D. Risk Factors— Risk Factors Relating to the Drybulk Shipping Industry—The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger certain financial covenants under our current or future credit facilities and or we may incur a loss if we sell vessels following a decline in their market value" and the discussion included in "Item 4. Information on the Company—B. Business Overview—Our Drybulk Operations—Vessel Prices."
 
Drybulk Vessels
  
Dwt
  
Year Built
  
Carrying Value December 31, 2013
(in millions) ****
  
Carrying Value December 31, 2014
(in millions) ****
Montecristo
    
180,263
      
2005
      
33.9
**
    
32.2
**
Cohiba
    
174,234
      
2006
      
34.3
**
    
32.7
**
Robusto
    
173,949
      
2006
      
34.3
**
    
32.7
**
Partagas
    
173,880
      
2004
      
30.3
**
    
28.7
**
Capri
    
172,579
      
2001
      
108.0
**
    
99.9
**
Manasota
    
171,061
      
2004
      
56.0
**
    
52.6
**
Alameda
    
170,662
      
2001
      
47.2
**
    
44.0
**
Mystic
    
170,040
      
2008
      
117.8
**
    
112.1
**
Flecha
    
170,012
      
2004
      
119.6
**
    
112.3
**
Sorrento
    
76,633
      
2004
      
65.8
**
    
61.8
**
Mendocino
    
76,623
      
2002
      
29.5
**
    
27.5
**
Maganari
    
75,941
      
2001
      
21.0
**
    
19.5
**
Saldanha
    
75,707
      
2004
      
54.6
**
    
51.1
**
Coronado
    
75,706
      
2000
      
26.3
**
    
24.2
**
Ligari
    
75,583
      
2004
      
31.7
**
    
29.7
**
Rapallo
    
75,123
      
2009
      
29.3
**
    
28.0
**
Amalfi
    
75,206
      
2009
      
37.8
**
    
36.2
**
Bargara
    
74,832
      
2002
      
33.6
**
    
31.2
**
Samatan
    
74,823
      
2001
      
48.2
**
    
44.5
**
Capitola
    
74,816
      
2001
      
33.6
**
    
31.2
**
Sonoma
    
74,786
      
2001
      
27.0
**
    
25.1
**
Majorca
    
74,477
      
2005
      
39.1
**
    
36.8
**
Redondo
    
74,716
      
2000
      
26.5
**
    
24.5
**
Topeka
    
74,716
      
2000
      
17.1
**
    
15.9
**
Catalina
    
74,432
      
2005
      
35.1
**
    
33.2
**
Oregon
    
74,204
      
2002
      
47.1
**
    
43.7
**
Levanto
    
73,925
      
2001
      
35.3
**
    
32.7
**
Ecola
    
73,931
      
2001
      
27.1
**
    
25.2
**
Helena
    
73,744
      
1999
      
15.9
**
    
14.6
**
Ocean Crystal
    
73,688
      
1999
      
19.6
**
    
17.9
**
Marbella
    
72,561
      
2000
      
30.4
**
    
28.0
**
Galveston
    
51,201
      
2002
      
52.4
**
    
10.5
**
Byron
    
51,118
      
2003
      
43.8
**
    
40.9
**
Wooloomooloo
    
76,064
      
2012
      
32.7
**
    
31.5
**
Raraka
    
76,037
      
2012
      
32.8
**
    
31.5
**
Fakarava
    
206,152
      
2012
      
49.9
**
    
48.1
**
Rangiroa
    
206,026
      
2013
      
54.1
**
    
52.2
**
Negonego
    
206,097
      
2013
      
53.1
**
    
51.2
**
Raiatea
    
179,078
      
2011
      
-
      
53.2
  
Total for drybulk vessels
    
4,254,626
            
$
1,631.8
    
$
1,548.8
  





72
   
Dwt
  
Year Built
  
Carrying Value December 31, 2013
(in millions) ****
  
Carrying Value December 31, 2014
(in millions) ***
Drybulk vessels under construction
                
Ice – class Panamax 1
    
75,900
      
2014
      
34.0
**
    
-
  
Ice – class Panamax 2
    
75,900
      
2014
      
34.0
**
    
-
  
Ice – class Panamax 3
    
75,900
      
2014
      
34.0
**
    
-
  
Ice – class Panamax 4
    
75,900
      
2014
      
34.0
**
    
-
  
Total for drybulk vessels under construction
    
303,600
            
$
136.0
    
$
-
  
                                 
Tanker vessels
                                
Vilamoura
    
158,622
      
2011
      
64.2
*
    
61.5
*
Saga
    
115,738
      
2011
      
53.8
*
    
51.4
*
Daytona
    
115,896
      
2011
      
54.8
*
    
52.5
*
Belmar
    
115,904
      
2011
      
56.4
*
    
54.1
*
Calida
    
115,812
      
2012
      
57.5
*
    
55.2
*
Lipari
    
158,425
      
2012
      
68.4
*
    
65.7
*
Petalidi
    
158,532
      
2012
      
68.8
*
    
66.2
*
Bordeira
    
158,513
      
2013
      
71.3
*
    
68.5
*
Alicante
    
115,708
      
2013
      
61.7
*
    
59.3
*
Mareta
    
115,796
      
2013
      
60.8
*
    
58.4
*
Total for tanker vessels
    
1,328,946
            
$
617.7
    
$
592.8
  
                                 
Total
    
5,887,172
            
$
2,385.1
    
$
2,141.6
  

*  Indicates tanker vessels for which we believe, as of December 31, 2013 and 2014, the basic charter-free market value is lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $117.5 million and $14.7 million, respectively.

**  Indicates drybulk carriers for which we believe, as of December 31, 2013 and 2014, the basic charter-free market value is lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $730.0 million and $735.9 million, respectively.

*** The shipbuilding contracts were cancelled during 2014.

**** With respect to the newbuildings, the carrying value for impairment test purposes refers to the construction cost.

Critical Accounting Policies

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

Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. On an ongoing basis, we evaluate our estimates, including those related to bad debts, materials and supplies obsolescence, investments, property and equipment, intangible assets and goodwill, income taxes, pensions and share based compensation. We base our estimates on historical experience and on varius other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of the company's significant accounting policies, see Note 2 to the Company's consolidated financial statements.

Vessels' Depreciation

We record the value of our vessels at their cost, which consists of the contract price and any material expenses incurred upon acquisition, initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage. Subsequent expenditures for major improvements are also capitalized when they appreciably extend the useful life, increase the earning capacity or improve the efficiency or safety of the vessels. Depreciation begins when the vessel is ready for its intended use, on a straight-line basis over the vessel's remaining economic useful life, after considering the estimated residual value (vessel's residual value is equal to the product of its lightweight tonnage and estimated scrap rate). Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard and the residual value of our vessels to be $250 per lightweight ton. A decrease in the useful life of a vessel or in its residual value would have the effect of increasing the annual depreciation charge. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations become effective.
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We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their estimated residual values, based on the assumed value of the scrap steel available for recycling after demolition. Up to December 31, 2010, the assumed value of scrap steel for the purpose of estimating the residual values of vessels was calculated at $120 per lightweight ton. As from January 1, 2011, the assumed value of scrap steel for the purpose of estimating the residual values of vessels is calculated at $250 per lightweight ton. We took this decision as steel prices and related scrap values have increased substantially over the past ten years. The impact of the increase in the scrap price used in the estimation of residual values is a decrease in depreciation expense.

Drilling unit machinery and equipment, net

Drilling units are stated at historical cost less accumulated depreciation. Such costs include the cost of adding or replacing parts of drilling unit machinery and equipment when that cost is incurred, if the recognition criteria are met. The recognition criteria require that the cost incurred extends the useful life of a drilling unit. The carrying amounts of those parts that are replaced are written off and the cost of the new parts is capitalized. Depreciation is calculated on a straight- line basis over the useful life of the assets as follows: bare-deck, 30 years and other asset parts, five to 15 years. The residual values of the drilling rigs and drillships are estimated at $35 million and $50 million, respectively.

IT and office equipment are recorded at cost and are depreciated on a straight-line basis over five years.

Impairment of Long Lived Assets

The Company reviews for impairment long-lived assets and intangible long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, the Company reviews its assets for impairment on an asset by asset basis. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value of the asset. The Company evaluates the carrying amounts of its vessels, rigs and drillships by obtaining vessel, rigs and drillships appraisals to determine if events have occurred that would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, the Company reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels', rigs' and drillships' future performance, with the significant assumptions being related to charter and drilling rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel, rig and drillship. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. To the extent impairment indicators are present, the Company determines undiscounted projected net operating cash flows for each vessel, rig and drillship and compares them to their carrying value. The projected net operating cash flows are determined by considering the charter revenues and drilling revenues from existing time charters and drilling contracts for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days. The Company estimates the daily time charter equivalent for the unfixed days based on the most recent ten year historical average for similar vessels and utilizing available market data for time charter and spot market rates and forward freight agreements over the remaining estimated life of the vessel, assumed to be 25 years from the delivery of the vessel from the shipyard, net of brokerage commissions, expected outflows for vessels' maintenance and vessel operating expenses (including planned drydocking and special survey expenditures), assuming an average annual inflation rate of 2% and fleet utilization of 98%. The salvage value used in the impairment test is estimated to be $250 per light weight ton (LWT) for vessels, and $35 million and $50 million for drilling rigs and drillships respectively, in accordance with the Company's vessels' depreciation policy. If the Company's estimate of undiscounted future cash flows for any vessel is lower than the vessel's carrying value, the carrying value is written down, by recording a charge to operations, to the vessel's fair market value if the fair market value is lower than the vessel's carrying value. The Company's analysis for the year ended December 31, 2014, which also involved sensitivity tests on the time charter rates, drilling rates and fleet utilization (being the most sensitive inputs to variances), allowing for variances ranging from 97.5% to 92.5% depending on vessel type on time charter rates, indicated an impairment loss for one of its vessels, and no impairment on any of its rigs or drillships.

            Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. The 10 year average rates used in the impairment testing of the Company's shipping segment as of December 31, 2014 were $30,253 for drybulk carriers and $30,290 for tankers. In comparison, based on available market data, the Company estimates the average daily time charter equivalent rates in effect as of December 31, 2014 to be $5,619 for drybulk carriers and $51,612 for tankers.

As a result of the impairment review, the Company determined that the carrying amounts of its assets held for use were recoverable, and therefore, concluded that no impairment loss was necessary for 2012 and 2013, while for 2014 the Company determnined that the carrying amount of one of its assets was not recoverable and, therefore, an impairment loss of $38.1 million was recognized. However, due to the Company's decision to sell certain vessels during the years and based on the agreed-upon sales price, an impairment charge of $0 and $43.5 million, for each of the years ended December 31, 2012 and 2013, respectively, was recognized.
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Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. Set forth below is an analysis that shows the impact on the Company's impairment analysis of its shipping segment, if the Company were to utilize the most recent five year, three year or one year historical average rates for similar vessels for purposes of estimating future cash flows for unfixed days over the remaining life of the vessel.


 
2014
Level of impairment 
5 year
3 year
1 year
Drybulk carriers
$
704,461
    
$
735,691
    
$
735,518
  
Tankers
  
14,451
      
14,671
      
-
  
Total
$
718,912
    
$
750,362
    
$
735,518
  

Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition or operating results or the trading price of our common shares.

There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time which could adversely affect the Company's revenue and profitability, and future assessments of vessel impairment. For the drilling segment, there can be no assurance as to how long drilling rates and drilling rig/drillships values will remain at their currently high levels or whether they will improve or decrease by any degree.

Revenue and Related Expenses

(i) Drybulk Carrier and Tanker vessels:

Time and bareboat charters: The Company generates its revenues from charterers for the charterhire of its vessels, which are considered to be operating lease arrangements. Vessels are chartered using time and bareboat charters and where a contract exists, the price is fixed, service is provided and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade work depending on the condition and specification of the vessel.

Pooling Arrangements: For vessels operating in pooling arrangements, the Company earns a portion of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool participant vessel, including the Company's vessels, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Revenue under pooling arrangements is accounted for on the accrual basis and is recognized when an agreement with the pool exists, price is fixed, service is provided and the collectability is reasonably assured.

The allocation of such net revenue may be subject to future adjustments by the pool however, historically, such changes have not been material.

Voyage charters: Voyage charter is a charter where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified freight rate per ton. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably during the duration of the period of each voyage, when a voyage agreement is in place, a voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by a charterer to a vessel owner when loading or discharging time exceeds the stipulated time in the voyage charter and is recognized ratably as earned during the related voyage charter's duration period.

Voyage related and vessel operating costs: Voyage related and vessel operating costs are expensed as incurred. Under a time charter, specified voyage costs, such as fuel and port charges are paid by the charterer and other non-specified voyage expenses, such as commissions, are paid by the Company. Vessel operating costs including crews, maintenance and insurance are paid by the Company. Under voyage charter arrangements, voyage expenses, primarily consisting of commissions, port, canal and bunker expenses that are unique to a particular charter, are paid for by the Company, except for commissions, which are either paid for by the Company or are deducted from the freight revenue. All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned. Under a bareboat charter, the charterer assumes responsibility for all voyage and vessel operating expenses and risk of operation.
 
75

Deferred Voyage Revenue: Deferred voyage revenue primarily relates to cash advances received from charterers. These amounts are recognized as revenue over the voyage or charter period.

(ii) Drilling Units:

Revenues: The Company's services and deliverables are generally sold based upon contracts with its customers that include fixed or determinable prices. The Company recognizes revenue when delivery occurs, as directed by its customer and collectability is reasonably assured. The Company evaluates if there are multiple deliverables within its contracts and whether the agreement conveys the right to use the drill rigs and drillships for a stated period of time and meets the criteria for lease accounting, in addition to providing a drilling services element, which are generally compensated for by day rates. In connection with drilling contracts, the Company may also receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling rigs or drillships and dayrate or fixed price mobilization and demobilization fees. Revenues are recorded net of agents' commissions. There are two types of drilling contracts: well contracts and term contracts.

(a) Well contracts: Well contracts are contracts under which the assignment is to drill a certain number of wells. Revenue from day-rate based compensation for drilling operations is recognized in the period during which the services are rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization revenues and expenses are recognized over the demobilization period. All revenues for well contracts are recognized as "Service revenue" in the statement of operations.

(b) Term contracts: Term Contracts are contracts under which the assignment is to operate the unit for a specified period of time. For these types of contracts the Company determines whether the arrangement is a multiple element arrangement containing both a lease element and drilling services element. For revenues derived from contracts that contain a lease, the lease elements are recognized as "leasing revenues" in the statement of operations on a basis approximating straight line over the lease period. The drilling services element is recognized as "service revenues" in the period in which the services are rendered at estimated fair value. Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services are deferred and recognized over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization fees and expenses are recognized over the demobilization period. Contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling contract.

Financial Instruments

The Company designates its derivatives based upon guidance on accounting for derivative instruments and hedging activities which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The guidance on accounting for certain derivative instruments and certain hedging activities requires all derivative instruments to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings unless specific hedge accounting criteria are met.

Hedge Accounting: At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting exposure to changes in the hedged item's cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated.

The Company is party to interest swap agreements where it receives a floating interest rate and pays a fixed interest rate for a certain period in exchange. Contracts which meet the strict criteria for hedge accounting are accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that could affect profit or loss.

The effective portion of the gain or loss on the hedging instrument is recognized directly as a component of accumulated other comprehensive income/(loss) in equity, while any ineffective portion, if any, is recognized immediately in current period earnings.

The Company discontinues cash flow hedge accounting if the hedging instrument expires and it no longer meets the criteria for hedge accounting or designation is revoked by the Company. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the statement of operations. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as financial income or expense.

Other Derivatives: Changes in the fair value of derivative instruments that have not been designated as hedging instruments are reported in current period earnings.
 
76

Selected Financial Data

Following our entry into the construction contracts for our 12 newbuilding tankers in 2010 and our acquisition of Ocean Rig ASA in 2008 and entry into the construction contracts for our four operating drillships in 2008 and 2009, we have three reportable segments, the drybulk carrier segment, tanker segment and the offshore drilling segment. We commenced consolidation of Ocean Rig ASA on May 15, 2008.

Drybulk carrier segment

The table below reflects our voyage days, calendar days, fleet utilization and TCE rates for our drybulk vessels for the periods indicated. Please see "Item 3. Key Information—A. Selected Financial Data" for information concerning the calculation of TCE rates.


   
2012
    
2013
    
2014
  
Average number of vessels
    
35.67
      
37.15
      
38.69
  
Total voyage days for fleet
    
13,027
      
13,442
      
13,889
  
Total calendar days for fleet
    
13,056
      
13,560
      
14,122
  
Fleet Utilization
    
99.78
%
    
99.13
%
    
98.35
 % 
Time charter equivalent
    
15,896
      
12,062
      
12,354
  

Tanker segment


   
2012
    
2013
    
2014
  
Average number of vessels
    
6.27
      
9.86
      
10.00
  
Total voyage days for fleet
    
2,293
      
3,598
      
3,650
  
Total calendar days for fleet
    
2,293
      
3,598
      
3,650
  
Fleet Utilization
    
100
%
    
100
%
    
100
 % 
Time charter equivalent
    
13,584
      
12,900
      
21,835
  


77
 
 Year ended December 31, 2014 compared to the year ended December 31, 2013
(Expressed in thousands of U.S. Dollars)
 
  Year ended December 31,
   
2013
    
2014
    
Change
  
REVENUES:
                
 
Revenues
  
$
1,492,014
    
$
2,185,524
    
$
693,510
      
46.5
%
 
EXPENSES:
                                
Voyage expenses
    
103,211
      
117,165
      
13,954
      
13.5
%
Vessels, drilling rigs and drillships operating expenses
    
609,765
      
844,260
      
234,495
      
38.5
%
Depreciation and amortization
    
357,372
      
449,792
      
92,420
      
25.9
%
Loss on sale of assets, net
    
-
      
1,307
      
1,307
      
-
%
Vessel impairment charge
    
43,490
      
38,148
      
(5,342
)
    
(12.3
)%
Contract termination fees and Other
    
33,293
      
-
      
(33,293
)
    
(100
)%
General and administrative expenses
    
184,722
      
193,686
      
8,964
      
4.9
%
 
Legal settlements and other, net
    
4,585
      
(2,013
)
    
(6,598
)
    
(143.9
)%
                                 
Operating income
    
155,576
      
543,179
      
387,603
      
249.1
%
OTHER INCOME /(EXPENSES):
                                
Interest and finance costs
    
(332,129
)
    
(411,021
)
    
(78,892
)
    
23.8
%
Interest income
    
12,498
      
12,146
      
(352
)
    
(2.8
)%
Gain/(loss) on interest rate swaps
    
8,373
      
(15,528
)
    
(23,901
)
    
(285.5
)%
Other, net
    
2,245
      
7,067
      
4,822
      
214.8
%
 
Total other expenses, net
    
(309,013
)
    
(407,336
)
    
(98,323
)
    
31.8
%
 
INCOME/(LOSS) BEFORE INCOME TAXES
    
(153,437
)
    
135,843
      
289,280
      
(188.5
)%
Income taxes
    
(44,591
)
    
(77,823
)
    
(33,232
)
    
74.5
%
 
NET INCOME/(LOSS)
    
(198,028
)
    
58,020
      
256,048
      
(129.3
)%
Less: Net (income)/loss attributable to non-controlling interests
    
(25,065
)
    
(105,532
)
    
(80,467
)
    
321.0
%
 
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC.
  
$
(223,093
)
  
$
(47,512
)
  
$
175,581
      
(78.7
)%
 
Revenues

Drybulk Carrier segment

Voyage revenues increased by $14.6 million, or 7.6%, to $205.6 million for the year ended December 31, 2014, as compared to $191.0 million for the year ended December 31, 2013. An increase of $4.6 million, or 2.4%, is attributable to higher hire charter rates during the year ended December 31, 2014, as compared to the relevant period in 2013. Moreover, an additional increase of $6.7 million, or 3.5%, is attributable to the increase in the average number of vessels by 1.5 vessels,  with total voyage days increasing  by 447 days, from 13,442 days to 13,889  days, during the year ended December 31, 2014, as compared to the year ended December 31, 2013, Amortization of above market acquired time charters decreased by $3.3 million, or 1.7%, during the year ended December 31, 2014, as compared to the relevant period in 2013.

78
Tanker segment

Voyage revenues increased by $42.1 million, or 34.9%, to $162.8 million for year ended December 31, 2014, as compared to $120.7 million for year ended December 31, 2013. An increase of $40.3 million, or 33.4%, is attributable to higher hire rates during the year ended December 31, 2014, as compared to the relevant period in 2013. Moreover, an additional increase of $1.8 million or 1.5% is attributable to the increase in voyage days by 52, from 3,598 days to 3,650 days, during the year ended December 31, 2014, as compared to the year ended December 31, 2013.

Offshore Drilling segment

Revenues from drilling contracts increased by $636.8 million, or 54.0%, to $1,817.1 million for the year ended December 31, 2014, as compared to $1,180.3 million for the year ended December 31, 2013. The increase is primarily attributable to the increased revenues from the Ocean Rig Mylos and the Ocean Rig Skyros, which were added to the current fleet in the third and fourth quarter of 2013, amounting to $424.2 million in aggregate, the revenue from the Ocean Rig Athena, which was added to the current fleet in the first quarter of 2014, amounting to $144.3 million and the revenue of the Ocean Rig Apollo, which contributed $0.5 million due to recharges while under construction as agreed under contract terms. Furthermore, there was an increase in revenues earned by the Ocean Rig Corcovado, the Ocean Rig Poseidon and the Leiv Eiriksson which contributed an additional $110.4 million in revenues during the year ended December 31, 2014, as compared to the same period in 2013. This increase was partly offset by the decreased revenues earned by the Ocean Rig Olympia, the Ocean Rig Mykonos and the Eirik Raude, which contributed $42.5 million less in revenues for the year ended December 31, 2014, as compared to the same period in 2013. The maximum day-rates for the contracts on which our drilling units were employed during the year ended December 31, 2014, ranged between approximately $438,000 and $690,100 per day. The maximum day rates for the contracts on which our drilling units were employed during the year ended December 31, 2013, ranged between approximately $ 431,000 and $ 670,000 per day.

Voyage expenses

Drybulk Carrier segment

Voyage expenses increased by $5.1 million or 17.6%, to $34.0 million for the year ended December 31, 2014, as compared to $28.9 million for the year ended December 31, 2013. The increase in voyage expenses is mainly due to the increased average number of vessels by approximately two as well as an increase in address and brokerage commissions and bunkers expenses for the year ended December 31, 2014.

Tanker segment

Voyage expenses increased by $8.9 million, or 12.0%, to $83.2 million for the year ended December 31, 2014, as compared to $74.3 million for the year ended December 31, 2013. The increase relates to the respective increase in voyage revenues.

Offshore Drilling segment

The Offshore Drilling segment did not incur any voyage expenses during the relevant periods.
 

 
79
Vessels, drilling rigs and drillships operating expenses
 
Drybulk Carrier segment

Vessels operating expenses increased by $11.8 million, or 15.0%, to $90.4 million for the year ended December 31, 2014, as compared to $78.6 million for the year ended December 31, 2013. The increase is mainly due to increased drydocking expenses of $8.8 million recognized during the year ended December 31, 2014. The increase is also attributable to the increase in the average number of vessels by approximately two, the increase in various crew expenses, repairs and stores and the greek tax voluntary contribution recognized for the year ended December 31, 2014, as compared to the year ended December 31, 2013.

Tanker segment

Vessels operating expenses slightly decreased by $0.1 million, or 0.4%, to $26.1 million for the year ended December 31, 2014, as compared to $26.2 million for the year ended December 31, 2013. The decrease is mainly due to the increased initial expenses incurred during the year ended December 31, 2013, for the delivery of the vessels Alicante, Mareta, Bordeira.

Offshore Drilling segment

Drilling rigs and drillships operating expenses increased by $222.8 million, or 44.1%, to $727.8 million for the year ended December 31, 2014, compared to $505.0 million for the year ended December 31, 2013. The increase in operating expenses was mainly due to the addition of the Ocean Rig Athena to the current fleet, resulting to operating expenses amounting to $46.9 million. Additionally, the significant increase is also due to the Ocean Rig Skyros and the Ocean Rig Mylos which were added to the current fleet in the second and third quarter of 2013, amounting to $165.2 million. Furthermore, the Ocean Rig Olympia, the Ocean Rig Mykonos the Ocean Rig Corcovado and the Leiv Eiriksson resulted to increased operating expenses amounting to $27.9 million. The total increase was partly offset by the decrease in operating expenses of the Eirik Raude which amounted to $15.0 million in aggregate, whereas the operating expenses of the Ocean Rig Poseidon remained approximately the same for the years ended 2013 and 2014.


Depreciation and amortization expense

Drybulk Carrier segment

Depreciation and amortization expense increased by $3.1 million, or 3.2%, to $99.7 million for the year ended December 31, 2014, as compared to $96.6 million for the year ended December 31, 2013. The increase is mainly attributable to the increase in the number of vessels owned by approximately two or 4.0% vessels on average during the year ended December 31, 2014, as compared to the relevant period in 2013.

Tanker segment

Depreciation and amortization expense slightly increased by $0.3 million, or 1.2%, to $24.4 million for the year ended December 31, 2014, as compared to $24.1 million for the year ended December 31, 2013.

Offshore Drilling segment

Depreciation and amortization expense for the drilling units increased by $89.0 million, or 37.6%, to $325.7 million for the year ended December 31, 2014, as compared to $236.7 million for the year ended December 31, 2013. The increase in depreciation and amortization expense was mainly attributable to the depreciation expense of the Ocean Rig Athena which was added to the current fleet, amounting to $24.0 million as well as the increased depreciation of the Ocean Rig Mylos and Ocean Rig Skyros which were added to the fleet in the third and fourth quarter of 2013, amounting to $51.5 million. Furthermore, the Ocean Rig Mykonos, the Ocean Rig Corcovado and the Leiv Eiriksson resulted to increased depreciation expense amounting to $15.0 million in aggregate. This increase was partly offset by the decrease in depreciation expense of $1.5 million in aggregate of the Eirik Raude and the offices. The depreciation expense charged for the Ocean Rig Poseidon and Ocean Rig Olympia, remained approximately the same for the year ended December 31, 2014, as compared to the corresponding period in 2013.

Loss on contract cancellation

Drybulk Carrier segment
 
During the year ended December 31, 2014, we recorded a loss on contract cancellation of $1.3 million related to the cancellation of the construction of our four newbuildings. No such loss was recorded during the relevant period in 2013.

 
80
Tanker segment
 
The Tanker segment did not incur any loss on contract cancellation during the relevant periods.

 Offshore Drilling segment

The Offshore Drilling segment did not incur any loss on contract cancellation during the relevant periods.

Vessel impairment charge

Drybulk Carrier segment

During the year ended December 31, 2014, we recorded an impairment loss of $38.1 million as a result of the impairment analysis performed. During the year ended December 31, 2013, we recorded an aggregate impairment loss of $43.5 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242).

Tanker segment

The Tanker segment did not incur any impairment loss during the relevant periods.

Offshore Drilling segment

The Offshore Drilling segment did not incur any impairment loss during the relevant periods.

Contract termination fees and other

Drybulk Carrier segment

 During the year ended December 31, 2013, contract termination fees and other were $33.3 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242). No such fees were recorded during the relevant period in 2014.

Tanker segment

During the year ended December 31, 2013, contract termination fees were $1.0 million related to the sale agreement of two of our newbuildings tankers. No such fees were recorded during the relevant period in 2014.

Offshore Drilling segment

The Offshore Drilling segment did not incur any contract termination fees during the relevant periods.

General and administrative expenses

Drybulk Carrier segment

General and administrative expenses increased by $3.6 million, or 8.0%, to $48.4 million for the year ended December 31, 2014, compared to $44.8 million for the year ended December 31, 2013. This increase was mainly due to the increase in management fees due to the increase in the number of vessels owned by approximately two and the increase in consultancy fees.

Tanker segment

General and administrative expenses slightly increased by $0.5 million, or 3.8%, to $13.5 million for the year ended December 31, 2014, compared to $13.0 million for the year ended December 31, 2013.


Offshore Drilling segment

General and administrative expenses increased by $4.8 million, or 3.8%, to $131.7 million for the year ended December 31, 2014, as compared to $126.9 million for year ended December 31, 2013. This increase is mainly due to increased costs for the operation of the offices in Athens and increased consultancy fees.

Legal settlements and other, net

Drybulk Carrier segment

Legal settlements and other net slightly decreased by $0.1 million, or 7.1%, to a gain of $1.3 million for the year ended December 31, 2014, compared to a gain of $1.4 million for the year ended December 31, 2013.
81

Tanker segment

The Tanker segment did not incur such gains or losses during the relevant periods.

Offshore Drilling segment

A gain of $0.7 million was realized for the year ended December 31, 2014, as compared to a loss of $6.0 million during the year ended December 31, 2013, resulting to an increase of $6.7 million or 111.7%. The amount of $6.0 million (loss) in legal settlements for 2013 is mainly related to a claim settlement related to revenue under dispute of the operation of the Ocean Rig Corcovado in Greenland during 2011.The amount of $0.7 million relates to write off of claims from Samsung, cancellation fees and credit notes received during the year ended 2014.
 
Interest and finance costs

Drybulk Carrier segment

Interest and finance costs decreased by $1.0 million, or 1.0%, to $101.7 million for the year ended December 31, 2014, as compared to $102.7 million for the year ended December 31, 2013. The decrease is mainly due to the decrease in the bond amortization for the year ended December 31, 2014 compared to the corresponding period in 2013.
 
Excludes intercompany interest expense of $1.2 million.

Tanker segment

Interest and finance costs slightly decreased by $0.6 million, or 5.4% to $10.5 million for the year ended December 31, 2014, as compared to $11.1 for the year ended December 31, 2013.

Offshore Drilling segment

Interest and finance costs increased by $80.4 million, or 36.8%, to $298.8 million for year ended December 31, 2014, compared to $218.4 million for the year ended December 31, 2013. The increase is mainly due to the non- cash write offs and breakage cost fees resulting from the full repayment of the $1.35 billion senior secured credit facility totaling $22.0 million and write offs and redemption costs associated with the full refinancing of the Company's $500.0 million 9.5% senior unsecured notes due 2016 totaling to $32.6 million as well as the higher level of debt and interest rate during the year ended December 31, 2014.

Interest income

Drybulk Carrier segment

Interest income decreased by $1.9 million, or 65.5%, to $1.0 million for the year ended December 31, 2014, as compared to $2.9 million for the year ended December 31, 2013. The decrease was mainly due to a decrease in bank interest rates in time deposits during the year ended December 31, 2014, as compared to the relevant period in 2013.

Tanker segment

The Tanker segment did not earn any significant interest income during the relevant periods.

 Offshore Drilling segment

Interest income increased by $1.5 million, or 15.6%, to $11.1 million for the year ended December 31, 2014, compared to $9.6 million for the year ended December 31, 2013. The increase was mainly due to higher interest rates on our deposits and the duration of our time deposits during 2014 as compared to 2013.
 
Excludes intercompany interest income of $1.2 million.

Gain/(Loss) on interest rate swaps

Drybulk Carrier segment

Losses on interest rate swaps slightly decreased by $0.1 million, or 8.3%, to $1.1 million for the year ended December 31, 2014, as compared to $1.2 million for the year ended December 31, 2013, due to mark to market losses of outstanding swap positions.

82
Tanker segment
 
A loss on interest rate swaps of $1.7 million was realized for the year ended December 31, 2014, as compared to a gain of $1.0 million for the year ended December 31, 2014. The loss for the year ended December 31, 2014, was mainly due to the adverse movement of interest rates during 2014.

Offshore Drilling segment

For the year ended December 31, 2014, the drilling segment incurred losses on interest rate swaps of $12.7 million, as compared to gains of $8.6 million for the year ended December 31, 2013. The losses for the year ended December 31, 2014 was mainly due to payments of swap's interest.

Other, net

Drybulk carrier segment

Other, net amounted to a gain of $1.6 million for the year ended December 31, 2014, compared to a loss of $0.8 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences and an amount recovered under protection and indemnity insurance policy.

Tanker segment

Other, net amounted to a gain of $1.2 million for the year ended December 31, 2014, as compared to a loss of $0.3 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences.

Offshore Drilling segment

Other, net increased by $1.0 million, or 30.3% to a gain of $4.3 million for year ended December 31, 2014, compared to a gain of $3.3 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences.

Income taxes

Drybulk Carrier segment

We did not incur any income taxes on international shipping income in our Drybulk Carrier segment for the relevant periods.

Tanker segment

We did not incur any income taxes on international shipping income in our Tanker segment for the relevant periods.

Offshore Drilling segment

Income taxes increased by $33.2 million, or 74.4%, to $77.8 million for year ended December 31, 2014, compared to $44.6 million for the year ended December 31, 2013. As our drilling units operate around the world, they may become subject to taxation in many different jurisdictions. The basis for such taxation depends on the relevant regulation in the countries in which we operate. Consequently, there is no expected relationship between the income tax expense or benefit for the period and the income or loss before taxes.

Net (income)/loss attribute to non-controlling interests

Net (income)/ loss attributed to non-controlling interests amounted to gain of $105.5 million for the year ended December 31, 2014, as compared to  gain of $ 25.1  million for the year ended December 31, 2013. This represents the amount of consolidated income or loss that is not attributable to DryShips Inc.
 
 
83

Year ended December 31, 2013 compared to the year ended December 31, 2012
(Expressed in thousands of U.S. Dollars)
 
  Year ended December 31,
  2012 2013 Change
REVENUES:
                
Revenues
  
$
1,210,139
    
$
1,492,014
    
$
281,875
      
23.3
%
 
EXPENSES:
                                
Voyage expenses
    
30,012
      
103,211
      
73,199
      
243.9
%
 
Vessels, drilling rigs and drillships operating expenses
    
649,722
      
609,765
      
(39,957
)
    
(6.1
)%
Depreciation and amortization
    
335,458
      
357,372
      
21,914
      
6.5
%
Loss on sale of assets, net
    
1,179
      
-
      
(1,179
)
    
(100
)%
Vessel impairment charge
    
-
      
43,490
      
43,490
      
100
%
Contract termination fees and Other
    
41,339
      
33,293
      
(8,046
)
    
(19.5
)%
General and administrative expenses
    
145,935
      
184,722
      
38,787
      
26.6
%
Legal settlements and other, net
    
(9,360
)
    
4,585
      
13,945
      
(150
)%
 
Operating income
    
15,854
      
155,576
      
139,722
      
881.3
%
OTHER INCOME /(EXPENSES):
                                
Interest and finance costs
    
(210,128
)
    
(332,129
)
    
(122,001
)
    
58.1
%
Interest income
    
4,203
      
12,498
      
8,295
      
197.4
%
Gain/(loss) on interest rate swaps
    
(54,073
)
    
8,373
      
62,446
      
115.5
%
Other, net
    
(492
)
    
2,245
      
2,737
      
556.3
%
 
Total other expenses, net
    
(260,490
)
    
(309,013
)
    
(48,523
)
    
18.6
%
 
LOSS BEFORE INCOME TAXES
    
(244,636
)
    
(153,437
)
    
91,199
      
(37.3
)%
Income taxes
    
(43,957
)
    
(44,591
)
    
-634
      
1.4
%
 
NET LOSS
    
(288,593
)
    
(198,028
)
    
90,565
      
(31.4
)%
Less: Net (income)/loss attributable to non-controlling interests
    
41,815
      
(25,065
)
    
66,880
      
159,9
%
 
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC.
  
$
(246,778
)
  
$
(223,093
)
  
$
23,685
      
(9.6
)%
 
Revenues

Drybulk Carrier segment

Voyage revenues decreased by $36.1 million, or 15.9%, to $ 191.0 million for the year ended December 31, 2013, as compared to $ 227.1 million for the year ended December 31, 2012. A decrease of $53.7 million, or 23.6%, is attributable to lower hire charter rates during the year ended December 31, 2013, as compared to the relevant period in 2012. This decrease was slightly offset by the increase of $7.9 million, or 3.5%, attributable to the increase in the average number of vessels by 1.5 vessels,  with total voyage days increasing  by 415 days, from 13,027 days to 13,442  days, during the year ended December 31, 2013, as compared to the year ended December 31, 2012, Amortization of above market acquired time charters decreased by $9.7  million, or 4.3%, during the year ended December 31, 2013, as compared to the relevant period in 2012 due to a smaller number of time charters being amortized during the year ended December 31, 2013, as compared to the corresponding period in 2012.

Tanker segment

Voyage revenues increased by $79.6 million, or 193.7%, to $120.7 million for year ended December 31, 2013, as compared to $ 41.1 million for year ended December 31, 2012. The increase is attributable to a larger fleet in the year ended 2013 comprised of ten vessels (Saga, Vilamoura, Daytona, Belmar, Calida, Petalidi, Lipari, Alicante, Mareta and  Bordeira), as compared to a fleet comprised of seven vessels (Belmar, Saga, Vilamoura, Daytona, Calida, Petalidi and Lipari) in the year ended December 31, 2012. The significant increase in revenues in 2013 is also attributable to the fact that tankers are mainly operate under voyage charter compare to the relevant period in 2012 which were under pool agreements.

Offshore Drilling segment

Revenues from drilling contracts increased by $238.4 million, or 25.3%, to $1,180.3 million for the year ended December 31, 2013, as compared to $941.9 million for the year ended December 31, 2012. The increase is primarily attributable to the revenue from equipment testing of the Ocean Rig Skyros amounting to $2.1 million; the revenue of the Ocean Rig Mylos which was added to the Company's current fleet, amounting to $41.5 million and the revenue of the Ocean Rig Athena which contributed $0.7 million due to recharges while under construction as agreed under contract terms. Furthermore, there was an increase in operation days of the Ocean Rig Mykonos, the Ocean Rig Olympia and the Ocean Rig Corcovado within the period, as a result of the decrease in mobilization days due to the mobilization of the respective drillships to their drilling locations, which contributed, in aggregate, $521.5 million of revenues during the year ended December 31, 2013, as compared to $415.2 million during the same period in 2012. This increase was partly offset by the decreased revenues earned by the Ocean Rig Poseidon, which contributed $16.0 million less in revenues for the year ended December 31, 2013, as compared to the same period in 2012. The Eirik Raude and the Leiv Eiriksson, contributed an additional $103.8 million in revenues during the year ended December 31, 2013, as compared to the same period in 2012.  The maximum dayrates for the contracts on which our drilling units were employed during the year ended December 31, 2013, ranged between approximately $431,000 and $670,000 per day. The maximum day rates for the contracts on which our drilling units were employed during the year ended December 31, 2012, ranged between approximately $ 440,000 and $ 670,000 per day.
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Voyage expenses

Drybulk Carrier segment

Voyage expenses increased by $8.8 million or 43.8%, to $28.9 million for the year ended December 31, 2013, as compared to $20.1 million for the year ended December 31, 2012. The increase in voyage expenses is due to the significant increase in bunkers expenses for the year ended December 31, 2013.

Tanker segment

Voyage expenses increased by $64.4 million, or 650.5%, to $74.3 million for the year ended December 31, 2013, as compared to $9.9 million for the year ended December 31, 2012. The increase is attributable to a larger fleet in the year ended December 31, 2013, comprised of ten vessels (Saga, Vilamoura, Daytona, Belmar, Calida, Petalidi Lipari, Alicante, Mareta and Bordeira), as compared to a fleet comprised of seven vessels (Belmar, Saga, Vilamoura Daytona, Calida, Lipari and Petalidi ) in the year ended December 31, 2012. The increase relates to the respective increase in voyage revenues and the significant increase in bunker expenses in 2013 due to the fact that tankers operated under voyage charters.

Offshore Drilling segment

The Offshore Drilling segment did not incur any voyage expenses during the relevant periods.

Vessels, drilling rigs and drillships operating expenses

Drybulk Carrier segment

Vessels operating expenses increased by $9.0 million, or 12.9%, to $78.6 million for the year ended December 31, 2013, as compared to $69.6 million for the year ended December 31, 2012. The increase is mainly due to the increase in various crew expenses, drydocking expenses, taxes, flag and insurance expenses.

Tanker segment

Vessels operating expenses increased by $9.7 million, or 58.8%, to $26.2 million for the year ended December 31, 2013, as compared to $16.5 million for the year ended December 31, 2012. The increase is attributable to a larger fleet in the year ended December 31, 2013, comprised of ten vessels (Saga, Vilamoura, Daytona, Belmar, Calida, Petalidi, Lipari. Alicante, Mareta and Bordeira), as compared to a fleet comprised of seven vessels (Belmar, Saga, Vilamoura, Daytona, Calida, Lipari and Petalidi) in the year ended December 31, 2012.

Offshore Drilling segment

Drilling rigs and drillships operating expenses decreased by $58.6 million, or 10.4%, to $505.0 million for the year ended December 31, 2013, compared to $ 563.6 million for the year ended December 31, 2012. The decrease in operating expenses was mainly due to the significant decrease of operating expenses of the Eirik Raude, the Leiv Eiriksson, the Ocean Rig Corcovado and the Ocean Rig Poseidon amounting to $79.0 million in aggregate. The total decrease was partly offset by the Ocean Rig Mykonos, the Ocean Rig Olympia mobilization and upgrades that took place during 2013; and the Ocean Rig Mylos and Ocean Rig Skyros which were added to the Company's fleet resulting in increased operating expenses of $34.2 million in aggregate for the year ended December 31, 2013.

Depreciation and amortization expense

Drybulk Carrier segment

Depreciation and amortization expense increased slightly by $1.9 million, or 2.0%, to $96.6 million for the year ended December 31, 2013, as compared to $94.7 million for the year ended December 31, 2012. The increase is mainly due to the delivery of two additional bulkers during 2013.

Tanker segment

Depreciation and amortization expense increased by $9.0 million, or 59.6%, to $24.1 million for the year ended December 31, 2013, as compared to $15.1 million for the year ended December 31, 2012. The increase is attributable to  a larger fleet of depreciable vessels for the year ended December 31, 2013, as compared to the same period of 2012.
85
Offshore Drilling segment

Depreciation and amortization expense for the drilling units increased by $11.0 million, or 4.9%, to $236.7 million for the year ended December 31, 2013, as compared to $225.7 million for the year ended December 31, 2012. The increase in depreciation and amortization expense was mainly attributable to the depreciation expense of Ocean Rig Mylos and Ocean Rig Skyros which were added to the current fleet, amounting to $12.3 million as well as the increased depreciation of the Ocean Rig Mykonos, the Ocean Rig Olympia and the Leiv Eiriksson amounting to $5.6 million in aggregate and the increase in the office depreciation expense by $0.4 million. This increase was partly offset by the decrease in depreciation expense of $7.3 million in aggregate related to the depreciation of the Ocean Rig Corcovado and the Eirik Raude. The depreciation expense charged for the Ocean Rig Poseidon remained approximately the same for the year ended December 31, 2013, as compared to the corresponding period in 2012.

Vessel impairment charge

Drybulk Carrier segment

During the year ended December 31, 2013, we recorded an aggregate impairment loss of $ 43.5 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242). No such loss was recorded during the relevant period in 2012.

Tanker segment

The Tanker segment did not incur any impairment loss during the relevant periods.

Offshore Drilling segment

The Offshore Drilling segment did not incur any impairment loss during the relevant periods.

Loss on sale of assets, net

Drybulk Carrier segment

No loss on sale of assets incurred during 2013, while for the relevant period in 2012, there was a loss on sale of assets amounting to $1.0 million, due to the sale of three of our vessels (Avoca, Padre and Positano).

Tanker segment

The Tanker segment did not incur any asset sales during the relevant periods.

Offshore Drilling segment

Loss on asset sales amounted to $nil for the year ended December 31, 2013, while for the relevant period in 2012, there was a loss on asset disposal amounting to $0.1 million.

Contract termination fees and other

Drybulk Carrier segment

 During the year ended December 31, 2013, contract termination fees and other were $32.3 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242). No such fees were recorded during the relevant period in 2012.

Tanker segment

Contract termination fees and other, decreased by $40.3 million, or 97.6%, to a loss of $1.0 million for the year ended December 31, 2013, compared to a loss of $41.3 million that was recorded due to the novation agreements for the sale of the shipbuilding contracts for the newbuilding tankers Esperona and Blanca, for the year ended December 31, 2012.

Offshore Drilling segment

The Offshore Drilling segment did not incur any contract termination fees and forfeiture of vessels/ vessels under construction deposits.
 
 

 
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General and administrative expenses

Drybulk Carrier segment
 
General and administrative expenses decreased by $7.8 million, or 14.8%, to $44.8 million for the year ended December 31, 2013, compared to $52.6 million for the year ended December 31, 2012. This decrease was mainly due to the decrease in stock-based compensation and consultancy fees.

Tanker segment

General and administrative expenses increased by $3.3 million, or 34.0%, to $13.0 million for the year ended December 31, 2013, compared to $9.7 million for the year ended December 31, 2012. The increase is attributable to the increase in management fees due to a larger fleet in the year ended December 31, 2013, comprised of ten vessels as compared to a fleet comprised of seven vessels in the year ended December 31, 2012.

Offshore Drilling segment

General and administrative expenses increased by $43.3 million, or 51.8%, to $126.9 million for the year ended December 31, 2013, as compared to $83.6 million for year ended December 31, 2012. This increase is mainly due to increased costs for the operation of the offices in Athens and Angola and increased consultancy fees.

Legal settlements and other, net

Drybulk Carrier segment

Gains from legal settlements and other net decreased by $12.5 million, or 89.9%, to $1.4 million for the year ended December 31, 2013 compared to $13.9 million realized for the year ended December 31, 2012, due to the compensation received from charterers as a result of the earlier redelivery of a number of vessels and compensation received as per an option agreement related to the sale of certain receivables in 2012.

Tanker segment

The Tanker segment did not incur such gains or losses during the relevant periods.

Offshore Drilling segment

A loss of $6.0 million was realized for the year ended December 31, 2013, as compared to a loss of $4.5 million during the year ended December 31, 2012. The amount of $4.5 million (loss) in legal settlements for 2012 which is mainly related to a claim settlement related to import/export taxes duties in Angola that was settled during 2012 The amount of $6.0 million (loss) in legal settlements for 2013 is mainly related to a claim settlement related to revenue under dispute of the operation of the Ocean Rig Corcovado in Greenland during 2011.

Interest and finance costs

Drybulk Carrier segment

Interest and finance costs increased by $7.2 million, or 7.5%, to $102.7 million for the year ended December 31, 2013, as compared to $95.5 million for the year ended December 31, 2012. The increase is mainly due to the write-off of fees paid for H1241 and H1242, our newbuilding hulls that were sold and delivered to their new owners during May and June 2013, respectively, amounting to $0.8 million and the increased amortization of $4.9 million of our convertible senior notes, compared to the corresponding period in 2012.

Tanker segment

Interest and finance increased by $8.8 million, or 382.6% to $11.1million for the year ended December 31, 2013, as compared to $2.3 for the year ended December 31, 2012. The increase is mainly due to increased finance costs resulting from higher average debt due to the delivery of the vessels Alicant, Mareta and Bordeira during 2013.

Offshore Drilling segment

Interest and finance costs increased by $106.1 million, or 94.5%, to $218.4 million for year ended December 31, 2013, compared to $ 112.3 million for the year ended December 31, 2012. The increase is mainly due to the write off and breakage cost fees resulting from the full repayment of the $800.0 million secured term loan agreement and the two $495.0 million senior secured credit facilities totaling $61.1 million and increased interest expense of long term debt amounting to $54.4 million associated to the higher level of debt during the year ended December 31, 2013. Accordingly, capitalized interest and debt issuance costs increased by $20.5 million attributed to the new debt agreements  the company entered into during the year.
 

 
87
Interest income
 
Drybulk Carrier segment

Interest income decreased by $0.7 million, or 19.4%, to $2.9 million for the year ended December 31, 2013, as compared to $3.6 million for the year ended December 31, 2012. The decrease was mainly due to a decreased average cash balance as compared to 2012.

Tanker segment

The Tanker segment did not earn any interest income during the relevant periods.

 Offshore Drilling segment

Interest income increased by $9.0 million, or 1,500.0%, to $9.6 million for the year ended December 31, 2013, compared to $0.6 million for the year ended December 31, 2012. The increase was mainly due to an increased average cash balance and higher interest rates on our deposits during 2013, as compared to 2012.

Gain/(Loss) on interest rate swaps

Drybulk Carrier segment

Losses on interest rate swaps decreased by $12.0 million, or 90.9%, to $1.2 million for the year ended December 31, 2013, as compared to $13.2 million for the year ended December 31, 2012, due to more favorable movement of interest rates.

Tanker segment

Gains on interest rate swaps increased by $4.9 million, or 125.6% to $1.0 million gain for the year ended December 31, 2013, as compared to losses amounted to $3.9 million for the year ended December 31, 2012.  The gain for the year ended December 31, 2013, was mainly due to mark to market gains of outstanding swap positions.

Offshore Drilling segment

Gains on interest rate swaps increased by $45.6 million, or 123.3%, to $8.6 million for year ended December 31, 2013, as compared to a $37.0 million loss for the year ended December 31, 2012. The gain for the year ended December 31, 2013, was mainly due to mark to market gains of outstanding swap positions.

Other, net

Drybulk carrier segment

Other, net decreased by $1.5 million, or 214.3%, to a loss of $0.8 million for the year ended December 31, 2013, compared to a gain of $ 0.7 million for the year ended December 31, 2012, due to exchange rate differences as compared to gain from the sale of $18.0 million of senior notes of Ocean Rig in the relevant period in 2012.

Tanker segment

Other, net amounted to a loss of 0.3 million for the year ended December 31, 2013, as compared to a loss of $0.08 million for the year ended December 31, 2012.

Offshore Drilling segment

Other, net increased by $4.4 million, or 400.0% to a gain of $3.3 million for year ended December 31, 2013, compared to a loss of $1.1 million for the year ended December 31, 2012. The increase is mainly due to foreign currency exchange rate differences.

Income taxes

Drybulk Carrier segment

We did not incur any income taxes on international shipping income in our Drybulk Carrier segment for the relevant periods.

Tanker segment

We did not incur any income taxes on international shipping income in our Tanker segment for the relevant periods.
88
Offshore Drilling segment

Income taxes increased by $0.6 million, or 1.4%, to $44.6 million for year ended December 31, 2013, compared to $44.0 million for the year ended December 31, 2012. Because our drilling units operate around the world, they may become subject to taxation in many different jurisdictions. The basis for such taxation depends on the relevant regulation in the countries in which we operate. Consequently, there is no expected relationship between the income tax expense or benefit for the period and the income or loss before taxes.

Net (income)/loss attribute to non-controlling interests

Net (income)/ loss attributed to non-controlling interests amounted to gain of $25.1 million for the year ended December 31, 2013, as compared to  loss of $ 41.8  million for the year ended December 31, 2012. This represents the amount of consolidated income or loss that is not attributable to DryShips Inc.

Recent Accounting Pronouncements

Revenue from Contracts with Customers
The Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") (collectively, the "Boards") jointly issued a standard in May 2014 that will supersede virtually all of the existing revenue recognition guidance in U.S. GAAP and International Financial Reporting Standards ("IFRS") and is effective for annual periods beginning on or after January 1, 2017. The standard establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity's ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods, and key judgments and estimates. The guidance in Accounting Standard Update ("ASU") 2014-09 Revenue from Contracts with Customers (Topic 606) supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this ASU supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. Management is in the process of accessing the impact of the new standard on Company's financial position and performance.
Going Concern
In August 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-15–Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 requires an entity's management to evaluate at each reporting period based on the relevant conditions and events that are known at the date of financial statements are issued, whether there are conditions or events, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued and to disclose the necessary information. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

B.           Liquidity and Capital Resources

Historically our principal source of funds has been equity provided by our shareholders, operating cash flow, secured and unsecured debt and certain forms of hybrid instruments, such as convertible preferred stock and convertible notes. Our principal use of funds has been capital expenditures to establish, grow and maintain the quality of our fleet, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments and interest payments on outstanding debt facilities, and pay dividends. Our board of directors determined to suspend the payment of cash dividends beginning in the fourth quarter of 2008.

Our internally generated cash flow is directly related to our business and the market sectors in which we operate. Should the markets in which we operate deteriorate or worsen, or should we experience poor results in our operations, cash flow from operations may be reduced. As of March 2, 2015, we believe that cash on hand and internally generated cash flow will be sufficient to fund our operations (operating costs, working capital requirements and scheduled debt service requirements but not capital expenditures) for the next 12 months. Our access to debt and equity markets may be reduced or closed due to a variety of events, including a credit crisis, credit rating agency downgrades of our debt, industry conditions, general economic conditions, market conditions and market perceptions of us and our industry.

As of December 31, 2014, we had cash and cash equivalents of $566.2 million. Our cash and cash equivalents decreased by $28.9 million, or 4.9%, to $566.2 million as of December 31, 2014, compared to $595.1 million as of December 31, 2013, primarily due to payments for vessels, drilling rigs and drillships improvements and advances for drillships under construction.
89

As of December 31, 2014, we had total indebtedness of $5.6 billion.  Our total indebtedness decreased by $0.1 billion, or 1.8%, to $5.6 billion as of December 31, 2014, from $5.7 billion as of December 31, 2013, mainly due to loan repayments made during 2014 which were partly offset by the $1.3 billion term loan entered by Ocean Rig UDW in July 2014 and the $167 and $200 million credit facilities entered by Dryships Inc in October and November 2014, respectively.

As of December 31, 2014, we were not in compliance with certain financial and loan-to-value covenants contained in the loan agreements relating to our shipping segments, while we were in full compliance with the financial covenants contained in the debt agreements relating to our offshore drilling segment. See "—Breach of Covenants under Secured Credit Facilities."

Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $394.5 million as of December 31, 2014, compared to a working capital deficit of $987.5 million as of December 31, 2013. The deficit decrease is mainly due to the increase in trade accounts receivable and the decrease in the current portion of long term debt. If we were not in breach of certain of our loan covenants contained in our loan agreements relating to our shipping segments, and the Company had not classified the relevant bank loans under which a total of $1,163.3 million was outstanding as of December 31, 2014, as current liabilities, our working capital would be a surplus of $314.4 million.

Our practice has been to acquire drybulk carriers, drilling units and tankers using a combination of funds received from equity investors and bank debt secured by mortgages on our assets. Our business is capital intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer vessels and the selective sale of older vessels. These acquisitions will be principally subject to management's expectation of future market conditions as well as our ability to acquire vessels on favorable terms.

As of December 31, 2014, we had entered into contracts for the construction of three seventh generation, ultra-deepwater drillships, scheduled for delivery in June 2016, February 2017 and June 2017, respectively. In August 2014, we agreed with the shipyard to cancel the construction of the four newbuilding Ice class Panamax vessels. In September 2014, we received in connection with the cancellation of these newbuilding contracts all installments previously paid to the shipyard plus interest.

As of December 31, 2014, the remaining purchase commitments relating to these drilling units amounted to $1.5 billion in the aggregate. We do not expect that internally generated cash flow will be sufficient to fund these commitments, which amounted to $179.2 million, $498.2 million and $864.4 million for 2015, 2016 and 2017, respectively, as of December 31, 2014. See "—Tabular Disclosure of Contractual Obligations."

As of December 31, 2014, we had made pre-delivery payments of $280.2 million in the aggregate for our three seventh generation drillships under construction. The total estimated remaining construction payments for these drillships amounted to approximately $1.8 billion in the aggregate, excluding financing costs, as of December 31, 2014. We intend to finance the three remaining seventh generation drillships scheduled for delivery June 2016, February 2017 and June 2017 with new debt or equity financing.

As of December 31, 2014, we had no available borrowing capacity under our credit facilities.

Covenants under Secured Credit Facilities

Our secured credit facilities impose operating and negative covenants on us and our subsidiaries. These covenants may limit our and our subsidiaries' ability to, among other things, without the relevant lenders' prior consent (i) pay dividends; (ii) incur additional indebtedness; (iii) change the flag, class or management of the vessel mortgaged under such facility, (iv) create or permit to exist liens on our assets, (v) make loans, (vi) make investments or capital expenditures, (vii) undergo a change in ownership or control; (viii) enter into transactions with affiliates; and (ix) sell our assets.

Certain of our secured credit facilities also subject us to certain financial covenants. In general, these financial covenants require us to maintain, among other things, (i) a minimum amount of liquidity; (ii) a minimum market adjusted equity ratio; (iii) a minimum interest coverage ratio; (iv) a minimum market adjusted net worth; (v) a minimum working capital level; (vi) maximum funded debt to capitalization ratio; (vii) a minimum tangible net worth level and (viii) a maximum ratio of total net debt to income before interest, taxes, depreciation and amortization.

 Furthermore, our secured credit facilities also require certain of our subsidiaries to maintain specified financial ratios and satisfy financial covenants, mainly to ensure that the market value of the vessel mortgaged under the applicable credit facility, determined in accordance with the terms of that facility, does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as a value maintenance clause or the loan-to-value ratio.
 
 
90

 
Breach of Covenants under Secured Credit Facilities
 
 Events beyond our control, including changes in the economic and business conditions in the international drybulk, tanker or offshore drilling markets in which we operate, may affect our ability to comply with the financial covenants and loan-to-value ratios required by our credit facilities. Our ability to maintain compliance with such requirements also depends substantially on the value of our assets, our charterhire and dayrates, our ability to obtain charters and drilling contracts, our success at keeping our costs low and our ability to successfully implement our overall business strategy.

A violation of any of the financial covenants in our credit facilities, absent a waiver of the breach from our lenders, or a violation of the loan-to-value ratios in our credit facilities, if not waived by our lenders or cured by providing additional collateral or prepaying the amount of outstanding indebtedness required to eliminate the shortfall, could result in an event of default under our credit facilities that would allow all amounts outstanding thereunder to be declared immediately due and payable. In addition, all of our credit facilities relating to our drybulk and tanker fleet contain cross-acceleration or cross-default provisions that may be triggered by a default under one of our other credit facilities relating to our drybulk and tanker fleet. Furthermore, our debt agreements relating to our offshore drilling fleet also contain cross-default or cross-acceleration provisions that may be triggered by a default under one of our other debt agreements relating to our offshore drilling fleet.  If the amounts outstanding under our indebtedness relating to our drybulk and tanker fleet or our offshore drilling fleet were to be become accelerated or were to become the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.

As of December 31, 2014, we were in compliance with the financial covenants contained our debt agreements relating to our offshore drilling segment, but we were in breach of certain financial covenants, contained in certain of our loan agreements relating to our shipping segments, under which a total of $259.5 million was outstanding as of December 31, 2014.  Even though as of the date of this annual report, none of the lenders had declared an event of default under the relevant loan agreements for which we were not in compliance as of December 31, 2014, these breaches constitute potential events of default (also known as technical defaults) and may result in the lenders requiring immediate repayment of the loans. As a result of the aforementioned non-compliance as of December 31, 2014 and due to the cross-acceleration and cross-default provisions contained in our credit facilities relating to our drybulk and tanker fleet, all of our outstanding indebtedness relating to our drybulk and tanker fleet, amounting to approximately $1,163.3 million as of December 31, 2014, has been classified as current.  As a result, we reported a working capital deficit of $394.5 million at December 31, 2014. Our independent registered public accounting firm has issued its opinion with an explanatory paragraph in connection with our financial statements included in this annual report that expresses substantial doubt about our ability to continue as a going concern.  See Note 3 to our consolidated financial statements included in this annual report.

In addition, on November 18, 2013, we signed a Supplemental Agreement with HSH Nordbank, as Agent, for an amendment of certain terms under our $628.8 million credit facility dated March 31, 2006, as amended. Under the terms of this agreement on November 21, 2013, the lending syndicate led by HSH applied our previously pledged restricted cash of $55.0 million against the next five quarterly installments. In addition, the lending syndicate has agreed to relax various financial covenants through the end of 2014. On November 22, 2013, the pledge of 7,800,000 shares of Ocean Rig, which were previously pledged to the lenders under our $628.8 million senior and junior loan agreements dated March 31, 2006, were released back us.  Furthermore, we have entered into an amendment to one of our credit facilities to reduce the loan-to-value ratio required to be maintained under the facility until 2016. There can be no assurance that we will be in compliance with the loan-to-value ratios contained in these credit facilities when the share pledge expires or the original covenant comes back into effect or that the relevant lenders would permit further amendments to the collateral arrangements with respect to future breaches of the loan-to-value ratios.

We are currently in negotiations with our lenders to obtain waivers of our covenant breaches and extend existing waivers of covenant breaches, or to restructure the affected debt. We cannot guarantee that we will be able to obtain our lenders' waiver or consent, or extensions of existing waivers, with respect to the aforementioned noncompliance under our credit facilities relating to our drybulk and tanker fleet, or any non-compliance with specified financial ratios or financial covenants under future financial obligations we may enter into, or that we will be able to refinance or restructure any such indebtedness.  If we fail to remedy, or obtain a waiver of, the breaches of the covenants discussed above, our lenders may accelerate our indebtedness under the relevant credit facilities, which could trigger the cross-acceleration or cross-default provisions contained in our other credit facilities relating to our drybulk and tanker fleet, under which a total of $1,163.3 million was outstanding as of December 31, 2014. If our indebtedness is accelerated, it will be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens. In addition, if the value of our vessels deteriorates significantly from their currently depressed levels, we may have to record an impairment adjustment to our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital.

Moreover, in connection with any additional amendments to our credit facilities, or waivers or extensions of waivers of covenant breaches, that we obtain, or if we enter into any future credit agreements or debt instruments, our lenders may impose additional operating and financial restrictions on us. These restrictions may further restrict our ability to, among other things, fund our operations or capital needs, make acquisitions or pursue available business opportunities, which in turn may adversely affect our financial condition. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the margin and lending rates they charge us on our outstanding indebtedness.
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We expect that our lenders will not demand payment of the loans relating to our drybulk and tanker fleet under which we are in breach of certain financial and loan-to-value ratio covenants before their maturity, provided that we pay scheduled loan installments and accumulated or accrued interest as they fall due under the existing credit facilities. We plan to settle the loan interest and scheduled loan repayments with cash expected to be generated from operations and firm financing agreements which are currently in place.  We do not expect that cash on hand and cash generated from operations will be sufficient to repay our loans relating to our drybulk and tanker fleet with cross-default provisions which amounted to approximately $1,163.3 million in the aggregate as of December 31, 2014, if such debt is accelerated by our lenders, as discussed above. In such a scenario, we would have to seek to access the capital markets to fund the mandatory payments.

Notes

Convertible Senior Notes

In November 2009, we issued $460.0 million aggregate principal amount of 5% convertible unsecured senior notes, referred to as the Convertible Senior Notes, which were due December 1, 2014, resulting in aggregate net proceeds of approximately $447.8 million after deducting underwriting commissions.

The holders could convert their Convertible Senior Notes at any time on or after June 1, 2014 prior to maturity. However, holders could also convert their Convertible Senior Notes prior to June 1, 2014 under the following circumstances: (1) if the closing price of our common shares reaches and remained at or above 130% of the conversion price of $7.19 per share of common share or 139.0821 common shares per $1,000 aggregate principal amount of Convertible Senior Notes, in effect on that last trading day for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs; (2) during the ten consecutive trading-day period after any five consecutive trading-day period in which the trading price per $1,000 principal amount of the Convertible Senior Notes for each day of that period was less than 98% of the closing price of our common shares multiplied by then applicable conversion rate; or (3) if specified distributions to holders of our common shares are made or specified corporate transactions occur. The Convertible Senior Notes were unsecured and paid interest semi-annually at a rate of 5% per annum commencing June 1, 2010.

As the Convertible Senior Notes contained a cash settlement option upon conversion at the option of the issuer, the Company applied the guidance for "Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement)", and therefore, on the day of the Convertible Senior Notes issuance, bifurcated the $460.0 million principal amount of the Convertible Senior Notes into liability and the equity components of $341.2 million and $118.8 million respectively, by first determining the carrying amount of the liability component of the Convertible Senior Notes by measuring the fair value of a similar liability that did not have an associated equity component. The equity component was calculated by deducting the fair value of the liability component from the total proceeds received at issuance. Additionally, the guidance required the Company to accrete the discount of $118.8 million to the principal amount of the Convertible Senior Notes over the term of the Convertible Senior Notes.

In April 2010, we issued $220.0 million aggregate principal amount of additional Convertible Senior Notes under the indenture, as supplemented by a supplemental indenture, pursuant to which the Company previously issued $460.0 million aggregate principal amount of Convertible Senior Notes in November 2009. The terms of the Convertible Senior Notes offered in April, other than their issue date, are identical to the Notes issued in November 2009.

The full over allotment option granted was exercised and an additional $20.0 million aggregate principal amount of Convertible Senior Notes were purchased. Accordingly, $240.0 million in aggregate principal amount of Convertible Senior Notes were sold, resulting in aggregate net proceeds of approximately $237.2 million after the underwriter commissions.

In conjunction with the offering of our Convertible Senior Notes described above, we also entered into a share lending agreement with an affiliate of the underwriter of the offering, or the share borrower, pursuant to which we loaned the share borrower approximately 36.1 million of our common shares. Under the share lending agreement, the share borrower is required to return the borrowed shares when the Convertible Senior Notes are no longer outstanding. We did not receive any proceeds from the sale of the borrowed shares by the share borrower, but we did receive a nominal lending fee of $0.01 per share from the share borrower for the use of the borrowed shares.

As of December 31, 2014, the share borrower has returned a total of 36,100,000 of our common shares that it borrowed pursuant to the share lending agreements discussed above.

The fair value of the outstanding loaned shares as of December 31, 2013 and 2014, was $71.0 million and $0 million, respectively. On the day of the Convertible Senior Notes issuance, the fair value of the share lending agreement was determined to be $14.5 million for the Convertible Senior Notes, based on a 5.5% interest rate of the Convertible Senior Notes without the share lending agreement and was recorded as debt issuance cost. Amortization of the issuance costs associated with the share lending agreement recorded as interest expense during the year ended December 31, 2013 and 2014, was $3.0 million and $2.8 million, respectively, resulting in an unamortized amount of $2.7 million and $0 million at December 31, 2013 and 2014, respectively.
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The total interest expense related to the Convertible Senior Notes in our consolidated statement of operations for the years ended December 31, 2013 and 2014, was $78.8 million and $76.7 million, respectively, of which $43.8 million and $45.3 million was non-cash amortization of the discount on the liability component, respectively, and $35.0 million and $31.4 million was the contractual interest to be paid semi-annually at a coupon rate of 5% per year, respectively. At December 31, 2013 and 2014, the net carrying amounts of the liability component and unamortized discount were $654.7 million and $0 million, respectively, and $45.3 million and $0 million, respectively.

The Company's interest expense associated with the $460.0 million aggregate principal amount and $240.0 million aggregate principal amount of Convertible Senior Notes is accretive based on an effective interest rate of 12% and 14%, respectively.

During November 2014, the Company has repurchased on the open market and cancelled $191.1 million principal amount of its 5% convertible notes. On November 24, 2014 the Company repaid the remaining amount of its 5% convertible notes, amounted to $508.9 million.

Senior Unsecured Notes of Ocean Rig UDW

Ocean Rig's 7.25% senior unsecured notes due 2019

On March 26, 2014, Ocean Rig issued $500.0 million aggregate principal amount of 7.25% senior unsecured notes due 2019 (the "7.25% Senior Unsecured Notes"), offered in a private placement, resulting in net proceeds of approximately $493.6 million. The 7.25% Senior Unsecured Notes are unsecured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness. Ocean Rig used the net proceeds from the offering of the 7.25% Senior Unsecured Notes, together with cash on hand and repurchased $462.3 million of its 9.5% Senior Unsecured Notes, of which $500 million  in aggregate principal amount was outstanding prior to closing of the 7.25% Senior Unsecured Notes Offering, at a tender premium of 105.375%, while the remaining $37.7 million, was redeemed at a redemption price of 104.5% on May 13, 2014.
The 7.25% Senior Unsecured Notes are not guaranteed by any of the Company's subsidiaries. Upon a change of control, which occurs if 50% or more of the Company's shares are acquired by any person or group other than DryShips or its affiliates, the noteholders will have an option to require the Company to purchase all outstanding notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. The contractual semi-annual coupon interest rate is 7.25% per year.

Ocean Rig's 9.5% senior unsecured notes due 2016

On April 27, 2011, Ocean Rig UDW, our majority owned subsidiary, issued $500,000 aggregate principal amount of its 9.5% senior unsecured notes due 2016, referred to as the Senior Unsecured Notes, offered in a private placement, resulting in net proceeds of approximately $487.5 million. The Senior Unsecured Notes were unsecured obligations and ranked senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.

The Senior Unsecured Notes were not guaranteed by any of Ocean Rig UDW's subsidiaries. Ocean Rig UDW could redeem some or all of the Senior Unsecured Notes as follows: (i) at any time and from time to time from April 27, 2014 to April 26, 2015, at a redemption price equal to 104.5% of the aggregate principal amount, plus accrued and unpaid interest to the date of redemption; or (ii) at any time and from time to time from April 27, 2015 at a redemption price equal to 102.5% of the aggregate principal amount, plus accrued and unpaid interest to the date of redemption. Upon a change of control, which  would occur if 50% or more of Ocean Rig UDW's shares were acquired by any person or group other than DryShips or its affiliates, the noteholders would have an option to require Ocean Rig UDW to purchase all outstanding notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase.

The total interest expense and debt amortization cost related to the Senior Unsecured Notes in our consolidated statement of operations for the years ended December 31, 2013 and 2014, was $49.8 and $0 million, respectively. The contractual semi-annual coupon interest rate is 9.5% per year.

On April 26, 2011, we agreed to purchase from three unaffiliated companies Unsecured Senior Notes of Ocean Rig UDW in the total aggregate principal amount of $75.0 million. During the period from May 19, 2011 to July 27, 2011, we sold to unaffiliated third parties our Senior Unsecured Notes with a notional amount of $57.0 million, resulting in a gain of $1.4 million. The remaining $18.0 million in aggregate principal amount of Senior Unsecured Notes were measured at fair value as of December 31, 2011 and a loss of $1.4 million was recorded in "Other comprehensive income/(loss)." During the period from March 15, 2012 to March 30, 2012, the remaining $18.0 million of senior unsecured notes were also sold to third parties with a notional amount of $18 million resulting in a gain of $0.7 million.

The 9.5% Senior Unsecured Notes were repurchased or redeemed in connection with the 7.25% Senior Unsecured Notes offering discussed above.
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Senior Secured Notes of Drill Rigs Holdings

On September 20, 2012, Drill Rigs Holdings, our majority-owned subsidiary, or the Issuer, completed the issuance of $800 million aggregate principal amount of 6.50% senior secured notes due 2017, referred to as the Senior Secured Notes, in a private offering to eligible purchasers. The Senior Secured Notes are fully and unconditionally guaranteed, on a senior secured basis, by Ocean Rig UDW and certain existing and future subsidiaries of the Issuer, or the Subsidiary Guarantors, including subsidiaries of the Issuer that holds or will hold the Leiv Eiriksson or the Eirik Raude, or certain assets related to such drilling rigs, or that is or becomes party to a drilling contract in respect of either the Leiv Eiriksson or the Eirik Raude.

The Senior Secured Notes are secured, on a first priority basis, by a security interest in the Leiv Eiriksson and the Eirik Raude and certain other assets of the Issuer and Subsidiary Guarantors, assignments of all earnings and insurance proceeds related to the two drilling rigs, and by a pledge of the stock of the Issuer and the Subsidiary Guarantors.

The Senior Secured Notes mature on October 1, 2017, and bear interest from the date of their issuance at the rate of 6.50% per annum. Interest on outstanding Senior Secured Notes is payable semi-annually in arrears, commencing on April 1, 2013. The net proceeds, after fees and expenses, of offering of Senior Secured Notes of approximately $782.0 million were used to fully repay outstanding indebtedness under our $1.04 billion senior secured credit facility described below under "—Repaid Debt Agreements—$1.04 billion secured credit facility," amounting to $487.5 million as of June 30, 2012, and for the purposes of financing offshore drilling rigs, and to pay all fees and expenses associated therewith.

The Senior Secured Notes rank equally in right of payment with all of the Issuer's existing and future senior indebtedness and senior in right of payment to any of the Issuer's existing and future subordinated indebtedness.  The guarantees of each guarantor are senior obligations of that guarantor and rank equally in right of payment with all of that guarantor's existing and future senior indebtedness, including guarantees, and senior in right of payment to all of that guarantor's existing and future subordinated indebtedness.

At any time on or after October 1, 2015, the Issuer may redeem some or all of the Senior Secured Notes at specified redemption prices, plus accrued and unpaid interest on the Senior Secured Notes redeemed.  Prior to October 1, 2015, the Issuer may, at its option, redeem up to 35% of the aggregate original principal amount of the Senior Secured Notes with the net proceeds of one or more equity offering at a price equal to 106.5% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption.  In addition, prior to October 1, 2015, the Issuer may redeem all or a portion of the Senior Secured Notes at a redemption price equal to 100% of the outstanding principal amount thereof, plus any accrued and unpaid interest thereon to the date of redemption, plus a "make whole" premium.  Also prior to October 1, 2015, the Issuer may, not more than once in any twelve-month period, redeem up to 10% of the original principal amount of the Senior Secured Notes at a redemption price equal to 103% of the principal amount thereof, plus any accrued and unpaid interest thereon to the date of redemption.

If a change of control, as defined in the indenture, occurs, each holder of Senior Secured Notes will have the right to require the repurchase of all or any part of its Senior Secured Notes at a price equal to 101% of their original principal amount, plus accrued and unpaid interest to the date of repurchase. In addition, the Issuer may be required to offer to use all or a portion of the net proceeds of certain asset sales to purchase some or all of the Senior Secured Notes at 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase.

The indenture governing the Senior Secured Notes, among other things, limits the ability of Ocean Rig UDW and its restricted subsidiaries thereunder, including the Issuer, to: (i) incur or guarantee additional indebtedness or issue preferred stock or disqualified capital stock; (iii) pay dividends, redeem equity interests or subordinated indebtedness or make other restricted payments; (iv) transfer or sell assets; (v) incur dividend or other payment restrictions affecting restricted subsidiaries; (vii) enter into transactions with affiliates; (ix) engage in businesses other than a business that is the same as Ocean Rig UDW's current business and any reasonably related businesses; and (viii) designate subsidiaries as unrestricted subsidiaries. In addition, the indenture governing the Senior Secured Notes also restricts the Issuer's ability and the ability of Ocean Rig UDW and the Subsidiary Guarantors to, among other things, (i) create or incur liens; (ii) consummate a merger, consolidation or sale of all or substantially all of the assets of the Issuer, Ocean Rig UDW or the Subsidiary Guarantors; and (iii) take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the Senior Secured Notes. Subject to certain exceptions, future subsidiaries of Ocean Rig UDW will become restricted subsidiaries under the indenture governing the Senior Secured Notes and, under limited circumstances, may also become guarantors of the Senior Secured Notes.

The Senior Secured Notes are listed on the Official List of the Irish Stock Exchange and trade on the Global Exchange Market of that exchange.
 
 

 
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Existing Credit Facilities/ Term Loans

Credit Facilities relating to Our Drybulk and Tanker Segments

$126.4 million secured term loan facility, dated July 23, 2008, as amended

We entered into a $126.4 million term loan facility to partially finance the acquisition of the drybulk vessel Flecha. In January 2012, we entered into a supplemental agreement with respect to this facility, according to which the vessel Woolloomooloo is pledged as collateral to secure the loan.

This loan bears interest at LIBOR plus a margin, and is repayable in 40 quarterly installments, plus a balloon payment payable together with the last installment in July 2018.

In August 2012, we entered into a fourth supplemental agreement to this facility to amend the minimum security cover covenant to decrease the loan-to-value ratio required under under the facility until December 31, 2016 and made a prepayment of $9.1 million. On July 11, 2014, we entered into a supplemental agreement, to among other things, release the vessel Woolloomoloo from the collateral package under this loan.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $42.6 million and $53.2 million under this term loan facility, respectively.

$103.2 million secured term loan facility, dated June 20, 2008, as amended

We entered into this facility to partially finance the acquisition costs of the drybulk vessels Sorrento and Iguana. This loan bears interest at LIBOR plus a margin. The portion of the loan facility relating to the drybulk vessel Sorrento is repayable in 32 quarterly installments, plus a balloon payment payable together with the last installment in July 2016. The portion of the loan facility relating to the drybulk vessel Iguana was repaid following the sale of the vessel during 2010. On April 14, 2014, we obtained a waiver letter to amend certain financial covenants. The waiver is subject to definitive documentation.
On November 12, 2014, we signed a supplemental agreement under the secured loan facility dated June 20, 2008 for relaxation of certain financial covenants
As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $21.3 million and $24.3 million under this loan facility, respectively.

$125.0 million secured term loan facility, dated May 13, 2008, as amended

We entered into this facility to partially finance the acquisition cost of the drybulk vessels Capri and Positano. The loan bears interest at LIBOR plus a margin and is repayable in thirty-two quarterly installments, plus a balloon payment payable together with the last installment in June 2016.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $15.7 million and $21.6 million under this loan facility, respectively.

$90.0 million secured term loan facility, dated May 5, 2008, as amended

We entered into this facility to partially finance the acquisition cost of the drybulk vessel Mystic.

The loan bears interest at LIBOR plus a margin, and is repayable in 15 semi-annual installments, with a balloon payment, payable together with the last installment in December 2015.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $30.0 million and $36.0 million under this loan facility, respectively.

$130.0 million secured term loan facility, dated March 13, 2008, as amended

We entered into this facility for working capital and general corporate purposes. The drybulk vessels Toro and Delray were initially mortgaged as collateral under this loan facility.

On August 25, 2010, we entered into a supplemental agreement, which among other things, extended the waiver period to March 31, 2012 with respect to the loan-to-value ratio required to be maintained under the facility, which requirement was reduced during the waiver period, and increased the applicable margin of the facility during the waiver period, with a scheduled reduction to the margin thereafter.

On November 29, 2010, we signed an amended and restated agreement for the substitution of the drybulk vessels Delray and Toro for the drybulk vessel Amalfi. The vessel Delray was sold in February 2010, whereas the vessel Toro was released as security for the loan facility and was replaced by the vessel Amalfi.

On August 1, 2013, the Company entered into a supplemental agreement to amend certain terms and cure a shortfall in the security cover ratio, and pledged an aggregate of 1,800,000 of its shares of Ocean Rig as additional security under the loans. The share pledge expired on December 31, 2013.
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On December 23, 2014, we entered into an agreement to, among other things, waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity. We have agreed to provide a pledge over 2,356,705 Ocean Rig shares owned by us until December 31, 2014.
The remaining loan bears interest at LIBOR plus a margin and is repayable in two quarterly installments plus a balloon payment, payable together with the last installment in March 2015.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $28.9 million and $30.2 million under this loan facility, respectively.

$47.0 million secured term loan facility, dated November 16, 2007, as amended

We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessel Oregon. The loan bears interest at LIBOR plus a margin, and is repayable in 32 quarterly installments, with a balloon payment, payable together with the last installment in December 2015.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $14.0 million and $16.0 million under this loan facility, respectively.

$90.0 million secured term loan facility, dated October 5, 2007, as amended

We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessels Samatan and Galveston (ex VOC Galaxy). The loan bears interest at LIBOR plus a margin depending on corporate leverage, and is repayable in 32 quarterly installments beginning in the first quarter of 2008, with a balloon payment, payable together with the last installment in November, 2015. On August 25, 2010, we entered into a supplemental agreement, which among other things, extended the waiver period to March 31, 2012, with respect to the loan-to-value ratio required to be maintained under the facility, which requirement was reduced during the waiver period, and increased the applicable margin of the facility during the waiver period, with a scheduled reduction to the margin thereafter.

On August 1, 2013, the Company entered into a supplemental agreement to amend certain terms and cure a shortfall in the security cover ratio, and pledged an aggregate of 3,650,000 of its shares of Ocean Rig as additional security under the loans. The share pledge expired on December 31, 2013.

On December 23, 2014, we entered into an agreement to, among other things, waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity. We have agreed to provide a pledge over 6,418,350 Ocean Rig shares owned by us until December 31, 2014.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $53.0 million and $57.0  million under this loan facility.

$35.0 million secured term loan facility, dated October 2, 2007, as amended

We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessel Byron (ex Clipper Gemini). The loan bears interest at LIBOR plus a margin, and is repayable in 36 quarterly installments beginning in the first quarter of 2008, with a balloon payment, payable together with the last installment in October 2016. On July 7, 2014, we entered into an agreement and agreed to make a cash prepayment of $2.7 million to avoid a loan-to-value covenant breach.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $12.8 million and $17.0 million, under this loan facility, respectively.

$518.8 million senior loan facilities and $110.0 junior loan facilities, each dated March 31, 2006, as amended

We entered into these facilities to provide us with working capital, and to partially finance the acquisition cost of certain vessels. These facilities are comprised of (i) term loan and short-term credit facilities (senior loan facility) and (ii) term loan and short-term credit facilities (junior loan facility).

The senior loan facility bears interest at LIBOR plus a margin. The term loan facility is repayable in 37 quarterly installments, with a balloon payment, payable together with the last installment on May 31, 2016. Each advance from the short term credit facility is repayable in quarterly installments with the next term loan facility installment. As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $145.1 million and $145.1 million under this loan facility, respectively.

The junior loan facility bears interest at LIBOR plus a margin. The term loan facility is repayable in 37 quarterly installments, with a balloon payment, payable together with the last installment on May 31, 2016. Each advance from the short term credit facility is repayable in quarterly installments with the next term loan facility installment. As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $29.3 million and $29.3 million under this loan facility, respectively.
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On September 29, 2010, we executed two supplemental agreements under its senior and junior facilities. As a result of the amendments in these new supplemental agreements, the Company regained full compliance with the financial and non-financial covenants under the original facilities, as amended. The Xanadu was sold in September 2010 and its outstanding balance at that date was repaid. The Primera was sold in April 2011 and its outstanding balance at that date was repaid.

On February 9, 2012, we entered into two supplemental agreements under our senior and junior facilities to provide additional security in connection with a shortfall in the security cover ratio required to be maintained under the facilities and pledged 10,000,000 of our shares of Ocean Rig UDW as additional security under the facilities. The share pledge expired on March 31, 2012.

On September 27, 2012, we entered into two additional supplemental agreements under our senior and junior facilities to provide additional security in connection with a shortfall in the security cover ratio required to be maintained under the facilities and pledged 7,800,000 of our shares of Ocean Rig UDW as additional security under the facilities. On November 22, 2013, the 7,800,000 shares of Ocean Rig were released back to the Company.

On November 18, 2013, the Company signed a Supplemental Agreement with HSH Nordbank, as Agent, for an amendment of certain terms under the Company's $628.8 million credit facility dated March 31, 2006, as amended. Under the terms of this agreement on November 21, 2013, the lending syndicate led by HSH applied our previously pledged restricted cash of $55,000 against the next five quarterly installments. In addition, the lending syndicate has agreed to relax various financial covenants through the end of 2014.

$70.0 million secured term loan facility, dated February 7, 2011

We entered into this facility to partially finance the construction and acquisition costs of our newbuilding Aframax and Suezmax tankers, Saga and Vilamoura, which were delivered on January 18, 2011 and March 23, 2011, respectively, and for financing general corporate and working capital purposes. The loan bears interest at LIBOR plus a margin and is repayable in 20 quarterly installments, with a balloon payment payable together with the last installment on February 15, 2016.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $52.5 million and $57.2 million under this loan facility, respectively.

$32.3 million secured term loan facility, dated April 20, 2011

We entered into this facility to partially finance the construction cost of our newbuilding Aframax tanker Daytona, which was delivered to us on April 29, 2011. The loan bears interest at LIBOR plus a margin and is repayable in 24 quarterly installments of $538,500, plus a balloon payment of $19.4 million payable concurrently with the last installment.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $24.8 million and $26.9 million under this loan facility, respectively.

$141.4 million secured term loan facility, dated October 26, 2011

We entered into this facility to partially finance the construction costs of the newbuilding tankers Belmar, Calida, Lipari and Petalidi. The loan bears interest at LIBOR plus a margin and is repayable (i) in 28 installments ranging from $32,500 to $37,500, plus a balloon payment ranging from $7.9 million to $9.5 million, payable together with the last installment, with respect to advances by all of the commercial lenders except one and (ii) in 40 installments ranging from $587,500 to $697,500 with respect to advances by one of the lenders.

On July 17, 2014, we signed a supplemental agreement for a waiver of a certain financial covenant until December 31, 2014.
As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $112.4 million and $123.2 million under this loan facility, respectively. As of December 31, 2012, we had drawn the full amount under this facility.

$122.6 million secured credit facility, dated February 14, 2012

We entered into this facility to partially finance the construction costs relating to the vessel Fakarava, our newbuilding VLOC delivered to us in September, 2012, and the vessels Negonego and Rangiroa delivered to us in 2013 and 2013, respectively. The facility bears interest at LIBOR plus a margin and is repayable in 48 installments. The facility is secured with guarantees from Cardiff and us. We have drawn down an amount of $38.0 million related to the vessel Fakarava and an aggregate of $81.7 million related for the vessels Negonego and Rangiroa. On May 29, 2014, we entered into a supplemental agreement to amend certain definitions.
97

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $109.8 million and $115.6 million, under this loan facility, respectively.

$87.7 million secured term loan facility, dated March 19, 2012

In March 2012, we entered into an $87.7 million secured term loan facility to partially finance the construction costs of our Panamax drybulk vessel under construction, Raraka, delivered in March, 2012, and two Capesize drybulk vessels under construction, scheduled for delivery in the second quarter of 2013, which were sold in March 2013, prior to delivery and the relevant available portion of the loan was terminated. The facility bears interest at LIBOR plus a margin and is repayable in 32 quarterly installments plus a balloon payment payable together with the last installment. On March 28, 2014, we entered into a supplemental agreement to amend certain financial covenants.

As of December 31, 2014 and 2013, we had outstanding borrowings amounting to $15.8 million and $17.0 million, under this loan facility, respectively.

$107.7 million secured loan agreement, dated October 24, 2012

In October 2012, we entered into a $107.7 million secured loan agreement to partially finance the construction costs of our two newbuilding Aframax tankers Alicante and Mareta, delivered in January 2013, and our Suezmax tanker Bordeira, delivered in January 2013.   This loan agreement, which is available in three tranches, bears interest at LIBOR plus a margin and is repayable in 24 equal, semi-annual installments.
 
On July 31, 2014, we signed a supplemental agreement, for the relaxation of a certain financial covenant until December 31, 2014.

As of December 31, 2014 and 2013, we had outstanding borrowings in the amount of $88.2 million and $96.7 million, under this loan facility, respectively.

The credit facilities discussed above are secured by, among other things, mortgages over our vessels, assignments of shipbuilding contracts and refund guarantees, corporate guarantees and assignments of all freights, earnings, insurances and requisition compensation. The credit facilities contain covenants relating to our vessel-owning subsidiaries as borrowers under the loans, including restrictions on changes in management and ownership of the vessels, incurring additional financial indebtedness, creating or permitting to exist on their assets and changes in the general nature of our business; each without the relevant lenders' prior consent. In addition, under some of the credit facilities, the vessel-owning companies are not permitted to pay any dividends to us without the requisite lenders' prior consent. The credit facilities also contain certain financial covenants relating to our financial position, operating performance and liquidity.

$12.5 million Sellers Credit dated March 15, 2013

On March 15, 2013, we reached an agreement with a far eastern shipyard for a $12.5 million sellers credit to the Company. This credit was repayable to the yard in one bullet repayment two years after date of drawdown and it bears interest at LIBOR plus 300 basis points per annum. We agreed to provide a pledge of 1,602,500 shares in Ocean Rig UDW that we own, which pledge would be automatically released upon repayment of credit.

On January 8, 2015, this credit was repaid in full, we were released from our obligations and 1,602,500 shares of Ocean Rig UDW Inc. pledged by us to the shipyard were released and returned to us.

$170.0 million Senior Credit Facility dated October 29, 2014

On October 29, 2014, we entered into a senior secured credit facility with Nordea Bank for up to $170.0 million to refinance the existing indebtedness under the Company's $325.0 million Senior Credit Facility, which had a balance of $50.0 million as of October 31, 2014. This facility has a five-year term, bears interest at LIBOR plus a margin, is repayable in quarterly installments and is secured by the six vessels that secured the $325.0 million Senior Credit Facility, as well as three other vessels.

As of December 31, 2014, we had outstanding borrowings amounting to $167.1 million, under this loan facility.

$200.0 million Secured Bridge Credit Facility dated November 14, 2014

On November 14, 2014, we entered into a facility agreement with ABN AMRO, for a secured bridge credit facility in an amount of $200.0 million. The loan is repayable through a single repayment installment. In connection with the ABN AMRO facility, on November 18, 2014, as required by that facility, Ocean Rig filed a prospectus supplement covering up to 78,301,755 of its common shares held by DryShips or its pledgees. Of the shares registered, 45,129,069 Ocean Rig shares were initially pledged by us to ABN AMRO under the terms of the ABN AMRO facility which requires collateral coverage based on the prevailing 30 day Volume Weighted Average Price ("VWAP") at draw down. On January 9, 2015, we provided additional security in relation to ABN AMRO facility in the form of 8,000,000 Ocean Rig shares owned by us. On January 20 and February 2, 2015, we made two prepayments of $10.0 million and $5.0 million plus accrued interest, respectively under this loan agreement.
98
 
As of December 31, 2014, we had outstanding borrowings amounting to $200.0 million, under this loan facility.

Credit Facilities relating to Our Offshore Drilling Segment

$1.9 billion syndicated term loan facility, dated July 12, 2013

On July 12, 2013,  Ocean Rig, through its wholly-owned subsidiaries, Drillships Financing Holding Inc. ("DFHI") and Drillships Projects Inc., entered into a $1.8 billion senior secured term loan facility, comprised of tranche B-1 term loans in an aggregate principal amount equal to $975.0 million ("Tranche B-1 Term Loans") and tranche B-2 term loans in an aggregate principal amount equal to $825.0 million ("Tranche B-2 Term Loans" and, together with the Tranche B-1 Term Loans, the "Term Loans"), with respective maturity dates in the first quarter of 2021, subject to adjustment to the third quarter of 2020 in certain circumstances and the third quarter of 2016. The Term Loans are initially guaranteed by Ocean Rig and certain existing and future subsidiaries of DFHI and are secured by certain assets of, and by a pledge of the stock of, DFHI and the subsidiary guarantors. The net proceeds of the Term Loans were used by Ocean Rig to repay in full amounts outstanding under Ocean Rig's $800.0 million secured term loan agreement and the two $495.0 million senior secured credit facilities, amounting to $1,519.2 million in aggregate .The unamortized balance of deferred finance fees associated with the repaid loans, amounting to approximately $23.3 million was written off upon the extinguishment of the related debt in July 2013. In addition, restricted cash of $131.6 million associated with the respective loans has been released upon the repayment. On July 26, 2013, Ocean Rig through its wholly-owned subsidiaries DFHI and Drillships Projects Inc entered into an incremental amendment to the $1.8 billion senior term loan for additional tranche B-1 term loans in a principal amount of $100.0 million.


On February 7, 2014, Ocean Rig and its wholly-owned subsidiaries, Drillships Financing Holding Inc. ("DFHI"), and Drillships Projects Inc., refinanced its existing short-term Tranche B-2 Term Loans with a fungible add-on to its existing long-term Tranche B-1 Term Loans.  As a result of this refinancing, the total $1.9 billion of Tranche B-1 Term Loans will mature no earlier than the third quarter of 2020.

As of December 31, 2014 and 2013, we had outstanding borrowings amounting to $1,876.3 million and $1,895.3 million under this facility, respectively.

$1.3 billion Senior Secured Term Loan B Facility
On July 25, 2014, Ocean Rig's wholly owned subsidiary, Drillships Ocean Ventures Inc., entered into a $1.3 billion Senior Secured Term Loan B ("New Term Loan B") facility to repay the $1.35 billion Senior Secured Credit Facility, which had an outstanding loan balance of approximately $1.3 billion on that date. The unamortized balance of the deferred finance fees associated with the loan repaid, amounting to approximately $19.8 million, was written off in the consolidated statement of operations upon the extinguishment of the related debt in July 2014. In addition, restricted cash of $75.0 million associated with the respective debt was released upon the repayment.  The New Term Loan B facility which is secured primarily by first priority mortgages on the vessels, Ocean Rig Mylos, Skyros and Athena, bears interest at a fixed rate and matures on July 25, 2021.

As of December 31, 2014, we had outstanding borrowings amounting to $1,296.8 million under this facility.

Repaid Credit Facilities

$1.35 billion syndicated term loan facility, dated February 28, 2013

On February 28, 2013, Drillships Ocean Ventures Inc., and a wholly-owned subsidiary of our majority-owned subsidiary Ocean Rig UDW, entered into a secured term loan facilities agreement with a syndicate of lenders and DNB Bank ASA, as facility agent and security agent, in the amount of $1.35 billion to partially finance the construction costs of the Ocean Rig Mylos, the Ocean Rig Skyros, which were delivered in the course of 2013 and the Ocean Rig Athena which was delivered in March 2014.  The facilities agreement were comprised of three term loan facilities of up to $150.0 million each (one relating to each of the aforementioned seventh generation drillships) made available by the commercial lenders, or the Commercial Facilities, three term loan facilities of up to $150.0 million each (one relating to each of the aforementioned seventh generation drillships) made available by Eksportkreditt Norge AS, or the Eksportkreditt GIEK Facilities, and three term loan facilities of up to $150.0 million each (one relating to each of the aforementioned seventh generation drillships) made available by the Export-Import Bank of Korea, or the Kexim Facilities.  All term loan facilities bore interest at LIBOR plus a margin and were repayable in quarterly installments, beginning three months after the delivery of the first drillship. The Commercial Facilities matured five years after the first drawdown date while the Eksportkreditt GIEK Facilities and Kexim Facilites matured five or eleven years after the first drawdown date at the lenders option.

The $1.35 billion secured term loan facility was secured by, among other things, a first priority mortgage over the Ocean Rig Mylos, the Ocean Rig Skyros and the Ocean Rig Athena, a first priority pledge of the borrower's and/or the guarantors' (as the case may be) earnings accounts, a first priority assignment of all earnings and insurances of the relevant vessels, a pledge of the shares of capital stock of certain of Ocean Rig UDW's subsidiaries and guarantees from Ocean Rig UDW and certain of its subsidiaries.
99
 

Under the $1.35 secured term loan facility, Ocean Rig UDW, the borrower and certain of Ocean Rig UDW's other subsidiaries, as guarantors, were subject to certain financial covenants requiring among other things, the maintenance of (i) a minimum amount of cash and cash equivalents; (ii) a leverage ratio not to exceed specified levels; (iii) a minimum interest coverage ratio; (iv) a minimum current ratio; and (v) a minimum equity ratio. In addition, the aggregate market value of the Ocean Rig Mylos, the Ocean Rig Skyros and the Ocean Rig Athena, if delivered at the relevant time, must be greater than 140% of the total borrowings outstanding under the facility

The $1.35 billion secured term loan facility also contained other customary restrictive covenants, including restrictions on Ocean Rig UDW's ability to enter into affiliate transactions, create liens on its assets, merge or consolidate without the prior consent of the lenders, sell, lease, transfer or otherwise dispose of the collateral securing the facility other than for market value on an arm's length basis and in compliance with the terms of the facility, incur additional indebtedness or make investments.

In addition, Ocean Rig UDW could only pay dividends or make other distributions in respect of its capital stock under the $1.35 billion secured term loan facility in an amount of up to 50% of net income of each previous financial year, provided in each case that Ocean Rig UDW maintains minimum liquidity in an aggregate amount of not less than $200.0 million in cash and cash equivalents and restricted cash and maintain such level for the next 12 months following the date of the dividend payment

The $1.35 billion secured term loan facility also contained customary events of default, including non-payment of principal or interest, breach of covenants or material representations and bankruptcy and imposed insurance requirements and restrictions on the employment of the mortgaged drillships. In addition, the facility contained a cross-default provision that was triggered, among other things, when any of our other financial indebtedness in an amount equal to or in excess of $25.0 million was not paid when due or was declared to be or otherwise become due and payable prior to its specified maturity as a result of an event of default, pursuant to which our lenders could accelerate our indebtedness under the $1.35 billion secured term loan facility.

We have entered into 3 interest rate swap agreements to partly fix the interest rate payable on the principal amounts outstanding under the $1.35 billion secured term loan facility.

On August 30, 2013, Ocean Rig signed a supplemental agreement to amend certain provisions in its $1,350,000 secured term loan facility dated February 28, 2013. Under the terms of the agreement, the existing dividend restriction of up to 50% of preceding fiscal year net income amended to apply on a cumulative basis from July 1, 2013 onwards (50% of cumulative net income) and include a carve-out to pay additional dividends up to the higher of (i) $150.0 million and (ii) 5% of Ocean Rig's net tangible assets. Furthermore, the minimum interest coverage ratio requirement will be 2.0 times until June 30, 2015 and the maximum leverage ratio will be 6.5 times until June 30, 2014, 6.0 times until December 31, 2014 and 5.5 times until June 30, 2015.

As of December 31, 2013, we had outstanding borrowings amounting to $890.0 million under this facility.

On July 25, 2014, this facility was repaid in full and replaced by the $1.3 billion Senior Secured Term Loan B Facility (see above).

$325.0 million revolving credit facility and term, loan dated September 18, 2007, as amended

Upon our acquisition of OceanFreight, we issued a guarantee in connection with OceanFreight's $325.0 million senior secured credit facility entered into on September 18, 2007. The loan bears interest at LIBOR plus a margin and is comprised of the following two tranches: Tranche A is a reducing revolving credit facility in a maximum amount of $200.0 million, $199.0 million of which OceanFreight utilized prior to its acquisition by us and the outstanding balance at December 31, 2013 of $53.9 million will be reduced or repaid in four semi-annual equal installments of $8.13 million each, plus a balloon installment, in the amount of $21.4 million; Tranche B is a term loan facility in a maximum amount of $125.0 million, which was fully utilized by OceanFreight prior to its acquisition by us and the outstanding balance at December 31, 2013 of $22.6 million is repayable in four equal semi-annual installments in the amount of $5.13 million each, plus a balloon installment in the amount of $2.1 million.
 
On October 29, 2014, this facility was repaid in full by the $170.0 milllion Senior Credit Facility (see above).

Two $562.5 million senior secured credit facilities, amended to $495.0 million each, or the Deutsche Bank credit facilities

On July 18, 2008, Drillship Kithira Owners Inc. and Drillship Skopelos Owners Inc., majority-owned subsidiaries and the owners of our drillships, the Ocean Rig Poseidon and the Ocean Rig Mykonos, respectively, each entered into separate loan agreements with a syndicate of lenders, including Deutsche Bank AG, London Branch, in the amount of $562.5 million to partially finance the construction costs of the Ocean Rig Poseidon and the Ocean Rig Mykonos.  We refer to these facilities as the Deutsche Bank credit facilities.

On April 27, 2011, we entered into an agreement with the lenders under the Deutsche Bank credit facilities to amend these credit facilities. As a result of this restructuring, among other things, the maximum amount permitted to be drawn was reduced from $562.5 million to $495.0 million under each credit facility. These credit facilities were subsequently amended and were repaid in full with a portion of the net proceeds of the $1.9 billion Term Loans in July 2013.
100
 

$800.0 million secured term loan facility, dated April 15, 2011

On April 15, 2011, our majority-owned subsidiary, Drillships Holdings Inc., entered into a $800.0 million senior secured term loan agreement with Nordea Bank as agent and a syndicate of lenders to fund a portion of the construction of the drillships Ocean Rig Corcovado and the Ocean Rig Olympia. The $800.0 million senior secured term loan agreement consisted of four term loans, which were all fully drawn during April 2011. On May 9, 2012, Ocean Rig UDW and Drillships Holdings Inc. signed an amendment under the $800.0 million secured term loan agreement to, among other things, terminate the guarantee by DryShips Inc. This facility was repaid in full with a portion of the net proceeds of the $1.9 billion Term Loans in July 2013.

Cash Flows

Year ended December 31, 2014 compared to year ended December 31, 2013

Our cash and cash equivalents decreased to $566.2 million as of December 31, 2014, compared to $595.1 million as of December 31, 2013, primarily due to payments for vessels, drilling rigs and drillships improvements and advances for drillships under construction. Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $394.5 million as of December 31, 2014, compared to working capital deficit of $987.5 million as of December 31, 2013.

Net Cash Provided By Operating Activities

Net cash provided by operating activities increased by $229.1 million, or 93.1%, to $475.1 million for the year ended December 31, 2014, compared to $246.0 million for the year ended December 31, 2013. This increase is primarily attributable to the increased revenue from the drilling segment.

Net Cash Used In Investing Activities

Net cash used in investing activities was $754.7 million for the year ended December 31, 2014. The Company made payments of $296.3 million for advances for vessels and drilling units under construction and $510.3 million for vessels and drillships acquisitions and improvements. These cash outflows were offset by the decrease of $51.5 million in the amount of cash deposits required by our lenders and a decrease of 0.4 million for short term investments.

Net cash used in investing activities was $1.2 billion for the year ended December 31, 2013. The Company made payments of  $235.3 million for advances for vessels and drilling units under construction, $1.2 billion for vessels and drillships acquisitions and improvements and $0.4 million for short term investments. These cash outflows were offset by the decrease of $234.3 million in the amount of cash deposits required by our lenders.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was $250.7 million for the year ended December 31, 2014, consisting mainly of the borrowings of $2.6 billion under our long term credit facilities and the net proceeds of $421.9 million in connection with the sale of our common shares, which were offset by $48.9 million in payments for financing costs, payments for dividends of $30.6 million and repayments of debt totaling $2.0 billion under our long-term credit facilities and convertible notes amounting $700 million.

Net cash provided by financing activities was $1.2 billion for the year ended December 31, 2013, consisting mainly of the borrowings of $3.0 billion under our long term credit facilities, the net proceeds of $123.0 million in connection with the sale of common shares of Ocean Rig owned by us, the net proceeds of $23.4 million in connection with the sale of our common shares and the refund of financing costs of $5.9 million, which were offset by $89.9 million in payments for financing costs and repayments of debt totaling $1.8 billion under our long-term credit facilities.

Year ended December 31, 2013 compared to year ended December 31, 2012

Our cash and cash equivalents increased to $595.1 million as of December 31, 2013, compared to $342.0 million as of December 31, 2012, primarily due to  cash provided in operating activities and the release of restricted cash. Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $987.5 million as of December 31, 2013, compared to working capital deficit of $670.0 million as of December 31, 2012.

Net Cash Provided By Operating Activities

Net cash provided by operating activities increased by $8.5 million, or 3.6%, to $246.0 million for the year ended December 31, 2013, compared to $237.5 million for the year ended December 31, 2012. This increase is primarily attributable to the increased revenue from the drilling segment.
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Net Cash Used In Investing Activities

Net cash used in investing activities was $1.2 billion for the year ended December 31, 2013. The Company made payments of  $235.3 million for advances for vessels and drilling units under construction, $1.2 billion for vessels and drillships acquisitions and improvements and 0.4 million for short term investments. These cash outflows were offset by the decrease of $234.3 million in the amount of cash deposits required by our lenders.

Net cash used in investing activities was $389.9 million for the year ended December 31, 2012. The Company made payments of approximately $552.5 million for asset acquisitions, payments of yard installments and improvements. These cash outflows were partially offset by the receipt proceeds of $18.7 million in connection with the sale of Senior Unsecured Notes of Ocean Rig UDW, the net proceeds of $116.8 million from the sale of assets and $27.1 million as a result of the net decrease in minimum cash deposits required by our lenders.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was $1.2 billion for the year ended December 31, 2013, consisting mainly of the borrowings of $3.0 billion under our long term credit facilities, the net proceeds of $123.0 million in connection with the sale of common shares of Ocean Rig owned by us, the net proceeds of $23.4 million in connection with the sale of our common shares and the refund of financing costs of $5.9 million, which were offset by $89.9 million in payments for financing costs and repayments of debt totaling $1.8 billion under our long-term credit facilities.

Net cash provided by financing activities was $243.2 million for the year ended December 31, 2012, consisting mainly of the borrowings of $966.1 million under our long term credit facilities and Senior Secured Notes of Ocean Rig UDW and the net proceeds of $180.5 million in connection with the sale of common shares of Ocean Rig UDW owned by us, which were offset by $35.4 million in payments for financing costs, repayments and prepayments of $867.9 million of debt under our long-term credit facilities.


C.           Research and Development, Patents and Licenses etc.

Not applicable.

D.           Trend Information

See other discussions within "Item 5. Operating and Financial Review and Prospects" and "Item 4. Information on the Company—B. Business overview."

E.           Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

F.           Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations and their maturity dates as of December 31, 2014:


 
Payments due by period
  
 
Obligations
Total
  
Less than 1
year
  
1-3 years
  
3-5 years
  
More than
5 years
  
(In thousands of Dollars)
          
Long-term debt (1)
  
$
5,636,323
    
$
1,195,323
    
$
864,000
    
$
564,000
    
$
3,013,000
  
Interest and borrowing fees (2)
    
1,459,941
      
245,902
      
532,403
      
404,837
      
276,799
  
Shipbuilding contracts – Drillships (3)
    
1,928,900
      
566,300
      
1,362,600
      
-
      
-
  
Total
  
$
9,025,164
    
$
2,007,525
    
$
2,759,003
    
$
968,837
    
$
3,289,799
  

(1) As further discussed in Note 11 to our consolidated financial statements, the outstanding balance of our long-term debt at December 31, 2014, was $5.6 billion (gross of unamortized deferred financing fees of $118.7 million), which was used to partially finance the expansion of our fleet and for the construction of our drilling rigs. The loans bear interest at LIBOR plus a margin, except for an amount of $4.5 billion from the Loan facilities which are based on a fixed rate. The amounts in the table under "Long Term Debt" do not include any projected interest payments.

As a supplement to our contractual obligations table, the following schedule sets forth our loan repayment obligations as required under our loan facilities as of December 31, 2014. Note that the amount of debt related to our shipping segments has been classified as "Less than 1 year" in the contractual obligations table to be consistent with the classification of the debt as current liability within our consolidated financial statements. The debt is classified as a current liability as the debt may be called for payment by the lenders at any time.
102
 


Loan repayments as per original terms of loan agreements
Payments due by period
  
 
Total
  
Less than 1
year
  
1-3 years
  
3-5 years
  
More than
5 years
  
(In thousands of Dollars)
          
Long-term debt (1)
  
$
5,636,323
    
$
475,717
    
$
1,227,450
    
$
835,856
    
$
3,097,300
  
 Interest and borrowing fees (2)
    
1,574,719
      
280,236
      
575,930
      
430,110
      
288,443
  
Total
  
$
7,211,042
    
$
755,953
    
$
1,803,380
    
$
1,265,966
    
$
3,385,743
  

(2)
A porion of our long-term debt outstanding as of December 31, 2014 bears variable interest at margin over LIBOR, but such variable interest is fixed by our existing interest rate swaps. The calculation of interest payments is based on the weighted average fixed interest rate ranging from 2.60% to 7.25%.

(3)
The figure includes contracted purchase obligations only.


G.           Safe Harbor

See the section entitled "Forward looking statements" at the beginning of this annual report.

Item 6.   Directors and Senior Management

A.           Directors and Senior Management
Set forth below are the names, ages and positions of our directors, executive officers and key employees. Our board of directors is elected annually on a staggered basis. Each director elected holds office 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. Officers are appointed from time to time by vote of our board of directors and hold office until a successor is elected.
 
 
Name
Age
 
Position
George Economou
62
    
Chairman, President, Chief Executive Officer and Class A Director
Harry Kerames
60
    
Class A Director
Vassilis Karamitsanis
39
    
Class A Director
George Xiradakis
50
    
Class B Director
Chryssoula Kandylidis
61
    
Class C Director
George Demathas
62
    
Class C Director
Anthony Kandylidis
37
    
Exeuctive Vice President
Ziad Nakhleh
43
    
Chief Financial Officer
Niki Fotiou
45
    
Senior Vice President Head of Accounting and Reporting
Anastasia Pavli
33
    
Secretary

The business address of each person listed above is the address of our principal executive offices, which are located at 109 Kifisias Avenue and Sina Street, GR 15124, Amaroussion, Greece.

Biographical information with respect to each of our directors, executives and key personnel is set forth below:

George Economou has over 30 years of experience in the maritime industry and has served as Chairman, President and Chief Executive Officer of Dryships Inc. since its incorporation in 2004. He successfully took the Company public in February 2005, on NASDAQ under the trading symbol: DRYS. Mr. Economou has overseen the Company's growth into one of the largest US listed drybulk company in fleet size and revenue and the third largest Panamax owner in the world. The Company subsequently invested in and developed Ocean Rig UDW Inc., an owner of drilling rigs and drillships involved in ultra deepwater drilling. Mr. Economou is the Chairman, President and Chief Executive Officer of Ocean Rig UDW Inc. Mr. Economou is a member of ABS Council, Intertanko Hellenic Shipping Forum and Lloyds Register Hellenic Advisory Committees. Since 2010, he has been a member of the board of directors of Danaos Corporation. Apart from his shipping interests, Mr. Economou has also invested in real estate. Mr. Economou is a graduate of the Massachusetts Institute of Technology and holds both a Bachelor of Science and a Master of Science degree in Naval Architecture and Marine Engineering and a Master of Science in Shipping and Shipbuilding Management.
 

 
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Harry Kerames was appointed to our board of directors on July 29, 2009. Harry Kerames has over 22 years of experience in the transportation industry. Mr. Kerames is the President and founder of Blue Star LLC, a marine consultant and advisor firm. Mr. Kerames has been the Managing Director of Global Capital Finance, where he was responsible for the firm's shipping practice. Prior to joining Global Capital Finance in 2006, he was the Chief Marketing Officer at Charles R. Weber Company Inc., where he brokered the freight derivative business, and co-founded a freight derivatives hedge fund. Mr. Kerames has also held various directorships, senior level marketing positions, and consultative roles with Illinois Central Railroad, Genstar Corporation, Motive Power Industries, Hub Group Distribution Services, and Ship and Transportation Equipment Finance and OceanFreight Inc. Mr. Kerames is a member of the Baltic Exchange, the Hellenic American Chamber of Commerce, and the Connecticut Maritime Association. Mr. Kerames graduated with a Bachelor of Science from the University of Connecticut. Mr Kerames is the chairman of our Audit Committee.

Vassilis Karamitsanis was appointed to our board of directors on July 29, 2009. Vassilis Karamitsanis is an attorney and a founding partner of SigmaKappa Sigma Law Offices. From 2007 to 2009, Mr. Karamitsanis was the head of the legal department at Karouzos Construction & Development Group. Mr. Karamitsanis has also previously served as a legal advisor to Dimand Real Estate Development and LPSA Consultants S.A. and has served as a special advisor to the Hellenic Ministry of Health & Welfare. He is a member of the Athens Bar Association and practices real estate, corporate, domestic and international contracting, telecommunications, and energy law. Mr. Karamitsanis graduated from Athens College Lyceum and received his law degree from Aristotle University of Thessaloniki. He also holds a postgraduate degree in Economic Analysis of Law from Erasmus University of Rotterdam and a postgraduate degree in Economic Analysis of Institutions from University Aix-Marseille III, Aix-en-Provence.

George Demathas was appointed to our board of directors on July 18, 2006. Mr. Demathas was also a director of Ocean Rig ASA from 2008 to 2010. Since 2001, Mr. Demathas has been the Chief Executive Officer and a director of Stroigasitera Inc., a privately held company that finances and develops natural gas infrastructure projects in Central Asia, and since 1996, Mr. Demathas has invested in natural gas trunk pipelines in Central Asia. Since 1991, Mr. Demathas has been involved in Malden Investment Trust Inc. in association with Lukoil, working in the Russian petrochemical industry. Mr. Demathas was a principal in Marketing Systems Ltd., where Mr. Demathas supplied turnkey manufacturing equipment to industries in the Former Soviet Union. Mr. Demathas has a Bachelor of Arts in Mathematics and Physics from Hamilton College in New York and an Master of Science in Electrical Engineering and Computer Science from Columbia University. He is based in Moscow and travels widely in Europe and the United States.

George Xiradakis was appointed to our board of directors in May 2006. Mr. Xiradakis has been the Managing Director of XRTC Business Consultants Ltd., a consulting firm providing financial advice to the maritime industry, including financial and state institutions. XRTC acted as the commercial representative of international banks including the French banking groups Credit Lyonnais and NATIXIS in Greece. Mr. Xiradakis is also the advisor of various shipping companies, as well as international and state organizations. He also serves as the General Secretary of the Association of Banking and Shipping Executives of Hellenic Shipping. In addition, Mr. Xiradakis has served on the board of directors of Paragon Shipping Inc., a company listed on the New York Stock Exchange, since 2008, and is also a member of the audit committee of Paragon Shipping Inc.  From July 2010 to August 2010, Mr. Xiradakis served on the board of directors of Ocean Rig UDW Inc., the Company's majority-owned subsidiary, and from 2008 to 2009, Mr. Xiradakis was a member of the board of directors of Aries Maritime Transport. Mr. Xiradakis has also served as President and Chairman of the board of directors of the Hellenic Real Estate Corporation and the Hellenic National Center of Port Development. Mr. Xiradakis has a certificate as a Deck Officer from the Hellenic Merchant Marine and he is a graduate of the Nautical Marine Academy of Aspropyrgos, Greece. He also holds a postgraduate Diploma in Commercial Operation of Shipping from London Guildhall University formerly known as City of London Polytechnic in London. Mr. Xiradakis holds an MSc. in Maritime Studies from the University of Wales.

Chryssoula Kandylidis was appointed to our board of directors on March 5, 2008. Mrs. Kandylidis has also served as an advisor to the Minister of Transport and Communications in Greece for matters concerning people with special abilities for the past three years on a voluntary basis. Mrs. Kandylidis graduated from Pierce College in Athens, Greece and from the Institut Francais d' Athenes. She also holds a degree in Economics from the University of Geneva. Mrs. Kandylidis is the sister of George Economou, our Chief Executive Officer.

Anthony Kandylidis has served as our Executive Vice President since January 2015.  Mr. Kandylidis serves as Executive Vice President of Ocean Rig since June 2012. Mr. Kandylidis started his career at OMI Corporation's commercial department. During his tenure at OMI Corporation, he gained significant experience in the tanker vessel business and held various positions with responsibilities spanning Sale and Purchase, Time Charters, FFA Trading, Corporate Finance and Strategic Planning. In the spring of 2006, Mr. Kandylidis returned to Greece where he provided consultancy services to companies affiliated with Mr. George Economou. In September of 2006, Mr. Kandylidis founded OceanFreight Inc. and he took OceanFreight Inc. public in April of 2007. In 2011 OceanFreight Inc. was absorbed by DryShips through a merger. Mr. Kandylidis graduated magna cum laude from Brown University and continued his studies at the Massachusetts Institute of Technology where he graduated with a Masters degree of Science in Ocean Systems Management. Mr. Kandylidis is the son of Chryssoula Kandylidis, a director of DryShips.

Ziad Nakhleh was appointed as our Chief Financial Officer in November 2009. Mr. Nakhleh has over 13 years of finance experience. From January, 2005 to September, 2008, he served as Treasurer and Chief Financial Officer of Aegean Marine Petroleum Network Inc., or Aegean, a publicly traded marine fuels logistics company listed on the New York Stock Exchange. From September 2008 to October 2009, Mr. Nakhleh was engaged in a consulting capacity to various companies in the shipping and marine fuels industries. Prior to his time with Aegean, Mr. Nakhleh was employed at Ernst & Young and Arthur Andersen in Athens. Mr. Nakhleh is a graduate of the University of Richmond in Virginia and is a member of the American Institute of Certified Public Accountants.
 

 
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Niki Fotiou was appointed as the Company's Senior Vice President Head of Accounting and Reporting in January 2010. From July 2006 to December 2009, Ms. Fotiou served as the Group Controller of Cardiff Marine Inc. For the period from 1993 to 2006, Ms. Fotiou worked for Deloitte and for Hyatt International Trade and Tourism Hellas. Ms Fotiou is a graduate of the University of Cape Town and is a member of the Association of Chartered Certified Accountants.

Anastasia Pavli was appointed as our corporate secretary with effect from January 1, 2012. Ms Pavli is an attorney-at-law. Ms. Pavli graduated from the Athens Law Faculty with an L.L.B in 2006 and completed part of her undergraduate studies at the University of Heidelberg, Germany. Ms. Pavli received an L.L.M. from University College, London, United Kingdom in 2007 and has been a member of the Piraeus Bar Association since 2008. Ms. Pavli is also the legal counsel of a company affiliated with Mr. George Economou.

B.           Compensation of Directors and Senior Management

We paid an aggregate amount of $5.4 million, $4.3 million and $5.2 million, as cash compensation to our officers and executive directors for the fiscal years ended December 31, 2014, 2013 and 2012 respectively. Non-executive directors received annual cash compensation in the aggregate amount of $0.4 million, plus reimbursement of out-of-pocket expenses. We do not have a retirement plan for our officers or directors.

Consultancy Agreements

Agreement for the Services of our Chief Executive Officer

On October 22, 2008, we entered into a consultancy agreement with Fabiana, a Marshall Islands entity beneficially owned by our Chief Executive Officer, Mr. George Economou, with an effective date of February 3, 2008, as amended. Under the agreement, Fabiana provides the services of our Chief Executive Officer. The term of the agreement has been amended for a period of five years commencing on February 3, 2013 and  unless terminated earlier in accordance with the agreement. Pursuant to the agreement, we are obligated to pay (i) annual remuneration to Fabiana in the amount of Euro 2.7 million (or $3.6 million, based on the Euro/U.S. dollar exchange rate as of December 31, 2012); and (ii) potential bonus compensation for the services provided at the end of each year, with any such bonus to be determined by the compensation committee of our board of directors. In addition, under the terms of the agreement, Fabiana also received in 2013 1,000,000 common shares that were awarded under our 2008 Equity Incentive Plan, as discussed below under "—Equity Incentive Plan."

The agreement may be terminated (i) at the end of the term unless extended by mutual agreement in writing; (ii) at any time by mutual agreement of the parties; (iii) by the company without cause; or (iv) by either party for any material breach of their respective obligations under the agreement.

On January 12, 2011, the compensation committee of our board of directors approved a bonus award to Fabiana of $4 million in cash and 9,000,000 common shares for Fabiana's contribution of the services of our Chief Executive Officer during 2010. The shares vest over a period of eight years with 1,000,000 shares vesting on the grant date and 1,000,000 shares vesting annually on December 31, 2011 through 2018, respectively.

On August 20, 2013, the compensation committee of our board of directors approved that a bonus in the form of 1,000,000 shares of the Company's common stock, be granted to Fabiana for the contribution of our Chief Executive Officer services rendered during 2012. The shares vest over a period of two years  with 333,334 shares vesting on the grant date, 333,333 shares vesting on August 20, 2014 and 333,333 vesting on August 20, 2015 respectively.

Fabiana did not receive any bonus payments in 2012 or 2013.

On August 19, 2014, the Compensation Committee approved a bonus in the form of 1,200,000 shares of the Company's common stock be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2013. The shares vest over a period of three years with 400,000 shares vesting on December 31, 2014, 400,000 shares vesting on December 31, 2015, and 400,000 vesting on December 31, 2016.

On December 30, 2014, the Compensation Committee approved that a bonus in the form of 2,100,000 shares of the Company's common stock and a cash bonus of $1.0 million be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2014. The shares vest over a period of three years with 700,000 shares vesting on December 31, 2015, 700,000 shares vesting on December 31, 2016, and 700,000 vesting on December 31, 2017.

Agreement for the Services of our Executive Vice President

Effective from January 1, 2015, we entered into a consultancy agreement with Basset for the consultancy services of Mr. Anthony Kandylidis as Executive Vice-President of the Company. The annual remuneration to be awarded to Basset under the consultancy agreement is Euro 0.45 million ($0.55 million based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) and includes a sign on bonus of $2.0 million.
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 Agreement for the Services of our Chief Financial Officer

On October 1, 2009, we entered into a consultancy agreement with an entity beneficially owned by our Chief Financial Officer, Mr. Ziad Nakhleh, as amended on February 4, 2011 and April 10, 2012 and as further amended on February 16, 2015, for the provision of the services of our Chief Financial Officer. The term of the agreement has been extended for a period of two years commencing on January 1, 2014. Under the terms of the agreement, we are obligated to pay (i) an annual base salary and (ii) additional bonus compensation as determined by the compensation committee of our board of directors.

The agreement may be terminated (i) at the end of the term unless extended by mutual agreement in writing; (ii) at any time by mutual agreement of the parties; (iii) at any time by us without cause; or (iv) at any time by either party in the event of a material breach of obligations by the other party. In addition, upon termination within three months following a change in control, as defined in the agreement, that occurs within two years of the date of the agreement, we will be obligated to pay the consultancy fee under the balance of the agreement, which shall not be less than six months' base salary or greater than twelve months' base salary.

Agreement for the Services of our Senior Vice President, Head of Accounting and Reporting

On March 5, 2010, we entered into a consultancy agreement as amended, with an entity beneficially owned by our Senior Vice President, Head of Accounting and Reporting, Ms. Niki Fotiou, for the provision of the services of our Senior Vice President, Head of Accounting and Reporting. We have extended the term of this agreement, which will be deemed to expire as of December 31, 2015. Under the terms of the agreement, we are obligated to pay (i) an annual base salary; (ii) a cash bonus; (iii) equity compensation; (iv) additional bonus compensation as determined by our Chief Financial Officer; and (v) a signing bonus.

The agreement may be terminated (i) at the end of the term, unless extended by mutual agreement in writing; (ii) at any time by mutual agreement of the parties; (iii) at any time by us without cause; or (iv) at any time by either party in the event of a material breach of obligations by the other party. In addition, upon termination within three months following a change in control, as defined in the agreement, that occurs within two years of the date of the agreement, we will be obligated to pay the consultancy fee under the balance of the agreement, which shall not be less than six months' base salary or greater than twelve months' base salary.


Equity Incentive Plan

On January 16, 2008, the Company's board of directors approved the 2008 Equity Incentive Plan, as amended, or the Plan. Under the Plan, officers, directors, and key employees of the Company and its subsidiaries and affiliates and consultants and service providers to the Company and its subsidiaries and affiliates are eligible to receive, with respect to the Company's common shares, awards of stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock. A total of 21,834,055 common shares have been reserved for issuance under the Plan, subject to adjustment for changes in our capitalization as provided in the Plan. The Plan is administered by our board of directors. Unless terminated earlier by our board of directors, the Plan will expire after January 16, 2018, the tenth anniversary of the date the Plan was adopted. Our awards under the Plan are set forth as follows:

On March 5, 2008, we awarded 1,000,000 non-vested common shares to Fabiana. The shares vested quarterly in eight equal installments, with the first installment of 125,000 shares of common stock vesting on May 28, 2008. The fair value of the 1,000,000 common shares on the grant date amounted to $75.09 per share.

On October 2, 2008, we approved grants in the amount of 9,000 vested common shares to three of our non-executive directors. Also on October 2, 2008, we approved grants of 2,700 non-vested common shares each, or 9,000 non-vested common shares in the aggregate, to two of our non-executive directors, to be issued and to vest in the amount of 75 shares per director, or 150 shares in the aggregate, per month over a three-year period beginning on February 1, 2009 and continuing until January 1, 2012 or such other time as we may instruct. From the 9,000 non-vested common shares, 3,600 shares were forfeited during 2010. All of the non-vested common shares described above have vested. The fair value of the vested shares on the grant date was $33.59 per share.

On March 12, 2009, 70,621 non-vested common shares were granted to an executive officer of the Company. The shares vested in annual installments of 42,373 and 28,248 shares on March 1, 2010 and March 1, 2011, respectively. The fair value of each share on the grant date was $3.54.

Also on January 25, 2010, we awarded 4,500,000 non-vested common shares to Fabiana for the contribution of the services of our Chief Executive Officer during the fiscal year ended 2009 as well as for the anticipated contribution of the services of our Chief Executive Officer during the fiscal years ended 2010, 2011 and 2012. The shares vest over a period of three years, with 1,000,000 shares vesting on the award date, 1,000,000 shares vesting on each of December 31, 2010 and 2011 and 1,500,000 shares vesting on December 31, 2012. The fair value of the shares on the award date was $6.05 per share.
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On March 5, 2010, 2,000 non-vested common shares and 1,000 vested common shares were granted to an executive officer of the Company under the Plan. All of the shares awarded under this grant have vested. The shares were issued during July 2010 and the fair value of each share, on the grant date, was $5.66.

On January 12, 2011, we awarded 9,000,000 non-vested common shares to Fabiana for the contribution of the services of our Chief Executive Officer during the fiscal year ended 2010. The shares awarded to Fabiana vest over a period of eight years, with 1,000,000 shares vesting on February 10, 2011 and 1,000,000 shares vesting annually on December 31 of 2011 through 2018. The fair value of the shares on the award date was $5.50 per share.

On February 4, 2011, we awarded 15,000 non-vested common shares to one of our executive officers, which vest on a pro rata basis over the course of three years beginning in June 2012. The fair value of the shares on the award date was $5.01 per share.

On August 20, 2013, we awarded 1,000,000 non-vested common shares to Fabiana for the contribution of George Economou for Chief Executive Officer's services rendered during 2012. The shares vest over a period of two years  with 333,334 shares vesting on the grant date, 333,333 shares vesting on August 20, 2014 and 333,333 vesting on August 20, 2015 respectively. The fair value of the shares on the award date was $2.01 per share.

On August 19, 2014, the Compensation Committee approved that a bonus in the form of 1,200,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2013. The shares vest over a period of three years with 400,000 shares vesting on December 31, 2014, 400,000 shares vesting on December 31, 2015, and 400,000 vesting on December 31, 2016.

On December 30, 2014, the Compensation Committee approved that a bonus in the form of 2,100,000 shares of the Company's common stock, with par value $0.01,  and a cash bonus of $1.0 million be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2014. The shares vest over a period of three years with 700,000 shares vesting on December 31, 2015, 700,000 shares vesting on December 31, 2016, and 700,000 vesting on December 31, 2017.

As of March 2, 2015, we had 2,931,034 common shares remaining for issuance under the Plan.

Stock options and stock appreciation rights may be granted under the Plan with a per share exercise price equal to the per share fair market value of our common shares on the date of grant, unless otherwise determined by the Plan's administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights may be exercisable at times and under conditions as determined by the Plan's administrator, but in no event will they be exercisable later than ten years from the date of grant. Awards of restricted stock, restricted stock units and phantom stock units may be granted under the Plan subject to vesting and forfeiture provisions and other terms and conditions as determined by the Plan's administrator. The Plan's administrator may grant dividend equivalents with respect to grants of restricted stock units and phantom 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's administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.

C.           Board Practices

Our board of directors is elected annually, and each director elected holds office for a three-year term or 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. The term of our Class A directors, Messrs. George Economou, Harry Kerames and Vassilis Karamitsanis, expires at the annual general meeting of shareholders in 2017. The term of our Class B director, Mr. George Xiridakis, expires at the annual general meeting of shareholders in 2015. The term of our Class C directors, Ms. Chryssoula Kandylidis and Mr. George Demathas, expires at the annual general meeting of shareholders in 2016.

There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.

Our board of directors has determined four of our directors to be independent under the rules of the NASDAQ Stock Market LLC: Messrs. Harry Kerames, Vassilis Karamitsanis, George Xiradakis and George Demathas. Under the NASDAQ corporate governance rules, a director is not considered independent unless our board of directors affirmatively determines that the director has no direct or indirect material relationship with us or our affiliates that could reasonably be expected to interfere with the exercise of such director's independent judgment. In making this determination, our board of directors broadly considers all facts and circumstances it deems relevant from the standpoint of the director and from that of persons or organizations with which the director has an affiliation.
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Committees of the Board of Directors

Our board of directors has established an audit committee comprised of three independent directors: Harry Kerames, Vassilis Karamitsanis and George Xiradakis. Mr. Harry Kerames has been appointed to serve as Chairman of the audit committee. The audit committee is governed by a written charter, which has been approved by the board of directors. The board of directors has determined that all of the members of the audit committee meet the applicable independence requirements under Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act and the NASDAQ Stock Market LLC and fulfill the requirement of being financially literate and that George Xiradakis qualifies as an "audit committee financial expert" as defined under current SEC regulations. The audit committee is appointed by the board of directors and is responsible for, among other matters:

 · engaging our external and internal auditors;

 · approving in advance all audit and non-audit services provided by the auditors;

 · approving all fees paid to the auditors;

· reviewing the qualification and independence of our external auditors;

· reviewing our relationship with external auditors, including considering audit fees which should be paid as well as any other fees which are payable to auditors in respect of non-audit activities, discussing with the external auditors such issues as compliance with accounting principles and any proposals which the external auditors have made vis-а-vis our accounting principles and standards and auditing standards;

· overseeing our financial reporting and internal control functions;

· overseeing our whistleblower's process and protection; and

· overseeing general compliance with related regulatory requirements.

Our board of directors has established a compensation committee comprised of two independent directors, Messrs. Harry Kerames and Vassilis Karamitsanis. Mr. Vassilis Karamitsanis has been appointed to serve as Chairman of the compensation committee. The compensation committee is responsible for determining the compensation of our executive officers.

Our board of directors has also established a nominating committee consisting of two independent directors, Messrs. George Demathas and George Xiradakis. Mr. George Demathas has been appointed to serve as Chairman of the nominating committee. The nominating committee is responsible for identifying, evaluating and recommending to the board of directors individuals for membership on the board of directors, as well as considering nominees proposed by shareholders in accordance with our Amended and Restated Bylaws.

D.           Employees

Drybulk and Tanker Segment

As of December 31, 2014, 2013 and 2012, DryShips Inc. employed 19, 17 and 19 persons at its offices in Athens, Greece, respectively. As of December 31, 2014, 2013 and 2012, TMS Bulkers and TMS Tankers employed approximately 281, 246 and 176 people in the aggregate, respectively.  TMS Bulkers and TMS Tankers are responsible for recruiting, either directly or through a crewing agent, the senior officers and all other crew members for our drybulk and tanker vessels. We believe the streamlining of crewing arrangements will ensure that all our vessels will be crewed with experienced seamen that have the qualifications and licenses required by international regulations and shipping conventions. We did not experience any material work stoppages with respect to our drybulk and tanker segments due to labor disagreements during 2014, 2013 or 2012.

Offshore Drilling Segment

As of December 31, 2014, 2013 and 2012, our majority-owned subsidiary, Ocean Rig UDW Inc., employed 339, 145 and 10 persons, respectively. As of December 31, 2014, 2013 and 2012, the total number of employees employed by wholly-owned management subsidiaries of Ocean Rig UDW was approximately 2,320, 1,742 and 1,374, respectively, of which approximately 493, 265 and 244 were full-time crew engaged through third party crewing agencies, respectively. Of the total number of employees as of December 31, 2014, 2013 and 2012, approximately 185, 161 and 144 were assigned to the Eirik Raude, approximately 206, 218 and 154 were assigned to the Leiv Eiriksson, approximately 186, 191 and 186 were assigned to the Ocean Rig Corcovado, and approximately 198, 212 and 205 were assigned to the Ocean Rig Olympia, respectively. In addition, of the total number of employees as of December 31, 2014, 2013 and 2012, approximately 221, 200 and 202 were assigned to the Ocean Rig Poseidon and approximately 180, 185 and 182 were assigned to the Ocean Rig Mykonos, respectively. Furthermore, of the total number of employees as of December 31, 2014, approximately 194 were assigned to the Ocean Rig Mylos, approximately 178 were assigned to the Ocean Rig Skyros, approximately 206 were assigned to the Ocean Rig Athena and approximately 100 were assigned to the Ocean Rig Apollo, respectively. As of December 31, 2014, 2013 and 2012, the newbuild drillship project team, located in South Korea and Norway, employed 45, 47 and 44 employees, respectively, while the management and staff positions at the Stavanger office consisted of 15, 47 and 139 employees, respectively. As of December 31, 2014,  there were also 121 employees based at our Aberdeen, Rio de Janeiro, Angola and Jersey offices, 199 employees based at our Athens offices and 3 employees based in other locations. As of December 31, 2013, there were also 90 employees based at our Aberdeen, Rio de Janeiro, Angola and Jersey offices and 19 employees based in other locations.  As of December 31, 2012, there were also 67 employees based at our Aberdeen, Rio de Janeiro and Jersey offices and five employees based in other locations.
 
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We did not experience any material work stoppages with respect to our offshore drilling segment due to labor disagreements during 2014, 2013 or 2012.

E.           Share Ownership

For the total amount of common shares owned by all of our officers and directors, individually and as a group, see "Item 7. Major Shareholders and Related Party Transactions."

Item 7.    Major Shareholders and Related Party Transactions

A.           Major Shareholders

The following table sets forth the beneficial ownership of our common shares, as of February 18, 2015, held by:

· each person or entity that we know beneficially owns 5% or more of our common shares;

· each of our executive officers, directors and key employees; and

· all our executive officers, directors and key employees as a group.

Beneficial ownership is determined in accordance with the SEC'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 March 2, 2015, 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. All of our shareholders, including the shareholders listed in the table below, are entitled to one vote for each common share held.
 
 
Name and Address of Beneficial Owner(1)
  
Number of
Shares Owned
    
Percent of
Class(2)
  
George Economou (3)
    
118,067,177
      
17.6
%
Blue Mountain Capital Management, LLC(4)
    
71,428,000
      
10.7
 % 
Anthony Kandylidis
    
—
        *  
Harry Kerames
    
—
      
*
  
Evangelos Mytilinaios
    
—
      
*
  
George Xiradakis
    
—
      
*
  
George Demathas
    
—
      
*
  
Niki Fotiou
    
—
      
*
  
Executive Officers, Key Employees and Directors as a Group
    
118,813,577
      
17.7
%

_____________________
*
Less than one percent.
(1)
Unless otherwise indicated, the business address of each beneficial owner identified is c/o DryShips, 109 Kifisias Avenue and Sina Street, Amaroussion GR 151 24 Greece.
(2)
Based on 669,964,321 common shares outstanding as of March 2, 2015.
(3)
Mr. Economou may be deemed to beneficially own 10,994,910 of these shares through Elios Investments Inc., which is a wholly-owned subsidiary of the Entrepreneurial Spirit Foundation, a Lichtenstein foundation, or the Foundation, the beneficiaries of which are Mr. Economou and members of his family. Mr. Economou may be deemed to beneficially own 18,800,000 of these shares through Fabiana, a Marshall Islands corporation, of which Mr. Economou is the controlling person. Mr. Economou may be deemed to beneficially own 254,512 of these shares through Goodwill Shipping Company Limited, a Malta corporation, of which Mr. Economou is the controlling person. Mr. Economou may be deemed to beneficially own 58,105,667 of these shares, through Sphinx Investment Corp., a Marshall Islands corporation, of which Mr. Economou is the controlling person. Each warrant entitles the holder to purchase one of our common shares. Mr. Economou may be deemed to beneficially own 29,962,088 of these shares through Entrepreneurial Spirit Holdings Inc., a Liberian corporation that is wholly-owned by the Foundation.
(4) This information is derived from Schedule 13G/A filed with the SEC on November 3, 2014.
 

 
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As of February 18, 2015, we had 49 shareholders of record, 37 of which were located in the United States and held an aggregate of 597,323,546 of our common shares, representing 84.3% of our outstanding common shares. However, one of the U.S. shareholders of record is CEDE & CO., a nominee of The Depository Trust Company, which held 597,291,458 of our common shares as of February 18, 2015. Accordingly, we believe that the shares held by CEDE & CO. include common shares beneficially owned by both holders in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.

B.           Related Party Transactions

Agreements with Cardiff, TMS Bulkers and TMS Tankers

Mr. George Economou, our Chairman, President and Chief Executive Officer, controls the Foundation, a Liechtenstein foundation that owns 100.0% of the issued and outstanding capital stock of Cardiff, TMS Bulkers' and TMS Tankers.

Management Agreements – Drybulk Vessels

Since January 1, 2011, we have outsourced all of our technical and commercial functions relating to the operation and employment of our drybulk carrier vessels to TMS Bulkers, a related party, pursuant to management agreements entered into for each of our operating drybulk carriers and vessels under construction. Prior to January 1, 2011, Cardiff, a company affiliated with our Chairman, President and Chief Executive Officer, Mr. George Economou, served as our technical and commercial manager pursuant to separate management agreements with each of our drybulk vessel-owning subsidiaries. Effective January 1, 2011, we entered into new management agreements with TMS Bulkers that replaced our management agreements with Cardiff, on the same terms as our management agreements with Cardiff, as a result of an internal restructuring of Cardiff for the purpose of enhancing Cardiff's efficiency and the quality of Cardiff's ship-management services.

Mr. Economou, and, under the guidance of our board of directors, manages our business, including our administrative functions, and we monitor TMS Bulkers' performance under the management agreements.

Management Agreements with TMS Bulkers

Under our management agreements with TMS Bulkers, TMS Bulkers is entitled to a fixed management fee of Euro 1,500 (or $1,823 based on the Euro/U.S. Dollar exchange rate at December 31, 2014) per vessel, per day, payable in equal monthly installments in advance and automatically adjusted each year to the Greek Consumer Price Index for the previous year by not less than 3% and not more than 5%. If we request that TMS Bulkers supervise the construction of a newbuilding vessel, we are obligated to pay TMS Bulkers an upfront fee equal to 10% of the supervision cost budget for such vessel as approved by us in lieu of the fixed management fee. For any additional attendance above the budgeted superintendent expenses, we are charged extra at a standard rate of Euro 500 (or $608 based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) per day. Effective January 1, 2012, the fixed management fee was adjusted by 3% to Euro 1,545 (or $1,878 based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) per vessel, per day.

In addition, TMS Bulkers is entitled to a chartering commission of 1.25% of all monies earned by the vessel, which survives the termination of the management agreement until the termination of the charter agreement then in effect or the termination of any other employment arranged prior to such termination. TMS Bulkers also receives a sale and purchase commission of 1.0%. Furthermore, under the management agreements, we may award TMS Bulkers an annual performance incentive fee.

Each management agreement has an initial term of five years and will be automatically renewed for a five year period and thereafter extended in five year increments, unless we provide notice of termination in the fourth quarter of the year immediately preceding the end of the respective term. The management agreements may be terminated as follows:

(i) TMS Bulkers may terminate the agreement with immediate effect by notice in writing (a) if any amounts payable by the vessel owner are not received by TMS Bulkers within ten running days; (b) the vessel owner does not meet certain obligations related to the technical management of the vessels for any reason within its control; or (c) the vessel owner employs the vessel in a hazardous or improper manner, and the vessel owner fails to remedy such default;

(ii) the vessel owner may terminate the agreement with immediate effect by notice in writing if TMS Bulkers does not meet its obligations for any reason within its control under the agreement and fails to remedy such default within a reasonable time;
110

(iii) the agreement shall be deemed terminated in the case of the sale of the vessel, if the vessel becomes a total loss or is declared as a constructive total loss or in the event of an order or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party; and

(iv) upon a change of control of us and/or the vessel owners.

In the event that the management agreement is terminated for any reason other than a default by TMS Bulkers, we will be required to pay the management fee for a further period of three calendar months as from the date of termination. In the event of a change of control of us, as defined in the agreements, we will be required to pay TMS Bulkers a termination payment, representing an amount equal to the estimated remaining fees payable to TMS Bulkers under the then current term of the agreement which such payment shall not be less than the fees for a period of 36 months and not more than a period of 48 months.

The management agreements provide that TMS Bulkers shall not be liable to us for any losses or damages arising in the course of its performance under the agreement unless such loss or damage is proved to have resulted from the negligence, gross negligence or willful default by TMS Bulkers, its employees or agents and in such case the liability of TMS Bulkers per incident or series of incidents is limited to a total of ten times the annual management fee payable under the relevant agreement. The management agreements further provide that TMS Bulkers shall not be liable for any of the actions of the crew, even if such actions are negligent, grossly negligent or willful, except to the extent that they are shown to have resulted from a failure by TMS Bulkers to perform its obligations with respect to management of the crew. Except to the extent of the liability cap described above, we have agreed to indemnify TMS Bulkers and its employees and agents against any losses incurred in the course of the performance of the agreement. Under the management agreements, TMS Bulkers has the right to sub-contract any of its obligations thereunder, including those relating to management of the crew. In the event of such a sub-contract, TMS Bulkers shall remain fully liable for the due performance of its obligations under the management agreements.

During the years ended December 31, 2014, 2013 and 2012, total charges from TMS Bulkers under the management agreements amounted to $33.5 million, $35.8 million and $33.9 million, respectively.

Management Agreements – Drilling Units

Services Agreements

On December 1, 2010, DryShips Inc. entered into the Global Services Agreement with Cardiff, effective December 21, 2010, pursuant to which we engaged Cardiff to act as consultant on matters of chartering and sale and purchase transactions for our offshore drilling units. Under the Global Services Agreement, Cardiff, or its subcontractor, (i) provided consulting services related to the identification, sourcing, negotiation and arrangement of new employment for our offshore assets, including our drilling units; and (ii) identified, sourced, negotiated and arranged the sale and purchase of our offshore assets, including our drilling units. In consideration of such services, Cardiff was entitled to a fee of 1.0% in connection with employment arrangements and 0.75% in connection with sale and purchase activities.

Except as provided below, the Global Services Agreement applied to all offshore drilling contracts we entered into after December 21, 2010, as well as the drilling contract with Cairn Energy plc, or Cairn, for the Ocean Rig Corcovado, which commenced in January 2011 and was completed in November 2011, and the drilling contracts with Vanco Cote d'Ivoire Ltd. and Vanco Ghana Ltd for the Ocean Rig Olympia, which commenced in March 2011, were novated to Tullow Ghana in December 2011 and were completed in the second quarter of 2012. The Global Services Agreement did not apply to the agreement with Petrobras Oil & Gas regarding the early termination of the drilling contract with Petrobras Oil & Gas for the Leiv Eiriksson and the replacement of the Leiv Eiriksson under the drilling contract with Petrobras Oil & Gas with the Ocean Rig Poseidon, which occurred in April 2011, the drilling contract with Cairn for the Leiv Eiriksson, which commenced in April 2011 and was completed in November 2011 and the drilling contract with Borders & Southern plc for the Leiv Eiriksson, which commenced in November 2011 and was completed in the fourth quarter of 2012.

For the years ended December 31, 2014, 2013 and 2012, total charges from Cardiff under the Global Services Agreement amounted to $0 million, $0 and $7.2 million, respectively.

Effective January 1, 2013, the Global Services Agreement was terminated by mutual agreement of the parties.  Also effective January 1, 2013, Ocean Rig Management, our majority-owned subsidiary and a wholly-owned subsidiary of Ocean Rig UDW, entered into a new services agreement, or the Ocean Rig Services Agreement, with Cardiff  Drilling , a company controlled by our Chairman, President and Chief Executive Officer, on the same terms and conditions as the Global Services Agreement, except that under the Ocean Rig Services Agreement, Ocean Rig Management is obligated to pay directly the fees of 1.0% in consideration of employment arrangements under the agreement and $0.75% in consideration of purchase and sale activities under the agreement, whereas under the Global Services Agreement, those fees were paid by DryShips Inc. For the years ended December 31, 2014 and 2013 total charges from Cardiff under the Ocean Rig Services Agreement amounted to $21.3 million and $17.7 million, respectively.
 
111
Management Agreements – Tankers

Since January 1, 2011, TMS Tankers has provided the commercial and technical management functions of our tankers, including while our tankers were under construction, pursuant to separate management agreements entered into with TMS Tankers for each of our tankers.  Each management agreement provides for a management fee of Euro 1,700 (or $2,066 based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) per vessel, per day, payable in equal monthly installments in advance and automatically adjusted each year to the Greek Consumer Price Index for the previous year by not less than 3% and not more than 5%. Effective January 1, 2012, the fixed management fee was adjusted by 3% to Euro 1,751 (or $2,128 based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) per vessel, per day. In addition, TMS Tankers also received a construction supervisory fee of 10% of the budget for our tankers under construction, payable up front, in lieu of the fixed management fee while our tankers were under construction.

In addition, under the management agreements, TMS Tankers is entitled to a chartering commission of 1.25% of all monies earned by the vessel and a vessel sale and purchase commission of 1.0%. The management agreements further provide that in our discretion, we may pay TMS Tankers an annual performance incentive fee.

Each management agreement has a term of five years and is automatically renewed for successive five year periods unless we provide notice of termination in the fourth quarter of the year immediately preceding the end of the respective term.

The management agreements may be terminated as follows:

(i) TMS Tankers may terminate the agreement with immediate effect by notice in writing (a) if any amounts payable by the vessel owner are not received by TMS Tankers within ten running days; (b) the vessel owner does not meet certain obligations related to the technical management of the vessels for any reason within its control; or (c) the vessel owner employs the vessel in a hazardous or improper manner, and the vessel owner fails to remedy such default;

(ii) the vessel owner may terminate the agreement with immediate effect by notice in writing if TMS Tankers does not meet its obligations for any reason within its control under the agreement and fails to remedy such default within a reasonable time;

(iii) the agreement shall be deemed terminated in the case of the sale of the vessel, if the vessel becomes a total loss or is declared as a constructive total loss or in the event of an order or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party; and

(iv) upon a change of control of us and/or the vessel owners.

In the event that the management agreements are terminated for any reason other than a default by TMS Tankers, we will be required to pay the management fee for a further period of three calendar months as from the date of termination. In the event of a change of control of us, as defined in the agreements, we will be required to pay TMS Tankers a termination payment, representing an amount equal to the estimated remaining fees payable to TMS Tankers under the then current term of the agreement which such payment shall not be less than the fees for a period of 36 months and not more than a period of 48 months.

The management agreements provide that TMS Tankers shall not be liable to us for any losses or damages arising in the course of its performance under the agreement unless such loss or damage is proved to have resulted from the negligence, gross negligence or willful default by TMS Tankers, its employees or agents and in such case the liability of TMS Tankers per incident or series of incidents is limited to a total of ten times the annual management fee payable under the relevant agreement. The management agreements further provide that TMS Tankers shall not be liable for any of the actions of the crew, even if such actions are negligent, grossly negligent or willful, except to the extent that they are shown to have resulted from a failure by TMS Tankers to perform its obligations with respect to management of the crew. Except to the extent of the liability cap described above, we have agreed to indemnify TMS Tankers and its employees and agents against any losses incurred in the course of the performance of the agreement. Under the new management agreements, TMS Tankers has the right to sub-contract any of its obligations thereunder, including those relating to management of the crew. In the event of such a sub-contract, TMS Tankers shall remain fully liable for the due performance of its obligations under the management agreements.

For the years ended December 31, 2014, 2013 and 2012, total charges from TMS Tankers under the management agreements amounted to $10.5 million, $ 11.7 million and $9.6 million, respectively.

Cardiff Tankers Inc.

   Under charter agreements for all of our tankers, Cardiff Tankers Inc. ("Cardiff Tankers"), a related party entity incorporated in the Republic of the Marshall Islands, is entitled to a 1.25% commission on the charter hire earned by those tankers.
 

 
112
Pooling Arrangements

Three of our Suezmax tankers, Vilamoura, Lipari and Petalidi, operated in the Blue Fin tanker pool since their delivery to us in March 2011, April 2012 and May 2012, respectively, until the termination of our pooling agreements with Blue Fin Tankers Inc. relating to such vessels in October 2012, March 2013 and November 2012, respectively. Our Aframax tankers Saga, Daytona, and Belmar operated in Sigma tanker pool since their delivery to us in January 2011, April 2011, and October 2011 until the termination of our pooling agreements with Sigma Tankers Inc. relating to such vessels in April 2012, October 2012 and January 2013, respectively. Our Aframax tanker Calida has operated in the Sigma tanker pool since its delivery to us in January 2012. The Sigma and Blue Fin tanker pools are managed by Heidmar, a related party. Our Chairman, President Chief Executive Officer is the Chairman of the Board of Directors of Heidmar and Heidmar is 49%-owned by a company related to Mr. Economou.

Pursuant to our pooling agreements with Blue Fin Tankers Inc. for the aforementioned Suezmax vessels, we were obligated to time charter the vessels into the pool for a period of 12 months, after which the charters would automatically renew for successive 12 month periods; provided that, after the initial period, we or Heidmar, as the pool manager, could request that the vessels be redelivered after giving 90 days' notice. The pool manager was entitled to receive an agency fee of $387 per day per vessel, subject to adjustment on January 1st of each year with the rate of increase to be a minimum equal to the U.S. Consumer Price Index for the preceding 12 months plus 3%, but in no event less than 5%, and a maximum annual increase of 8%. In addition, the pool manager was entitled to receive a commission of 1.25% of the freight or charterhire earned by the vessels on contracts or charter parties entered into by the pool during the term of the agreement. In addition, we were obligated to contribute approximately $3.8 million to the pool for the vessel's working capital. The agency fees, commissions and working capital contribution were deducted from our pool earnings.

Pursuant to our pooling agreement with Sigma Tankers Inc. for the Aframax vessel Calida, we are obligated to time charter the vessel into the pool for a period of 12 months, after which the charter would automatically renew for successive 12 month periods; provided that, after the initial period, we or Heidmar, as the pool manager, may request that the vessel be redelivered after giving 90 days' notice. The pool manager is entitled to receive an agency fee of $387 per day for the vessel, subject to adjustment on January 1st of each year with the rate of increase to be a minimum equal to the U.S. Consumer Price Index for the preceding 12 months plus 3% and a maximum annual increase of 8%. In addition, the pool manager is entitled to receive a commission of 1.25% of the freight or charterhire earned by the vessels on contracts or charter parties entered into by the pool during the term of the agreement; provided that, in the event the pool consists of less than 20 vessels, the commission is increased to 1.50% of the freight or charterhire earned. In addition, we are obligated to contribute approximately $3.8 million to the pool for the vessel's working capital. The agency fees, commissions and working capital contribution were deducted from our pool earnings. The pooling agreement relating to the Calida was terminated in October 2013. Our pooling agreements with Sigma Tankers Inc. for our Aframax vessels Saga, Daytona, and Belmar, which terminated in April 2012, October 2012 and January 2013, respectively, contained the same terms and conditions as the pooling agreement relating to the Calida.

Consultancy Agreements

Vivid Finance

Effective from September 1, 2010, we entered into a consultancy agreement, or the DryShips Consultancy Agreement, with Vivid Finance, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, pursuant to which Vivid Finance provides consulting services relating to (i) the identification, sourcing, negotiation and arrangement of new loan and credit facilities, interest swap agreements, foreign currency contracts and forward exchange contracts; (ii) the raising of equity or debt in the public capital markets; and (iii) the renegotiation of existing loan facilities and other debt instruments. In consideration for these services, Vivid Finance is entitled to a fee of twenty basis points, or 0.20%, on the total transaction amount. The DryShips Consultancy Agreement has a term of five years and may be terminated (i) at the end of its term unless extended by mutual agreement of the parties; (ii) at any time by the mutual agreement of the parties; and (iii) by us after providing written notice to Vivid Finance at least 30 days prior to the actual termination date.

For the years ended December 31, 2014, 2013 and 2012, total charges from Vivid Finance under the consultancy agreement amounted to $16.2  million, $18.1 million and $14.2 million, respectively.

Effective January 1, 2013, Ocean Rig Management, a wholly-owned subsidiary of our majority-owned subsidiary Ocean Rig UDW, entered into a separate consultancy agreement, or the Ocean Rig Consultancy Agreement, with Vivid Finance, on the same terms and conditions as the DryShips Consultancy Agreement, except that under the Ocean Rig Consultancy Agreement, Ocean Rig Management is obligated to pay directly the fee of 0.20% to Vivid Finance on the total transaction amount in consideration of the services provided, whereas under the DryShips Consultancy Agreement, this fee was paid by DryShips Inc.  In connection with Ocean Rig Management's entry into the Ocean Rig Consultancy Agreement, the DryShips Consultancy Agreement was amended, effective as of January 1, 2013, to limit the scope of the services provided under the agreement to DryShips Inc. and its subsidiaries or affiliates, except for Ocean Rig UDW and its subsidiaries.  In essence, post-amendment, the DryShips Consultancy Agreement is in effect for our tanker and drybulk shipping segments only.

Consultancy Agreements Relating to the Provision of the Services of Certain of our Executive Officers

For a description of our consultancy agreements relating to the provision of the services of certain of our executive officers and key employees, please see "Item 6. Directors, Senior Management and Employees—B. Compensation—Consultancy  Agreements."
 
113

C.           Interests of Experts and Counsel

Not applicable.

Item 8.    Financial Information

A.           Consolidated statements and other financial information.

See "Item 18. Financial Statements."

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. Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping and drilling businesses. 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 and drilling units. Except as described below, 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.

We have obtained hull and machinery insurance for the assessed market value of our fleet and protection and indemnity insurance. However, such insurance coverage may not provide sufficient funds to protect us from all liabilities that could result from its operations in all situations. Risks against which we may not be fully insured or insurable include environmental liabilities, which may result from a blow-out or similar accident, or liabilities resulting from reservoir damage alleged to have been caused by the negligence of the Company.

Our loss of hire insurance coverage does not protect against loss of income from day one. It covers approximately one year for the loss of time but will be effective after 45 days' off-hire. During 2012, the Ocean Rig Corcovado, a drillship owned by Ocean Rig, incurred off-hire due to a failure in one of its engines which was a covered event under the loss of hire policy that resulted in $24.6 million being recognized as revenue during the year ended December 31, 2012. The amount of $24.6 million was reimbursed by the insurers to the Company in August 2012. During 2014, the Ocean Rig Corcovado incurred off-hire for the same event and, as a result, an additional amount of $20.2 million for the above covered event was recognized as revenue during the year ended December 31, 2014, and was reimbursed during the same period. During 2014, the Ocean Rig Mylos incurred off-hire due to damage to the blow-out-preventer stack during testing, which was a covered event under the loss of hire policy that resulted in $39.6 million being recognized as revenue during the year ended December 31, 2014, from which an amount of $39.1 was reimbursed during the year.

As part of the normal course of operations, our customers may disagree on amounts due to us under the provision of the contracts which are normally settled though negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as we reache agreement with the customer on the amounts due.

On July 17, 2008, we entered into an agreement to sell the vessel Toro, a 1995-built 73,034 dwt Panamax drybulk carrier, to Samsun Logix Corporation ("Samsun") for the price of approximately $63.4 million. On January 29, 2009, we reached an agreement with the buyers whereby the price was reduced to $36.0 million. As part of the agreement, the buyers released the deposit of $6.3 million to us immediately and were required to make a new deposit of $1.5 million towards the revised purchase price. On February 13, 2009, we proceeded with the cancellation of the sale agreement due to the buyers' failure to pay the new deposit of $1.5 million and to perform their obligations under the agreement. In February 2009, Samsun was placed in corporate rehabilitation. In February 2010, Samsun's plan of reorganization was approved by its creditors. As part of this plan, we will recover a certain percentage of the agreed-upon purchase price.

As this is contingent on the successful implementation of the plan of reorganization, we are unable to estimate the impact on our consolidated financial statements.

Ocean Rig's drilling rig the Leiv Eiriksson operated in Angola during the period from 2002 to 2007. Ocean Rig's manager in Angola during this period made a legal claim for reimbursement of import/export duties for two export/importation events in the period 2002 to 2007 retroactively levied by the Angolan government. Agreement was reached between the parties to settle this claim for an amount of $6.1 million which was paid by Ocean Rig's relevant subsidiary on May 24, 2012, to the claimant, in full and final settlement of the London Court Proceedings. Ocean Rig recorded a charge of $6.1 million during the year ended December 31, 2012, which is included in "Legal settlements and other, net" in the consolidated statements of operations.
 
114

On May 10, 2013, Drillship Hydra Owners Inc., being the owning company of the drillship Ocean Rig Corcovado, filed a claim against Capricorn Greenland Exploration 1 Limited and Cairn Energy Plc with the High Court in London in connection with the loss of daily earnings and cost of repair for the Blow Out Preventer of Ocean Rig Corcovado in June and July 2011. In July 2013 Ocean Rig reached an out-of-court commercial agreement with Capricorn Greenland Exploration 1 Limited and Cairn Energy Plc to receive a compensation amounting to $5.0 million and a Settlement Agreement and Release dated September 12, 2013 was entered and the relevant claim filed in the High Court in London, U.K. was dropped. In this respect, Ocean Rig, having previously recognized a receivable of $11.0 million, recorded a charge of $6.0 million during the year ended December 31, 2013, which is included under "Legal settlements and other, net" in the consolidated statement of operations.

Ocean Rig Norway Operations Inc. ("OCR"), a subsidiary of Ocean Rig, was notified by a letter dated 13 November 2013 that arbitration proceedings were commenced against it by Westcon Yard AS of Norway ("Westcon"), in connection to an alleged outstanding unpaid amount of Norwegian Krone Seventy Seven Million Three Hundred Eighty Three Thousand Eight Hundred and Three and Fifty Eight Шre (NOK 77,383,803.58), $10.4 million (based on based on the NOK/U.S. Dollar exchange rate as of December 31, 2014)  plus interest and costs related to upgrades performed in the drilling unit Leiv Eiriksson in late 2012 and early 2013. The counterparties reached an agreement during the year ended December 31, 2014.

Dividend Policy

In light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning in the fourth quarter of 2008, suspended dividends in respect of our common shares. Our dividend policy is assessed by our board of directors from time to time. The suspension of dividends allows us to preserve capital and use the preserved capital to capitalize on market opportunities as they may arise. Until market conditions improve, it is unlikely that we will reinstate the payment of dividends. In addition, other external factors, such as our lenders imposing restrictions on our ability to pay dividends under the terms of our loan agreements, may limit our ability to pay dividends. Further, we may not be permitted to pay dividends if we are in breach of the covenants contained in our loan agreements.

Declaration and payment of any dividend is subject to the discretion of our board of directors. The timing and amount of dividend payments will be dependent upon our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors.

Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends, if any, in the future, will also depend on the earnings and cash flow of our subsidiaries and their ability to pay dividends to us. If there is a substantial decline in the drybulk, tanker or offshore drilling charter markets, our earnings would be negatively affected thus limiting our ability to pay dividends, if any, in the future. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividend.

We believe that, under current U.S. law, any future dividend payments from our then current and accumulated earnings and profits, as determined under U.S. federal income tax principles, would constitute "qualified dividend income" and, as a consequence, non-corporate U.S. shareholders would generally be subject to the same preferential U.S. federal income tax rates applicable to long-term capital gains with respect to such dividend payments. Distributions in excess of our earnings and profits, as so calculated, will be treated first as a non-taxable return of capital to the extent of a U.S. stockholder's tax basis in its common shares on a dollar-for-dollar basis and thereafter as capital gain. Please see "Item 10. Additional Information—E. Taxation" for additional information relating to the tax treatment of our dividend payments.

On August 8, 2014, Ocean Rig paid a quarterly cash dividend with respect to the quarter ended June 30, 2014 of $0.19 per common share to shareholders of record as of August 1, 2014. On November 10, 2014, Ocean Rig paid a quarterly cash dividend with respect to the quarter ended September 30, 2014, of $0.19 per common share to shareholders of record as of October 31, 2014. On February 24, 2015, Ocean Rig declared a quarterly cash dividend with respect to the quarter ended December 31, 2014, of $0.19 per common share to shareholders of record as of March 10, 2015, and payable on or about March 23, 2015.

During the year ended December 31, 2014, Ocean Rig paid dividends amounting to $30,563, to shareholders other than the Company.


B.           Significant Changes

See note 22 of "Item 18. Financial Statements."

Item 9.   The Offer and Listing

Our common shares currently trade on the NASDAQ Global Select Market under the symbol "DRYS". The table below sets forth the high and low closing prices of our common shares for each of the periods indicated, as reported by the NASDAQ Global Select Market.
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For the Year Ended
  
Low
    
High
  
December 31, 2010
  
$
3.42
    
$
6.77
  
December 31, 2011
  
$
1.97
    
$
5.50
  
December 31, 2012
  
$
1.58
    
$
3.74
  
December 31, 2013
  
$
1.64
    
$
4.70
  
December 31, 2014
  
$
0.76
    
$
4.50
  

 
For the Quarter Ended
        
March 31, 2013
  
$
1.64
    
$
2.30
  
June 30, 2013
  
$
1.68
    
$
2.25
  
September 30, 2013
  
$
1.78
    
$
3.93
  
December 31, 2013
  
$
2.72
    
$
4.70
  
March 31, 2014
  
$
3.15
    
$
4.50
  
June 30, 2014
  
$
2.87
    
$
3.53
  
September 30, 2014
  
$
2.44
    
$
3.36
  
December 31, 2014
  
$
0.76
    
$
3.30
  


For the Month Ended
        
August 2014
  
$
2.67
    
$
3.36
  
September 2014
  
$
2.44
    
$
3.30
  
October 2014
  
$
2.51
    
$
1.32
  
November 2014
  
$
1.28
    
$
1.60
  
December 2014
  
$
0.76
    
$
1.36
  
January 2015
  
$
0.86
    
$
1.15
  
February 2015
   $ 0.92     $ 1.09  
March 1, 2015 through March 9, 2015
   $ 0.88     $ 0.93  


Item 10.    Additional Information

A.           Share Capital

Not applicable.

B.           Memorandum and Articles of Association

The information set forth in the sections entitled "Description of Capital Stock" and "Description of Preferred Shares" in our Registration Statement on Form F-3ASR (Registration No. 333-190951), filed with the SEC on September 3, 2013, is incorporated by reference herein, provided that as of March 2, 2015, we had 669,964,321 common shares outstanding and no shares of Series A Convertible preferred stock outstanding.

The following is a description of the material terms of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws.

Description of Common Shares

Each of our outstanding common shares entitles the holder to one vote on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred shares, holders of shares of common shares are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Holders of common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. All outstanding common shares are fully paid and non-assessable. The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares that may be outstanding. Our common shares are listed on the NASDAQ Global Select Market under the symbol "DRYS."

Description of Preferred Shares

As of the date of this annual report, we are authorized to issue up to 500,000,000 shares of preferred stock, par value $0.01 per share, of which 100,000,000 have been designated as Series A Convertible Preferred Stock and 10,000,000 have been designated as Series A Participating Preferred Stock.  Currently, we have no shares of preferred stock outstanding.
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Our Series A Convertible Preferred Stock that was outstanding until October 2011 accrued cumulative dividends on a quarterly basis at an annual rate of 6.75% of the aggregate face value. Dividends were payable in preferred stock or cash, if cash dividends have been declared on our common shares. Such accrued dividends were payable in additional shares of preferred stock immediately prior to any conversion.

Each share of our Series A Convertible Preferred Stock was mandatorily convertible into our common shares proportionally, upon the contractual delivery of our drillships Ocean Rig Corcovado, Ocean Rig Olympia, Ocean Rig Poseidon and Ocean Rig Mykonos, at a premium of 127.5% of the original purchase price. Furthermore, each share of the Series A Convertible Preferred Stock could have been converted into our common shares at any time at the option of the holder at a conversion rate of 1.0:0.7.

Each share of Series A Convertible Preferred Stock entitled the holder to one vote on all matters submitted to a vote of our shareholders. Except as otherwise provided in the Certificate of Designations of Rights, Preferences and Privileges of Series A Convertible Preferred Stock, or the Certificate of Designations, or by law, the holders of shares of Series A Convertible Preferred Stock and the holders of our common shares voted together as one class on all matters submitted to a vote of the Company's shareholders. Except as required by law, holders of Series A Convertible Preferred Stock had no special voting rights and their consent was not be required (except to the extent they are entitled to vote with holders of our common shares as described above) for taking any corporate action.

The Series A Convertible Preferred Stock ranked senior to all other series of our preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provided otherwise. The Series A Convertible Preferred Stock was not redeemable unless upon any liquidation, dissolution or winding up of the Company, or sale of all or substantially all of the Company's assets, in which case a one-to-one redemption takes place plus any accrued and unpaid dividends.

In connection with the delivery of our newbuilding drillships the Ocean Rig Corcovado, Ocean Rig Olympia, Ocean Rig Poseidon and Ocean Rig Mykonos all of our outstanding shares of Series A Convertible Preferred Stock were converted into common shares in accordance with the terms of the Certificate of Designations.

For a more information regarding our Series A Participating Preferred Stock, see "—Stockholders Rights Agreement."

Our Articles of Incorporation and Bylaws

Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the BCA. Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws do not impose any limitations on the ownership rights of our shareholders.

Directors

Our directors are elected by a plurality of the votes cast by shareholders entitled to vote in an election. Our Amended and Restated Articles of Incorporation provide that cumulative voting shall not be used to elect directors. Our board of directors must consist of at least three members. The exact number of directors is fixed by a vote of at least 66 2/3% of the entire board. Our Amended and Restated Bylaws provide for a staggered board of directors whereby directors shall be divided into three classes: Class A, Class B and Class C which shall be as nearly equal in number as possible. Shareholders, acting as at a duly constituted meeting, or by unanimous written consent of all shareholders, initially designated directors as Class A, Class B or Class C. The term of our directors designated Class A directors expires at our 2014 annual meeting of shareholders. Class B directors serve for a term expiring at our 2015 annual meeting of shareholders. Directors designated as Class C directors serve for a term expiring at our 2013 annual meeting of shareholders. At annual meetings for each initial term, directors to replace those whose terms expire at such annual meetings will be elected to hold office until the third succeeding annual meeting. Each director serves his respective term of office until his successor has been 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.

Under our Amended and Restated Bylaws, no contract or transaction between the Company and one or more of our directors or officers, or between the Company and any other corporation, partnership, association or other organization of which one or more of our 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 our board of directors or a 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 or their relationship or interest as to the contract or transaction are disclosed or are known to our board or directors or the applicable committee thereof and the board or directors or such committee, as applicable, 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 under the BCA, then by unanimous vote of the disinterested directors; (ii) the material facts as to his or her or their relationship or interest as to the contract or transaction are disclosed or are known to the Company's shareholders, 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 Company as of the time it is authorized, approved or ratified by our board of directors, a committee thereof or our 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 thereof that authorizes the contract or transaction.
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Shareholder Meetings

Under our Amended and Restated Bylaws, annual shareholders 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. 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.

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 or 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. However, the right of a dissenting shareholder to receive payment of the appraised fair value of his shares is not available under the BCA for the shares of any class or series of stock, which shares or depository receipts in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting of the shareholders to act upon the agreement of merger or consolidation, were either (i) listed on a securities exchange or admitted for trading on an interdealer quotation system or (ii) held of record by more than 2,000 holders. 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 the shareholder's 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 any appropriate court in any jurisdiction in which our 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 shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates.

Indemnification of Officers and Directors

Our Amended and Restated Bylaws include a provision that entitles any director or officer of the Company to be indemnified by the Company upon the same terms, under the same conditions and to the same extent as authorized by the BCA if he acted in good faith and in a manner reasonably believed to be in and not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

We are also authorized to carry directors' and officers' insurance as a protection against any liability asserted against our directors and officers acting in their capacity as directors and officers regardless of whether the Company would have the power to indemnify such director or officer against such liability by law or under the provisions of our by laws. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

The indemnification provisions in our Amended and Restated 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. There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Anti-Takeover Provisions of Our Charter Documents

Several provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws may have anti-takeover effects. These provisions 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.

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 500,000,000 shares of blank check preferred stock, of which 100,000,000 of these shares have been designated as Series A Convertible Preferred Stock and 10,000,000 of these shares have been designated as Series A Participating Preferred Stock as of March 2, 2015.  As of March 2, 2015, we had no shares of preferred stock outstanding.  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.
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Classified Board of Directors

Our Amended and Restated Articles of Incorporation provide for a board of directors serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year. The classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could also delay shareholders who do not agree with the policies of the board of directors from removing a majority of the 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 shareholders to give advance written notice of nominations for the election of directors. Our Amended and Restated Bylaws also provide that our directors may be removed only for cause and only upon affirmative vote of the holders of at least 66 2/3% of the outstanding voting shares of the Company. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.

Limited Actions by Shareholders

Under the BCA and our Amended and Restated 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 Bylaws provide that, unless otherwise prescribed by law, only a majority of our board of directors, the chairman of our board of directors or the President 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 of shareholders 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 of shareholders.

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 of shareholders. 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.

Stockholders Rights Agreement

We entered into a Stockholders Rights Agreement with American Stock Transfer & Trust Company, as Rights Agent, as of January 18, 2008. Under this Agreement, we declared a dividend payable of one preferred share purchase right, or Right, to purchase one one-thousandth of a share of our Series A Participating Preferred Stock for each outstanding common share. The Right will separate from the common shares and become exercisable after (1) the 10th business day after a person or group acquires ownership of 15% or more of our common shares or (2) 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 our common shares, or collectively, the Distribution Date. On the Distribution Date, each holder of a Right will be entitled to purchase for $250.00, or the Exercise Price, a fraction (1/1000th) of one share of our Series A Participating Preferred Stock, which has similar economic terms as one of our common shares. Subject to certain exceptions, if a person acquires more than 15% of our common shares, referred to as an Acquiring Person, each holder of a Right (except that Acquiring Person) will be entitled to buy at the exercise price the number of our common shares stock having a market value of twice the exercise price. In addition, any time after the date an Acquiring Person obtains more than 15% of our common shares and before that Acquiring Person acquires more than 50% of our outstanding common shares, we may exchange each right owned by all other Rights holders, in whole or in part, for one of our common shares. We may also redeem the Rights at any time prior to a public announcement that a person has acquired ownership of 15% or more of the Company's common stock.

On July 9, 2009, the Stockholders Rights Agreement was amended for the sole purpose of amending and restating the definition of Acquiring Person to exempt persons acquiring our Series A Convertible Preferred Stock and any of our common shares resulting from the conversion of any such preferred stock from the definition of Acquiring Person, subject to certain exceptions. On April 21, 2010, the Stockholders Rights Agreement was further amended for the sole purpose of further amending and restating the definition of Acquiring Person to exempt from the definition of Acquiring Persons any persons acting (i) as a broker, dealer, distributor or initial purchaser or underwriter of our securities or as a market-maker with respect to such securities or (ii) in connection with share lending agreements or similar agreements between us or any of our affiliates and such person or any of such person's affiliates or associates, subject to certain exceptions.
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The Rights expire on the earliest of (1) February 4, 2018 or (2) the exchange or redemption of the Rights as described above. The terms of the rights and the Stockholders Rights Agreement may be amended without the consent of the Rights holders at any time on or prior to the Distribution Date. After the Distribution Date, the terms of the Rights and the Stockholders Rights Agreement may be amended to make changes, which do not adversely affect the rights of the Rights holders (other than the Acquiring Person). The Rights do not have any voting rights. The Rights have the benefit of certain customary anti-dilution protections. As of March 2, 2015, no exercise of any Right had occurred.

C.           Material Contracts

We refer you to "Item 5. Operating and Financial Review and Prospects—B. Liquidity and capital resources," "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions," and "—B. Memorandum and Articles of Association—Stockholders Rights Agreement" for a discussion of our material agreements that we have been a party to outside the ordinary course of our business during the two-year period immediately preceding the date of this annual report.

Other than the agreements discussed in the aforementioned sections of this annual report, we have no material contracts, other than contracts entered into in the ordinary course of business, to which we or any member of the group is a party.

D.           Exchange Controls

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

 E.           Taxation


The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury Department regulations, or Treasury Regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this annual report. Unless otherwise noted, references to the "Company" include the Company's subsidiaries. Except as otherwise discussed herein, this discussion assumes that the Company does not have an office or other fixed place of business in the United States.

Taxation of the Company's Shipping Income: In General

The Company anticipates that it will derive gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as "shipping income."

Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company is not permitted by law to engage in transportation that gives rise to 100% U.S. source income. 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 U.S. federal income tax.

Based upon the Company's anticipated shipping operations, the Company's vessels will operate in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States.

Application of Code Section 883

Under the relevant provisions of Section 883 of the Code and the Treasury Regulations promulgated thereunder, the Company will be exempt from U.S. taxation on its U.S. source shipping income if:

(i) It is organized in a "qualified foreign country" which is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883 of the Code, which the Company refers to as the "Country of Organization Requirement"; and
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(ii) It can satisfy any one of the following two (2) stock ownership requirements:

· more than 50% of the Company's stock, in terms of value, is beneficially owned by individuals who are residents of a qualified foreign country, which the Company refers to as the "50% Ownership Test"; or

· the Company's stock is "primarily and regularly" traded on an established securities market located in the United States or in a qualified foreign country, which the Company refers to as the "Publicly Traded Test".

The U.S. Treasury Department has recognized (i) the Marshall Islands, the country of incorporation of the Company and of a number of its ship-owning subsidiaries and (ii) Malta, the country of incorporation of the remaining ship-owning subsidiaries of the Company, as qualified foreign countries. Accordingly, the Company and its subsidiaries satisfy the Country of Organization Requirement.

Therefore, the Company's eligibility to qualify for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements. For the 2014 taxable year, the Company believes that it satisfied the Publicly-Traded Test since, for more than half the days of the Company's 2014 taxable year, the Company's stock was "primarily and regularly traded" on the NASDAQ Global Select Market, which is an "established securities market" in the United States within the meaning of the Treasury Regulation under Section 883 of the Code, and intends to take this position on its 2014 United States income tax returns.

Taxation in Absence of Exemption under Section 883 of the Code

To the extent the benefits of Section 883 of the Code are unavailable with respect to any item of U.S. source income, the Company's U.S. source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, or the 4% gross basis tax regime. Since under the sourcing rules described above, no more than 50% of the Company's shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company's shipping income would never exceed 2% under the 4% gross basis tax regime.

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.

U.S. Federal Taxation of Our Other Income

In addition to our shipping operations, we provide drilling services to third parties on the United States Outer Continental Shelf through our indirect majority-owned subsidiary, Ocean Rig USA LLC. Ocean Rig USA LLC is engaged in a trade or business in the United States. Therefore, Ocean Rig USA LLC is subject to U.S. federal income tax on a net basis on its taxable income. The amount of such taxable income and such U.S. federal income tax liability will vary depending upon the level of Ocean Rig USA LLC's operations in the United States in any given taxable year. Distributions from Ocean Rig USA LLC to our subsidiary that owns the interests in Ocean Rig USA LLC may be subject to U.S. federal withholding tax at a 30% rate.

U.S. Federal Income Taxation of Holders

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

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

If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor regarding the U.S. federal income tax consequences of owning an interest in a partnership that holds our common shares.

Distributions

Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares 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 or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current or 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 its common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a U.S. corporation, the Holders of commons shares that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from the Company. Dividends paid with respect to our common shares will generally be treated as "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.
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Dividends paid on our common shares to a U.S. Holder who is an individual, trust or estate, or a U.S. Individual Holder, will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates provided that (1) the Company's common shares are readily tradable on an established securities market in the United States (such as the Nasdaq Global Select Market, on which our common shares are listed); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be); and (3) the U.S. Individual Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend. There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Individual Holder.  Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Holder.

Special rules may apply to any "extraordinary dividend", which is generally a dividend in an amount which is equal to or in excess of ten percent of a stockholder's adjusted basis (or fair market value in certain circumstances) in one of our common shares. If we pay an "extraordinary dividend" on our common shares 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 shares will be treated as long-term capital loss to the extent of such dividend.

Sale, Exchange or other Disposition of Common Shares

Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares 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 shares. 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. Otherwise, such gain or loss will be treated as long-term capital gain on loss. Such capital gain or loss 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.

Passive Foreign Investment Company 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 passive foreign investment company, or 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 holder held our common shares, either:

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

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

For purposes of determining whether we are a PFIC, 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.

Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, and we are not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, 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, in particular, the tankers, should not constitute assets that produce, or are held for the production of, passive income for purposes of determining whether we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and Internal Revenue Service, 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, in the absence of any legal authority specifically relating to the Code provisions governing PFICs, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner so as to avoid being classified
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as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.

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." As an alternative to making a QEF election, a U.S. Holder should be able to elect to mark-to-market our common shares, which election we refer to as a "Mark-to-Market Election."

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 a "U.S. Electing Holder," the U.S. 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 U.S. Electing Holder, regardless of whether or not distributions were received from us by the U.S. Electing Holder. The U.S. Electing Holder's adjusted tax basis in the common shares 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 shares and will not be taxed again once distributed. A U.S. Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A U.S. Holder would make a QEF election with respect to any taxable year that our company is a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. If we were aware that we were to be treated as a PFIC for any taxable year, we would provide each U.S. Holder with all necessary information in order to make the QEF election described above.

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

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

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

Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a Mark-to-Market Election for that year, whom we refer to as a "Non-Electing U.S. Holder," would be subject to special rules with respect to (1) any excess distribution (e.g., the portion of any distributions received by the Non-Electing U.S. Holder on our common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing U.S. Holder in the three preceding taxable years, or, if shorter, the Non-Electing U.S. Holder's holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:

· the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Holders' aggregate holding period for the common shares;

· the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and

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

These penalties 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 shares. If a Non-Electing U.S. Holder who is an individual dies while owning our common shares, such holder's successor generally would not receive a step-up in tax basis with respect to such shares.

If we were to be treated as a PFIC for any taxable year ending on or after December 31, 2014, U.S. Holders would be required to report their ownership of our common shares to the IRS by filing an IRS Form 8621 with their U.S. federal income tax return for each such taxable year.
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U.S. Federal Income Taxation of "Non-U.S. Holders"

A beneficial owner of common shares, other than an 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."

Dividends on Common Shares

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 shares, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.

Sale, Exchange or Other Disposition of Common Shares

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 shares, unless:

· the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or

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

If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including dividends and the gain from the sale, exchange or other disposition of the common shares 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 a holder of common shares will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if paid to a non-corporate U.S. Holder who:

· ails to provide an accurate taxpayer identification number;

· is notified by the IRS that he has failed to report all interest or dividends required to be shown on his U.S. federal income tax returns; or

· in certain circumstances, fails 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 an appropriate IRS Form W-8.

If a Non-U.S. Holder sells the our common shares to or through a U.S. office or broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless the Non-U.S. Holder certifies that it is a non-U.S. person, under penalties of perjury, or it otherwise establishes an exemption. If a Non-U.S. Holder sells common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to the Non-U.S. Holder 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 the Non-U.S. Holder outside the United States, if the Non-U.S. Holder sells common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States.

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

Pursuant to recently enacted legislation, individuals who are U.S. Holders (and to the extent specified in applicable Treasury regulations, certain individuals who are Non-U.S. Holders and certain U.S. entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would include, among other assets, the common shares, unless the shares held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged consult their own tax advisors regarding their reporting obligations under this legislation.
124

Marshall Islands Tax Considerations

We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our stockholders.

Other Tax Considerations

In addition to the tax consequences discussed above, we may be subject to tax in one or more other jurisdictions where we conduct activities. The amount of any such tax imposed upon our operations may be material.

We provide offshore drilling services to third parties through our wholly-owned subsidiaries. Such services may be provided in countries where the tax legislation subjects drilling revenue to withholding tax or other corporate taxes, and where the operating cost may also be increased due to tax requirements. The amount of such taxable income and liability will vary depending upon the level of our operations in such jurisdiction in any given taxable year. Distributions from our subsidiaries may be subject to withholding tax.

We do not benefit from income tax positions that we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, inter-company pricing policies or the taxable presence of our key subsidiaries in certain countries; or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure; or if we lose a material tax dispute in any country, particularly in the United States, Canada, the U.K., Brazil, Angola, Cyprus, Ghana, Netherlands, Ivory Coast, Tanzania, Falkland Islands, Ireland, Sierra Leone, Gabon, West Africa,  Equatorial Guinea or Norway, our effective tax rate on our world-wide earnings could increase substantially and our earnings and cash flows from operations could be materially adversely affected.

F.           Dividends and Paying Agents

Not applicable.

G.           Statement by Experts

Not applicable.

H.           Documents on Display

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

I.            Subsidiary Information

Not applicable.

Item 11.   Quantitative and Qualitative Disclosures about Market Risk

Our Risk Management Policy

Our primary market risks relate to adverse movements in the charterhire rates for our drybulk and tanker fleet and dayrates for our offshore drilling fleet and any declines that may occur in the value of our assets, which consist primarily of our drybulk and tanker vessels and drilling units. Our policy is to continuously monitor our exposure to other business risks, including the impact of changes in interest rates, currency rates, charter rates and dayrates and bunker prices on earnings and cash flows. We intend to assess these risks and, when appropriate, enter into derivative contracts with credit-worthy counterparties to minimize our exposure to these risks. In regard to charter rates, dayrates and bunker prices, as our employment policy for our vessels and drilling units has been, and is expected to continue to be, with a high percentage of our fleet on periodic employment, we are not directly exposed to increases in bunker fuel prices as these are the responsibility of the charterer under period charter arrangements.
125
 

We regularly review the strategic decision with respect to the appropriate ratio of spot charter revenues to fixed-rate charter revenues taking into account its expectations about spot and time charter forward rates. Decisions to modify fixed-rate coverage are implemented in either the physical markets through changes in time charters or in the FFA markets, thus managing the desired strategic position while maintaining flexibility of ship availability to customers. We enter into FFAs with an objective of economically hedging risk seeking to reduce its exposure to changes in the spot market rates earned by some of its vessels in the normal course of our shipping business. None of these FFAs qualify as cash flow hedges for accounting purposes. FFAs are executed mainly through the London Clearing House, or LCH. LCH requires the posting of collateral by all participants. The use of a clearing house reduces the Company's exposure to counterparty credit risk.

Under the terms of our loan agreements, we are required to maintain compliance with minimum valuation covenants in regard to the vessels and drillships that are mortgaged to those banks. As such, in order to monitor on a regular basis the current market value of our fleet and thus to highlight any downturn in its value, we obtain on a semi-annual basis two independent valuations of all of our vessels and drilling units from two international sale and purchase brokers to determine the ongoing market value of our fleet. These valuations are used in the assessment regarding the necessary ongoing level of depreciation that we are recording in our books.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our long-term and short-term debt. The international shipping and offshore drilling industries are capital intensive, requiring significant amounts of investment. Much of this investment is provided in the form of long-term debt. Our debt usually contains interest rates that fluctuate with LIBOR. Increasing interest rates could adversely impact future earnings.

Historically, we have been subject to market risks relating to changes in interest rates, because we have had significant amounts of floating rate debt outstanding. We manage this risk by entering into interest rate swap agreements in which we exchange fixed and variable interest rates based on agreed upon notional amounts. We use such derivative financial instruments as risk management tools and not for speculative or trading purposes. In addition, the counterparties to our derivative financial instruments are major financial institutions, which helps us to manage our exposure to nonperformance of our counterparties under our debt agreements.

As of December 31, 2014, we had a total of 24 interest rate swap, cap and floor agreements, maturing from January 2015 through November 2017. These agreements are entered into in order to hedge our exposure to interest rate fluctuations with respect to our borrowings.

Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase in LIBOR of 1.0%, with all other variables held constant, would have increased our interest and finance costs, net loss and cash outflows in the current year by approximately $56.4 million based upon our debt level at December 31, 2014. A 1.0% increase in LIBOR, with all other variables held constant, would have increased our interest and finance costs for the year ended December 31, 2014 from $411.0 million to $467.4 million based upon our debt level at December 31, 2014.

Foreign Currency Exchange Risk

We generate a substantial portion of our revenues in U.S. dollars; however, a portion of our revenue under our contracts with Petroleo Brasileiro S.A., or Petrobras Brazil, for the Ocean Rig Corcovado and the Ocean Rig Mykonos is, and with Repsol Sinopec Brasil S.A., or Repsol, for the Ocean Rig Mylos is receivable in Brazilian Real.  In addition, for the year ended December 31, 2014, we incurred approximately 51% of our operating expenses and the majority of our management expenses in currencies other than the U.S. dollar. For accounting purposes, expenses incurred in currencies other than the U.S. dollar are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a significant portion of our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of fluctuations in exchange rates, which could affect the amount of net income that we report in future periods. As of December 31, 2014, the net effect of a 1% adverse movement in U.S. dollar/Euro exchange rates would not have a material effect on our net income, while the net effect of a 1% adverse movement in U.S. dollar/currencies other than the U.S. dollar exchange rates would have resulted in a decrease of $4.4 million in our profits before taxes for the year ended December 31, 2014.

Our international operations expose us to foreign exchange risk. We use a variety of techniques to minimize exposure to foreign exchange risk, such as the use of foreign exchange derivative instruments. Fluctuations in foreign currencies typically have not had a material impact on our overall results. In situations where payments of local currency do not equal local currency requirements, foreign exchange derivative instruments, specifically foreign exchange forward contracts, or spot purchases, may be used to mitigate foreign currency risk. A foreign exchange forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent U.S. dollar payment equal to
the value of such exchange. We do not enter into derivative transactions for speculative purposes. On December 31, 2014, we did not have any open foreign currency forward exchange contracts.
126

Item 12.    Description of Securities Other than Equity Securities

A.           Debt Securities

Not applicable.

B.           Warrants and Rights

Not applicable.

C.           Other Securities

Not applicable.

D.           American Depository shares

Not applicable.

PART II

Item 13.     Defaults, Dividend Arrearages and Delinquencies

See "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Breach of Financial Covenants under Secured Credit Facilities."

Item 14.     Material Modifications to the Rights of Security Holders and Use of Proceeds

We have adopted a Stockholders Rights Agreement, pursuant to which each of our common shares includes one preferred stock purchase right that entitles the holder to purchase from us 1/1,000 of a share of our Series A Participating Preferred Stock or additional amounts of our common shares if any third party seeks to acquire control of a substantial block of our common shares without the approval of our board of directors.  See "Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement."

Item 15.     Controls and Procedures

(a) Disclosure Controls and Procedures

Management, including our Company's Chief Executive Officer and Chief Financial Officer has conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2014. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures.

Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, the Company's disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Management's Annual Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
127
being made only in accordance with authorizations of management and directors of the Company; and

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO (2013 Framework), as of December 31, 2014.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management has assessed the effectiveness of the Company's internal control over financial reporting at December 31, 2014, based on the framework established in Internal Control—Integrated Framework issued by COSO (2013 Framework). Based on the aforementioned assessment, management concluded that Company's internal control over financial reporting is effective as of December 31, 2014.

The independent registered public accounting firm, Ernst Young (Hellas) Certified Auditors Accountants S.A., that audited the consolidated financial statements of the Company for the year ended December 31, 2014, included in this annual report, has issued an attestation report on the Company's internal control over financial reporting.

(c) Report of Independent Registered Public Accounting Firm

The report of Ernst Young (Hellas) Certified Auditors Accountants S.A. included in "Item 18. Financial Statements" of this annual report is incorporated herein by reference.

(d) Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial  reporting that have accrued during the year ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A.      Audit Committee Financial Expert

Our board of directors has determined that Mr. George Xiradakis, whose biographical details are included in "Item 6. Directors, Senior Management and Employees," a member of our audit committee, qualifies as an "audit committee financial expert" as that term is defined under SEC regulations. Our board of directors has also determined that Mr. Xiradakis is independent under SEC Rule 10A-3 of the Exchange Act and the independence rules of the NASDAQ Stock Market LLC.

Item 16B.      Code of Ethics

We have adopted a code of ethics that applies to our directors, officers and employees. In March 2008, our board of directors adopted an amendment to our code of ethics that would permit our officers, directors and employees who own common shares to transact in our securities pursuant to trading plans adopted in reliance upon Rule 10b5-1 under the Exchange Act. A copy of our code of ethics is posted in the "Investor Relations" section of the DryShips Inc. website, and may be viewed at http://www.dryships.com. We will also provide a hard copy of our code of ethics free of charge upon written request of a shareholder. Shareholders may direct their requests to the attention of Investor Relations, DryShips Inc., 109 Kifisias Avenue and Sina Street, 151 24 Amaroussion, Greece. No substantive amendments to our code of ethics were made during the fiscal year ended December 31, 2014, and no waivers of our code of ethics were granted to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions during the fiscal year ended December 2014.

Item 16C.      Principal Accountant Fees and Services

Audit Fees

The table below sets forth the total fees for the services performed by our Independent Auditors. The table below also identifies these amounts by category of services.
128
 
(U.S. Dollars in Thousands)
  
2013
    
2014
  
Audit and audit related fees
  
$
1,997
    
$
2,122
  
Tax fees
    
160
      
46
  
Total fees
  
$
2,157
    
$
2,168
  

 
Taxation fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning. There were no audit-related or other fees billed in 2014 and 2013.

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

Item 16D.      Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E.       Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

Item 16F.       Changes in Registrant's Certifying Accountant

None.

Item 16G.       Corporate Governance

Exemptions from NASDAQ corporate governance rules

As a foreign private issuer, we are subject to less stringent corporate governance requirements than U.S.-domiciled companies. Subject to certain exceptions, NASDAQ permits foreign private issuers to follow home country practice in lieu of the NASDAQ corporate governance requirements. The practices we intend to follow in lieu of NASDAQ's corporate governance rules are:

· In lieu of obtaining shareholder approval prior to the issuance of designated securities or the adoption of equity compensation plans or material amendments to such equity compensation plans, we will comply with provisions of the BCA, providing that the board of directors approve share issuances and adoptions of and material amendments to equity compensation plans.

· Our board of directors will not hold regularly scheduled meetings at which only independent directors are present.

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

Other than as noted above, we are in full compliance with all other applicable NASDAQ corporate governance standards.

Item 16H.       Mine Safety Disclosure

Not applicable.
 

 
129
PART III.

Item 17.          Financial Statements

See "Item 18. Financial Statements."

Item 18.          Financial Statements
 
The financial statements beginning on page F-1 together with the respective reports of the Independent Registered Public Accounting Firm therefore, are filed as a part of this annual report.

Item 18.1.       Schedule I – Condensed Financial Information of DryShips Inc. (Parent Company only)

The Schedule I, beginning after page F-55, is filed as part of this report.

Item 19.         Exhibits

    1.1
  
Articles of Amendment to Articles of Incorporation of DryShips Inc., incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A of DryShips Inc., filed with the SEC on January 18, 2008.
   
    1.2
  
Amended and Restated Bylaws of DryShips Inc., incorporated by reference to Exhibit 3.1 to the Registration Statement on Form F-3 of DryShips Inc. (File No. 333-169235), filed with the SEC on September 7, 2010.
   
    1.3
  
Certificate of Designations of Rights, Preferences and Privileges of Series A Convertible Preferred Stock of DryShips Inc., incorporated by reference to Exhibit 2.5 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    2.1
  
Form of Common Share Certificate, incorporated by reference to Exhibit 2.1 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    2.2
  
Form of Global Note, incorporated by reference to Exhibit 2.2 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    2.3
  
Indenture dated November 17, 2009, incorporated by reference to Exhibit 4.7 to the Post-effective Amendment to the Registration Statement on Form F-3 of DryShips Inc. (File No. 333-146540), filed with the SEC on November 17, 2009.
   
    2.4
  
First Supplemental Indenture, dated November 25, 2009, to the Indenture dated November 17, 2009, incorporated by reference to Exhibit 3 to the Report on Form 6-K of DryShips Inc., filed with the SEC on November 25, 2009.
   
    2.5
  
Bond Agreement between Ocean Rig UDW Inc. and Norsk Tillitsmann ASA, dated April 14, 2011, incorporated by reference to Exhibit 10.40 of the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 1, 2011.
     
    2.6
  
Indenture, dated as of September 20, 2012, by and among Drill Rigs Holdings Inc., Ocean Rig UDW Inc., and each of the Guarantors party thereto, U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Noteholder Collateral Agent, Registrar and Paying Agent, relating to 6.50% Senior Secured Notes Due 2017, incorporated by reference to exhibit 2.4 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    2.7
  
Supplemental Indenture, dated as of January 23, 2013, amending and supplementing the Indenture, dated as of September 20, 2012, by and among Drill Rigs Holdings Inc., Ocean Rig UDW Inc., and each of the Guarantors party thereto, U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Noteholder Collateral Agent, Registrar and Paying Agent, relating to 6.50% Senior Secured Notes Due 2017, incorporated by reference to exhibit 2.5 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    2.8
  
Second Supplemental Indenture, dated as of January 30, 2013, amending and supplementing the Indenture, dated as of September 20, 2012, as supplemented by a supplemental indenture, dated as of January 23, 2013, by and among Drill Rigs Holdings Inc., Ocean Rig UDW Inc., and each of the Guarantors party thereto, U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Noteholder Collateral Agent, Registrar and Paying Agent, relating to 6.50% Senior Secured Notes Due 2017, incorporated by reference to exhibit 2.6 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.

130
    2.9
  
Third Supplemental Indenture, dated as of March 15, 2013, amending and supplementing the Indenture, dated as of September 20, 2012, as supplemented by a supplemental indenture, dated as of January 23, 2013, and a second supplemental indenture dated as of January 30, 2013, by and among Drill Rigs Holdings Inc., Ocean Rig UDW Inc., and each of the Guarantors party thereto, U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Noteholder Collateral Agent, Registrar and Paying Agent, relating to 6.50% Senior Secured Notes Due 2017, incorporated by reference to exhibit 2.7 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.1
  
Stockholders Rights Agreement, dated January 18, 2008, by and between DryShips Inc. and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.2 to the Registration Statement on Form 8-A of DryShips Inc., filed with the SEC on January 18, 2008.
   
    4.2
  
Amendment No. 1, dated as July 9, 2009, to Stockholders Rights Agreement, incorporated by reference to Exhibit 99.1 to the Registration Statement on Form 8-A of DryShips Inc., filed with the SEC on July 15, 2009.
   
    4.3
  
Amendment No. 2, dated as of April 21, 2010, to Stockholders Rights Agreement, incorporated by reference to Exhibit 99.1 to the Registration Statement on Form 8-A of DryShips Inc., filed with the SEC on April 27, 2010.
   
    4.4
  
Amended and Restated 2008 Equity Incentive Plan of DryShips Inc., incorporated by reference to Exhibit 4.1 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.5
  
Loan Agreement, dated March 31, 2006, by and between DryShips Inc., as Borrower, the banks and financial institutions listed therein, as Lenders and Swap Banks, HSH Nordbank AG, as Agent, Security Trustee, Lead Arranger, Lead Bookrunner and Joint Underwriter, and The Governor and Company of the Bank of Scotland, as Joint Bookrunner and Joint Underwriter, relating to a term loan and short-term credit facilities of up to $518,750,000, or the HSH Nordbank Senior Loan Agreement, incorporated by reference to Exhibit 4.4 to the Annual Report on Form 20-F of DryShips for the fiscal year ended December 31, 2005, filed with the SEC on April 21, 2006.
   
    4.6
  
Loan Agreement, dated March 31, 2006, by and between DryShips Inc., as Borrower, the banks and financial institutions listed therein, as Lenders and Swap Banks, HSH Nordbank AG, as Agent, Security Trustee, Lead Arranger and Lead Bookrunner, and The Governor and Company of the Bank of Scotland, as Joint Bookrunner, relating to a term loan and short-term credit facilities of up to$110,000,000, or the HSH Nordbank Junior Loan Agreement, incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended
December 31, 2005, filed with the SEC on April 21, 2006.
   
    4.7
  
Supplemental Letter, dated May 15, 2006, to the HSH Nordbank Senior Loan Agreement and the HSH Nordbank Junior Loan Agreement, incorporated by reference to Exhibit 4.5 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.8
  
Supplemental Agreement, dated November 29, 2006, to the HSH Nordbank Senior Loan Agreement, incorporated by reference to Exhibit 4.5 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.
   
    4.9
  
Supplemental Agreement, dated November 29, 2006, to the HSH Nordbank Junior Loan Agreement, incorporated by reference to Exhibit 4.6 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.
   
    4.10
  
Amending and Restating Agreement, dated May 23, 2007, relating to the HSH Nordbank Senior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006 and as further amended and supplemented by a supplemental agreement dated November 29, 2006, incorporated by reference to Exhibit 4.8 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.

131
    4.11
  
Amending and Restating Agreement, dated May 23, 2007, relating to the HSH Nordbank Junior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006 and as further amended and supplemented by a supplemental agreement dated November 29, 2006, incorporated by reference to Exhibit 4.9 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008
   
    4.12
  
Supplemental Agreement, dated February 27, 2008, to the HSH Nordbank Senior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006 and as further amended and supplemented by a supplemental agreement dated November 29, 2006 and as further amended and restated by an amending and restating agreement dated May 23, 2007, incorporated by reference to Exhibit 4.10 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.13
  
Supplemental Agreement, dated February 27, 2008, to the HSH Nordbank Junior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006 and as further amended and supplemented by a supplemental agreement dated November 29, 2006 and as further amended and restated by an amending and restating agreement dated May 23, 2007, incorporated by reference to Exhibit 4.11 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.14
  
Supplemental Letter, dated April 23, 2008, to the HSH Nordbank Senior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006, a supplemental agreement dated November 29, 2006 and a supplemental agreement dated February 27, 2008 and as amended and restated by an amending and restating agreement dated May 23, 2007, incorporated by reference to Exhibit 4.12 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.15
  
Supplemental Letter, dated April 23, 2008, to the HSH Nordbank Junior Loan Agreement, as supplemented and amended by a supplemental letter dated May 15, 2006, a supplemental agreement dated November 29, 2006 and a supplemental agreement dated February 27, 2008 and as amended and restated by an amending and restating agreement dated May 23, 2007, incorporated by reference to Exhibit 4.13 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.16
  
Supplemental Agreement, dated November 17, 2009, to the HSH Nordbank Senior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.15 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.17
  
Supplemental Agreement, dated November 17, 2009, to the HSH Nordbank Junior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.14 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.18
  
Supplemental Letter, dated September 29, 2010, to the HSH Nordbank Senior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 1 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 30, 2010.
   
    4.19
  
Supplemental Letter, dated September 29, 2010, to the HSH Nordbank Junior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 2 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 30, 2010.
   
    4.20
  
Supplemental Letter, dated February 9, 2012, to the HSH Nordbank Senior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.20 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.21
  
Supplemental Letter, dated February 9, 2012, to the HSH Nordbank Junior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.21 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.22
  
Pledge and Security Agreement, dated as of February 9, 2012, made by DryShips Inc. to HSH Nordbank AG, incorporated by reference to Exhibit 4.22 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.23
  
Uncertificated Securities Control Agreement, dated as of February 9, 2012, among DryShips Inc., HSH Nordbank AG and Ocean Rig UDW Inc., incorporated by reference to Exhibit 4.23 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
     
    4.24
  
Supplemental Letter, dated September 27, 2012, to the HSH Nordbank Senior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.24 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.

132
    4.25
  
Supplemental Letter, dated September 27, 2012, to the HSH Nordbank Junior Loan Agreement, as supplemented, amended and restated from time to time, incorporated by reference to Exhibit 4.25 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
     
    4.26
  
Pledge and Security Agreement, dated as of September 27, 2012, made by DryShips Inc. to HSH Nordbank AG incorporated by reference to Exhibit 4.26 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
     
    4.27
  
Uncertificated Securities Control Agreement, dated as of September 27, 2012, among DryShips Inc., HSH Nordbank AG and Ocean Rig UDW Inc. incorporated by reference to Exhibit 4.27 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
   
    4.28
  
Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, incorporated by reference to Exhibit 4.10 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.
   
    4.29
  
Waiver Letter, dated December 11, 2009, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, incorporated by reference to Exhibit 4.21 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.30
  
First Supplemental Agreement, dated February 25, 2010, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, incorporated by reference to Exhibit 2 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 30, 2010.
   
    4.31
  
Waiver Letter, dated May 19, 2010, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, as amended, incorporated by reference to Exhibit 4.23 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.32
  
Waiver Letter, dated September 22, 2010, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, as amended, incorporated by reference to Exhibit 1 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 30, 2010.
   
    4.33
  
Waiver Letter, dated September 6, 2011, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, as amended, incorporated by reference to Exhibit 4.29 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.34
  
Second Supplemental Agreement, dated November 10, 2011, to a Loan Agreement, dated October 2, 2007, by and between Ioli Owning Company Limited and Deutsche Schiffsbank Aktiengesellschaft relating to a secured loan of up to $35,000,000, as amended and supplemented by a First Supplemental Agreement dated February 25, 2010, incorporated by reference to Exhibit 4.30 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.35
  
Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.22 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.36
  
Waiver Letter, dated April 15, 2009, to a Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.26 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.37
  
First Supplemental Agreement, dated July 30, 2009, to a Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.21 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.38
  
Second Supplemental Agreement, dated August 25, 2010, to a Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, as amended and supplemented by a supplemental agreement dated July 30, 2009, incorporated by reference to Exhibit 4.28 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

133
4.39
  
Supplemental Letter, dated September 16, 2011, to a Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, as amended and supplemented, incorporated by reference to Exhibit 4.35 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.40
  
Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, incorporated by reference to Exhibit 4.11 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.
   
    4.41
  
Waiver Letter, dated February 25, 2009, to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, incorporated by reference to Exhibit 4.30 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.42
  
Waiver Letter, dated November, 11, 2009, to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, incorporated by reference to Exhibit 4.31 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.43
  
Waiver Letter, dated February 24, 2010, to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, incorporated by reference to Exhibit 4.23 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.44
  
Supplemental Agreement, dated April 15, 2010, to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, incorporated by reference to Exhibit 4.33 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.45
  
Second Supplemental Agreement, dated January 27, 2011, relating to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, as amended and supplemented by a first supplemental agreement dated April 15, 2010, incorporated by reference to Exhibit 4.42 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
     
    4.46
  
Supplemental Letter, dated June 29, 2011, to a Loan Agreement, dated November 16, 2007, by and between Iason Owning Company Limited, as Borrower, and EFG Eurobank Ergasias S.A., as Bank, relating to a loan of up to $47,000,000, as amended and supplemented by a first supplemental agreement dated April 15, 2010 and as further amended and supplemented by a second supplemental agreement dated January 27, 2011, incorporated by reference to Exhibit 4.41 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.47
  
Loan Agreement, dated December 4, 2007, by and among Team-Up Owning Company Limited and Orpheus Owning Company Limited, as Borrowers, the banks and financial institutions listed therein, as Banks, and DnB NOR Bank ASA, as Arranger, Agent, Security Agent and Account Bank, relating to a loan of up to $101,150,000, incorporated by reference to Exhibit 4.12 to the Annual Report on from 20-F of DryShips Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 31, 2008.
   
    4.48
  
Waiver Letter, dated May 19, 2010, to a Loan Agreement, dated December 4, 2007, by and among Team-Up Owning Company Limited and Orpheus Owning Company Limited, as Borrowers, the banks and financial institutions listed therein, as Banks, and DnB NOR Bank ASA, as Arranger, Agent, Security Agent and Account Bank, relating to a loan of up to $101,150,000, incorporated by reference to Exhibit 4.35 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

134
    4.49
  
Supplemental Agreement, dated June 11, 2009, to a Loan Agreement, dated December 4, 2007, by and among Team-Up Owning Company Limited and Orpheus Owning Company Limited, as Borrowers, the banks and financial institutions listed therein, as Banks, and DnB NOR Bank ASA, as Arranger, Agent, Security Agent and Account Bank, relating to a loan of up to $101,150,000, incorporated by reference to Exhibit 4.25 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
     
    4.50
  
Second Supplemental Agreement, dated January 26, 2011, to a Loan Agreement, dated December 4, 2007, by and among Team-Up Owning Company Limited and Orpheus Owning Company Limited, as Borrowers, the banks and financial institutions listed therein, as Banks, and DnB NOR Bank ASA, as Arranger, Agent, Security Agent and Account Bank, relating to a loan of up to $101,150,000, as amended and supplemented by a first supplemental agreement dated 11 June 2009, incorporated by reference to Exhibit 4.47 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.51
  
Supplemental Letter, dated September 23, 2011, to a Loan Agreement, dated December 4, 2007, by and among Team-Up Owning Company Limited and Orpheus Owning Company Limited, as Borrowers, the banks and financial institutions listed therein, as Banks, and DnB NOR Bank ASA, as Arranger, Agent, Security Agent and Account Bank, relating to a loan of up to $101,150,000, as amended and supplemented by a first supplemental agreement dated 11 June 2009 and as further amended and supplemented by a second supplemental agreement dated 26 January 2011, incorporated by reference to Exhibit 4.46 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.52
  
Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, incorporated by reference to Exhibit 4.33 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.53
  
First Supplemental Agreement, dated December 12, 2008, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, incorporated by reference to Exhibit 4.35 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.54
  
Waiver Letter, dated April 15, 2009, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and supplemented by a first supplemental agreement dated December 12, 2008, incorporated by reference to Exhibit 4.47 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.55
  
Second Supplemental Agreement, dated July 30, 2009, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and supplemented by a first supplemental agreement dated December 12, 2008, incorporated by reference to Exhibit 4.36 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.56
  
Waiver Letter, dated November 27, 2009, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and supplemented by a first supplemental agreement dated December 12, 2008 and a second supplemental agreement dated July 30, 2009, incorporated by reference to Exhibit 4.49 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.57
  
Amending and Restating Loan Agreement, dated January 25, 2010, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and supplemented by a first supplemental agreement dated December 12, 2008 and a second supplemental agreement dated July 30, 2009, incorporated by reference to Exhibit 4.50 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

135
    4.58
  
Amended and Restated Loan Agreement, dated August 25, 2010, relating to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and restated on January 25, 2010 and as further amended and restated on August 25, 2010, incorporated by reference to Exhibit 4.51 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.59
  
Amended and Restated Loan Agreement, dated November 29, 2010, relating to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and restated on January 25, 2010, August 25, 2010 and November 29, 2010, incorporated by reference to Exhibit 4.52 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.60
  
Supplemental Letter, dated September 16, 2011, to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as novated, amended and restated, incorporated by reference to Exhibit 4.56 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.61
  
Loan Agreement, dated May 5, 2008, by and among Dalian Star Owners Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, Dresdner Bank AG in Hamburg, as Agent and Security Trustee, and Dresdner Bank AG in Hamburg and West LB AG, as Swap Banks and Joint Arrangers, relating to a term loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.34 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.62
  
Waiver Letter, dated October 22, 2009, to a Loan Agreement, dated May 5, 2008, by and between Dalian Star Owners Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, Dresdner Bank AG in Hamburg, as Agent and Security Trustee, and Dresdner Bank AG in Hamburg and West LB AG, as Swap Banks and Joint Arrangers, relating to a term loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.38 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.63
  
Supplemental Agreement, dated May 10, 2010, to a Loan Agreement, dated May 5, 2008, by and among Dalian Star Owners Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, Dresdner Bank AG in Hamburg, as Agent and Security Trustee, and Dresdner Bank AG in Hamburg and West LB AG, as Swap Banks and Joint Arrangers, relating to a term loan facility of up to $90,000,000, incorporated by reference to Exhibit 4.55 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.64
  
Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, incorporated by reference to Exhibit 4.38 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.65
  
Waiver Letter, dated December 11, 2009, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, incorporated by reference to Exhibit 4.58 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.66
  
First Supplemental Agreement, dated February 25, 2010, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, incorporated by reference to Exhibit 4.44 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.67
  
Waiver Letter, dated May 19, 2010, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, as amended, incorporated by reference to Exhibit 4.60 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

136
    4.68
  
Waiver Letter, dated September 22, 2010, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, as amended, incorporated by reference to Exhibit 1 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 30, 2010.
   
    4.69
  
Waiver Letter, dated September 6, 2011, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, as amended, incorporated by reference to Exhibit 4.66 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.70
  
Second Supplemental Agreement, dated November 10, 2011, to a Loan Agreement, dated May 13, 2008, by and among Ionian Traders Inc. and Norwalk Star Owners Inc., as Borrowers, Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG and others, as Lenders, Deutsche Schiffsbank Aktiengesellschaft, as Agent and Security Agent, and Deutsche Schiffsbank Aktiengesellschaft and Bayerische Hypo-Und Vereinsbank AG, as Swap Providers, relating to a secured loan of $125,000,000, as amended and supplemented by a First Supplemental Agreement dated February 25, 2010, incorporated by reference to Exhibit 4.67 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.71
  
Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, incorporated by reference to Exhibit 4.40 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.72
  
Waiver Letter, dated July 22, 2009, to a Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, incorporated by reference to Exhibit 4.63 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.73
  
First Supplemental Agreement, dated October 8, 2009, to a Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, incorporated by reference to Exhibit 4.46 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.74
  
Waiver Letter, dated November 23, 2009, to a Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, as amended, incorporated by reference to Exhibit 4.65 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.75
  
Amending and Restating Loan Agreement, dated January 18, 2010, to a Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, as supplemented and amended by a first supplemental agreement dated October 8, 2009, incorporated by reference to Exhibit 4.66 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.76
  
Supplemental Letter, dated June 10, 2010, to a Loan Agreement, dated June 20, 2008, by and among Aegean Traders Inc. and Iguana Shipping Company Limited, as Borrowers, and WestLB AG, as Lender, relating to a loan facility of up to $103,200,000, as amended and supplemented by a supplemental agreement dated October 8, 2009 and as amended and restated by an amending and restating agreement dated January 18, 2010, incorporated by reference to Exhibit 4.67 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

137
    4.77
  
Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, incorporated by reference to Exhibit 4.41 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2008, filed with the SEC on March 30, 2009.
   
    4.78
  
Waiver Letter, dated July 24, 2009, to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, incorporated by reference to Exhibit 4.69 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.79
  
Supplemental Agreement, dated October 12, 2009, to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, incorporated by reference to Exhibit 4.48 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.80
  
Supplemental Letter, dated February 8, 2010, to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, as amended and supplemented by a supplemental agreement dated October 12, 2009, incorporated by reference to Exhibit 4.71 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.81
  
Supplemental Agreement, dated September 9, 2011, in relation to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, as amended and supplemented by a supplemental agreement dated October 12, 2009 and two supplemental letters dated July 24, 2009 and February 8, 2010, incorporated by reference to Exhibit 4.78 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.82
  
Supplemental Agreement, dated January 4, 2012, in relation to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, as amended and supplemented by two supplemental agreements dated October 12, 2009 and September 9, 2011 and two supplemental letters dated July 24, 2009 and February 8, 2010, incorporated by reference to Exhibit 4.79 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
     
    4.83
  
Fourth Supplemental Agreement, dated August 31, 2012, in relation to a Loan Agreement, dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000, as amended and supplemented by three supplemental agreements dated October 12, 2009, September 9, 2011 and January 4, 2012 and two supplemental letters dated July 24, 2009 and February 8, 2010 incorporated by reference to Exhibit 4.83 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
   
    4.84
  
Credit Facility Agreement, dated July 18, 2008, by and between Drillship Skopelos Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, the various financial institutions listed therein, as Lenders, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 10.6 to the Post-Effective Amendment to the Registration Statement on Form F-3ASR of DryShips Inc. (File No. 333-146540), filed with the SEC on October 20, 2008.
   
    4.85
  
Credit Facility Agreement, dated July 18, 2008, by and between Drillship Kithira Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, the various financial institutions listed therein, as Lenders, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 10.7 to the Post-Effective Amendment to the Registration Statement on Form F-3ASR of DryShips Inc. (File No. 333-146540), filed with the SEC on October 20, 2008.

138
    4.86
  
Supplemental Agreement, dated September 17, 2008, by and between Drillship Skopelos Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, incorporated by reference to Exhibit 4.51 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.87
  
Supplemental Agreement, dated September 17, 2008, relating to a Credit Facility Agreement, dated July 18, 2008, by and between Drillship Kithira Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, incorporated by reference to Exhibit 4.52 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.88
  
Supplemental Agreement No. 2, dated December 18, 2008, by and between Drillship Skopelos Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by a Supplemental Agreement dated September 17, 2008, incorporated by reference to Exhibit 4.53 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.89
  
Supplemental Agreement No. 2, dated December 18, 2008, relating to a Credit Facility Agreement, dated July 18, 2008, by and between Drillship Kithira Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by a Supplemental Agreement dated September 17, 2008, incorporated by reference to Exhibit 4.54 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.90
  
Waiver Letter, dated May 21, 2009, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008 and the supplemental agreement No. 2 dated December 18, 2008, by and among (among others) Drillship Skopelos Owners Inc., as Owner, the Lenders under the Credit Agreement, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.78 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.91
  
Waiver Letter, dated May 21, 2009, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008 and the supplemental agreement No. 2 dated December 18, 2008, by and among (among others) Drillship Kithira Owners Inc., as Owner, the Lenders under the Credit Agreement, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.79 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.92
  
Facility Agent's and Security Trustee's Consent Letter, dated June 5, 2009, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008 and the supplemental agreement No. 2 dated December 18, 2008, by and among (among others) Drillship Skopelos Owners Inc., as Owner, the Lenders under the Credit Agreement, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.80 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 310, 2010, filed with the SEC on April 15, 2011.

139
    4.93
  
Facility Agent's and Security Trustee's Consent Letter, dated June 5, 2009, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008 and the supplemental agreement No. 2 dated December 18, 2008, by and among (among others) Drillship Kithira Owners Inc., as Owner, the Lenders under the Credit Agreement, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.81 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.94
  
Supplemental Agreement No. 3, dated January 29, 2010, by and among Drillship Skopelos Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to $562,500,000 Credit Facility Agreement as amended and supplemented by a Supplemental Agreement dated September 17, 2008 and a Supplemental Agreement No. 2 dated December 18, 2008, incorporated by reference to Exhibit 4.55 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.95
  
Supplemental Agreement No. 3, dated January 29, 2010, by and among Drillship Kithira Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Dexia Credit Local, New York Branch, as Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch and Dexia Credit Local, New York Branch, as Swap Banks, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, relating to $562,500,000 Credit Facility Agreement as amended and supplemented by a Supplemental Agreement dated September 17, 2008 and a Supplemental Agreement No. 2 dated December 18, 2008, incorporated by reference to Exhibit 4.56 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2009, filed with the SEC on April 9, 2010.
   
    4.96
  
Facility Agent's Consent Letter, dated June 23, 2010 relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008, the supplemental agreement no. 2 dated December 18, 2008 and the supplemental agreement no. 3 dated January 29, 2010, by and between (among others) Drillship Skopelos Owners Inc., as Owner, certain Lenders referred to therein, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.84 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
     
    4.97
  
Facility Agent's Consent Letter, dated June 23, 2010, relating to a $562,500,000 Credit Facility Agreement, dated July 18, 2008, as amended and supplemented by the supplemental agreement dated September 17, 2008, the supplemental agreement no. 2 dated December 18, 2008 and the supplemental agreement no. 3 dated January 29, 2010, by and between (among others) Drillship Kithira Owners Inc., as Owner, certain Lenders referred to therein, Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to Exhibit 4.85 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.98
  
Amendment and Restatement Agreement to the Credit Agreement, dated April 27, 2011, by and among Drillship Skopelos Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch, as Swap Bank, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of the various financial institutions as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.32 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 1, 2011.
   
    4.99
  
Amendment and Restatement Agreement to the Credit Agreement, dated April 27, 2011, by and among Drillship Kithira Owners Inc., as Owner, Deutsche Bank A.G., London Branch, as Bookrunner and Joint Mandated Lead Arranger, Deutsche Bank AG, London Branch, as Swap Bank, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of the various financial institutions as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.33 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 1, 2011.

140
    4.100
  
Amendment Agreement to the Credit Agreement, dated August 10, 2011, by and among Drillship Skopelos Owners Inc., as Owner, DryShips Inc., as Sponsor and Ocean Rig UDW Inc., as Ocean Rig guarantor, Deutshce Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, Deutsche Bank AG, London Branch, as Swap Bank, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of various financial institutions as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.34 to the Registration Statement on Form F-4/A of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 17, 2011.
   
    4.101
  
Sponsor Construction and Post-Delivery Guarantee, dated July 18, 2008, between DryShips Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent, various financial institutions, as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.34 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 1, 2011.
   
    4.102
  
Sponsor Construction and Post-Delivery Guarantee, dated July 18, 2008, between DryShips Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent, various financial institutions, as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.35 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940) filed with the SEC on August 1, 2011.
     
    4.103
  
Ocean Rig Guarantee, dated April 27, 2011, between Ocean Rig UDW Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of various financial institutions as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.36 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940) filed with the SEC on August 1, 2011.
     
    4.104
  
Ocean Rig Guarantee, dated April 27, 2011, between Ocean Rig UDW Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of various financial institutions as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 10.37 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940) filed with the SEC on August 1, 2011.
     
    4.105
  
Credit Facility Agreement, dated July 18, 2008, by and among Drillship Skopelos Owners Inc., as Owner, Deutsche Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, various financial institutions, as Lenders, Deutsche Bank AG, London Branch, as Swap Bank, and Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, as amended and supplemented from time to time and most recently amended and restated on May 14, 2012, incorporated by reference to exhibit 4.31 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    4.106
  
Credit Facility Agreement, dated July 18, 2008, by and among Drillship Kithira Owners Inc., as Owner, Deutsche Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, various financial institutions, as Lenders, Deutsche Bank AG, London Branch, as Swap Bank, and Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, as amended and supplemented from time to time and most recently amended and restated on May 14, 2012, incorporated by reference to exhibit 4.32 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    4.107
  
Sponsor Guarantee, dated May 14, 2012, between DryShips Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of various financial institutions, as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 4.33 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    4.108
  
Sponsor Guarantee, dated May 14, 2012, between DryShips Inc., as Guarantor, Deutsche Bank Luxembourg S.A., as Facility Agent for itself and on behalf of various financial institutions, as Lenders, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, incorporated by reference to exhibit 4.34 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    4.109
  
Deed of Release and Amendment, dated May 14, 2012, by and among Drillship Skopelos Owners Inc., as Owner, Ocean Rig Drilling Operations B.V., as Bareboat Charterer, DryShips Inc., as Sponsor, Ocean Rig UDW Inc., Drillships Investment Inc., Skopelos Shareholders Inc., Deutsche Bank AG, London Branch, as Swap Bank, Deutsche Bank Luxembourg S.A., as Facility Agent on behalf of various financial institutions as Lenders, Deutsche Bank AG Filiale Deutschlandgescharft, as Security Trustee, Deutshce Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, and Deutsche Bank AG, London Branch, as Account Bank, incorporated by reference to exhibit 4.35 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.

    4.110
  
Deed of Release and Amendment, dated May 14, 2012, by and among Drillship Kithira Owners Inc., as Owner, Ocean Rig Poseidon Operations Inc., as Bareboat Charterer, DryShips Inc., as Sponsor, Ocean Rig UDW Inc., Drillships Investment Inc., Kithira Shareholders Inc., Deutsche Bank AG, London Branch, as Swap Bank, Deutsche Bank Luxembourg S.A., as Facility Agent on behalf of various financial institutions as Lenders, Deutsche Bank AG Filiale Deutschlandgescharft, as Security Trustee, Deutshce Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, and Deutsche Bank AG, London Branch, as Account Bank, incorporated by reference to exhibit 4.36 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.

141
    4.111
  
Addendum No. 2, dated May 18, 2012, to an Amended and Restated Guarantee, Revolving Credit and Term Loan Facility Agreement, dated November 19, 2009, by and among Ocean Rig ASA, Ocean Rig Norway AS and Drill Rigs Holdings Inc., as borrowers, the guarantors listed therein, as original guarantors, the financial institutions listed therein, as banks, DNB Bank ASA, as guarantee bank, DNB Bank ASA, as mandated lead arranger and bookrunner, HSH Nordbank AG, Nordea Bank Norge ASA and Skandinaviska Enskilda Banken AB (Publ), as mandated lead arrangers, and DNB Bank ASA, as agent, for $1,040,000,000, incorporated by reference to exhibit 4.9 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.112
  
Loan Agreement, dated February 7, 2011, by and among Olympian Zeus Owners Inc. and Olympian Apollo Owners Inc., as joint and several Borrowers, the banks and financial institutions set forth therein, Nordea Bank Finland, plc, London Branch, as Arranger, Agent, Security Agent and Account Bank, and Nordea Bank Finland plc, as Swap Provider, relating to a term loan of up to $70,000,000, incorporated by reference to Exhibit 4.119 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
   
    4.113
  
Senior Secured Credit Facility Agreement, dated April 15, 2011, by and among Drillships Holdings Inc., as Borrower, the banks and financial institutions named therein, as Mandated Lead Arrangers and Lenders, and Nordea Bank Finland plc, London Branch, as Agent, relating to a credit facility of $800,000,000, incorporated by reference to exhibit 10.4 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc.  (Registration No. 333-175940), filed with the SEC on August 1, 2011.
     
    4.114
  
Amendment Agreement, dated May 9, 2012, to the Senior Secured Credit Facility Agreement, dated April 15, 2011, by and among Drillships Holdings Inc., as Borrower, the banks and financial institutions named therein, as Mandated Lead Arrangers and Lenders, and Nordea Bank Finland plc, London Branch, as Agent, relating to a credit facility of $800,000,000, incorporated by reference to exhibit 4.8 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.115
  
Loan Agreement, dated October 26, 2011, by and among Olympian Ares Owners Inc., Olympian Artemis Owners Inc., Olympian Demeter Owners Inc. and Olympian Poseidon Owners Inc., as joint and several Borrowers, ABN AMRO Bank N.V. and The Export-Import Bank of Korea, as joint Arrangers, ABN AMRO Bank N.V., as Facility Agent, Security Trustee, Account Bank and Swap Provider, The Export-Import Bank of Korea, as loan provider, and the banks and financial institutions listed therein, as Commercial Lenders, relating to a loan of $141,350,000, incorporated by reference to Exhibit 4.105 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.116
  
Loan Agreement, dated February 14, 2012, for a loan of up to $122,580,000, by and among Oceanview Owners Limited, Oceansurf Owners Limited and Oceancentury Owners Limited, as joint and several Borrowers, arranged by China Development Bank Corporation, as Mandated Lead Arranger and Bank of China, as Coordinating Mandated Lead Arranger, with China Development Bank Corporation and Bank of China Limited, as Original Lenders, with China Development Bank Corporation, as Facility Agent, and China Development Bank Corporation, as Security Agent, incorporated by reference to Exhibit 4.106 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.117
  
Commitment Letter, dated February 13, 2012, by and between the Company and HSH Nordbank AG relating to a term loan facility of up to $87,653,740, incorporated by reference to Exhibit 4.107 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
     
    4.118
  
Loan Agreement, dated March 19, 2012, by and among Amathus Owning Company Limited, Symi Owners Inc. and Kalymnos Owners Inc., as joint and several Borrowers, and the banks and financial institutions listed therein, as Lenders, and HSH Nordbank AG, as Agent, Mandated Lead Arranger, Swap Bank and Security Trustee, relating to a loan facility of up to $87,653,740, incorporated by reference to Exhibit 4.118 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
 
 
 
142

 
    4.119
  
Amended and Restated Loan Agreement, dated February 12, 2008, by and among OceanFreight Inc., as Borrower, the subsidiaries of OceanFreight Inc. listed therein, as Joint and Several Guarantors, the banks and financial institutions listed therein, as Lenders, Nordea Bank Norge ASA, acting through its Grand Cayman branch, as Lead Arranger and Bookrunner, Nordea Bank Finland plc, acting through its New York branch, as Administrative Agent and Security Trustee, Bank of Scotland plc, Piraeus Bank A.E. and Skandinaviska Enskilda Banken AB, as Co-Arrangers, and Nordea Bank Finland plc, acting through its New York branch, as Swap Bank, relating to a $325,000,000 senior secured credit facility and a $125,000,000 secured term loan facility, incorporated by reference to Exhibit 4.5 to the Annual Report on Form 20-F of OceanFreight Inc. for the fiscal year ended December 31, 2007, filed with the SEC on March 7, 2008.
   
    4.120
  
First Amendatory Agreement to an Amended and Restated Loan Agreement, dated February 12, 2008, by and among OceanFreight Inc., as Borrower, the subsidiaries of OceanFreight Inc. listed therein, as Joint and Several Guarantors, the banks and financial institutions listed therein, as Lenders, Nordea Bank Norge ASA, acting through its Grand Cayman branch, as Lead Arranger and Bookrunner, Nordea Bank Finland plc, acting through its New York branch, as Administrative Agent and Security Trustee, Bank of Scotland plc, Piraeus Bank A.E. and Skandinaviska Enskilda Banken AB, as Co-Arrangers, and Nordea Bank Finland plc, acting through its New York branch, as Swap Bank, relating to a $325,000,000 senior secured credit facility and a $125,000,000 secured term loan facility, incorporated by reference to Exhibit 4.9 of the Report on Form 6-K of OceanFreight Inc., filed with the SEC on February 2, 2009.
   
    4.121
  
Second Amendatory Agreement, dated August 8, 2011, amending and supplementing the Amended and Restated Loan Agreement, dated February 12, 2008, by and among OceanFreight Inc., as Borrower, the subsidiaries of OceanFreight Inc. listed therein, as Joint and Several Guarantors, the banks and financial institutions listed therein, as Lenders, Nordea Bank Norge ASA, acting through its Grand Cayman branch, as Lead Arranger and Bookrunner, Nordea Bank Finland plc, acting through its New York branch, as Administrative Agent and Security Trustee, Bank of Scotland plc, Piraeus Bank A.E. and Skandinaviska Enskilda Banken AB, as Co-Arrangers, and Nordea Bank Finland plc, acting through its New York branch, as Swap Bank, as amended by a First Amendatory Agreement dated January 9, 2009, incorporated by reference to Exhibit 4.110 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.122
  
Guarantee, dated August 23, 2011, by DryShips Inc., as Guarantor, in favor of Nordea Bank Finland PLC, New York Branch, as Security Trustee, incorporated by reference to Exhibit 4.111 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
   
    4.123
  
Loan Agreement, dated April 20, 2011, by and between Olympian Hera Owners Inc., as Borrower, the banks and financial institutions set out therein, as Banks, and DVB Bank SE, as Arranger, Agent and Security Agent, relating to a term loan of up to $32,312,500, incorporated by reference to Exhibit 4.112 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 16, 2012.
     
    4.124
  
Supplemental Agreement, dated July 31, 2012, to a Loan Agreement, dated April 20, 2011, by and between Olympian Hera Owners Inc., as Borrower, the banks and financial institutions set out therein, as Banks, and DVB Bank SE, as Arranger, Agent and Security Agent, relating to a term loan of up to $32,312,500, incorporated by reference to Exhibit 4.124 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
     
    4.125
  
Loan Agreement, dated October 24, 2012, by and among Olympian Athena Owners Inc., Olympian Aphrodite Owners Inc. and Olympian Dionysus Owners Inc., as joint and several borrowers, ABN AMRO Bank N.V. and The Korea Development Bank, as joint mandated Arrangers, ABN AMRO Bank N.V., as Facility Agent, Security Trustee, Account Bank, Swap Provider and K-sure Agent, and the banks and financial institutions listed therein, as Lenders, relating to a $107,668,750 loan, incorporated by reference to Exhibit 4.125 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2012 filed with the SEC on March 22, 2013.
   
    4.126
  
Share Lending Agreement, dated November 19, 2009, between DryShips Inc. and Deutsche Bank AG, London Branch, incorporated by reference to Exhibit 4 to the Report on Form 6-K of DryShips Inc., filed with the SEC on November 25, 2009.
   
    4.127
  
Share Lending Agreement, dated April 21, 2010, by and between DryShips Inc. and Deutsche Bank AG, London Branch, incorporated by reference to Exhibit 3 to the Report on Form 6-K of DryShips Inc., filed with the SEC on April 27, 2010.
   
    4.128
  
Form of Vessel Management Agreement, dated January 1, 2011 with TMS Bulkers Ltd., incorporated by reference to Exhibit 4.112 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.

143

    4.129
  
Form of Vessel Management Agreement, dated December 28, 2010 with TMS Tankers Ltd., incorporated by reference to Exhibit 4.113 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
     
    4.130
  
Consultancy Agreement, dated September 1, 2010, by and between DryShips Inc. and Vivid Finance Inc., incorporated by reference Exhibit 2 to the Report on Form 6-K of DryShips Inc., filed with the SEC on September 7, 2010, incorporated by reference to Exhibit 4.114 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011
     
    4.131
  
Addendum No. 1, dated January 1, 2013, to the Consultancy Agreement, dated September 1, 2010, by and between the Company and Vivid Finance Inc., incorporated by reference to exhibit 4.41 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.132
  
Global Services Agreement, dated December 1, 2010, by and between DryShips Inc. and Cardiff Marine Inc., incorporated by reference to Exhibit, incorporated by reference to Exhibit 4.115 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011.
     
    4.133
  
Termination Agreement, dated January 1, 2013, by and between DryShips Inc. and Cardiff Marine Inc., relating to the Global Services Agreement, dated December 1, 2010, by and between DryShips Inc. and Cardiff Marine Inc., incorporated by reference to exhibit 4.38 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.134
  
Drillship Master Agreement, dated November 22, 2010, by and between DryShips Inc. and Samsung Heavy Industries Co., Ltd., incorporated by reference to Exhibit 4.116 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011
   
    4.135
  
Novation Agreement, dated December 30, 2010, by and between DryShips Inc., Ocean Rig UDW Inc. and Samsung Heavy Industries Co., Ltd., incorporated by reference to Exhibit 4.117 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2010, filed with the SEC on April 15, 2011
   
    4.136
  
Addendum No. 1, dated May 16, 2011, to a Drillship Master Agreement, dated November 22, 2010, between DryShips Inc. and Samsung Heavy Industries Co., Ltd., as novated by a Novation Agreement, dated December 30, 2010, between Samsung Heavy Industries Co., Ltd., DryShips Inc. and Ocean Rig UDW Inc., incorporated by reference to Exhibit 10.3 of the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (Registration No. 333-175940), filed with the SEC on August 1, 2011
   
    4.137
  
Addendum No. 2, dated January 27, 2012, to a Drillship Master Agreement, dated November 22, 2010, between DryShips Inc. and Samsung Heavy Industries Co., Ltd., as novated by a Novation Agreement, dated December 30, 2010 and as amended by Addendum No. 1 dated May 16, 2011, incorporated by reference to Exhibit 4.3 of the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2011, filed with the SEC on March 13, 2012
     
    4.138
  
Addendum No. 3 dated April 2, 2012, to a Drillship Master Agreement, dated November 22, 2010, between DryShips Inc. and Samsung Heavy Industries Co., Ltd., as novated by a Novation Agreement, dated December 30, 2010 and as amended, incorporated by reference to exhibit 4.5 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
     
    4.139
  
Addendum No. 4, dated September 3, 2012, to a Drillship Master Agreement, dated November 22, 2010, between DryShips Inc. and Samsung Heavy Industries Co., Ltd., as novated by a Novation Agreement, dated December 30, 2010 and as amended, incorporated by reference to exhibit 4.6 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
   
    4.140
  
Agreement and Plan of Merger, dated July 26, 2011, by and among DryShips Inc., Pelican Stockholdings Inc. and OceanFreight Inc., incorporated by reference to Exhibit 99.1 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (File No. 333-176641), filed with the SEC on September 1, 2011.

144
    4.141
  
Purchase and Sale Agreement, dated July 26, 2011, by and among DryShips Inc., OceanFreight Inc., Basset Holdings Inc., Steel Wheel Investments Limited and Haywood Finance Limited, incorporated by reference to Exhibit 99.2 to the Registration Statement on Form F-4 of Ocean Rig UDW Inc. (File No. 333-176641), filed with the SEC on September 1, 2011.
   
     4.142
  
Form of Vessel Management Agreement, dated June 15, 2010 with TMS Dry Ltd., incorporated by reference to Exhibit 4.6 to the Annual Report on Form 20-F of OceanFreight Inc., filed with the SEC on April 14, 2011
   
    4.143
  
Form of Novation Agreement, dated December 30, 2011, between DryShips Inc., TMS Dry Ltd. and TMS Bulkers Ltd., incorporated by reference to exhibit 4.130 to the Annual Report on Form 20-F of DryShips Inc. filed with the SEC on March 16, 2012.
     
    4.144
  
Registration Rights Agreement, dated as of March 20, 2012, by and between DryShips Inc. and Ocean Rig UDW Inc., incorporated by reference to exhibit 4.4 to the Registration Statement on Form F-1 of Ocean Rig UDW Inc. (Registration No. 333-180241), filed with the SEC on March 20, 2012.
     
    4.145
  
Facilities Agreement, dated February 28, 2013, by and among Drillships Ocean Ventures Inc., as Borrower, and Ocean Rig UDW Inc., as Parent and Guarantor, and the companies listed therein, as Guarantors, and the banks and financial institutions named therein, as Mandated Lead Arrangers, with the banks and financial institutions named therein, as Lenders under the Commercial Facilities, Eksportkreditt Norge AS, as Lender under the Eksportkreditt/GEIK Facilities, The Export-Import Bank of Korea, as Lender under the Kexim Facilities, and DNB Bank ASA, as Facility Agent and Security Agent, relating to $1,350,000,000 of Term Loan Facilities, incorporated by reference to exhibit 4.44 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2012, filed with the SEC on March 22, 2013.
 
    4.146
  
Novation Agreement and accompanying agreement dated April 17, 2013, by and among Amazon Owning Company Limited, Rightmove Owners Inc., Shanghai Jiangnan-Chiangxing Shipbuilding Co., Ltd., and China Shipbuilding Trading Company, Limited relating to Hull 1239, incorporated by reference to exhibit 4.146 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.147
  
Novation Agreement and accompanying agreement dated April 17, 2013, by and among Pasifai Owning Company Limited, Gratis Owners Inc., Shanghai Jiangnan-Chiangxing Shipbuilding Co., Ltd., and China Shipbuilding Trading Company, Limited relating to Hull 1240, incorporated by reference to exhibit 4.147 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.148
  
Waiver Letter dated May 27, 2013 to the Credit Facility Agreement, dated July 18, 2008, by and among Drillship Kithira Owners Inc., as Owner, Deutsche Bank AG, London Branch, as Bookrunner and Mandated Lead Arranger, various financial institutions, as Lenders, Deutsche Bank AG, London Branch, as Swap Bank, and Deutsche Bank Luxembourg S.A., as Facility Agent, and Deutsche Bank AG Filiale Deutschlandgeschaft, as Security Trustee, as amended and supplemented from time to time and most recently amended and restated on May 14, 2012, incorporated by reference to exhibit 4.45 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.149
  
Amendment No. 1 to Pledge and Security Agreement, dated as of September 27, 2012, made by DryShips Inc. to HSH Nordbank AG., dated June 21, 2013, incorporated by reference to exhibit 4.149 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.150
  
Waiver Letter, dated June 25, 2013, relating to a Senior Secured Credit Facility Agreement, dated April 15, 2011, by and among Drillships Holdings Inc., as Borrower, the banks and financial institutions named therein, as Mandated Lead Arrangers and Lenders, and Nordea Bank Finland plc, London Branch, as Agent, relating to a credit facility of $800,000,000, incorporated by reference to exhibit 4.46 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.151
  
Credit Agreement, dated July 12, 2013, by and among Drillships Finance Holding Inc., as Borrower, Ocean Rig UDW Inc., as Parent, Deutsche Bank AG New York Branch, as Administrative Agent and the companies listed therein, and the banks and financial institutions named therein, as Joint Global Coordinators, Joint Lead Arrangers and Joint Bookrunners and the banks and financial institutions named therein, as Joint Lead Arrangers and Joint Bookrunners, relating to a combined $1.8 billion of Tranche B-1 and Tranche B-2 Term Loans incorporated by reference to exhibit 4.47 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.152
  
Incremental Amendment, dated July 26, 2013, by and among Drillships Finance Holding Inc., as Borrower, Ocean Rig UDW Inc., as Parent, Deutsche Bank AG New York Branch, as Administrative Agent under the Credit Agreement, dated July 12, 2013 (the "July 12, 2013, Credit Agreement"), and the Incremental Lenders, as defined therein, relating to an increase of $100,000,000 under the July 12, 2013 Credit Agreement, incorporated by reference to exhibit 4.48 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.

145
    4.153
  
Amended and Restated Loan Agreement, dated August 1, 2013, relating to a Loan Agreement, dated March 13, 2008, by and among Annapolis Shipping Company Limited, Atlas Owing Company Limited, Farat Shipping Company Limited and Lansat Shipping Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000, as amended and restated on January 25, 2010 and as further amended and restated on August 25, 2010, incorporated by reference to Exhibit 4.153 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.154
  
Third Supplement Agreement dated August 1, 2013, relating to Loan Agreement, dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000, as amended, incorporated by reference to Exhibit 4.154 to the Annual Report on Form 20-F of DryShips Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.155
  
Amending and Restating Agreement dated August 30, 2013 relating to the Facilities Agreementby and among Drillships Ocean Ventures Inc., as Borrower, and Ocean Rig UDW Inc., as Parent and Guarantor, and the companies listed therein, as Guarantors, and the banks and financial institutions named therein, as Mandated Lead Arrangers, with the banks and financial institutions named therein, as Lenders under the Commercial Facilities, Eksportkreditt Norge AS, as Lender under the Eksportkreditt/GEIK Facilities, The Export-Import Bank of Korea, as Lender under the Kexim Facilities, and DNB Bank ASA, as Facility Agent and Security Agent, relating to $1,350,000,000 of Term Loan Facilities originally dated February 28, 2013 incorporated by reference to exhibit 4.49 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.156
  
Consultancy Agreement, dated September 9, 2013, by and Eastern Med Consultants Inc., an indirect wholly owned subsidiary of Ocean Rig UDW Inc., and Azara Services S.A. incorporated by reference to exhibit 4.52 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.157
  
Amendment Number 2 to Uncertificated Securities Control Agreement, dated as of September 27, 2012, as amended among DryShips Inc., HSH Nordbank AG and Ocean Rig UDW Inc., dated September 9, 2013, incorporated by reference to exhibit 4.50 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.158
  
Amendment Number 3 to Pledge and Security Agreement, dated as of September 27, 2012, as amended, among DryShips Inc., HSH Nordbank AG and Ocean Rig UDW Inc., dated November 14, 2013.
     
    4.159
  
Amendment Number 3 to Uncertificated Securities Control Agreement, dated as of September 27, 2012, as amended, among DryShips Inc., HSH Nordbank AG and Ocean Rig UDW Inc., dated November 14, 2013, incorporated by reference to exhibit 4.51 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.160
  
Supplement to Loan Agreement dated November 18, 2013, to the original Loan Agreement dated March 31, 2006, by and between DryShips Inc., as Borrower, the banks and financial institutions listed therein, as Lenders and Swap Banks, HSH Nordbank AG, as Agent, Security Trustee, Lead Arranger and Lead Bookrunner, and The Governor and Company of the Bank of Scotland, as Joint Bookrunner, as amended, relating to a term loan and short-term credit facilities of up to $110,000,000, or the HSH Nordbank Junior Loan Agreement, incorporated by reference to Exhibit 4.160 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.161
  
Supplement to Loan Agreement dated November 18, 2013, to the original Loan Agreement dated March 31, 2006, by and between DryShips Inc., as Borrower, the banks and financial institutions listed therein, as Lenders and Swap Banks, HSH Nordbank AG, as Agent, Security Trustee, Lead Arranger, Lead Bookrunner and Joint Underwriter, and The Governor and Company of the Bank of Scotland, as Joint Bookrunner and Joint Underwriter, relating to a term loan and short-term credit facilities of up to $518,750,000, or the HSH Nordbank Senior Loan Agreement, incorporated by reference to Exhibit 4.161 to the Annual Report on Form 20-F of DryShips for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.162
  
Supplemental Letter dated December 10, 2013, relating to the Facilities Agreement by and among Drillships Ocean Ventures Inc., as Borrower, and Ocean Rig UDW Inc., as Parent and Guarantor, and the companies listed therein, as Guarantors, and the banks and financial institutions named therein, as Mandated Lead Arrangers, with the banks and financial institutions named therein, as Lenders under the Commercial Facilities, Eksportkreditt Norge AS, as Lender under the Eksportkreditt/GEIK Facilities, The Export-Import Bank of Korea, as Lender under the Kexim Facilities, and DNB Bank ASA, as Facility Agent and Security Agent, relating to $1,350,000,000 of Term Loan Facilities originally dated February 28, 2013, incorporated by reference to exhibit 4.53 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
 
 
146
    4.163
  
Amendment and Restatement Agreement dated as of February 7, 2014 relating to the Credit Agreement, dated July 12, 2013, as amended by the Incremental Agreement on July 26, 2013, by and among Drillships Finance Holding Inc., as Borrower, Ocean Rig UDW Inc., as Parent, Deutsche Bank AG New York Branch, as Administrative Agent and the companies listed therein, and the banks and financial institutions named therein, relating to a re-financing of the combined $1.9 billion of Tranche B-1 and Tranche B-2 Term Loans, incorporated by reference to exhibit 4.54 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2013, filed with the SEC on February 21, 2014.
     
    4.164
  
Management Agreement, dated December 13, 2013, by and between Drillship Skyros Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.59 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.165
  
Management Agreement, dated February 25, 2014, by and between Drillship Kythnos Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.60 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.166
  
Indenture, dated as of March 26, 2014, by and between Ocean Rig UDW Inc., as the Issuer, and Deutsche Bank Trust Company Americas, as Trustee, relating to 7.25% Senior Notes Due 2019, incorporated by reference to exhibit 4.55 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.167
  
Management Agreement, dated April 17, 2014, by and between Drillship Hydra Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.61 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.168
  
Management Agreement, dated April 17, 2014, by and between Drillship Kithira Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.62 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.169
  
Management Agreement, dated April 17, 2014, by and between Drillship Paros Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.63 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.170
  
Management Agreement, dated April 17, 2014, by and between Ocean Rig 1 Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.64 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.171
  
Management Agreement, dated April 17, 2014, by and between Ocean Rig 2 Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.65 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.172
  
Management Agreement, dated April 17, 2014, by and between Drillship Skiathos Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.66 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.173
  
Management Agreement, dated April 17, 2014, by and between Drillship Skopelos Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.67 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.174
  
Credit Agreement, dated July 25, 2014, by and among Drillships Ventures Projects Inc., as Finco, Drillships Ocean Ventures Inc., as Borrower, Ocean Rig UDW, as Parent, various lenders and Deutsche Bank AG New York Branch, as Administrative Agent and Pari Passu Collateral Agent and the other entities listed therein, relating to a Term Loan in an aggregate principal amount equal to $1.3 billion, incorporated by reference to exhibit 4.56 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.175
  
Pledge and Security Agreement, dated July 25, 2014, relating to the Credit Agreement dated July 25, 2014, by and among Ocean Rig UDW Inc., Drillships Ocean Ventures, Inc., Drillships Ventures Projects Inc., the subsidiaries identified therein, and Deutsche Bank AG New York Branch, as Pari Passu Collateral Agent, incorporated by reference to exhibit 4.57 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.176
  
Facilities Agreement, dated February 13, 2015, by and among Drillship Alonissos Shareholders Inc., as Borrower, Ocean Rig UDW Inc., as Parent and Guarantor, Drillship Alonissos Owners Inc., as Drillship Owner and Guarantor, and the other entities named therein, relating to $475 million Term Loan Facilities, incorporated by reference to exhibit 4.58 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
     
    4.177
  
First Supplemental Agreement, dated March 28, 2014, to a Loan Agreement, dated March 19, 2012, by and among Amathus Owning Company Limited, Symi Owners Inc. and Kalymnos Owners Inc., as joint and several Borrowers, DryShips Inc., as Guarantor, and HSH Nordbank AG, as Agent, Mandated Lead Arranger, Swap Bank and Security Trustee, relating to a loan facility of up to $87,653,740.
     
 
 
147
 
    4.178
  
Form of Vessel Management Agreement, dated May 7, 2014, by and between Chloe Owning Company Limited and TMS Bulkers Ltd.
     
    4.179
  
Fifth Supplemental Agreement, dated July 11, 2014, to a Loan Agreement dated July 23, 2008, by and among Cretan Traders Inc., as Borrower, Monteagle Shipping SA, as Existing Guarantor, the banks and financial institutions listed therein, as Lenders, and Norddeutsche Landesbank Girozentrale, as Swap Bank, Underwriter, Mandated Lead Arranger, Bookrunner, Agent and Security Trustee, relating to a term loan facility of up to $126,400,000.
     
    4.180
  
Supplemental Agreement, dated July 17, 2014, to a Loan Agreement, dated October 26, 2011, by and among Olympian Ares Owners Inc., Olympian Artemis Owners Inc., Olympian Demeter Owners Inc. and Olympian Poseidon Owners Inc., as joint and several Borrowers, DryShips Inc., as Guarantor, and ABN AMRO Bank N.V. , as Facility Agent and Security Trustee, relating to a loan of $141,350,000.
     
    4.181
  
Supplemental Agreement, dated July 31, 2014, to a Loan Agreement dated October 24, 2012, by and among Olympian Athena Owners Inc., Olympian Aphrodite Owners Inc. and Olympian Dionysus Owners Inc., as joint and several borrowers, DryShips Inc., as Guarantor, and ABN AMRO Bank N.V., as Facility Agent and Security Trustee relating to a $107,668,750 loan.
     
    4.182
  
Loan Agreement, dated October 29, 2014, by and among the subsidiaries of DryShips Inc. listed therein as Borrowers, DryShips Inc., as Parent, DryShips Inc. and the subsidiaries of DryShips Inc. listed therein as Guarantors,  the financial institutions listed therein as Lenders, the financial institutions listed therein as Hedging Providers, Nordea Bank Finland plc, London Branch, as Arranger, Bookrunner and Agent, and Nordea Bank AB, London Branch as Security Agent, relating to a loan facility of up to $170,000,000.
     
    4.183
  
Second Supplemental Agreement, dated November 12, 2014, to a Loan Agreement dated June 20, 2008, by and among Aegean Traders Inc., as Borrower, DryShips Inc., as Corporate Guarantor and Portigon AG, London Branch, as Lender, relating to a loan facility of up to $103,200,000.
     
    4.184
  
Loan Agreement, dated November 14, 2014, by and among DryShips, Inc., as Borrower, the financial institutions listed therein as Original Lenders, and ABN AMRO Bank N.V., as Arranger, Facility Agent and Security Agent, relating to a senior secured bridge loan facility of up to $200,000,000.
     
    4.185
  
Exchangeable Promissory Note, dated November 18, 2014, by and between DryShips, Inc., as Borrower, and Alley Finance Co., or its permitted assigns, as Noteholder, relating to a $120,000,000 loan, incorporated by reference to Exhibit 4.69 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015.
 
    4.186
  
Fifth Amending and Restating Agreement, dated December 23, 2014, to a Loan Agreement dated March 13, 2008, by and among Ialysos Owning Company Limited, as Borrower, DryShips Inc., as Corporate Guarantor, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $130,000,000.
     
    4.187
  
Fourth Supplemental Agreement, dated December 23, 2014, to a Loan Agreement dated October 5, 2007, by and between Boone Star Owners Inc. and Iokasti Owning Company Limited, as Borrowers, DryShips Inc., as Corporate Guarantor, and Piraeus Bank A.E., as Lender, relating to a loan facility of up to $90,000,000.
 
    4.188
Management Agreement, dated February 17, 2015, by and between Drillship Alonissos Owners Inc., as the Owner, and Ocean Rig Management Inc., as the Manager, incorporated by reference to exhibit 4.68 to the Annual Report on Form 20-F of Ocean Rig UDW Inc. for the fiscal year ended December 31, 2014, filed with the SEC on March 9, 2015. 
     
    8.1
  
Subsidiaries of DryShips Inc.
   
  12.1
  
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
   
  12.2
  
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
   
  13.1
  
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
  13.2
  
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
  15.1
  
Consent of Independent Registered Public Accounting Firm (Ernst & Young (Hellas) Certified Auditors Accountants S.A.)
   
  101
  
The following materials from the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2013 and 2014; (ii) Consolidated Statements of Operations for the years ended December 31, 2012, 2013 and 2014; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2013 and 2014; (iv) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2012, 2013 and 2014; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2013 and 2014; and (v) the Notes to Consolidated Financial Statements
 
 
148


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.





         
       
DRYSHIPS INC.
       
(Registrant)
     
Date:  March 10, 2015
  
By:
  
/s/ Ziad Nakhleh
       
Ziad Nakhleh
       
Chief Financial Officer


149



DRYSHIPS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





 
Page
 
Report of Independent Registered Public Accounting Firm
F-2
Report of Independent Registered Public Accounting Firm
F-3
Consolidated Balance Sheets as of December 31, 2013 and  2014
F-4
Consolidated Statements of Operations for the years ended December 31, 2012, 2013  and  2014
F-6
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012, 2013 and 2014
F-7
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2012, 2013 and 2014
F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2013 and 2014
F-10
Notes to Consolidated Financial Statements
F-12


F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of DryShips Inc.

We have audited the accompanying consolidated balance sheets of DryShips Inc. (the "Company") as of December 31, 2013 and 2014, and the related consolidated statements of operations and comprehensive income/(loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in Item 18.1. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DryShips Inc. at December 31, 2013 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements and schedule have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company reports a working capital deficit of $394 million at December 31, 2014. In addition, the shipping segment has not complied with certain covenants of its bank agreements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements and schedule do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), DryShips Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 10, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
March 10, 2015


 












F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of DryShips Inc.

We have audited DryShips Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). DryShips Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, DryShips Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DryShips Inc. as of December 31, 2013 and 2014, and the related consolidated statements of operations, comprehensive income/(loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014 of DryShips Inc. and our report dated March 10, 2015 expressed an unqualified opinion thereon that included an explanatory paragraph regarding DryShips Inc.'s ability to continue as a going concern.

/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
March 10, 2015


 

 
F-3
DRYSHIPS INC.
Consolidated Balance Sheets
As of December 31, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share and per share data)
 
 
   
December 31,
  
   
2013
    
2014
  
ASSETS
        
CURRENT ASSETS:
        
 Cash and cash equivalents
  
$
595,142
    
$
566,242
  
 Restricted cash (Note 2)
    
94,170
      
92,694
  
Trade accounts receivable, net of allowance for doubtful receivables of $2,948 and $2,825 at December 31, 2013 and 2014, respectively
    
321,989
      
404,656
  
 Due from related parties (Note 4)
    
39,023
      
38,221
  
 Other current assets (Note 5)
    
133,875
      
125,464
  
 Total current assets
    
1,184,199
      
1,227,277
  
                 
FIXED ASSETS, NET:
                
 Advances for vessels and drillships under construction and related costs (Note 6)
    
679,008
      
623,984
  
 Vessels, net (Note 7)
    
2,249,087
      
2,141,617
  
 Drilling rigs, drillships, machinery and equipment, net (Note 7)
    
5,828,231
      
6,259,747
  
 Total fixed assets, net
    
8,756,326
      
9,025,348
  
                 
OTHER NON-CURRENT ASSETS:
                
 Financial instruments (Note 10)
    
14,741
      
11,086
  
 Restricted cash (Note 2)
    
50,000
      
-
  
 Other non-current assets (Note 8)
    
118,426
      
107,892
  
 Total other non-current assets
    
183,167
      
118,978
  
 Total assets
  
$
10,123,692
    
$
10,371,603
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
CURRENT LIABILITIES:
                
 Current portion of long-term debt, net of deferred finance costs (Note 9)
  
$
1,660,168
    
$
1,165,021
  
 Accounts payable and other current liabilities
    
102,528
      
97,608
  
 Accrued liabilities
    
232,623
      
192,239
  
 Due to related parties (Note 4)
    
611
      
12,717
  
 Deferred revenue
    
128,044
      
123,728
  
 Financial instruments (Note 10)
    
47,740
      
30,447
  
 Total current liabilities
    
2,171,714
      
1,621,760
  
                 
NON-CURRENT LIABILITIES
                
 Long-term debt, net of current portion and deferred finance costs (Note 9)
    
3,907,835
      
4,352,592
  
 Financial instruments (Note 10)
    
26,086
      
10,420
  
 Deferred revenue
    
152,226
      
81,359
  
 Other non-current liabilities
    
34,133
      
15,084
  
 Total non-current liabilities
    
4,120,280
      
4,459,455
  
                 
COMMITMENTS AND CONTINGENCIES (Note 13)
    
-
      
-
  
                 
STOCKHOLDERS' EQUITY:
                
 Preferred stock, $0.01 par value; 500,000,000 shares authorized at December 31, 2013 and 2014; 100,000,000 shares designated as Series A Convertible preferred stock;  0 shares of Series A Convertible Preferred stock issued and outstanding at December 31, 2013 and 2014, respectively (Note 11)
    
-
      
-
  
Common stock, $0.01 par value; 1,000,000,000 shares authorized at December 31, 2013 and 2014; 432,654,477 and 706,064,321 shares issued and outstanding at December 31, 2013 and 2014, respectively (Note 11)
    
4,326
      
7,060
  
Treasury stock; $0.01 par value; 21,000,000 and 36,100,000  shares at December 31, 2013 and 2014, respectively (Note 11)
    
(210
)
    
(361
)
Additional paid-in capital (Note 11)
    
2,824,702
      
3,249,376
  
Accumulated other comprehensive loss (Note 14)
    
(6,062
)
    
(6,622
)
Accumulated deficit
    
(209,120
)
    
(256,632
)
 Total DryShips Inc. stockholders' equity
    
2,613,636
      
2,992,821
  
 Non-controlling interests
    
1,218,062
      
1,297,567
  
 Total equity
    
3,831,698
      
4,290,388
  
 Total liabilities and stockholders' equity
  
$
10,123,692
    
$
10,371,603
  
   The accompanying notes are an integral part of these consolidated financial statements.
F-4

DRYSHIPS INC.
Consolidated Statements of Operations
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share and per share data)
 

   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
REVENUES:
            
Voyage revenues (including amortization of above market acquired time charters)
  
$
268,236
    
$
311,764
    
$
368,447
  
Service revenues, net
    
941,903
      
1,180,250
      
1,817,077
  
                         
Total Revenues (Notes 2 and 16)
  
$
1,210,139
    
$
1,492,014
    
$
2,185,524
  
                         
OPERATING EXPENSES/(INCOME):
                        
Voyage expenses (Note 2)
    
30,012
      
103,211
      
117,165
  
Vessels, drilling rigs and drillships operating expenses
    
649,722
      
609,765
      
844,260
  
Depreciation and amortization (Notes 7)
    
335,458
      
357,372
      
449,792
  
Loss on sale of assets, net (Note 7)
    
1,179
      
-
      
-
  
Loss on contract cancellation (Note 6)
    
-
      
-
      
1,307
  
 Contract termination fees and other (Note 6)
    
41,339
      
33,293
      
-
  
 Vessel impairment charge (Notes 7 and 10)
    
-
      
43,490
      
38,148
  
General and administrative expenses
    
145,935
      
184,722
      
193,686
  
Legal settlements and other, net (Note 13.1)
    
(9,360
)
    
4,585
      
(2,013
)
                         
Operating income
    
15,854
      
155,576
      
543,179
  
                         
OTHER INCOME / (EXPENSES):
                        
Interest and finance costs (includes $22,195 accumulated other comprehensive
classifications in 2012 for losses on previously designated cash flow hedges
and gains on Senior Notes) (Note 15)
    
(210,128
)
    
(332,129
)
    
(411,021
)
Interest income
    
4,203
      
12,498
      
12,146
  
Gain/(Loss) on interest rate swaps (Note 10)
    
(54,073
)
    
8,373
      
(15,528
)
Other, net (Note 10)
    
(492
)
    
2,245
      
7,067
  
                         
Total other expenses, net
    
(260,490
)
    
(309,013
)
    
(407,336
)
                         
INCOME/(LOSS) BEFORE INCOME TAXES
    
(244,636
)
    
(153,437
)
    
135,843
  
Less: Income taxes (Note 18)
    
(43,957
)
    
(44,591
)
    
(77,823
)
                         
NET INCOME/(LOSS)
    
(288,593
)
    
(198,028
)
    
58,020
  
Less: Net (income)/loss attributable to non-controlling interests
    
41,815
      
(25,065
)
    
(105,532
)
                         
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC.
  
$
(246,778
)
  
$
(223,093
)
  
$
(47,512
)
                         
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC COMMON STOCKHOLDERS (Note 17)
  
$
(246,778
)
  
$
(223,149
)
  
$
(48,209
)
                         
LOSS PER COMMON SHARE ATTRIBUTABLE TO DRYSHIPS INC.
COMMON STOCKHOLDERS, BASIC AND DILUTED (Note 17)
  
$
(0.65
)
  
$
(0.58
)
  
$
(0.11
)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES,
BASIC AND DILUTED (Note 17)
    
380,159,088
      
384,063,306
      
456,031,628
  
                         

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

F-5

DRYSHIPS INC.
Consolidated Statements of Comprehensive Income Loss
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars)
 
 
 
   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
- Net income/(loss)
  
$
(288,593
)
  
$
(198,028
)
  
$
58,020
  
Other comprehensive income/ (loss):
                        
- Unrealized gain/(loss) on senior unsecured notes
    
2,059
      
-
      
-
  
- Reclassification of gain associated with senior unsecured notes to Consolidated Statement of Operations, net
    
(709
)
    
-
      
-
  
- Reclassification of losses on previously designated cash flow hedges to Consolidated Statement of Operations, net
    
22,904
      
-
          
- Reclassification of realized losses associated with capitalized interest to Consolidated Statement of Operations, net
    
549
      
550
      
550
  
- Actuarial gains/(losses)
    
(637
)
    
3,335
      
(1,518
)
                         
Other comprehensive income/(loss)
  
$
24,166
    
$
3,885
    
$
(968
)
                         
Comprehensive income/(loss)
    
(264,427
)
    
(194,143
)
    
57,052
  
- Less: comprehensive (income)/loss attributable to non-controlling interests
    
34,215
      
(26,532
)
    
(105,137
)
                         
Comprehensive loss attributable to DryShips Inc.
  
$
(230,212
)
  
$
(220,675
)
  
$
(48,085
)




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

F-6
DRYSHIPS INC.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share data)
 
 
 
 
     Common Stock   Treasury
Stock  		                          
    Shares    
Par
Value
     Shares    
Par
Value
    
Additional
Paid-in
Capital
     Accumulated Other Comprehensive Loss     Retained Earnings/(Accumulated Deficit)    
Total
DryShips Stockholders Equity
    
Non-
controlling interests
    
Total
Equity
  
BALANCE, January 1, 2012
    
424,762,094
    
$
4,247
      
(1,000,000
)
  
$
(10
)
  
$
2,908,950
    
$
(28,610
)
  
$
260,751
    
$
3,145,328
    
$
793,334
    
$
3,938,662
  
- Net loss
    
—
      
—
      
—
      
—
      
—
      
—
      
(246,778
)
    
(246,778
)
    
(41,815
)
    
(288,593
)
- Issuance of non-vested shares
    
150
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
  
- Issuance of treasury stock
    
—
      
—
      
(10,000,000
)
    
(100
)
    
100
      
—
      
—
      
—
      
—
      
—
  
- Issuance of subsidiary shares to non-controlling interest
    
—
      
—
      
—
      
—
      
(84,629
)
    
2,869
      
—
      
(81,760
)
    
262,245
      
180,485
  
- Other comprehensive income
    
—
      
—
      
—
      
—
      
—
      
16,566
      
—
      
16,566
      
7,600
      
24,166
  
- Amortization of stock based compensation
    
—
      
—
      
—
      
—
      
13,104
      
—
      
—
      
13,104
      
195
      
13,299
  
                                                                                 
                                                                                 
BALANCE December 31, 2012
    
424,762,244
    
$
4,247
      
(11,000,000
)
  
$
(110
)
  
$
2,837,525
    
$
(9,175
)
  
$
13,973
    
$
2,846,460
    
$
1,021,559
    
$
3,868,019
  
- Net income/(loss)
    
—
      
—
      
—
      
—
      
—
      
—
      
(223,093
)
    
(223,093
)
    
25,065
      
(198,028
)
- Issuance of common stock
    
6,892,233
      
69
      
—
      
—
      
23,369
      
—
      
—
      
23,438
      
—
      
23,438
  
- Issuance of non vested shares
    
1,000,000
      
10
      
—
      
—
      
(10
)
    
—
      
—
      
—
      
—
      
—
  
- Issuance of treasury stock
    
—
      
—
      
(10,000,000
)
    
(100
)
    
100
      
—
      
—
      
—
      
—
      
—
  
- Issuance of subsidiary shares to non-controlling interest
    
—
      
—
      
—
      
—
      
(46,237
)
    
695
      
—
      
(45,542
)
    
168,502
      
122,960
  
- Other comprehensive income
    
—
      
—
      
—
      
—
      
—
      
2,418
      
—
      
2,418
      
1,467
      
3,885
  
- Amortization of stock based compensation
    
—
      
—
      
—
      
—
      
9,955
      
—
      
—
      
9,955
      
1,469
      
11,424
  



F-7

DRYSHIPS INC.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share data)



   
Common Stock
    
Treasury
 Stock
                          
   
Shares
    
Par
Value
    
Shares
    
Par
Value
    
Additional
Paid-in
Capital
    
Accumulated
Other
Comprehensive
Loss
    
Retained
Earnings/
(Accumulated Deficit
    
Total
DryShips
Stockholders
Equity
    
Non
controlling
interests
    
Total
equity
  
BALANCE December 31, 2013
    
432,654,477
    
$
4,326
      
(21,000,000
)
  
$
(210
)
  
$
2,824,702
    
$
(6,062
)
  
$
(209,120
)
  
$
2,613,636
    
$
1,218,062
    
$
3,831,698
  
- Net income/(loss)
    
—
      
—
      
—
      
—
      
—
      
—
      
(47,512
)
    
(47,512
)
    
105,532
      
58,020
  
- Issuance of common stock
    
272,209,844
      
2,722
      
—
      
—
      
419,653
      
—
      
—
      
422,375
      
—
      
422,375
  
- Issuance of non vested shares
    
1,200,000
      
12
      
—
      
—
      
(12
)
    
—
      
—
      
—
      
—
      
—
  
- Issuance of treasury stock
    
—
      
—
      
(15,100,000
)
    
(151
)
    
151
      
—
      
—
      
—
      
—
      
—
  
- Issuance of subsidiary shares to non-controlling interest
    
—
      
—
      
—
      
—
      
(4,758
)
    
13
      
—
      
(4,745
)
    
3,478
      
(1,267
)
- Other comprehensive income
    
—
      
—
      
—
      
—
      
—
      
(573
)
    
—
      
(573
)
    
(395
)
    
(968
)
- Amortization of stock based compensation
    
—
      
—
      
—
      
—
      
9,640
      
—
      
—
      
9,640
      
1,453
      
11,093
  
-Dividends paid
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(30,563
)
    
(30,563
)
                                                                                 
 
Balance December 31, 2014
    
706,064,321
    
$
7,060
      
(36,100,000
)
  
$
(361
)
  
$
3,249,376
    
$
(6,622
)
  
$
(256,632
)
  
$
2,992,821
    
$
1,297,567
    
$
4,290,388
  




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

F-8


DRYSHIPS INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars)

   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
Cash Flows from Operating Activities:
            
Net income/(loss)
  
$
(288,593
)
  
$
(198,028
)
  
$
58,020
  
Adjustments to reconcile net loss to net cash provided by operating activities:
                        
Depreciation and amortization
    
335,458
      
357,372
      
449,792
  
Amortization, write off of deferred financing fees
    
20,548
      
48,980
      
53,063
  
Amortization of convertible senior notes debt discount
    
38,855
      
43,769
      
45,261
  
Amortization of fair value of acquired time charters and drilling contracts
    
20,527
      
10,759
      
7,443
  
Amortization of cash flow hedge reserve
    
22,904
      
-
      
-
  
Vessel impairment charge
    
-
      
43,490
      
38,148
  
Loss on sale of assets, net
    
1,179
      
-
      
-
  
Loss on contract cancellation
    
-
      
-
      
1,307
  
Gain on sale of notes
    
(709
)
    
-
      
-
  
Forfeiture of advances for vessel acquisitions
    
19,939
      
-
      
13,933
  
Amortization of stock based compensation
    
13,299
      
11,424
      
11,093
  
Change in fair value of derivatives
    
(54,506
)
    
(88,859
)
    
(29,304
)
Security deposits for derivatives
    
24,550
      
-
      
-
  
Amortization of free lubricants benefit
    
(14
)
    
(12
)
    
-
  
Changes in operating assets and liabilities:
                        
Trade accounts receivable
    
(33,469
)
    
(147,936
)
    
(82,667
)
Due from related parties
    
(14,540
)
    
1,663
      
12,089
  
Other current and non-current assets
    
(58,277
)
    
(33,164
)
    
38,219
  
Accounts payable and other current and non-current liabilities
    
41,098
      
9,705
      
(25,489
)
Accrued liabilities
    
57,277
      
55,509
      
(41,436
)
Due to related parties
    
(2,768
)
    
(4,139
)
    
819
  
Deferred revenue
    
94,771
      
135,447
      
(75,183
)
                         
Net Cash Provided by Operating Activities
    
237,529
      
245,980
      
475,108
  
                         
Cash Flows from Investing Activities:
                        
Short term investment
    
-
      
(442
)
    
368
  
Sale of notes
    
18,709
      
-
      
-
  
Advances for vessel acquisitions and drillships under construction
    
(276,956
)
    
(235,346
)
    
(296,306
)
Vessel acquisitions and improvements
    
(177,724
)
    
(181,176
)
    
(54,660
)
Drilling rigs, drillships equipment and other improvements
    
(97,868
)
    
(1,051,704
)
    
(455,595
)
Proceeds from sale of vessels and contract cancellation
    
116,834
      
-
      
-
  
Decrease in restricted cash
    
27,058
      
234,338
      
51,476
  
                         
Net Cash Used in Investing Activities
    
(389,947
)
    
(1,234,330
)
    
(754,717
)

F-9

DRYSHIPS INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars)



   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
             
Cash Flows from Financing Activities:
            
 Proceeds from  long-term credit facilities, term loans and senior notes
  
$
966,103
    
$
2,982,576
    
$
2,617,100
  
 Principal payments and repayments of long-term debt and senior notes
    
(867,932
)
    
(1,803,366
)
    
(2,008,826
)
            Payments of convertible notes
    
-
      
-
      
(700,000
)
 Net proceeds from common stock issuance
    
-
      
23,438
      
421,911
  
 Net proceeds from sale in ownerships of subsidiary
    
180,485
      
122,960
      
-
  
 Dividends paid
    
-
      
-
      
(30,563
)
 Payment of financing costs, net
    
(35,431
)
    
(84,066
)
    
(48,913
)
Net Cash Provided by Financing Activities
    
243,225
      
1,241,542
      
250,709
  
                         
Net increase/ (decrease) in cash and cash equivalents
    
90,807
      
253,192
      
(28,900
)
Cash and cash equivalents at beginning of year
    
251,143
      
341,950
      
595,142
  
                         
Cash and cash equivalents at end of year
  
$
341,950
    
$
595,142
    
$
566,242
  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:
                        
Cash paid during the year for:
                        
 Interest, net of amount capitalized
  
$
118,606
    
$
171,649
    
$
267,554
  
 Income taxes
    
45,450
      
50,392
      
60,374
  
                         
Non cash financing and investing activities:
                        
 Issuance of non-vested shares
    
-
      
10
      
12
  


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

F-10
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 

 
1. Basis of Presentation and General Information:

The accompanying consolidated financial statements include the accounts of DryShips Inc., its subsidiaries and consolidated Variable Interest Entities ("VIEs") (collectively, the "Company" or "DryShips"). DryShips was formed on September 9, 2004, under the laws of the Republic of the Marshall Islands. The Company is a provider of international seaborne drycargo and oil transportation services and deepwater drilling rig services.

Customers individually accounting for more than 10% of the Company's voyage revenues and drilling revenues during the years ended December 31, 2012, 2013 and 2014, were as follows:

   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
Customer A - Drilling segment
    
-
      
-
      
12
%
Customer B - Drilling segment
    
38
%
    
26
%
    
15
%
Customer C - Drilling segment
    
14
%
    
-
      
-
  
Customer D - Drilling segment
    
-
      
-
      
12
%
Customer E - Drilling segment
    
-
      
11
%
    
10
%
Customer F - Drilling segment
    
-
      
14
%
    
25
%

The loss of any of these significant customers could have a material adverse effect on the Company's results of operations if they were not replaced by other customers.

2. Significant Accounting policies:

(a)  Principles of consolidation: The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Committee (the "SEC") and include the accounts and operating results of DryShips, its wholly-owned subsidiaries and its VIEs. As of December 31, 2014, the Company consolidated 100% one VIE for which it is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. The VIE's total assets and liabilities, as of December 31, 2013, were $35,782 and $56,556, respectively, total liabilities exceeding total assets by $20,774. The VIE's total assets and liabilities, as of December 31, 2014, were $64,314 and $65,358 respectively, with total liabilities exceeding total assets by $1,044. A VIE is an entity that in general does not have equity investors with voting rights or that has equity that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and absorbs a majority of an entity's expected losses, receives a majority of an entity's expected residual returns, or both.

All intercompany balances and transactions have been eliminated on consolidation.

(b) Business combinations: The Company uses the acquisition method of accounting under the authoritative guidance on business combinations, which requires an acquirer in a business combination to recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values at the acquisition date. The costs of the acquisition and any related restructuring costs are to be recognized separately in the Consolidated Statements of Operations. The acquired company's operating results are included in the Company's consolidated financial statements starting on the date of acquisition.

The purchase price is equivalent to the fair value of the consideration transferred and liabilities incurred, including liabilities related to contingent consideration. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition are recorded at the acquisition date fair value. Goodwill is recognized for the excess of the purchase price over the net fair value of assets acquired and liabilities assumed. When the fair value of net assets acquired exceeds the fair value of consideration transferred plus any non-controlling interest in the acquiree, the excess is recognized as a gain.



F-11
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 
2. Significant Accounting policies - continued:


(c) Use of estimates: The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(d) Comprehensive income/(loss): The Company's comprehensive income/(loss) is comprised of net income/(loss), actuarial gains/losses related to the adoption and implementation of ASC 715, "Compensation-Retirement Benefits", as well as losses in the fair value of the derivatives that qualify for hedge accounting in accordance with ASC 815 "Derivatives and Hedging" and realized gains/losses on cash flow hedges associated with capitalized interest in accordance with ASC 815-30-35-38 "Derivatives and Hedging".

During 2013, the Company adopted the requirements of Accounting Standard Update ("ASU")  2013-02, "Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts.

(e) 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.

(f) Restricted cash: Restricted cash may include: (i) cash collateral required under the Company's financing and swap arrangements, (ii) retention accounts which can only be used to fund the loan installments coming due, (iii) minimum liquidity collateral requirements or minimum required cash deposits, as defined in the Company's loan agreements, (iv) taxes withheld from employees and deposited in designated bank accounts and, (v) amounts pledged as collateral for bank guarantees to suppliers.

F-12
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 

 
 2. Significant Accounting policies - continued:

(g) Trade accounts receivable net: The amount shown as trade accounts receivable, at each balance sheet date, includes receivables from customers, net of allowance for doubtful receivables. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate allowance for doubtful receivables.

(h) Short-term investments: Short-term investments generally represent investments in time deposits, which have maturities in excess of three months but less than twelve months. These investments are accounted for at cost.

(i) Concentration of credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents; trade accounts receivable and derivative contracts (interest rate swaps, foreign currency contracts and forward freight agreements). The maximum exposure to loss due to credit risk is the book value at the balance sheet date. The Company places its cash and cash equivalents, consisting mostly of bank deposits, with qualified financial institutions.

The Company performs periodic evaluations of the relative credit standing of those financial institutions. The Company is exposed to credit risk in the event of non-performance by counter parties to derivative instruments; however, the Company limits its exposure by diversifying among counter parties. The Company's major customers are oil companies, which reduces its credit risk. When considered necessary, additional arrangements are put in place to minimize credit risk, such as letters of credit or other forms of payment guarantees. The Company limits its credit risk with trade accounts receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not require collateral for its trade accounts receivable. The Company has made advances for the construction of vessels and drillships to the yards. The ownership of the vessels and drillships is transferred from the yard to the Company at delivery. The credit risk of the advances is, to a large extent, reduced through refund guarantees issued by financial institutions.

As of December 31, 2014, cumulative installment payments made to the yards amounted to approximately $515,856 for the drillships under construction. These installment payments are, to a large extent, secured with irrevocable letters of guarantee, issued by financial institutions, or "refund guarantees".

(j) Advances for vessels and drillships under construction: This represents amounts expended by the Company in accordance with the terms of the construction contracts for vessels and drillships as well as other expenses incurred directly or under a management agreement with a related party in connection with on site supervision. In addition, interest costs incurred during the construction (until the asset is substantially complete and ready for its intended use) are capitalized. The carrying value of vessels and drillships under construction ("Newbuildings") represents the accumulated costs at the balance sheet date. Cost components include payments for yard installments and variation orders, commissions to related party, construction supervision, equipment, spare parts and capitalized interest.

(k) Capitalized interest: Interest expense is capitalized during the construction period of drilling rigs, drillships and vessels based on accumulated expenditures for the applicable project at the Company's current rate of borrowing. The amount of interest expense capitalized in an accounting period is determined by applying an interest rate ("the capitalization rate") to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period are based on the rates applicable to borrowings outstanding during the period. The Company does not capitalize amounts in excess of actual interest expense incurred in the period. If the Company's financing plans associate a specific new borrowing with a qualifying asset, the Company uses the rate on that borrowing as the capitalization rate to be applied to that portion of the average accumulated expenditures for the asset that does not exceed the amount of that borrowing. If average accumulated expenditures for the asset exceed the amounts of specific new borrowings associated with the asset, the capitalization rate applied to such excess is a weighted average of the rates applicable to other borrowings of the Company. Capitalized interest expense for the years ended December 31, 2012, 2013 and 2014, amounted to $58,967, $69,714 and $39,225, respectively (Note 15).

(l) Insurance claims: The Company records insurance claim recoveries for insured losses incurred on damages to fixed assets, loss of hire and for insured crew medical expenses under "Other current assets". Insurance claims are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages, loss due to the vessel/ drilling unit being wholly or partially deprived of income as a consequence of damage to the unit or when crew medical expenses are incurred, recovery is probable under the related insurance policies and the Company can make an estimate of the amount to be reimbursed following the insurance claim.
 

 
F-13
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 

 2. Significant Accounting policies - continued:

(m) Inventories: Inventories consist of consumable bunkers (if any), lubricants and victualing stores, which are stated at the lower of cost or market value and are recorded under "Other current assets". Cost is determined by the first in, first out method.

(n) Foreign currency translation: The functional currency of the Company is the U.S. Dollar since the Company operates in international shipping and drilling markets and, therefore, primarily transacts business in U.S. Dollars. The Company's accounting records are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the year-end exchange rates. Resulting gains or losses are included in "Other, net" in the accompanying consolidated statements of operations.

(o) Fixed assets, net:

(i) Drybulk and tanker carrier vessels are stated at cost, which consists of the contract price and any material expenses incurred upon acquisition (initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage). Subsequent expenditures for major improvements are also capitalized when they appreciably extend the useful life, increase the earning capacity or improve the efficiency or safety of the vessels. The cost of each of the Company's vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessel's remaining economic useful life, after considering the estimated residual value. Vessel's residual value is equal to the product of its lightweight tonnage and estimated scrap rate per ton. In general, management estimates the useful life of the Company's vessels to be 25 years from the date of initial delivery from the shipyard. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are adopted.

(ii) Drilling rigs and drillships are stated at cost less accumulated depreciation. Such costs include the cost of adding or replacing parts of drilling rig or drillship machinery and equipment when the cost is incurred, if the recognition criteria are met. The recognition criteria require that the cost incurred extends the useful life of a drilling rig or drillship. The carrying amounts of those parts that are replaced are written off and the cost of the new parts is capitalized. Depreciation is calculated on a straight-line basis over the useful life of the assets after considering the estimated residual value as follows: bare deck 30 years and other asset parts 5 to 15 years. The residual values of the drilling rigs and drillships are estimated at $35,000 and $50,000, respectively, for the years ended December 31, 2012, 2013 and 2014.


(p) Long lived assets held for sale: The Company classifies long lived assets and disposal groups as being held for sale in accordance with ASC 360, "Property, Plant and Equipment", when: (i) management has committed to a plan to sell the long lived assets; (ii) the long lived assets are available for immediate sale in their present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the long lived assets have been initiated; (iv) the sale of the long lived assets is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year; and (v) the long lived assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Long lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These long lived assets are not depreciated once they meet the criteria to be classified as held for sale.

When the Company concludes a Memorandum of Agreement for the disposal of a vessel/drilling unit which has yet to complete a time charter or drilling contract, it is considered that the held for sale criteria discussed in guidance are not met until the time charter or drilling contract has been completed as the vessel/drilling unit is not available for immediate sale. As a result, such vessels/drilling units are not classified as held for sale.

When the Company concludes a Memorandum of Agreement for the disposal of a vessel/drilling unit which has no time charter or drilling contract to complete or a contract that is transferable to a buyer, it is considered that the held for sale criteria discussed in the guidance are met. As a result such vessels/drilling unit are classified as held for sale. Furthermore, in the period a long-lived asset meets the held for sale criteria, a loss is recognized for any reduction of the long-lived asset's carrying amount to its fair value less cost to sell. No such adjustments were identified for the years ended December 31, 2012, 2013 or 2014.
F-14
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 

 2. Significant Accounting policies - continued:


(q) Impairment of long-lived assets: The Company reviews for impairment long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, the Company reviews its assets for impairment on an asset by asset basis. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value of the asset. The Company evaluates the carrying amounts of its vessels, drilling rigs and drillships by obtaining vessel, drilling rigs and drillships appraisals to determine if events have occurred that would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, the Company reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel, drilling rigs and drillships sales and purchases, business plans and overall market conditions. In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels', drilling rigs and drillships, future performance, with the significant assumptions being related to charter and drilling rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel, drilling rig and drillship. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. To the extent impairment indicators are present, the Company determines undiscounted projected net operating cash flows for each vessel, drilling rig and drillship and compares them to their carrying value. The projected net operating cash flows are determined by considering the charter revenues and drilling revenues from existing time charters and drilling contracts for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days. The Company estimates the daily time charter equivalent for the unfixed days based on the most recent ten year historical average for similar vessels and utilizing available market data for time charter and spot market rates and forward freight agreements over the remaining estimated life of the vessel, drilling rig and drillship, net of brokerage commissions, expected outflows for vessels', drilling rigs' and drillships' maintenance and operating expenses (including planned drydocking and special survey expenditures), assuming an average annual inflation rate of 2% and fleet utilization of 98%. The salvage value used in the impairment test is estimated to be $250 per light weight ton (LWT) for vessels, while $35,000 and $50,000 for drilling rigs and drillships, respectively in accordance with the Company's vessels', drilling rigs', drillships' depreciation policy. If the Company's estimate of undiscounted future cash flows for any vessel, drilling rig and drillship is lower than its respective carrying value, the carrying value is written down, by recording a charge to operations, to its' respective fair market value if the fair market value is lower than the vessel's, drilling rig or drillship's carrying value.

F-15
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 
 2. Significant Accounting policies - continued:

The Company's analysis for the year ended December 31, 2014, which also involved sensitivity tests on the time charter rates, drilling rates and fleet utilization (being the most sensitive inputs to variances), allowing for variances ranging from 97.5% to 92.5% depending on vessel type on time charter rates, indicated a potential impairment loss for one of its vessels, and no impairment on any of its drilling rigs and drillships. Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time which could adversely affect the Company's revenue and profitability, and future assessments of vessel impairment. While for the drilling segment there can be no assurance as to how long drilling rates and drilling rigs/drillships values will remain at their currently high levels or whether they will improve or the opposite by any significant degree. As a result of the impairment review, the Company determined that the carrying amounts of its assets were recoverable and, therefore, concluded that no impairment loss was necessary for 2012 and 2013. However, due to Company's decision to sell certain vessels during the years and/or subsequent to the balance sheet dates and based on the agreed-upon sales price, an impairment charge relating to assets held for use of $0 and $43,490 for each of the years ended December 31, 2012 and 2013, respectively, was recognized.  As a result of the impairment review for the year ended December 31, 2014, the Company determined that the carrying amount of one of its drybulk vessels was not recoverable and, therefore, an impairment loss of $38,148 was recognized (Notes 7 and 10).

(r) Dry-docking costs: The Company follows the direct expense method of accounting for dry-docking costs whereby costs are expensed in the period incurred for the vessels, drilling rigs and drillships.

(s) Class costs: The Company follows the direct expense method of accounting for periodic class costs incurred during special surveys of drilling rigs and drillships, normally every five years. Class costs and other maintenance costs are expensed in the period incurred and included in "Vessels, drilling rigs and drillships operating expenses".

(t) Deferred financing costs: Deferred financing costs include fees, commissions and legal expenses associated with the Company's long- term debt. These costs are amortized over the life of the related debt using the effective interest method and are included in interest expense. Unamortized fees relating to loans repaid or refinanced as debt extinguishments are expensed as interest and finance costs in the period the repayment or extinguishment is made. Arrangement fees paid to lenders for loans which the Company has not drawn down are capitalized and included in other current and non-current assets. Amortization and write offs for each of the years ended December 31, 2012, 2013 and 2014, amounted to $17,565, $46,006 and $50,551 respectively (Note 15).

(u) Convertible senior notes: In accordance with ASC Topic 470-20, "Debt with Conversion and Other Options," for convertible debt instruments that contain cash settlement options upon conversion at the option of the issuer, the Company determines the carrying amounts of the liability and equity components of its convertible notes by first determining the carrying amount of the liability component of the convertible notes by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component representing the embedded conversion option is then determined by deducting the fair value of the liability component from the total proceeds. The resulting debt discount is amortized to interest cost using the effective interest method over the period the debt is expected to be outstanding as an additional non-cash interest expense. Transaction costs associated with the instrument are allocated pro-rata between the debt and equity components (Note 9).

(v) Revenue and related expenses:

(i) Drybulk carrier and tanker vessels:

Time and bareboat charters: The Company generates its revenues from charterers for the charter hire of its vessels, which are considered to be operating lease arrangements. Vessels are chartered using time and bareboat charters and where a contract exists, the price is fixed, service is provided and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade work depending on the condition and specification of the vessel.


F-16

DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 
 
 2.  Significant Accounting policies - continued:

 (v) Revenue and related expenses - (continued):

Voyage charters: Voyage charter is a charter where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified freight rate per ton. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably during the duration of the period of each voyage. When a voyage charter agreement is in place, a voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by a charterer to a vessel owner when loading or discharging time exceeds the stipulated time in the voyage charter and is recognized ratably as earned during the related voyage charter's duration period.

Pooling arrangements: For vessels operating in pooling arrangements, the Company earns a portion of the total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool participant vessel, including the Company's vessels, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Revenue under pooling arrangements is accounted for on the accrual basis and is recognized when an agreement with the pool exists, price is fixed, service is provided and the collectability is reasonably assured.

The allocation of such net revenue may be subject to future adjustments by the pool however, historically, such changes have not been material.

Voyage related and vessel operating costs: Under a time charter, specified voyage costs, such as fuel and port charges are paid by the charterer and other non-specified voyage expenses, such as commissions, are paid by the Company. Vessel operating costs including crew, maintenance and insurance are paid by the Company. Under voyage charter arrangements, voyage expenses, primarily consisting of commissions, port, canal and bunker expenses that are unique to a particular charter, are paid for by the Company, except for commissions, which are either paid for by the Company or are deducted from the freight revenue. All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned. Under a bareboat charter, the charterer assumes responsibility for all voyage and vessel operating expenses and risk of operation.

Deferred voyage revenue: Deferred voyage revenue primarily relates to cash advances received from charterers. These amounts are recognized as revenue over the voyage or charter period.

 (ii) Drilling rigs and drillships:

Revenues: The Company's services and deliverables are generally sold based upon contracts with its customers that include fixed or determinable prices. The Company recognizes revenue when delivery occurs, as directed by its customer, and collectability is reasonably assured. The Company evaluates if there are multiple deliverables within its contracts and whether the agreement conveys the right to use the drilling rigs and drillships for a stated period of time and meets the criteria for lease accounting, in addition to providing a drilling services element, which is generally compensated for by day rates. In connection with drilling contracts, the Company may also receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling rigs or drillships and day rate or fixed price mobilization and demobilization fees. Revenues are recorded net of agents' commissions. There are two types of drilling contracts: well contracts and term contracts.

F-17
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 
 

 
 2. Significant Accounting policies - continued:

 (v) Revenue and related expenses - (continued):

(a) Well contracts: Well contracts are contracts under which the assignment is to drill a certain number of wells. Revenue from day-rate based compensation for drilling operations is recognized in the period during which the services are rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements are initially deferred and recognized as revenues and expenses, as applicable, over the estimated duration of the drilling period. To the extent that mobilization expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization revenues and expenses are recognized over the demobilization period. All revenues for well contracts are recognized as "Service revenues" in the consolidated statement of operations.

(b) Term contracts: Term contracts are contracts under which the assignment is to operate the unit for a specified period of time. For these types of contracts the Company determines whether the arrangement is a multiple element arrangement containing both a lease element and drilling services element. For revenues derived from contracts that contain a lease, the lease elements are recognized as "Leasing revenues" in the consolidated statement of operations on a basis approximating straight line over the lease period. The drilling services element is recognized as "Service revenues" in the period in which the services are rendered at estimated fair value. Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services are deferred and recognized over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization fees and expenses are recognized over the demobilization period. Contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling contract.

(w) Earnings/(loss) per common share: Basic earnings/(loss) per common share are computed by dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised. Dilution is computed by the treasury stock method whereby all of the Company's dilutive securities are assumed to be exercised and the proceeds used to repurchase common shares at the weighted average market price of the Company's common stock during the relevant periods. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted earnings per share computation.

(x) Segment reporting: The Company determined that it operates under three reportable segments, as a provider of drybulk commodities transportation services for the steel, electric utility, construction and agri-food industries (drybulk segment), as a provider of ultra deep water drilling services (drilling segment) and as a provider of transportation services of crude and refined petroleum cargoes (tanker segment). The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company's consolidated financial statements.


F-18
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 

 
 2. Significant Accounting policies - continued:

(y) Financial instruments: The Company designates its derivatives based upon guidance on ASC 815, "Derivatives and Hedging" which establishes accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The guidance on accounting for certain derivative instruments and certain hedging activities requires all derivative instruments to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings unless specific hedge accounting criteria are met.

(i) Hedge accounting: At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting exposure to changes in the hedged item's cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated.

The Company is party to interest swap agreements where it receives a floating interest rate and pays a fixed interest rate for a certain period. Contracts which meet the strict criteria for hedge accounting are accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that could affect profit or loss.

The effective portion of the gain or loss on the hedging instrument is recognized directly as a component of "Accumulated other comprehensive income/(loss)" in equity, while any ineffective portion, if any, is recognized immediately in current period earnings.

The Company discontinues cash flow hedge accounting if the hedging instrument expires and it no longer meets the criteria for hedge accounting or designation is revoked by the Company. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the consolidated statement of operations. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as financial income or expense.

(ii) Other derivatives: Changes in the fair value of derivative instruments that have not been designated as hedging instruments are reported in current period earnings.

(z) Fair value measurements: The Company follows the provisions of ASC 820, "Fair Value Measurements and Disclosures" which defines, and provides guidance as to the measurement of, fair value. ASC 820 creates a hierarchy of measurement and indicates that, when possible, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets and the lowest priority (Level 3) to unobservable data, for example, the reporting entity's own data. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy (Note 10).

(aa) Stock-based compensation: Stock-based compensation represents vested and non-vested common stock granted to employees and directors, for their services. The Company calculates total compensation expense for the award based on its fair value on the grant date and amortizes the total compensation on an accelerated basis over the vesting period of the award or service period (Note 12).


F-19
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 
 

 
 2. Significant Accounting policies - continued:

 (ab) Income taxes: Income taxes have been provided for based upon the tax laws and rates in effect in the countries in which the Company's operations are conducted and income is earned. There is no expected relationship between the provision for/or benefit from income taxes and income or loss before income taxes because the countries in which the Company operates have taxation regimes that vary not only with respect to the nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from year to year. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the applicable jurisdictional tax in effect at the year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. The Company accrues interest and penalties related to its liabilities for unrecognized tax benefits as a component of income tax expense.

(ac) Commitments and contingencies: Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date.

(ad) Recent accounting pronouncements:
Revenue from Contracts with Customers: The Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") (collectively, the "Boards") jointly issued a standard in May 2014 that will supersede virtually all of the existing revenue recognition guidance in U.S. GAAP and International Financial Reporting Standards ("IFRS") and is effective for annual periods beginning on or after January 1, 2017. The standard establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity's ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods, and key judgments and estimates. The guidance in Accounting Standard Update ("ASU") 2014-09 Revenue from Contracts with Customers (Topic 606) supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this ASU supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. Management is in the process of accessing the impact of the new standard on Company's financial position and performance.
F-20
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 
 2. Significant Accounting policies - continued:
(ae) Recent accounting pronouncements - continued:
Going Concern: In August 2014, the FASB issued ASU No. 2014-15–Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 requires an entity's management to evaluate at each reporting period based on the relevant conditions and events that are known at the date of financial statements are issued, whether there are conditions or events, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued and to disclose the necessary information. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 3. Going Concern

As of December 31, 2014, the drilling segment was in compliance with its financial covenants while the shipping segment was in breach of certain financial covenants, contained in the Company's loan agreements relating to  $259,537 , of the Company's debt. Even though as of the date of approval of the consolidated financial statements none of the lenders have declared an Event of Default under the loan agreements, these breaches constitute events of default and may result in the lenders requiring immediate repayment of the loans. As a result of this non-compliance and of the cross default provisions contained in all bank loan agreements of the shipping segment, the Company has classified the respective bank loans amounting to $1,163,321 at December 31, 2014, as current liabilities (Note 9). As a result, the Company reports a working capital deficit of $394,483 at December 31, 2014.

In addition, and as further discussed in Note 13, the Company's expected short term capital commitments to fund the construction installments under the drillships newbuilding contracts in the year ending December 31, 2015, amount to $566,300, which will be partially financed by the $475,000 million secured credit facility signed on February 13, 2015. Furthermore, the Company's current maturities of long-term debt (excluding the balance classified as current due to the breach in convenants) at December 31, 2014, amounted to $475,717. The Company expects to finance its current maturities of long-term debt and unfinanced capital commitments with cash on hand, operational cash flow and debt or equity issuances, or a combination thereof.


The Company is currently in negotiations with its lenders to obtain waivers or waiver extensions. Management expects that the lenders will not demand payment of the loans before their maturity, provided that the Company pays scheduled loan installments and accumulated or accrued interest as they fall due under the existing credit facilities. Management plans to settle the loan interest and scheduled loan repayments with cash expected to be generated from operations and from financing activities.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.

F-21
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 


 4. Transactions with Related Parties:

The amounts included in the accompanying consolidated balance sheets and consolidated statements of operations are as follows:

   
December 31,
  
   
2013
    
2014
  
Balance Sheet
        
Due to related party - Cardiff Marine Inc.
  
$
(3
)
  
$
-
  
Due to related party - Tri-Ocean Heidmar
    
(43
)
    
-
  
Due to related party - Cardiff Tankers
    
(181
)
    
(266
)
Due to related party - Sigma and Blue Fin pool
    
(336
)
    
-
  
Due to related party - Fabiana Services S.A.
    
-
      
(1,000
)
Due to related party - Vivid Finance Limited
    
(48
)
    
(164
)
Due to related party – Cardiff Drilling
    
-
      
(4,287
)
Due to related party – Azara Services S.A.
    
-
      
(4,000
)
Due to related party – Basset Holding Inc.
    
-
      
(3,000
)
Due to related party - Total
    
(611
)
    
(12,717
)
                 
Due from related party - TMS Bulkers
    
29,059
      
28,318
  
Due from related party - TMS Tankers
    
9,964
      
9,903
  
                 
Due from related party - Total
  
$
39,023
    
$
38,221
  
                 
Advances for vessels and drillships under construction –
Cardiff Drilling/TMS Bulkers/ TMS Tankers, for the year
  
$
4,778
    
$
1,546
  
Vessels, net –TMS Bulkers/TMS Tankers, for the year
    
6,815
      
530
  
Drilling rigs, drillships, machinery and equipment, net – Cardiff/Cardiff Drilling, for the year
    
5,692
      
2,885
  
Trade Accounts Receivable – Accrued Receivables – Sigma and Blue Fin pools
  
$
386
    
$
-
  
                 

   
Year ended December 31,
  
Statement of Operations
  
2012
    
2013
    
2014
  
Voyage Revenues - Sigma and Blue Fin pool.
  
$
27,306
    
$
5,306
    
$
44
  
Service Revenues, net – Cardiff/Cardiff Drilling
    
6,193
      
10,786
      
16,826
  
Voyage expenses - TMS Tankers
    
(507
)
    
(1,483
)
    
(2,002
)
Voyage expenses - TMS Bulkers
    
(3,166
)
    
(2,619
)
    
(2,754
)
Voyage expenses -  Cardiff Tankers
    
(166
)
    
(1,423
)
    
(2,002
)
Gain on sale of assets - commissions - TMS Bulkers
    
(1,180
)
    
(710
)
    
-
  
Contract termination fees and other
    
(300
)
    
(23,048
)
    
-
  
General and administrative expenses:
                        
- Consultancy fees - Fabiana Services S.A.
    
(4,397
)
    
(3,593
)
    
(4,595
)


F-22
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 

 
 4. Transactions with Related Parties - continued:

   
Year ended December 31,
  
Statement of Operations
  
2012
    
2013
    
2014
  
 - Management fees - TMS Tankers
  
$
(5,151
)
  
$
(8,362
)
  
$
(8,548
)
 - Management fees - TMS Bulkers
    
(26,518
)
    
(27,803
)
    
(29,176
)
 - Consultancy fees – Vivid Finance Limited
    
(14,201
)
    
(18,056
)
    
(16,242
)
 - Consultancy fees – Azara Services S.A.
    
-
      
(5,000
)
    
(9,000
)
 - Consultancy fees -  Basset Holding Inc.
    
(2,676
)
    
(4,200
)
    
(8,191
)
 - Rent
    
(41
)
    
-
      
-
  
 - Amortization of DryShips CEO stock based compensation
  
$
(12,663
)
  
$
(7,780
)
  
$
(7,516
)
 - Amortization of Ocean Rig's CEO stock based compensation
    
-
      
(1,358
)
    
(2,316
)

          (Per day and per quarter information in the note below is expressed in United States Dollars/Euros)


TMS Bulkers Ltd. - TMS Tankers Ltd.:

Effective January 1, 2011, each of the Company's drybulk vessel-owning subsidiaries entered into new management agreements with TMS Bulkers Ltd. ("TMS Bulkers"), which replaced the Company's management agreements with Cardiff Marine Inc. ("Cardiff" or the "Manager"), a related technical and commercial management company incorporated in Liberia, that were effective as of September 1, 2010 through December 31, 2010 and each of the Company's tanker ship-owning subsidiaries entered into new management agreements with TMS Tankers Ltd. ("TMS Tankers") (together, TMS Bulkers and TMS Tankers are hereinafter referred to as the "Managers"). The Managers are beneficially owned by Mr. George Economou, the Company's Chairman, President and Chief Executive Officer.

TMS Bulkers provides comprehensive drybulk ship management services, including technical supervision, such as repairs, maintenance and inspections, safety and quality, crewing and training as well as supply provisioning. TMS Bulkers' commercial management services include operations, chartering, sale and purchase, post-fixture administration, accounting, freight invoicing and insurance. Each new vessel management agreement provides for a fixed management fee, the same fee as was charged by Cardiff under the Company's previous management agreements effective from September 1, 2010, of Euro 1,500 ($1,823 based on the Euro/U.S. Dollar exchange rate at December 31, 2014) per vessel per day, which is payable in equal monthly installments in advance and can be adjusted each year to the Greek Consumer Price Index for the previous year by not less than 3% and not more than 5%. Effective January 1, 2012, the fixed management fee was adjusted by 3% to Euro 1,545 ($1,878 based on the Euro/U.S. Dollar exchange rate at December 31, 2014).

If TMS Bulkers is requested to supervise the construction of a newbuilding vessel, in lieu of the management fee, the Company will pay TMS Bulkers an upfront fee equal to 10% of the budgeted supervision cost. For any additional attendance above the budgeted superintendent expenses, the Company will be charged extra at a standard rate of Euro 500 (or $608 based on the Euro/U.S. Dollar exchange rate as of December 31, 2014) per day.

TMS Tankers provides comprehensive tanker ship management services, including technical supervision, such as repairs, maintenance and inspections, safety and quality, crewing and training as well as supply provisioning. TMS Tankers' commercial management services include operations, sale and purchase, post-fixture administration, accounting, freight invoicing and insurance. Under the management agreements, TMS Tankers is entitled to a daily management fee per vessel of Euro 1,700 ($2,066 based on the Euro/U.S. Dollar exchange rate at December 31, 2014), payable in equal monthly installments in advance and may automatically be adjusted each year to the Greek Consumer Price Index for the previous year by not less than 3% and not more than 5%. Effective January 1, 2012, the fixed management fee was adjusted by 3% to Euro 1,751 ($2,128 based on the Euro/U.S. Dollar exchange rate at December 31, 2014). TMS Tankers is entitled to a construction supervisory fee of 10% of the budgeted supervision cost for the vessels under construction, payable up front in lieu of the fixed management fee.

Under their respective agreements, the Managers are also entitled to (i) a discretionary incentive fee, (ii) a commission of 1.25% on charter hire agreements that are arranged by the Managers; and (iii) a commission of 1% of the purchase price on sales or purchases of vessels in the Company's fleet that are arranged by the Managers.

F-23
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 
 

 
 4. Transactions with Related Parties - continued:

TMS Bulkers Ltd. - TMS Tankers Ltd. - continued:

In the event that the management agreements are terminated for any reason other than a default by the Managers or change of control of the Company's ownership, the Company will be required to pay the management fee for a further period of three calendar months as from the date of termination.

In the event of a change of control of the Company's ownership the Company will be required to pay the Managers a termination payment, representing an amount equal to the estimated remaining fees payable to the Managers under the then current term of the agreement which such payment shall not be less than the fees for a period of 36 months and not more than a period of 48 months.

Each management agreement has an initial term of five years and will be automatically renewed for a five year period and thereafter extended in five year increments, unless the Company provides notice of termination in the fourth quarter of the year immediately preceding the end of the respective term.

Transactions with TMS Bulkers and TMS Tankers in Euros were settled on the basis of the average U.S. Dollar rate on the invoice date.

Global Services Agreement: On December 1, 2010, the Company entered into a Global Services Agreement with Cardiff, effective December 21, 2010, pursuant to which the Company engaged Cardiff to act as consultant on matters of chartering and sale and purchase transactions for the offshore drilling units operated by the Company's majority-owned subsidiary, Ocean Rig. Under the Global Services Agreement, Cardiff, or its subcontractor, (i) provided consulting services related to the identification, sourcing, negotiation and arrangement of new employment for offshore assets of the Company and its subsidiaries, including the Company's drilling units; and (ii) identified, sourced, negotiated and arranged the sale or purchase of the offshore assets of the Company and its subsidiaries, including the Company's drilling units. In consideration of such services, the Company paid Cardiff a fee of 1.0% in connection with employment arrangements and 0.75% in connection with sale and purchase activities. 
Effective January 1, 2013, Ocean Rig Management Inc. ("Ocean Rig Management"), a wholly-owned subsidiary of Ocean Rig, the Company's majority owned subsidiary, entered into a Global Services Agreement with Cardiff Drilling Inc. ("Cardiff Drilling") a company controlled by Mr. George Economou, the Company's Chairman, President and Chief Executive Officer, pursuant to which Ocean Rig Management engaged Cardiff Drilling to act as consultant on matters of chartering and sale and purchase transactions for the offshore drilling units operated by Ocean Rig. Under the Global Services Agreement, Cardiff Drilling, or its subcontractor, (i) provides consulting services related to the identification, sourcing, negotiation and arrangement of new employment for offshore assets of Ocean Rig and its subsidiaries; and (ii) identifies, sources, negotiates and arranges the sale or purchase of the offshore assets of Ocean Rig and its subsidiaries. In consideration of such services, Ocean Rig will pay Cardiff Drilling a fee of 1.0% in connection with employment arrangements and 0.75% in connection with sale and purchase activities. Costs from the Global Services Agreement are expensed in the consolidated statements of operations or capitalized as a component of "Advances for drillships under construction and related costs" being a directly attributable cost to the construction, as applicable.

Transactions with Cardiff in Euros were settled on the basis of the average USD rate on the invoice date.

Cardiff Marine Inc: On January 2, 2014, the Company entered into an agreement with certain clients of Cardiff, a company controlled by Mr. George Economou, the Company's Chairman, President and Chief Executive Officer, for the grant of seven rights of first refusal to acquire seven Newcastlemax newbuildings, should they wish to sell these vessels at some point in the future. The Company may exercise any one, several or all of the rights. Each right is valid until one day before the contractual date of delivery of each vessel. These newbuildings are scheduled for delivery between the fourth quarter of 2015 and the fourth quarter of 2016.

Mr. George Economou: As the Company's Chairman, President, Chief Executive Officer ("CEO") and principal shareholder, with a 17.3% shareholding as of December 31, 2014, Mr. George Economou has the ability to exert influence over the operations of the Company. In April 2012, companies affiliated with the Company's Chairman, President and Chief Executive Officer purchased a total of 2,185,000 common shares of Ocean Rig in the public offering by Ocean Rig of common shares of Ocean Rig owned by DryShips, that was completed on April 17, 2012 (Note 11). During March 2013, the Company accepted an offer from a company affiliated with Mr. George Economou for the sale of two Very Large Ore Carriers (VLOC) newbuildings (Note 6).
F-24
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

4. Transactions with Related Parties - continued:

Fabiana Services S.A.: Under the consultancy agreements effective from February 3, 2008, between the Company and Fabiana Services S.A. ("Fabiana"), a related party entity incorporated in the Marshall Islands, Fabiana provides consultancy services relating to the services of Mr. George Economou in his capacity as Chief Executive Officer of the Company (Note 12).

On January 25, 2010, the Compensation Committee approved that a bonus in the form of 4,500,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2009 as well as for anticipated services during the years 2010, 2011 and 2012. The shares vest over a period of three years, with 1,000,000 shares vesting on the grant date; 1,000,000 shares vesting on December 31, 2010 and 2011 respectively; and 1,500,000 shares vesting on December 31, 2012. In addition, the annual remuneration to be awarded to Fabiana under the consultancy agreement was increased to Euro 2.7 million ($3.7 million based on the exchange rate as of December 31, 2013).

On January 12, 2011, the Compensation Committee approved a $4 million bonus and 9,000,000 shares of the Company's common stock payable to Fabiana for the provision of the services of the Company's Chief Executive Officer during 2010. The shares were granted to Fabiana and vest over a period of eight years, with 1,000,000 shares to vest on the grant date and 1,000,000 shares to vest annually on December 31, 2011 through 2018, respectively.

On August 20, 2013, the Compensation Committee approved that a bonus in the form of 1,000,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2012. The shares vest over a period of two years  with 333,334 shares vesting on the grant date, 333,333 shares vesting on August 20, 2014 and, 333,333 shares vesting on August 20, 2015, respectively.

On August 19, 2014, the Compensation Committee approved that a bonus in the form of 1,200,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2013. The shares vest over a period of three years with 400,000 shares vesting on December 31, 2014, 400,000 shares vesting on December 31, 2015, and 400,000 vesting on December 31, 2016.
On December 30, 2014, the Compensation Committee approved that a bonus in the form of 2,100,000 shares of the Company's common stock, with par value $0.01, and a cash bonus of $1,000 be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2014. The shares vest over a period of three years with 700,000 shares vesting on December 31, 2015, 700,000 shares vesting on December 31, 2016, and 700,000 shares vesting on December 31, 2017.
Azara Services S.A.: Under the consultancy agreement entered on September 9, 2013 and effective from January 1, 2013, between one of the wholly owned subsidiaries of Ocean Rig and Azara Services S.A. ("Azara"), a related party entity incorporated in the Republic of Marshall Islands, Azara provides consultancy services relating to the services of Mr. George Economou in his capacity as Chief Executive Officer of Ocean Rig. The annual remuneration to be awarded to Azara under the consultancy agreement is $2,500 in cash.

On August 20, 2013, Ocean Rig's Compensation Committee approved a sign-on bonus of $2,500 cash and 150,000 shares of Ocean Rig's common stock to Azara, relating to the services of Mr. George Economou as Chief Executive Officer of Ocean Rig. The shares vest over a period of two years  with 50,000 shares vesting on the grant date, 50,000 shares vesting on August 20, 2014 and, 50,000 vesting on August 20, 2015, respectively. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $17.56 per share.

On August 19, 2014, Ocean Rig's Compensation Committee approved a bonus in the form of $2,500 cash and 150,000 shares of Ocean Rig's common stock to Azara, relating to the services of Mr. George Economou as Chief Executive Officer of Ocean Rig, rendered during 2013. The shares vest over a period of three years with 50,000 shares vesting on December 31, 2014, 50,000 shares vesting on December 31, 2015 and, 50,000 vesting on December 31, 2016. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $18.37 per share.
On December 30, 2014, Ocean Rig's Compensation Committee approved a bonus in the form of $4,000 cash and 300,000 shares of Ocean Rig's common stock to Azara, relating to the services of Mr. George Economou as Chief Executive Officer, during 2014. The shares vest over a period of three years with 100,000 shares vesting on December 31, 2015, 100,000 shares
F-25
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 
4. Transactions with Related Parties - continued:

vesting on December 31, 2016, and 100,000 vesting on December 31, 2017. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of Ocean Rig shares on the grant date of $9.46 per share.

Basset Holdings Inc.: Under the consultancy agreement effective from January 1, 2015, between the Company and Basset Holdings Inc. ("Basset"), a related party entity incorporated in the Republic of Marshall Islands, Basset provides consultancy services relating to the services of Mr. Anthony Kandylidis in his capacity as Executive Vice-President of the Company. The annual remuneration to be awarded to Basset under the consultancy agreement is Euro 0.45 million ($0.55 million based on the Euro/U.S. Dollar exchange rate as of December 31, 2014).

Under the consultancy agreement effective from June 1, 2012, between a wholly owned subsidiary of Ocean Rig and Basset, a related party entity incorporated in the Republic of Marshall Islands, Basset provides consultancy services relating to the services of Mr. Anthony Kandylidis in his capacity as Executive Vice-President of Ocean Rig. The annual remuneration to be awarded to Basset under the consultancy agreement was Euro 0.9 million ($1.1 million based on the Euro/U.S. Dollar exchange rate as of December 31, 2014). Effective January 1, 2015, the annual remuneration was reduced to Euro 0.45 million ($0.55 million based on the Euro/U.S. Dollar exchange rate as of December 31, 2014).

On August 20, 2013, the Compensation Committee of Ocean Rig approved that a cash bonus of $3,000 be paid to Basset for the contribution of Mr. Antony Kandylidis for Executive Vice President's services.

On August 19, 2014, the Compensation Committee of Ocean Rig approved that a cash bonus of $4,000 be paid to Basset for the contribution of Mr. Anthony Kandylidis for Executive Vice President's services, during 2013.

On December 30, 2014, the Compensation Committee of Ocean Rig approved that a cash bonus of $3,000 be paid to Basset for the contribution of Mr. Anthony Kandylidis for Executive Vice President's services, during 2014.

Basset is also the owner of 114,286 shares of Ocean Rig's common stock, as of December 31, 2014.

Steel Wheel Investments Limited: Steel Wheel Investments Limited ("Steel Wheel"), a company controlled by the Company's Executive Vice President, Mr. Antony Kandylidis, is the owner of 1,570,226 shares of Ocean Rig's common stock, as of December 31, 2014.

Cardiff Tankers Inc.: Under charter agreements for all the Company's tankers, Cardiff Tankers Inc. ("Cardiff Tankers"), a related party entity incorporated in the Republic of the Marshall Islands, provides services related to the sourcing, negotiation and execution of charters, for which it is entitled to a 1.25% commission on charter hire earned by those tankers.

Vivid Finance Limited: Under the consultancy agreement effective from September 1, 2010 between the Company and Vivid Finance Limited ("Vivid"), a company controlled by the Chairman, President and Chief Executive Officer of the Company, Mr. George Economou, Vivid provides the Company with financing-related services such as (i) negotiating and arranging new loan and credit facilities, interest rate swap agreements, foreign currency contracts and forward exchange contracts, (ii) renegotiating existing loan facilities and other debt instruments, and (iii) the raising of equity or debt in the capital markets. In exchange for its services, Vivid is entitled to a fee equal to 0.20% on the total transaction amount. The consultancy agreement has a term of five years and may be terminated (i) at the end of its term unless extended by mutual agreement of the parties; (ii) at any time by the mutual agreement of the parties.

Effective January 1, 2013, the Company, amended the agreement with Vivid to limit the scope of the services provided under the agreement to DryShips Inc. and its subsidiaries or affiliates, except for Ocean Rig and its subsidiaries.  In essence, post-amendment, the consultancy agreement between the DryShips Inc. and Vivid is in effect for the Company's tanker and drybulk shipping segments only.

Effective January 1, 2013, Ocean Rig Management Inc., a wholly-owned subsidiary of Ocean Rig, entered into a new consultancy agreement with Vivid, on the same terms and conditions as in the consultancy agreement, dated as of September 1, 2010, between DryShips Inc. and Vivid, except that under the new agreement, Ocean Rig is obligated to pay directly the fee of 0.20%  to Vivid on the total transaction amount in consideration of the services provided by Vivid in respect of Ocean Rig's offshore drilling business, whereas under the consultancy agreement between DryShips Inc. and Vivid, this fee was paid by DryShips Inc.
F-26
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
 

 

4. Transactions with Related Parties - continued:

Lease Agreement: The Company leased office space in Athens, Greece from a son of Mr. George Economou until December 31, 2012.

Sigma Tankers Inc. pool and Blue Fin Tankers Inc. pool: Three of the Suezmax tankers, Vilamoura, Lipari and Petalidi, operated in the Blue Fin Tankers pool ("Blue Fin") until the termination of the pooling agreements with Blue Fin relating to such vessels in October 2012, March 2013 and November 2012, respectively. The Aframax tankers Saga, Daytona, and Belmar and Calida operated in the Sigma Tanker Pool ("Sigma") until the termination of the pooling agreements with Sigma relating to such vessels in April 2012, October 2012, January 2013 and October 2013, respectively. Sigma and Blue Fin are spot market pools managed by Heidmar Inc. Mr. George Economou is a member of the Board of Directors of Heidmar Inc.

 5. Other Current assets

The amount of other current assets shown in the accompanying consolidated balance sheets is analyzed as follows:

   
December 31,
  
   
2013
    
2014
  
Inventories
  
$
25,640
    
$
20,304
  
Deferred mobilization expenses
    
75,804
      
66,169
  
Prepayments and advances
    
14,425
      
28,071
  
Insurance claims (Note 13)
    
2,012
      
7,201
  
Other
    
15,994
      
3,719
  
                 
   
$
133,875
    
$
125,464
  


 6. Advances for Vessels and Drillships under Construction and Acquisitions:

The amounts shown in the accompanying consolidated balance sheets include milestone payments relating to the drillships building contracts with the shipyards, supervision costs and any material related expenses incurred during the construction periods, all of which are capitalized in accordance with the accounting policy discussed in Note 2.

As of December 31, 2013 and 2014, the movement of the advances for vessels and drillships under construction and acquisitions are set forth below:

   
December 31,
  
   
2013
    
2014
  
Balance at beginning of year
  
$
1,201,807
    
$
679,008
  
Advances for drillships under construction and related costs
    
1,279,281
      
691,755
  
Cancellation of vessel acquisitions
    
-
      
(15,240
)
Vessels' impairment charge
    
(43,490
)
    
-
  
Vessels/drillships delivered
    
(1,758,590
)
    
(731,539
)
                 
Balance at end of year
  
$
679,008
    
$
623,984
  


On April 12, 2011, the Company concluded an order with an established Chinese shipyard for two 176,000 dwt drybulk vessels, namely hull number H1241 and H1242, for an aggregated price of $54,164 per vessel. On March 26, 2013, the Company concluded two Memoranda of Agreements with an unrelated party for the sale of the Capesize newbuildings, Hull 1241 and Hull 1242, for a sale price of $71,000 in the aggregate. An impairment loss of $31,617 in the aggregate, was recognized in 2013 as a result of the reduction of the vessels' carrying amount to their fair value. In addition, an amount of $10,245 related to this agreement was paid in 2013 and included in "Contract termination fees and other" in the consolidated financial statements. On May 23, 2013 and June 17, 2013, Hull 1241 and Hull 1242, were delivered to their new owners, respectively.
F-27
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 


6. Advances for Vessels and Drillships under Construction and Acquisitions – continued:

On December 16, 2011, the Company placed an order for four 75,900 dwt Panamax ice class bulk vessels, namely hull number H1259, H1260, H1261 and H1262, with Jiangsu Rongsheng Heavy Industries, for a price of $34,000 each. On August 24, 2014, the Company agreed with Jiangsu Rongsheng Heavy Industries to cancel the construction of the four newbuilding Ice class Panamax vessels. On September 2, 2014, the Company received in connection with the cancellation of these newbuilding contracts all installments previously paid to the shipyard of $11,560, plus interest, which resulted to a loss of $1,307 recognized in the consolidated statement of operations for the year ended December 31, 2014.

In connection with OceanFreight's acquisition, the Company acquired the orders for five Very Large Ore Carriers, or VLOCs with an established Chinese shipyard. On September 10, 2012, the vessel Fakarava was delivered to the Company while on May 23, 2013 and June 18, 2013, the Company took delivery of its newbuilding VLOC's Negonego (ex. H1229) and Rangiroa (ex. H1228), respectively. During March 2013, the Company accepted an offer from an entity affiliated with Mr. George Economou, the Company's Chairman, President and Chief Executive Officer (Note 4), for the novation of the shipbuilding contracts of two VLOC under construction, Hull 1239 and Hull 1240, scheduled for delivery during the fourth quarter 2013 and the first quarter 2014, respectively. An impairment loss of $11,873 in the aggregate, was recognized in 2013, as a result of the reduction of the vessels carrying amount to their fair value. In addition, due to the novation agreements, which were signed on April 17, 2013, an amount of $18,305 was paid in 2013 and included in "Contract termination fees and other" in the consolidated financial statements.

On November 22, 2010, the Company placed an order for twelve tanker vessels (six Aframax and six Suezmax), with an established Korean shipyard, for a total consideration of $771,000. On January 18, 2011, March 23, 2011, April 29, 2011 and October 7, 2011, the Company took delivery of its newbuilding tankers Saga, Vilamoura, Daytona and Belmar, respectively. On January 3, 2012, April 25, 2012 and May 31, 2012, the Company took delivery of its newbuilding tankers Calida, Lipari and Petalidi, respectively, while on January 8, 2013, January 15, 2013 and January 31, 2013, the Company took delivery of its newbuilding tankers Alicante, Mareta and Bordeira. On December 27, 2012, the Company entered into two novation agreements with an unrelated party for the sale of the remaining two newbuilding tankers Esperona and Blanca. The total cost of $41,339, including capitalized expenses, included in "Contract termination fees and other " in the accompanying 2012 consolidated statement of operations consists mainly of the forfeiture of $19,939 in deposits (including capitalized expenses) for the acquisition of the tanker vessels already made by the Company and $10,700 in cash consideration for each newbuilding tanker.

On April 18, 2011, April, 27, 2011, June 23, 2011 and September 20, 2012, pursuant to the option contract with Samsung Heavy Industries Co Ltd. ("Samsung"), the Company's majority owned subsidiary, Ocean Rig exercised four of its six newbuilding drillship options, and entered into building contracts for four seventh generation ultra-deepwater drillships, namely the Ocean Rig Mylos, the Ocean Rig Skyros, the Ocean Rig Athena, and the Ocean Rig Apollo for a total contractual cost of approximately $608,000 per drillship for the initial three and $683,000 for the fourth. The Ocean Rig Mylos, the Ocean Rig Skyros, the Ocean Rig Athena and the Ocean Rig Apollo were delivered on August 19, 2013, December 20, 2013, March 24, 2014 and March 5, 2015, respectively.

On August 30, 2013, Drillship Santorini Owners Inc., a wholly owned subsidiary of Ocean Rig, the Company's majority owned subsidiary, signed a contract to construct the Ocean Rig Santorini, a 7th generation ultra deepwater drillship at Samsung Heavy Industries. This 7th generation drillship is a sister ship to the Ocean Rig Skyros, the Ocean Rig Athena and the Ocean Rig Apollo. The Ocean Rig Santorini, which is equipped with two blow-out preventers and the Company has advanced $127,000 to the yard, is scheduled to be delivered in June 2016. The total project cost is estimated to be approximately $644,000.

On April 8, 2014, two contracts between Drillship Crete Owners Inc. and Drillship Amorgos Owners Inc., two wholly owned subsidiaries of Ocean Rig, the Company`s majority owned subsidiary and Samsung Heavy Industries Co., Ltd ("Samsung") became effective for the construction of two seventh generation new integrated design drillships at Samsung and paid $76,600 as first installment to the yard for each of the new drillships, which are equipped with two blow-out preventers. The drillships are scheduled to be delivered to the Company in February 2017 and June 2017, respectively. The total project cost is approximately $728,000, per drillship.
F-28

DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)





7. Vessels, Drilling Rigs, Drillships, Machinery and Equipment:

Vessels:

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

   
Cost
    
Accumulated
Depreciation
    
Net Book
Value
  
             
Balance, December 31, 2012
  
$
2,562,411
    
$
(502,841
)
  
$
2,059,570
  
Additions/transfers from vessels under construction
    
310,047
      
-
      
310,047
  
Depreciation
    
-
      
(120,530
)
    
(120,530
)
                         
Balance, December 31, 2013
    
2,872,458
      
(623,371
)
    
2,249,087
  
Additions
    
54,660
      
-
      
54,660
  
Depreciation
    
-
      
(123,982
)
    
(123,982
)
Vessel impairment charge
    
(53,167
)
    
15,019
      
(38,148
)
                         
Balance, December 31, 2014
  
$
2,873,951
    
$
(732,334
)
  
$
2,141,617
  

On February 10, 2012, the Company concluded two Memoranda of Agreement for the sale of vessels Avoca and Padre and on March 16, 2012, for the sale of vessel Positano, for a sale price of $118,000 in the aggregate. The Company did not classify the above vessels as "held for sale" in the accompanying consolidated balance sheet as of December 31, 2011, as all criteria required for their classification as "Vessels held for sale" were not met. An impairment loss of $32,584 in the aggregate, was recognized, as a result of the reduction of the vessels' carrying amount to their fair value in 2011. The vessels Avoca and Padre were delivered to their new owners on February 22, 2012 and February 24, 2012, respectively, realizing a loss of $1,511 in 2012. The vessel Positano was delivered to her new owners on May 4, 2012, realizing a gain of $492 in 2012.
On March 18, 2014, the Company concluded a Memorandum of Agreement with an unaffiliated third party for the acquisition of one second hand Capesize vessel with an attached time charter, Raiatea (ex. Conches), for a purchase price of $53,000. The vessel was delivered on April 24, 2014.
As a result of the impairment review for the year ended December 31, 2014, the Company determined that the carrying amount of one of its assets was not recoverable and, therefore, an impairment loss of $38,148 was recognized, as a result of the reduction of the vessel's carrying amount to its fair value.

Drilling rigs, drillships, machinery and equipment:

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

   
Cost
    
Accumulated
Depreciation
    
Net Book
Value
  
Balance, December 31, 2012
  
$
5,021,508
    
$
(574,778
)
  
$
4,446,730
  
Additions
    
1,616,335
      
-
      
1,616,335
  
Depreciation
    
-
      
(234,834
)
    
(234,834
)
                         
Balance, December 31, 2013
  
$
6,637,843
    
$
(809,612
)
  
$
5,828,231
  
Additions
    
755,330
      
-
      
755,330
  
Depreciation
    
-
      
(323,814
)
    
(323,814
)
                         
Balance December 31, 2014
  
$
7,393,173
    
$
(1,133,426
)
  
$
6,259,747
  

As of December 31, 2014, all of the Company's operating vessels, drilling rigs and drillships, have been pledged as collateral to secure the bank loans, Ocean Rig's 6.5% senior secured notes due 2017 and the term loan B facilities (Note 9).
F-29

DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)



 8. Other non-current assets:

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

   
December 31,
  
   
2013
    
2014
  
Security deposits for derivatives
  
$
550
    
$
550
  
Deferred mobilization expenses
    
73,806
      
43,327
  
Prepaid investments
    
21,554
      
57,910
  
Intangible assets, net
    
6,175
      
4,732
  
Above-market acquired time charter contracts
    
8,816
      
1,373
  
Other
    
7,525
      
-
  
                 
   
$
118,426
    
$
107,892
  

As of December 31, 2013 and 2014, security deposits of $550 for the tankers Saga and Vilamoura, were recorded as "Other non-current assets" in the accompanying consolidated balance sheets due to the market loss in the swap agreements as of the related dates.

F-30
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


9. Long-term Debt:

The amount of long-term debt shown in the accompanying consolidated balance sheets is analyzed as follows:

   
December 31,
  
   
2013
    
2014
  
5% Convertible Senior Unsecured Notes
  
$
700,000
    
$
-
  
6.5% Drill Rigs Senior Secured Notes
    
800,000
      
800,000
  
7.25% Ocean Rig Senior Unsecured Notes
    
-
      
500,000
  
9.5% Ocean Rig Senior Unsecured Notes
    
500,000
      
-
  
Secured Credit Facilities- Drybulk Segment
    
638,820
      
685,410
  
Secured Credit Facilities- Tanker Segment
    
303,979
      
277,913
  
Secured Bridge Credit Facility
    
-
      
200,000
  
$1.35 billion Secured Credit Facilities - Drilling Segment
    
890,000
      
-
  
$1.9 billion Term Loan B Facility - Drilling Segment
    
1,895,250
      
1,876,250
  
$1.3 billion Term Loan B Facility – Drilling Segment
    
-
      
1,296,750
  
Less: Deferred financing costs and equity component of notes
    
(160,046
)
    
(118,710
)
                 
Total debt
    
5,568,003
      
5,517,613
  
Less: Current portion
    
(1,660,168
)
    
(1,165,021
)
                 
Long-term portion
  
$
3,907,835
    
$
4,352,592
  

Convertible Senior Notes and Related Borrow Facility

In November 2009, the Company issued $400,000 aggregate principal amount of 5% Convertible unsecured Senior Notes (the "Notes"), which were due December 1, 2014. The full over allotment option granted was exercised and an additional $60,000 Notes were purchased. Accordingly, $460,000 in aggregate principal amount of Notes were sold, resulting in aggregate net proceeds of approximately $447,810 after the underwriters commissions.

As the Notes contained a cash settlement option upon conversion at the option of the issuer, the Company applied the guidance for "Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement)" and therefore, on the day of the Note issuance, bifurcated the $460,000 principal amount of the Notes into liability and equity components of $341,156 and $118,844, respectively, by first determining the carrying amount of the liability component of the Notes by measuring the fair value of a similar liability that did not have an associated equity component. The equity component was calculated by deducting the fair value of the liability component from the total proceeds received at issuance. Additionally, the guidance required the Company to accrete the discount of $118,844 to the principal amount of the Notes over the term of the Notes. The Company's interest expense associated with this Note accretion was based on an effective interest rate of 12%.

In April 2010, the Company issued $220,000 aggregate principal amount of Notes, which were due December 1, 2014. These Notes were offered as additional Notes under the indenture, as supplemented by a supplemental indenture, pursuant to which the Company previously issued $460,000 aggregate principal amount of Notes due December 1, 2014 in November 2009. The terms of the Notes offered in April 2010 other than their issue date and public offering price, were identical to the Notes issued in November 2009.

The full over allotment option granted was exercised and an additional $20,000 aggregate principal amount of Notes were purchased. Accordingly, $240,000 in aggregate principal amount of Notes were sold, resulting in aggregate net proceeds of approximately $237,202 after the underwriters commissions. On the day of the Note issuance, the Company bifurcated the $240,000 principal amount of the Notes into the liability and equity components of $168,483 and $71,517, respectively, by first determining the carrying amount of the liability component of the Notes by measuring the fair value of a similar liability that did not have an associated equity component. The equity component was calculated by deducting the fair value of the liability component from the total proceeds received at issuance. Additionally, the Company was required to accrete the discount of $71,517 to the principal amount of the Notes over the term of the Notes. The Company's interest expense associated with this Note accretion was based on an effective interest rate of 14%.
F-31
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


9. Long-term Debt – continued:

In conjunction with the public offering of 5% Notes described above, the Company also entered into share lending agreements with an affiliate of the underwriter of the offering, or the share borrower, pursuant to which the Company loaned the share borrower approximately 36,100,000 shares of the Company's common stock. Under the share lending agreements, the share borrower was required to return the borrowed shares when the Notes were no longer outstanding. The Company did not receive any proceeds from the sale of the borrowed shares by the share borrower, but the Company did receive a nominal lending fee of $0.01 per share from the share borrower for the use of the borrowed shares.  As of December 31, 2013, the share borrower had returned an aggregate 21,000,000 of the above-referenced loaned shares to the Company. As of December 31, 2014, the share borrower returned the remaining 15,100,000 of the above mentioned loaned shares to the Company. The returned loaned shares were not retired and are included as treasury stock in the accompanying balance sheets as of December 31, 2013 and 2014.

The fair value of the outstanding loaned shares as of December 31, 2013 and 2014, was $70,970 and $0, respectively. On the day of the Notes issuance the fair value of the share lending agreements was determined to be $14,476, based on a 5.5% interest rate of the Notes without the share lending agreement and was recorded as debt issuance cost. Amortization of the issuance costs associated with the share lending agreement included in "Interest and finance costs" during the years ended December 31, 2012, 2013 and 2014, was $2,983, $2,974 and $2,733, respectively. The unamortized balance as of December 31, 2013 and 2014, was $2,733 and $0, respectively.

Effective September 19, 2011, the applicable conversion price was changed to $6.9 per share. The previous conversion price of $7.19 per share was adjusted downward in connection with the Company's partial spin off of Ocean Rig.

The total interest expense related to the Notes in the Company's consolidated statements of operations for the years ended December 31, 2012, 2013 and 2014, was $73,855, $78,769 and $76,680 of which $38,855, $43,769 and $45,261, respectively are non-cash amortization of the discount on the liability component and $35,000, $35,000 and $31,419, respectively are the contractual interest payable semi-annually at a coupon rate of 5% per year. At December 31, 2013 and 2014, the net carrying amount of the liability component and unamortized discount were $654,738 and $0, respectively and $45,261 and $0, respectively.

The Company's interest expense associated with the $460,000 aggregate principal amount and $240,000 aggregate principal amount of Notes was accretive based on an effective interest rate of 12% and 14%, respectively.

During November 2014, the Company repurchased on the open market and cancelled $191,090 principal amount of its 5% convertible notes. On November 24, 2014, the Company repaid the remaining amount of its 5% convertible notes, amounting to $508,910.

Ocean Rig's 6.5% senior secured notes due 2017

On September 20, 2012,  Ocean Rig's wholly owned subsidiary Drill Rigs Holdings Inc. ("the Issuer"), issued $800,000 aggregate principal amount of 6.50% Senior Secured Notes due 2017 (the "Drill Rigs Notes") offered in a private offering, resulting in net proceeds of approximately $781,965. Ocean Rig used a portion of the net proceeds of the notes to repay the full amount outstanding under its $1,040,000 senior secured credit facility as at September 20, 2012. The Drill Rigs Notes are secured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.

The Drill Rigs Notes are fully and unconditionally guaranteed by Ocean Rig and certain of its existing and future subsidiaries (collectively, the "Issuer Subsidiary Guarantors" and, together with Ocean Rig, the "Guarantors").

Upon a change of control, which occurs if 50% or more of Ocean Rig's shares are acquired by any person or group other than DryShips or its affiliates, the Issuer will be required to make an offer to repurchase the notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest thereon to the date of repurchase. On or after October 1, 2015, the Issuer may, at its option, redeem all or a portion of the notes, at one time or from time to time at 103.25% (from October 1, 2015 to September 30, 2016) or 100% (October 1, 2016 and thereafter) of the principal amount thereof, plus any accrued and unpaid interest thereon to the date of redemption.

The Drill Rigs Notes and the Drill Rigs Notes guarantees are secured, on a first priority basis, by a security interest in the Issuer's two semi-submersible offshore drilling rigs, the Leiv Eiriksson and the Eirik Raude, and certain other assets of the Issuer and the Issuer Subsidiary Guarantors and by a pledge of the stock of the Issuer and the Issuer Subsidiary Guarantors, subject to certain exceptions. The contractual semi-annual coupon interest rate is 6.5% on the Drill Rigs Notes.
F-32
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


9. Long-term Debt - continued:

Ocean Rig's 7.25% senior unsecured notes due 2019
On March 26, 2014, Ocean Rig issued $500,000 aggregate principal amount of 7.25% senior unsecured notes due 2019 (the "7.25% Senior Unsecured Notes"), offered in a private placement, resulting in net proceeds of approximately $493,625. The 7.25% Senior Unsecured Notes are unsecured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness. Ocean Rig used the net proceeds from the offering of the 7.25% Senior Unsecured Notes, together with cash on hand and repurchased $462,300 of its 9.5% Senior Unsecured Notes, of which $500,000 in aggregate principal amount was outstanding prior to closing of the 7.25% Senior Unsecured Notes Offering, at a tender premium of 105.375%, while the remaining $37,700, was redeemed at a redemption price of 104.5% on May 13, 2014.
The 7.25% Senior Unsecured Notes are not guaranteed by any of the Company's subsidiaries. Upon a change of control, which occurs if 50% or more of the Company's shares are acquired by any person or group other than DryShips or its affiliates, the noteholders will have an option to require the Company to purchase all outstanding notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. The contractual semi-annual coupon interest rate is 7.25% per year.
Ocean Rig's 9.5% senior unsecured notes due 2016

On April 27, 2011, Ocean Rig issued $500,000 aggregate principal amount of its 9.5% senior unsecured notes due 2016 (the "9.5% Senior Unsecured Notes ") offered in a private placement, resulting in net proceeds of approximately $487.5 million. The 9.5% Senior Unsecured Notes were unsecured obligations and ranked senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.

On April 26, 2011, DryShips agreed to purchase from three unaffiliated companies 9.5% Senior Unsecured Notes in the total aggregate principal amount of $75,000. During the period from May 19, 2011 to July 27, 2011, the Company sold to third parties these senior unsecured notes with notional amount of $57,000 resulting in a gain of $1,406. The remaining $18,000 senior unsecured notes were measured at fair value as of December 31, 2011 and a loss of $1,350 was recorded in "Other comprehensive income". During the period from March 15, 2012 to March 30, 2012, the remaining $18,000 of senior unsecured notes were also sold to third parties with a notional amount of $18,000 resulting in a gain of $709.

The 9.5% Senior Unsecured Notes were repurchased or redeemed by proceeds from from the 7.25% Senior Unsecured Notes offering discussed above, together with cash on hand.

Term bank loans and credit facilities

The bank loans are payable in U.S. Dollars in quarterly and semi-annual installments with balloon payments due at maturity between January 2015 and June 2025. Interest rates on the outstanding loans as at December 31, 2014, are based on LIBOR plus a margin, except for an amount of $3,173,000 from the Loan facilities which are based on a fixed rate.

On March 28, 2014, the Company entered into a supplemental agreement relating to the loan agreement dated March 19, 2012, to amend certain financial covenants.
On May 29, 2014 the Company entered into a supplemental agreement to the loan agreement dated February 14, 2012 to amend certain definitions.
On July 7, 2014 the Company entered into an agreement with Commerzbank under the $35.0 million Senior Secured Credit Facility dated October 2, 2007, under which the Company agreed to make a cash prepayment of $2,700 to avoid a loan-to-value covenant breach.
On July 11, 2014, the Company entered into a supplemental agreement under the secured term loan facility dated July 23, 2008, to among other things, release the vessel Woolloomoloo from the collateral package under this loan.
On July 17, 2014, the Company signed a supplemental agreement under the secured term loan facility dated October 26, 2011 for a waiver of a certain financial covenant until December 31, 2014.
F-33
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)



9. Long-term Debt - continued:

Term bank loans and credit facilities – continued:

On July 31, 2014, the Company signed a supplemental agreement under the secured term loan facility dated October 24, 2012, for the relaxation of a certain financial covenant until December 31, 2014.
On October 29, 2014, the Company entered into a senior secured credit facility with Nordea Bank for up to $170,000 to refinance the existing indebtedness under the Company's $325,000 Senior Credit Facility, which had a balance of $50,010 as of October 31, 2014. This facility has a five-year term, bears interest at LIBOR plus a margin, is repayable in quarterly installments and is secured by the six vessels that secured the $325,000 Senior Credit Facility, as well as three other vessels.

On November 12, 2014, the Company signed a supplemental agreement under the secured loan facility dated June 20, 2008, for relaxation of certain financial covenants.

On November 14, 2014, the Company entered into a facility agreement with ABN AMRO, for a secured bridge loan facility in an amount of $200,000. The loan is repayable through a single repayment installment. In connection with the ABN AMRO facility, on November 18, 2014, as required by that facility, Ocean Rig filed a prospectus supplement covering up to 78,301,755 of its common shares held by DryShips or its pledgees. Of the shares registered, 45,129,069 Ocean Rig shares were initially pledged by the Company to ABN AMRO under the terms of the ABN AMRO facility which requires collateral coverage based on the prevailing 30-day Volume Weighted Average Price ("VWAP") at draw down. On January 9, 2015, the Company provided additional security in relation to the ABN AMRO facility in the form of 8,000,000 Ocean Rig shares owned by the Company. On January 20 and February 2, 2015, the Company made two prepayments of $10,000 and $5,000 plus accrued interest, respectively under this loan agreement.
On December 23, 2014, the Company entered into an agreement with the lender under its two Senior Secured Credit Facilities, dated October 5, 2007 and March 13, 2008. Under the terms of these agreements, among other things, the lender has agreed to waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity, and the Company has agreed to provide a pledge over 8,775,055 Ocean Rig shares owned by DryShips until December 31, 2014.
$1.35 billion Senior Secured Credit Facility

 On February 28, 2013, Drillships Ocean Ventures Inc., a majority owned subsidiary and Ocean Rig's wholly-owned subsidiary, entered into a secured term loan facilities agreement with a syndicate of lenders and DNB Bank ASA, as facility agent and security agent, in the amount of $1,350,000 to partially finance the construction costs of the Ocean Rig Mylos, the Ocean Rig Skyros and the Ocean Rig Athena. The facilities agreement was comprised of three term loan facilities of up to $150,000 each (one relating to each of the aforementioned seventh generation drillships) made available by the commercial lenders, or the Commercial Facilities, three term loan facilities of up to $150,000 each (one relating to each of the aforementioned seventh generation drillships) made available by Eksportkreditt Norge AS, or the Eksportkreditt GIEK Facilities, and three term loan facilities of up to $150,000 each (one relating to each of the aforementioned seventh generation drillships) made available by the Export-Import Bank of Korea, or the Kexim Facilities.  All term loan facilities bore interest at LIBOR plus a margin and were repayable in quarterly installments, beginning three months after the delivery of the first drillship. The Commercial Facilities matured five years after the first drawdown date while the Eksportkreditt GIEK Facilities and Kexim Facilities matured five or eleven years after the first drawdown date at the lenders option. In connection with this loan, Ocean Rig paid $22.4 million as loan origination fees. On August 20, 2013 and December 20, 2013, the Company drew down an amount of $900,000 in aggregate under the above facility in connection with the deliveries of Ocean Rig Mylos and the Ocean Rig Skyros. On March 24, 2014, Ocean Rig drew down the remaining undrawn amount of $450,000, in connection with the delivery of Ocean Rig Athena.
Under the agreement, Ocean Rig would only pay dividends or make other distributions in respect of its capital stock under the $1,350,000 secured term loan facility in an amount of up to 50% of net income of each previous financial year, provided in each case that Ocean Rig maintained minimum liquidity in an aggregate amount of not less than $200,000 in cash and cash equivalents and restricted cash and maintain such level for the next 12 months following the date of the dividend payment.

F-34
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)




9. Long-term Debt - continued:

On August 30, 2013, Ocean Rig signed a supplemental agreement to amend certain provisions in its $1,350,000 Senior Secured Facility dated February 28, 2013. Under the terms of the agreement, the existing dividend restriction of up to 50% of preceding fiscal year net income amended to apply on a cumulative basis from July 1, 2013 onwards (50% of cumulative net income) and include a carve-out to pay additional dividends up to the higher of (i) $150,000 and (ii) 5% of Ocean Rig's net tangible assets. Furthermore, the minimum interest coverage ratio requirement would be 2.0 times until June 30, 2015 and the maximum leverage ratio will be 6.5 times until June 30, 2014, 6.0 times until December 31, 2014 and 5.5 times until June 30, 2015.

On July 25, 2014, this facility was repaid in full and replaced by the $1,300,000 Senior Secured Term Loan B Facility (see below).

$1.3 billion Senior Secured Term Loan B Facility
On July 25, 2014, Ocean Rig's wholly owned subsidiary, Drillships Ocean Ventures Inc., entered into a $1,300,000 Senior Secured Term Loan B ("New Term Loan B") facility to repay the $1,350,000 Senior Secured Credit Facility, which had an outstanding loan balance of approximately $1,300,000 on that date. The unamortized balance of the deferred finance fees associated with the loan repaid, amounting to approximately $19,797, was written off in the consolidated statement of operations upon the extinguishment of the related debt in July 2014. In addition, restricted cash of $75,000 associated with the respective debt was released upon the repayment.  The New Term Loan B facility which is secured primarily by first priority mortgages on the vessels, the Ocean Rig Mylos, the Ocean Rig Skyros and the Ocean Rig Athena, bears interest at a fixed rate and matures on July 25, 2021.

$1.9 billion term loan B facilitiy

On July 12, 2013,  Ocean Rig, through its wholly-owned subsidiaries, Drillships Financing Holding Inc. ("DFHI") and Drillships Projects Inc., entered into a $1,800,000 senior secured term loan facility, comprised of tranche B-1 term loans in an aggregate principal amount equal to $975,000 ("Tranche B-1 Term Loans") and tranche B-2 term loans in an aggregate principal amount equal to $825,000 ("Tranche B-2 Term Loans" and, together with the Tranche B-1 Term Loans, the "Term Loans"), with respective maturity dates in the first quarter of 2021, subject to adjustment to the third quarter of 2020 in certain circumstances and the third quarter of 2016. The Term Loans are initially guaranteed by Ocean Rig and certain existing and future subsidiaries of DFHI and are secured by certain assets of, and by a pledge of the stock of, DFHI and the subsidiary guarantors. The net proceeds of the Term Loans were used by Ocean Rig to repay in full amounts outstanding under Ocean Rig's $800,000 secured term loan agreement and the two $495,000 senior secured credit facilities, amounting to $1,519,168 in aggregate. The unamortized balance of the deferred finance fees associated with the repaid loans, amounting to approximately $23.3 million was written off upon the extinguishment of the related debt in July 2013. In addition, restricted cash of $131.6 million associated with the respective loans were released upon the repayment. On July 26, 2013, Ocean Rig through its wholly-owned subsidiaries DFHI and Drillships Projects Inc., entered into an incremental amendment to the $1,800,000 senior term loan for additional tranche B-1 term loans in a principal amount of $100,000.

On February 7, 2014, Ocean Rig refinanced its then existing short-term Tranche B-2 Term Loans with a fungible add-on to its existing long-term Tranche B-1 Term Loans.  As a result of this refinancing, the total $1.9 billion of Tranche B-1 Term Loans will mature no earlier than the third quarter of 2020.
 
$12.5 million Sellers credit
On March 15, 2013, the Company reached an agreement with a far eastern shipyard for a $12,500 sellers credit to the Company.  This credit was repayable to the yard in one bullet repayment two years after date of drawdown and it bore interest at 3% per annum. The Company agreed to provide a pledge of 1,602,500 shares in Ocean Rig that the Company owns, which pledge would be automatically released upon repayment of the credit. During March 2013, the Company drew the total amount of $12,500. On January 8, 2015, this credit was repaid in full by the Company. On the date of repayment and termination of the loan agreement, the Company was released from its obligations and 1,602,500 shares of Ocean Rig UDW Inc. pledged by the Company to the shipyard were released and returned to the Company.

The aggregate available undrawn amounts under the Company's facilities at December 31, 2013 and 2014, were $450,000 and $0, respectively.

The weighted-average interest rates on the above outstanding debt were: 6.35%, 6.63% and 6.60% for the years ended December 31, 2012, 2013 and 2014, respectively.
F-35
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)



 9. Long-term Debt - continued:

The table below presents the movement for bank loans and notes throughout 2014:
 
 
Loan
Loan agreement date
  
Original Amount
    
December 31, 2013
    
New Loans
    
Repayments
    
December 31, 2014
  
Secured Credit Facility
October 2, 2007
  
$
35,000
    
$
17,000
      
-
      
(4,200
)
  
$
12,800
  
Secured Credit Facility
October 5, 2007
    
90,000
      
57,000
      
-
      
(4,000
)
    
53,000
  
Secured Credit Facility
June 20, 2008
    
103,200
      
24,250
      
-
      
(3,000
)
    
21,250
  
Secured Credit Facility
May 13, 2008
    
125,000
      
21,595
      
-
      
(5,889
)
    
15,706
  
Secured Credit Facility
May 5, 2008
    
90,000
      
36,000
      
-
      
(6,000
)
    
30,000
  
Secured Credit Facility
November 16, 2007
    
47,000
      
16,000
      
-
      
(2,000
)
    
14,000
  
Secured Credit Facility
July 23, 2008
    
126,400
      
53,225
      
-
      
(10,600
)
    
42,625
  
Secured Credit Facility
March 13, 2008
    
130,000
      
30,241
      
-
      
(1,336
)
    
28,905
  
Secured Credit Facility
February 7, 2011
    
70,000
      
57,167
      
-
      
(4,667
)
    
52,500
  
Secured Credit Facility
April 20, 2011
    
32,313
      
26,927
      
-
      
(2,154
)
    
24,773
  
Secured Credit Facility
October 26, 2011
    
141,350
      
123,230
      
-
      
(10,840
)
    
112,390
  
Secured Credit Facility
October 24, 2012
    
107,669
      
96,654
              
(8,405
)
    
88,249
  
Senior Secured Credit Facility
February 28, 2013
    
1,350,000
      
890,000
      
450,000
      
(1,340,000
)
    
-
  
Term Loan B Facility
July 12, 2013
    
1,900,000
      
1,895,250
      
-
      
(19,000
)
    
1,876,250
  
Term Loan B Facility
July 25, 2014
    
1,300,000
      
-
      
1,300,000
      
(3,250
)
    
1,296,750
  
Secured Credit Facility
March 31, 2006
    
753,637
      
174,406
      
-
      
-
      
174,406
  
Secured Credit Facility
March 19, 2012
    
87,654
      
16,980
      
-
      
(1,191
)
    
15,789
  
Secured Credit Facility
February 14, 2012
    
122,580
      
115,590
      
-
      
(5,760
)
    
109,830
  
Secured Bridge Credit Facility
November 14, 2014
    
200,000
      
-
      
200,000
      
-
      
200,000
  
Senior Secured Credit Facility
October 29, 2014
    
167,100
      
-
      
167,100
      
-
      
167,100
  
Secured Credit Facility
September 18, 2007
    
325,000
      
76,534
      
-
      
(76,534
)
    
-
  
5% Convertible Senior Unsecured Notes
November 21, 2009
    
460,000
      
700,000
      
-
      
(700,000
)
    
-
  
6.5% Drill Rigs Senior Secured Notes
September 20, 2012
    
800,000
      
800,000
      
-
      
-
      
800,000
  
7.25% Ocean Rig's Senior Unsecured Notes
March 26, 2014
    
500,000
      
-
      
500,000
      
-
      
500,000
  
9.5% Ocean Rig's Senior Unsecured Notes
April 14, 2011
  
$
500,000
    
$
500,000
      
-
      
(500,000
)
  
$
-
  
                                           
             
$
5,728,049
      
2,617,100
      
(2,708,826
)
  
$
5,636,323
  

The above loans and secured notes are secured by a first priority mortgage over the Company's vessels, drilling rigs and drillships, corporate guarantees, first priority assignments of all freights, earnings, insurances and requisition compensation and pledges of the shares of capital stock of certain of the Company's subsidiaries. The loans contain covenants that restrict, without the bank's prior consent, changes in management and ownership of the vessels, the incurrence of additional indebtedness and mortgaging of vessels and changes in the general nature of the Company's business. In addition, some of the vessels owning companies are not permitted to pay any dividends to DryShips nor DryShips to its shareholders without the lender's prior consent. The loans also contain certain financial covenants relating to the Company's financial position, operating performance and liquidity, including maintaining working capital above a certain level. The Company's secured credit facilities impose operating and negative covenants on the Company and its subsidiaries. These covenants may limit the Dryships' subsidiaries' ability to, among other things, without the relevant lenders' prior consent (i) incur additional indebtedness, (ii) change the flag, class or management of the vessel mortgaged under such facility, (iii) create or permit to exist liens on their assets, (iv) make loans, (v) make investments or capital expenditures, and (vi) undergo a change in ownership or control.
F-36
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)





9. Long-term Debt - continued:

As of December 31, 2014, the shipping segment was not in compliance with certain loan-to-value ratios contained in certain of its loan agreements. These loan-to-value ratio shortfalls do not constitute events of default that would automatically trigger the full repayment of the loan. Based on the loan agreements, loan-to-value shortfalls may be remedied by the Company by providing additional collateral or repaying the amount of the shortfall. In addition, as of December 31, 2014, the shipping segment was in breach of certain financial covenants, contained in the Company's loan agreements relating to $259,537 of the Company's debt (Note 3). As a result of this non-compliance and of the cross default provisions contained in all bank loan agreements of the shipping segment and in accordance with guidance related to the classification of obligations that are callable by the creditor, the Company has classified all of its shipping segment's bank loans in breach amounting to $1,163,321 as current at December 31, 2014.

As of December 31, 2014, the Company was in compliance with all the financial covenants contained in its debt agreements relating to its drilling segment.

Total interest incurred on long-term debt and amortization of debt issuance costs, including capitalized interest, for the years ended December 31 2012, 2013 and 2014, amounted to $222,635, $297,602 and $367,996, respectively. These amounts net of capitalized interest are included in "Interest and finance costs" in the accompanying consolidated statement of operations.

The annual principal payments required to be made after December 31, 2014, including balloon payments, totaling $5,636,323 due through June 2025 are as follows:

2015
  
$
1,195,323
  
2016
    
32,000
  
2017
    
832,000
  
2018
    
32,000
  
2019
    
532,000
  
2020 and thereafter
    
3,013,000
  
Total principal payments
    
5,636,323
  
Less: Financing fees and equity component of notes
    
(118,710
)
         
Total debt
  
$
5,517,613
  


10. Financial Instruments and Fair Value Measurements:

ASC 815, "Derivatives and Hedging" requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. Effective January 1, 2011, the Company removed the designation of the cash flow hedges and discontinued hedge accounting for the associated interest rate swaps.

The Company recognizes all derivative instruments as either assets or liabilities at fair value on its consolidated balance sheets.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income/ (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in the accompanying consolidated statement of operations. Changes in the fair value of derivative instruments that have not been designated as hedging instruments are reported in the accompanying consolidated statement of operations.

The Company enters into interest rate swap transactions to manage interest costs and risk associated with changing interest rates with respect to its variable interest rate loans and credit facilities. The Company entered into forward freight agreements ("FFA") and foreign currency forward contracts in order to manage risks associated with fluctuations in charter rates and foreign currencies, respectively. All of the Company's derivative transactions are entered into for risk management purposes.

F-37
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 

 

 10. Financial Instruments and Fair Value Measurements - continued:

10.1 Interest rate swaps, cap and floor agreements: As of December 31, 2012,  2013 and 2014 the Company had outstanding 43, 27 and 24 interest rate swaps of $4.6 billion, $2.9 billion and $2.4 billion notional amount, respectively, maturing from January 2015 through November 2017.

Effective January 1, 2011, the Company removed the designation of the cash flow hedges and discontinued hedge accounting for the associated interest rate swaps. As a result, as of December 31, 2012, 2013 and 2014, these agreements do not qualify for hedge accounting and, as such, changes in their fair values are included in the accompanying consolidated statement of operations. In accordance with ASC 815-30-40 the unrealized loss accumulated in "Accumulated other comprehensive income/(loss)" for previously designated cash flow hedges, which as of December 31, 2010, amounted to $35,992, is being reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. As a result, during the year ended December 31, 2012, an amount of $22,904 was reclassified into the consolidated statement of operations. Included in the $22,904 is an amount of $13,088 that was transferred to the consolidated statements of operations immediately as a result of the early loan repayment, which ended the forecasted transaction.

Accumulated other comprehensive income/(loss) also included realized losses on cash flow hedges associated with interest capitalized during prior years under "Advances for vessels and drillships under construction and acquisitions" amounting to $16,463, which according to ASC 815-30-35 is being reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. As a result, during the years ended December 31, 2013 and 2014, the amounts of $550 and $550, respectively were reclassified into the consolidated statement of operations.

The fair value of the above mentioned agreements equates to the amount that would be paid by the Company if the agreements were transferred to a third party at the reporting date, taking into account current interest rates and creditworthiness of both the financial instrument counterparty and the Company.

The change in the fair value of such agreements which do not qualify for hedge accounting for the years ended December 31, 2012, 2013 and 2014, amounted to gains of $54,506, $88,859 and $29,304, respectively and is included in "Gain/ (Loss) on interest rate swaps" in the accompanying consolidated statement of operations.

As of December 31, 2012, security deposits of $8,000 were provided as security by the Company. The Company has deposited also a cash collateral of $6,000 that was classified as current restricted cash. These amounts were released upon the delivery of the Ocean Rig Mylos and the Ocean Rig Skyros (Note 6).

As of December 31, 2013 and 2014, security deposits of $550 for the tankers Saga and Vilamoura, were recorded as "Other non-current assets" in the accompanying consolidated balance sheet due to the market loss in the respective swap agreements as of the related dates.

10.2 Forward freight agreements: FFA trading generally has not qualified as hedge accounting and as such the trading of FFAs could lead to material fluctuations in the Company's reported results from operations on a period to period basis.

F-38
 
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 

 
10. Financial Instruments and Fair Value Measurements - continued:

As of December 31, 2013 and 2014, the Company had no open FFAs.

10.3 Foreign currency forward contracts: As of December 31, 2012, 2013 and 2014, the Company had no outstanding forward contracts.

Tabular disclosure of financial instruments is as follows:

Fair Values of Derivative Instruments in the Consolidated Balance Sheets:

      
Asset Derivatives
      
Liability Derivatives
  
Derivatives not designated as hedging
instruments
Balance Sheet
 Location
  
December 31,
2013
Fair value
    
December 31,
2014
Fair value
  
Balance Sheet
Location
  
December 31,
2013
Fair value
    
December 31,
2014
Fair value
  
Interest rate swaps
   Financial instruments-current assets
  
$
-
    
$
-
  
   Financial instruments- current liabilities
  
$
47,740
    
$
30,447
  
Interest rate swaps
   Financial instruments- non-current assets
    
14,741
      
11,086
  
   Financial instruments- non-current liabilities
    
26,086
      
10,420
  
                                     
Total derivatives not designated as hedging instruments
    
$
14,741
    
$
11,086
      
$
73,826
    
$
40,867
  
                                     
Total derivatives
    
$
14,741
    
$
11,086
  
Total derivatives
  
$
73,826
    
$
40,867
  


During the years ended December 31, 2012, 2013 and 2014, the losses transferred from other comprehensive income/ (loss) to the statement of operations were $23,453, $550 and $550, respectively. The estimated net amount of existing losses at December 31, 2014, that will be reclassified into earnings within the next twelve months related with cash flow hedges is $550.


    
Amount of Gain/(Loss)
  
Derivatives not designated as hedging instruments
Location of Gain or (Loss) Recognized
Year Ended
December 31,
2012
  
Year Ended
December 31,
2013
  
Year Ended
December 31,
2014
  
Interest rate swaps
Gain/(Loss) on interest rate swaps
  
$
(54,073
)
  
$
8,373
    
$
(15,528
)
                           
Total
    
$
(54,073
)
  
$
8,373
    
$
(15,528
)

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable and other current liabilities reported in the consolidated balance sheets approximate their respective fair values because of the short term nature of these accounts. The fair value of credit facilities is estimated based on current rates offered to the Company for similar debt of the same remaining maturities. Additionally, the Company considers its creditworthiness in determining the fair value of the credit facilities. The carrying value approximates the fair market value for the floating rate loans. The fair value of the interest rate swaps was determined using a discounted cash flow method based on market-based LIBOR swap yield curves, taking into account current interest rates and the creditworthiness of both the financial instrument counterparty and the Company.
F-39
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)




10. Financial Instruments and Fair Value Measurements - continued:

The Convertible Senior Notes, the OCR UDW Notes and the Drill Rigs Notes, have a fixed rate and their estimated fair values were determined through Level 2 inputs of the fair value hierarchy (quoted price in the over-the counter-market). The fair value of the outstanding balance of the $1,900,000 and $1,300,000 Term Loan B Facilities that have a fixed rate is estimated through Level 2 of the fair value hierarchy by discounting future cash flows using rates currently available for debt with similar terms, credit risk and remaining maturities. The estimated fair value of the above Convertible Senior Notes, 9.5% Senior Unsecured Notes, Drill Rigs Notes and loans at December 31, 2013, is approximately, $700,000,  $531,250, $863,504 and $1,951,790, respectively compared to a carrying value net of finance fees of $649,966, $493,915, $784,485 and $1,839,170, respectively. The estimated fair value of the above 7.25% Senior Unsecured Notes and Drill Rigs Notes at December 31, 2014, is approximately $380,000 and $666,000, respectively, while the loan balances are approximately the same as their fair market values, compared to a carrying amount net of financing fees of $492,214, $788,224, $1,825,671 and $1,266,341, respectively.

The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

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

The following table summarizes the valuation of assets and liabilities measured at fair value on a recurring basis as of the valuation date.
 
 
December 31,
2013
  
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
  
Significant Other
Observable
Inputs
(Level 2)
  
Unobservable
Inputs
(Level 3)
  
         
Recurring measurements:
        
Interest rate swaps - asset position
  
$
14,741
    
$
-
    
$
14,741
    
$
-
  
Interest rate swaps - liability position
  
$
(73,826
)
  
$
-
    
$
(73,826
)
  
$
-
  
                                 
Total
  
$
(59,085
)
  
$
-
    
$
(59,085
)
  
$
-
  

   
December 31,
2014
    
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
    
Significant Other
Observable
Inputs
(Level 2)
    
Unobservable
Inputs
(Level 3)
  
Recurring measurements:
                
Interest rate swaps - asset position
  
$
11,086
    
$
-
    
$
11,086
    
$
-
  
Interest rate swaps - liability position
  
$
(40,867
)
  
$
-
    
$
(40,867
)
  
$
-
  
                                 
Total
  
$
(29,781
)
  
$
-
    
$
(29,781
)
  
$
-
  
                                 

F-40
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)



10. Financial Instruments and Fair Value Measurements - continued:

The following table summarizes the valuation of assets measured at fair value on a non-recurring basis as of the valuation date.
 
   
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Unobservable
Inputs
(Level 3)
    
Impairment loss
  
Non-Recurring measurements:
                
Long-lived assets held and used
  
$
-
    
$
71,000
    
$
-
    
$
(43,490
)
                                 
Total
  
$
-
    
$
71,000
    
$
-
    
$
(43,490
)
                                 

In accordance with the provisions of relevant guidance, four newbuildings with a carrying amount of $43,490 were written down to their fair values as determined based on the agreed sale price, resulting in an impairment charge of $43,490, which was included in the accompanying consolidated statement of operations for the year ended December 31, 2013 (Note 6).

   
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Unobservable
Inputs
(Level 3)
    
Impairment loss
  
Non-Recurring measurements:
                
Long-lived assets held and used
  
$
-
    
$
10,500
    
$
-
    
$
(38,148
)
                                 
Total
  
$
-
    
$
10,500
    
$
-
    
$
(38,148
)
                                 

As a result of the impairment analysis performed for the year ended December 31, 2014, one of the Company's vessels, with a carrying amount of $48,648 was written down to its fair value as determined based on the valuations of the independent valuators, resulting in an impairment charge of $38,148, which was included in the accompanying consolidated statement of operations for the year ended December 31, 2014 (Note 7).
 
F-41
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


11. Common Stock and Additional Paid-in Capital:

Net Loss Attributable to Dryships Inc. and Transfers from the Non-controlling Interest:

The following table represents the effects of any changes in Dryships Inc. ownership interest in a subsidiary on the equity attributable to the shareholders of Dryships Inc.
 
   
Year Ended December 31,
  
   
2012
    
2013
    
2014
  
             
Net loss attributable to Dryships Inc.
  
$
(246,778
)
  
$
(223,093
)
  
$
(47,512
)
Transfers to the non-controlling interest:
                        
Decrease in Dryships Inc. equity for reduction in subsidiary ownership
    
(81,760
)
    
(45,542
)
    
(4,758
)
                         
Net transfers to the non-controlling interest
    
(81,760
)
    
(45,542
)
    
(4,758
)
                         
Net loss attributable to Dryships Inc. and transfers to/from the non-controlling interest
  
$
(328,538
)
  
$
(268,635
)
  
$
(52,270
)
 
 
 

 
F-42
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 
 
11. Common Stock and Additional Paid-in Capital - continued:

Issuance of common shares

On October 4, 2013, the Company filed a prospectus supplement to the universal shelf registration statement on Form F-3 filed on August 30, 2013, pursuant to an at-the-market offering for up to $200,000 of the Company's common shares. In connection with the offering, the Company entered into a Sales Agreement with Evercore Group L.L.C., ("Evercore"), the sales agent, dated October 4, 2013. During 2013, 6,892,233 common shares were issued and sold pursuant to the at-the-market offering, resulting in net proceeds of $23,655, after deducting commissions, while in 2014, 22,209,844 common shares were issued and sold pursuant to the at-the-market offering, resulting in net proceeds of $90,016, after deducting commissions.

On October 29, 2014, the Company successfully completed the offering of 250,000,000 shares of its common stock, par value $0.01 per share, at a price of $1.40 per share. As part of the offering, George Economou, the Company's Chairman, President and Chief Executive Officer, has purchased $80,000, or 57,142,000 shares, of common stock in the offering at the public offering price. The Company used the net proceeds of approximately $332,852 from the offering to repurchase a portion of its $700,000 principal amount of indebtedness under the 5.0% Convertible Senior Notes matured on December 1, 2014.

Sale of Ocean Rig shares

On April 17, 2012, the Company completed a public offering of an aggregate of 11,500,000 common shares of Ocean Rig owned by DryShips. The Company received approximately $180,485 of net proceeds from the public offering. The net assets of Ocean Rig as of April 17, 2012, amounted to $3,003,954. At the date of the transaction, the carrying amounts of Ocean Rig's assets and liabilities did not require fair value adjustments. The difference between the net consideration received and the amount attributed to the non-controlling interests which amounted to $81,760 was recognized in equity attributable to the controlling interest.

On February 14, 2013, the Company completed a public offering of an aggregate of 7,500,000 common shares of Ocean Rig owned by DryShips. The Company received approximately $122,960 of net proceeds from the public offering. The net assets of Ocean Rig as of February 14, 2013, amounted to $2,950,992. At the date of the transaction, the carrying amounts of Ocean Rig's assets and liabilities did not require fair value adjustments. The difference between the net consideration received and the amount attributed to the non-controlling interests, which amounted to $45,542, was recognized in equity attributable to the controlling interest.

Treasury stock

During September 2011, April 2012 and January 2013 the share borrower described in Note 9 returned to the Company an aggregate of 21,000,000 loaned shares of the Company's common stock, which were not retired and are held as treasury stock. During December, 2014 the share borrower described in Note 9 returned to the Company the remaining 15,100,000 loaned shares of the Company's common stock, which were not retired and are held as treasury stock.

Stockholders Rights Agreement

As of January 18, 2008, the Company entered into a Stockholders Rights Agreement (the "Agreement"). Under the Agreement, the Company's Board of Directors declared a dividend payable of one preferred share purchase right, ("Right"), to purchase one one-thousandth of a share of the Company's Series A Participating Preferred Stock for each outstanding common share. Each Right entitles the registered holder, upon the occurrence of certain events, to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock or additional shares of common stock. As of December 31, 2014, no exercise of any Rights had occurred. As of July 9, 2009, an amendment was effected to the Agreement to reflect the issuance of Series A Convertible Preferred Stock.
F-43
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)





11. Common Stock and Additional Paid-in Capital - continued:

Dividends
On May 8, 2014, Ocean Rig's Board of Directors declared a quarterly cash dividend with respect to the quarter ended March 31, 2014 of $0.19 per common share, to shareholders on record as of May 20, 2014. The dividend was paid in May, 2014.
On July 21, 2014, Ocean Rig's Board of Directors declared a quarterly cash dividend with respect to the quarter ended June 30, 2014 of $0.19 per common share, to shareholders on record as of August 1, 2014. The dividend was paid in August, 2014.
On October  15, 2014, Ocean Rig's Board of Directors declared a quarterly cash dividend with respect to the quarter ended September 30, 2014, of $0.19 per common share, to shareholders on record as of October 31, 2014. The dividend was paid in November, 2014.
Ocean Rig paid dividends amounting to $30,563, to shareholders other than the Company, during the year ended December 31, 2014.
12. Equity incentive plan

On January 16, 2008, the Company's Board of Directors approved the 2008 Equity Incentive Plan (the "Plan"). Under the Plan, officers, key employees and directors are eligible to receive awards of stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock. On January 25, 2010, the Company's Board of Directors amended the 2008 Equity Incentive Plan to provide that a total of 21,834,055 common shares be reserved for issuance.

On March 5, 2008, 1,000,000 shares of non-vested common stock out of the 1,834,055 shares then reserved under the Plan were granted to Fabiana, an entity that offers consultancy services to the Chief Executive Officer, Mr. George Economou. The shares vested quarterly in eight equal installments with the first installment of 125,000 common shares vesting on May 28, 2008. The stock-based compensation was recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $75.09 per share. As of December 31, 2014, the shares have vested in full.

On October 2, 2008, the Company's Board of Directors and Compensation Committee approved grants for the non-executive directors of the Company. On October 2, 2008, 9,000 shares of non-vested common stock and 9,000 shares of vested common stock were granted to the non-executive directors. The non-vested common stock vested evenly over a three-year period with the first vesting date commencing on January 1, 2009. For the director vested and non-vested stock, the fair value of each share on the grant date was $33.59. As of December 31, 2014, these shares have vested in full.

On March 12, 2009, 70,621 shares of non-vested common stock out of the 1,834,055 shares then reserved under the Plan were granted to an executive of the Company. The shares vested in annual installments of 42,373 and 28,248 shares on March 1, 2010 and 2011, respectively. The fair value of each share on the grant date was $3.54. As of December 31, 2014, the shares have vested in full.

On January 25, 2010, 4,500,000 shares of non-vested common stock out of 21,834,055 shares reserved under the Plan were granted to Fabiana as a bonus for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2009 as well as for anticipated services during the years 2010, 2011 and 2012. The shares vested over a period of three years, with 1,000,000 shares vesting on the grant date; 1,000,000 shares vesting on December 31, 2010 and 2011, respectively; and 1,500,000 shares vesting on December 31, 2012. The stock-based compensation was recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $6.05 per share. As of December 31, 2014, the shares have vested in full.

On March 5, 2010, 2,000 shares of non-vested common stock and 1,000 shares of vested common stock out of the 21,834,055 shares reserved under Plan were granted to an executive of the Company. The shares vested in annual installments of 1,000 shares on March 5, 2010, December 31, 2010 and 2011, respectively. The shares were issued during July 2010 and the fair value of each share, on the grant date, was $5.66. As of December 31, 2014, the shares have vested in full.

F-44
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)





12. Equity incentive plan - continued:

On January 12, 2011, 9,000,000 shares of the non-vested common stock out of 21,834,055 shares reserved under the Plan were granted to Fabiana as a bonus for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2010. The shares were granted to Fabiana and vest over a period of eight years, with 1,000,000 shares vesting on the grant date and 1,000,000 shares vesting annually on December 31, 2011, through 2018, respectively. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $5.50 per share. As of December 31, 2014, 5,000,000 of these shares have vested.

On February 4, 2011, 15,000 shares of non-vested common stock out of the 21,834,055 shares reserved under Plan were granted to an executive of the Company. The shares vest on a pro-rata basis over a period of three years from the date of the non-vested stock award agreement. The fair value of each share, on the grant date, was $5.01. As of December 31, 2014, the shares have vested in full.

On August 20, 2013, the Compensation Committee approved that a bonus in the form of 1,000,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2012. The shares vest over a period of two years with 333,334 shares vesting on the grant date, 333,333 shares vesting on August 20, 2014 and 333,333 vesting on August 20, 2015, respectively. The stock based compensation is being recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $2.01 per share. As of December 31, 2014, 666,667 of these shares have vested.

On August 19, 2014, the Compensation Committee approved that a bonus in the form of 1,200,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2013. The shares vest over a period of three years, with 400,000 shares vesting on December 31, 2014, 400,000 shares vesting on December 31, 2015, and 400,000 vesting on December 31, 2016. The stock based compensation is being recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $3.26 per share. As of December 31, 2014, 400,000 of these shares have vested.

On December 30, 2014, the Compensation Committee approved that a bonus in the form of 2,100,000 shares of the Company's common stock, with par value $0.01, be granted to Fabiana for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2014. The shares vest over a period of three years, with 700,000 shares vesting on December 31, 2015, 700,000 shares vesting on December 31, 2016, and 700,000 vesting on December 31, 2017. The stock based compensation is being recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $1.07 per share. As of December 31, 2014, none of these shares have vested.

A summary of the status of the Company's non vested shares as of December 31, 2012, 2013 and 2014 and movement for the years ended December 31, 2012, 2013 and 2014, is presented below. There were no shares forfeited in 2012, 2013 and 2014.
 
   
Number of
non
vested shares
    
Weighted average grant
date fair value per
non vested shares
  
Balance December 31, 2011
    
8,510,150
    
$
5.60
  
Vested
    
(2,505,150
)
    
5.83
  
Balance December 31, 2012
    
6,005,000
    
$
5.50
  
Granted
    
1,000,000
      
2.01
  
Vested
    
(1,338,334
)
    
4.63
  
Balance December 31, 2013
    
5,666,666
    
$
5.09
  
Granted
    
3,300,000
      
1.87
  
Vested
    
(1,733,333
)
    
4.31
  
Balance December 31, 2014
    
7,233,333
    
$
3.81
  

F-45
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)






12. Equity incentive plan - continued:

   
Number of
vested shares
    
Weighted average grant
date fair value per
vested shares
  
As at December 31, 2011
    
6,092,871
    
$
17.23
  
Non vested shares granted in prior years and vested 2012
    
2,505,150
      
5.83
  
                 
As at December 31, 2012
    
8,598,021
    
$
13.91
  
Granted and vested
    
333,334
      
2.01
  
Non vested shares granted in prior years and vested 2013
    
1,005,000
      
5.50
  
                 
As at December 31, 2013
    
9,936,355
    
$
12.66
  
Granted and vested
    
400,000
      
3.26
  
Non vested shares granted in prior years and vested 2014
    
1,333,333
      
4.63
  
                 
As at December 31, 2014
    
11,669,688
    
$
11.42
  

As of December 31, 2012, 2013 and 2014, there was $19,725, $13,947 and $12,589 respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of four years. The stock-based compensation recognized to expenses amounted to $12,686, $7,790 and $7,516 and is recorded in "General and administrative expenses", in the accompanying consolidated statements of operations for the years ended December 31, 2012, 2013 and 2014, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2013 and 2014, were $4,008, $5,394 and $2,561, respectively.

Ocean Rig UDW Inc.

On February 14, 2012, Ocean Rig's Compensation Committee approved the grant of 112,950 shares of non-vested common stock to officers and key employees of Ocean Rig`s subsidiary, Ocean Rig AS, as a bonus for their services rendered during 2011. The shares vest over a period of three years, one third on each December 31, 2012, 2013 and 2014.The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the shares on the grant date of $16.50 per share.

On March 21, 2012, Ocean Rig's Board of Directors approved the 2012 Equity Incentive Plan (the "Plan") and reserved a total of 2,000,000 common shares. Under the Plan, officers, key employees, and directors are eligible to receive awards of stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock.

On May 15, 2012, Ocean Rig's Compensation Committee approved the grant of: a) 4,500 shares of non-vested common stock to an officer as an additional bonus for his services rendered during 2011 and b) 28,200 shares to new recruited employees as a sign-up stock bonus. The shares vest over a period of three years, one third on each of December 31, 2012, 2013 and 2014. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $15.92 per share.

On December 5, 2012, 7,500 shares awarded to an officer of Ocean Rig. The fair value of the shares on the grant date was $15.75 and the shares vested in March 2013.

On May 16, 2013, Ocean Rig's Compensation Committee approved the grant of 192,400 shares of non-vested common stock to Ocean Rig's employees. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $16.90 per share.

F-46
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)




12. Equity incentive plan - continued:

Ocean Rig UDW Inc. – continued:

On August 20, 2013, Ocean Rig's Compensation Committee approved a sign-on bonus of 150,000 shares of Ocean Rig's common stock to Azara, pursuant to a consultancy agreement with Azara effective January 1, 2013, relating to the services of Mr. George Economou as Chief Executive Officer. The shares vest over a period of two years with 50,000 shares vesting on the grant date, 50,000 shares vesting on August 20, 2014 and 50,000 vesting on August 20, 2015 respectively. The stock based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $17.56 per share.

On March 31, 2014, Ocean Rig's Compensation Committee approved the grant of 161,200 shares of non-vested common stock to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $17.79 per share.

On August 19, 2014, Ocean Rig's Compensation Committee approved a bonus of 150,000 shares of Ocean Rig's common stock to Azara, pursuant to a consultancy agreement with Azara effective January 1, 2013, relating to the services of Mr. George Economou as Chief Executive Officer of Ocean Rig, rendered during 2013. The shares vest over a period of three years with 50,000 shares vesting on December 31, 2014, 50,000 shares vesting on December 31, 2015, and 50,000 vesting on December 31, 2016, respectively. The stock based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $18.37 per share.

On November 4, 2014, Ocean Rig's Compensation Committee approved the grant of 45,450 shares of non-vested common stock to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $12.60 per share.

On December 30, 2014, Ocean Rig's Compensation Committee approved a bonus in the form of 300,000 of Ocean Rig's common stock to be granted to Azara for the contribution of Mr. George Economou for Chief Executive Officer's services rendered to Ocean Rig during 2014. The shares vest over a period of three years with 100,000 shares vesting on December 31, 2015, 100,000 shares vesting on December 31, 2016, and 100,000 vesting on December 31, 2017. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $9.46 per share.

As of December 31, 2014, 309,452 shares have vested, while 171,626 shares were forfeited due to employees' resignations.

A summary of the status of Ocean Rig's non vested shares as of December 31, 2014 and movement during the year then ended, is presented below.

   
Number of
non vested
shares
    
Weighted
average grant
date fair value per
non vested shares
  
Balance December 31, 2012
    
73,500
    
$
16.40
  
Granted
    
342,400
      
17.19
  
Forfeited
    
(15,900
)
    
16.90
  
Vested
    
(160,133
)
    
16.92
  
                 
Balance December 31, 2013
    
239,867
    
$
17.15
  
Granted
    
656,650
      
13.76
  
Forfeited
    
(78,576
)
    
16.93
  
Vested
    
(205,143
)
    
17.31
  
                 
Balance December 31, 2014
    
612,798
    
$
13.49
  


F-47
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


12. Equity incentive plan - continued:

Ocean Rig UDW Inc. – continued:
 
   
Number of
vested shares
    
Weighted
average grant
date fair value per
vested shares
  
         
As at December 31, 2012
    
2,500
    
$
16.50
  
Granted and vested
    
117,133
      
17.18
  
Non vested shares granted in prior years and vested 2013
    
43,000
      
16.16
  
As at December 31, 2013
    
162,633
    
$
16.90
  
Granted and vested
    
111,585
      
17.39
  
Non vested shares granted in prior years and vested 2014
    
93,558
      
17.20
  
Granted and vested shares in prior years, but cancelled during 2014
    
(58,324
)
    
16.63
  
As at December 31, 2014
    
309,452
    
$
17.22
  

As of December 31, 2013 and 2014, there was $2,724 and $6,235 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted by Ocean Rig, respectively. That cost is expected to be recognized over a period of two years. The amounts of $613, $3,634 and $3,576 represents the stock based compensation expense for each year accordingly and are recorded in "General and administrative expenses", in the accompanying consolidated statements of operations for the years ended December 31, 2012, 2013 and 2014.  The total fair value of shares vested during the years ended December 31, 2012, 2013 and 2014, was $37, $2,959 and $2,383, respectively. As of December 31, 2014, there were 139,202 shares of common stock which had been granted to employees and vested but which had not yet been issued by the Company.

13. Commitment and contingencies:

13.1 Legal proceedings

Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping and drilling business.

The Company has obtained hull and machinery insurance for the assessed market value of the Company's fleet and protection and indemnity insurance. However, such insurance coverage may not provide sufficient funds to protect the Company from all liabilities that could result from its operations in all situations. Risks against which the Company may not be fully insured or insurable include environmental liabilities, which may result from a blow-out or similar accident, or liabilities resulting from reservoir damage alleged to have been caused by the negligence of the Company.

The Company's loss of hire insurance coverage does not protect against loss of income from day one. It covers approximately one year for the loss of time but will be effective after 45 days' off-hire. During 2012, the Ocean Rig Corcovado, a drillship owned by Ocean Rig, incurred off-hire due to a failure in one of its engines which was a covered event under the loss of hire policy that resulted in $24.6 million being recognized as revenue during the year ended December 31, 2012. The amount of $24.6 million was reimbursed by the insurers to the Company in August 2012. During 2014, the Ocean Rig Corcovado incurred off-hire for the same event and, as a result, an additional amount of $20.2 million for the above covered event was recognized as revenue during the year ended December 31, 2014, and was reimbursed during the same period. During 2014, the Ocean Rig Mylos incurred off-hire due to damage to the blow-out-preventer stack during testing, which was a covered event under the loss of hire policy that resulted in $39.6 million being recognized as revenue during the year ended December 31, 2014, from which an amount of $39.1 was reimbursed during the year.

As part of the normal course of operations, the Company's customers may disagree on amounts due to the Company under the provision of the contracts which are normally settled though negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company reaches agreement with the customer on the amounts due.
F-48
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)




13. Commitment and contingencies - continued:

Ocean Rig's drilling rig, the Leiv Eiriksson operated in Angola during the period from 2002 to 2007. Ocean Rig's manager in Angola during this period made a legal claim for reimbursement of import/export duties for two export/importation events in the period 2002 to 2007 retroactively levied by the Angolan government. Agreement was reached between the parties to settle this claim for an amount of $6.1 million which was paid by Ocean Rig's relevant subsidiary on May 24, 2012, to the claimant, in full and final settlement of the London Court Proceedings. Ocean Rig recorded a charge of $6.1 million during the year ended December 31, 2012, which is included in "Legal settlements and other, net" in the consolidated statements of operations.

On May 10, 2013, Drillship Hydra Owners Inc., being the owning company of the drillship, the Ocean Rig Corcovado, filed a claim against Capricorn Greenland Exploration 1 Limited and Cairn Energy Plc with the High Court in London in connection with the loss of daily earnings and cost of repair for the Blow Out Preventer of the Ocean Rig Corcovado in June and July 2011. In July 2013, Ocean Rig reached an out-of-court commercial agreement with Capricorn Greenland Exploration 1 Limited and Cairn Energy Plc to receive a compensation amounting to $5.0 million and a Settlement Agreement and Release dated September 12, 2013, was entered and the relevant claim filed in the High Court in London, U.K. was dropped. In this respect, Ocean Rig, having previously recognized a receivable of $11.0 million, recorded a charge of $6.0 million during the year ended December 31, 2013, which is included under "Legal settlements and other, net" in the consolidated statement of operations.

Ocean Rig Norway Operations Inc. ("OCR"), a subsidiary of Ocean Rig, was notified by a letter dated November 13, 2013, that arbitration proceedings were commenced against it by Westcon Yard AS of Norway ("Westcon"), in connection to an alleged outstanding unpaid amount of Norwegian Krone Seventy Seven Million Three Hundred Eighty Three Thousand Eight Hundred and Three and Fifty Eight Шre (NOK 77,383,803.58), $10.4 million (based on based on the NOK/U.S. Dollar exchange rate as of December 31, 2014)  plus interest and costs related to upgrades performed in the drilling unit the Leiv Eiriksson in late 2012 and early 2013. The counterparties reached an agreement during the year ended December 31, 2014.

13.2 Purchase obligations:

The following table sets forth the Company's contractual obligations and their maturity dates as of December 31, 2014, for a period of three fiscal years:
 
           
Obligations:
Total
  
2015
  
2016
    
2017
  
Drillship building contracts
    
1,928,900
      
566,300
      
498,200
      
864,400
  
Total obligations
  
$
1,928,900
    
$
566,300
    
$
498,200
    
$
864,400
  

13.3 Contractual charter revenue

Future minimum contractual charter revenue, based on vessels committed to non-cancelable, long-term time contracts as of December 31, 2014, will be $132,470 during 2015, $104,130 during 2016, $103,296 during 2017, $72,735 during 2018, $32,682 during 2019 and $1,695 during 2020 and thereafter. These amounts do not include any assumed off-hire.
 
Under seven of the Company's charter agreements, the charterer has the option to (i) acquire the vessels at fair market value as determined by two independent brokers, at the date that the options are exercised, less $5,000 per vessel or, (ii) to require a cash payout of $5,000 per charter agreement in which case the charter agreement will automatically be terminated on the date of completion of the current voyage. These options are exercisable beginning late March 2015 and throughout the term of the charter agreements which expire through 2020. The options will be amortized over the term of the charter agreements or when exercised, if earlier.
 
F-49
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 14. Accumulated other comprehensive loss:

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

 
Year ended December 31,
  
 
2013
  
2014
  
 
Attributable
to Dryships
Inc
  
Attributable
to non
controlling
interest
  
Total
  
Attributable
to Dryships
Inc
  
Attributable
to non
controlling
interest
  
Total
  
Cash flows hedges realized loss
  
$
(8,915
)
  
$
(6,083
)
  
$
(14,998
)
  
$
(8,570
)
  
$
(5,878
)
  
$
(14,448
)
Actuarial pension gain
    
2,853
      
1,949
      
4,802
      
1,948
      
1,336
      
3,284
  
Total
  
$
(6,062
)
  
$
(4,134
)
  
$
(10,196
)
  
$
(6,622
)
  
$
(4,542
)
  
$
(11,164
)


15. Interest and Finance Costs:

The amounts in the accompanying consolidated statements of operations are analyzed as follows:
 
   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
             
Interest incurred on long-term debt
  
$
205,070
    
$
251,596
    
$
317,445
  
Amortization and write-off of financing fees
    
17,565
      
46,006
      
50,551
  
Amortization of convertible notes discount
    
38,855
      
43,769
      
45,261
  
Amortization of share lending agreement-note issuance costs
    
2,983
      
2,974
      
2,733
  
Commissions, commitment fees and other financial expenses
    
4,622
      
57,498
      
34,256
  
Capitalized interest
    
(58,967
)
    
(69,714
)
    
(39,225
)
                         
Total
  
$
210,128
    
$
332,129
    
$
411,021
  

 
 
 
F-50
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

16. Segment information:

The Company has three reportable segments from which it derives its revenues: Drybulk, Tanker and Drilling segments. The reportable segments reflect the internal organization of the Company and are a strategic business that offers different products and services. The Drybulk business segment consists of transportation and handling of Drybulk cargoes through ownership and trading of vessels. The Drilling business segment consists of the deepwater drilling rig services of the drilling rigs and drillships through ownership of drilling rigs and drillships. The Tanker business segment consists of vessels for the transportation of crude and refined petroleum cargoes.

The tables below present information about the Company's reportable segments as of and for the years ended December 31, 2012, 2013 and 2014. The accounting policies followed in the preparation of the reportable segments are the same as those followed in the preparation of the Company's consolidated financial statements.

The Company measures segment performance based on net income. Summarized financial information concerning each of the Company's reportable segments is as follows:
 
   
Drybulk Segment
        
Drilling Segment
    
Tanker Segment
    
TOTAL
  
   
2012
    
2013
    
2014
    
2012
    
2013
    
2014
    
2012
    
2013
    
2014
    
2012
    
2013
    
2014
  
Revenues
  
$
227,141
    
$
191,024
    
$
205,630
    
$
941,903
    
$
1,180,250
    
$
1,817,077
    
$
41,095
    
$
120,740
    
$
162,817
    
$
1,210,139
    
$
1,492,014
    
$
2,185,524
  
Vessels and rigs/drillships operating expenses
    
69,640
      
78,594
      
90,376
      
563,583
      
504,957
      
727,832
      
16,499
      
26,214
      
26,052
      
649,722
      
609,765
      
844,260
  
Depreciation and amortization
    
94,716
      
96,624
      
99,631
      
225,650
      
236,689
      
325,744
      
15,092
      
24,059
      
24,417
      
335,458
      
357,372
      
449,792
  
Loss on sale of assets
    
1,046
      
-
      
-
      
133
      
-
      
-
      
-
      
-
      
-
      
1,179
      
-
      
-
  
Contract termination fees and other
    
-
      
32,283
      
-
      
-
      
-
      
-
      
41,339
      
1,010
      
-
      
41,339
      
33,293
      
-
  
Impairment charge
    
-
      
43,490
      
38,148
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
43,490
      
38,148
  
General and administrative expenses
    
52,576
      
44,819
      
48,441
      
83,647
      
126,868
      
131,745
      
9,712
      
13,035
      
13,500
      
145,935
      
184,722
      
193,686
  
Gain/(loss) on interest rate swaps
    
(13,229
)
    
(1,226
)
    
(1,142
)
    
(36,974
)
    
8,616
      
(12,671
)
    
(3,870
)
    
983
      
(1,715
)
    
(54,073
)
    
8,373
      
(15,528
)
Gain/(loss) on FFA's
    
(13,934
)
    
(31,362
)
    
-
      
-
      
-
      
-
      
13,934
      
31,362
      
-
      
-
      
-
      
-
  
Income taxes
    
-
      
-
      
-
      
(43,957
)
    
(44,591
)
    
(77,823
)
    
-
      
-
      
-
      
(43,957
)
    
(44,591
)
    
(77,823
)
Net income/(loss)
    
(115,423
)
    
(265,399
)
    
(206,303
)
    
(129,396
)
    
64,287
      
259,654
      
(43,774
)
    
3,084
      
4,669
      
(288,593
)
    
(198,028
)
    
58,020
  
Net income/(loss) attributable to Dryships Inc.
    
(115,423
)
    
(265,399
)
    
(206,303
)
    
(87,581
)
    
39,222
      
154,122
      
(43,774
)
    
3,084
      
4,669
      
(246,778
)
    
(223,093
)
    
(47,512
)
Interest and finance cost
    
(95,545
)
    
(102,656
)
    
(102,806
)
    
(112,316
)
    
(218,384
)
    
(298,839
)
    
(2,267
)
    
(11,089
)
    
(10,540
)
    
(210,128
)
    
(332,129
)
    
(412,185
)
Interest income
    
3,645
      
2,900
      
1,074
      
553
      
9,595
      
12,227
      
5
      
3
      
9
      
4,203
      
12,498
      
13,310
  
Change in fair value of derivatives (gain)/loss
    
(41,801
)
    
(42,125
)
    
(21,069
)
    
(16,063
)
    
(44,383
)
    
(15,909
)
    
3,358
      
(2,351
)
    
7,674
      
(54,506
)
    
(88,859
)
    
(29,304
)
Total assets
  
$
2,020,180
    
$
1,777,176
    
$
1,741,235
    
$
6,278,860
    
$
7,674,674
    
$
8,095,212
    
$
579,451
    
$
671,842
    
$
652,375
    
$
8,878,491
    
$
10,123,692
    
$
10,488,822
  
 
 
A reconciliation of interest and finance costs and total segment assets with the consolidated amounts is as follows:
 
Interest and finance costs
    
Interest for reportab le segments
    
412,185
  
Elimination of intersegment interest
    
(1,164
)
Total consolidated Interest and finance costs
    
411,021
  
         
Interest income
        
Interest for reportable segments
    
13,310
  
Elimination of intersegment interest
    
(1,164
)
Total consolidated Interest income
    
12,146
  
         
Total Assets
        
Total Assets for reportable segments
    
10,488,822
  
Elimination of intersegment receivables
    (117,219 ) 
Total consolidated Assets
    
10,371,603
  
 
 
F-51
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)

 
16. Segment information - continued:

The drilling revenue shown in the table below is analyzed by country based upon the location where the drilling takes place:

   
For the years ended December 31,
  
Country
  
2012
    
2013
    
2014
  
Ghana
  
$
175,595
    
$
-
    
$
-
  
Norway
    
-
      
157,740
      
220,044
  
Brazil
    
233,569
)
    
353,397
      
581,635
  
Greenland
    
136
      
-
      
-
  
Ivory Coast
    
-
      
86,486
      
97,232
  
Tanzania
    
196,415
      
72,083
      
-
  
Angola
    
79,884
      
227,603
      
807,742
  
Namibia
    
33,212
      
-
      
-
  
Falkland
    
166,795
      
-
      
-
  
Equatorial Guinea
    
56,297
      
-
      
-
  
Gabon/ West Africa
    
-
      
81,104
      
110,424
  
Liberia
    
-
      
55,601
      
-
  
Ireland
    
-
      
104,014
      
-
  
Sierra Leone
    
-
      
37,272
      
-
  
Other
    
-
      
4,950
      
-
  
Total leasing and service revenues
  
$
941,903
    
$
1,180,250
    
$
1,817,077
  

The Company's vessels operate on many trade routes throughout the world, and, therefore, the provision of geographic information is considered impractical by management.

17. Earnings per share:

The Company calculates basic and diluted earnings per share as follows:
 
   
For the years ended December 31,
  
   
2012
    
2013
        
2014
  
   
Income
(numerator)
    
Weighted-
average
number of
outstanding
shares
(denominator)
    
Amount
per share
    
Income
(numerator)
    
Weighted-
average
number of
outstanding
share
(denominator)
    
Amount
per share
    
Income
(numerator)
    
Weighted-
average
number of
outstanding
shares
(denominator)
    
Amount
per share
  
Net income/(loss) attributable to DryShips Inc.
  
$
(246,778
)
    
-
    
$
-
    
$
(223,093
)
    
-
    
$
-
    
$
(47,512
)
    
-
    
$
-
  
-Less: Non-vested common stock dividends declared and undistributed earnings
    
-
      
-
      
-
      
(56
)
    
-
      
-
      
(697
)
    
-
      
-
  
Basic EPS
                                                                        
Income/(loss) available to common stockholders
  
$
(246,778
)
    
380,159,088
    
$
(0.65
)
  
$
(223,149
)
    
384,063,306
    
$
(0.58
)
  
$
(48,209
)
    
456,031,628
    
$
(0.11
)
Dilutive effect of securities
                                                                        
Diluted EPS
                                                                        
Income/(loss) available to common stockholders
  
$
(246,778
)
    
380,159,088
    
$
(0.65
)
  
$
(223,149
)
    
384,063,306
    
$
(0.58
)
  
$
(48,209
)
    
456,031,628
    
$
(0.11
)
 
 
 
F-52
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


 
  17. Earnings per share - continued:

Non-vested share-based payment awards that contain rights to receive non forfeitable dividends or dividend equivalents (whether paid or unpaid) and participate equally in undistributed earnings are participating securities and, thus, are included in the two-class method of computing earnings per share. Non-vested, participating restricted common stock does not have a contractual obligation to share in the losses and was therefore, excluded from the basic loss per share calculation for the years ended December 31, 2012, 2013 and 2014, due to the losses in 2012, 2013 and 2014, respectively.

The warrants were not included in the computation of diluted earnings per share because the effect is anti-dilutive for the years ended December 31, 2012, 2013 and 2014, since they are out-of-the-money.

18. Income Taxes:

18.1 Drybulk and Tanker Segments

Neither the Republic of the Marshall Islands nor Malta imposes a tax on international shipping income earned by a "non-resident" corporation thereof. Under the laws of the Republic of the Marshall Islands and Malta, the countries in which Dryships and the vessels owned by subsidiaries of the Company are registered, the Company's subsidiaries (and their vessels) are subject to registration fees and tonnage taxes, as applicable, which have been included in Vessels' operating expenses in the accompanying consolidated statements of operations.

Pursuant to Section 883 of the United States Internal Revenue Code (the "Code") and the regulations there under, a foreign corporation engaged in the international operation of ships is generally exempt from U.S. federal income tax on its U.S.-source shipping income if the foreign corporation meets both of the following requirements: (a) the foreign corporation is organized in a foreign country that grants an "equivalent exemption" to corporations organized in the United States for the types of shipping income (e.g., voyage, time, bareboat charter) earned by the foreign corporation and (b) more than 50% of the value of the foreign corporation's stock is owned, directly or indirectly, by individuals who are "residents" of the foreign corporation's country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States (the "50% Ownership Test"). For purposes of the 50% Ownership Test, stock owned in a foreign corporation by a foreign corporation whose stock is "primarily and regularly traded on an established securities market" in the United States (the "Publicly-Traded Test") will be treated as owned by individuals who are "residents" in the country of organization of the foreign corporation that satisfies the Publicly-Traded Test.

The Republic of the Marshall Islands and Malta, the jurisdictions where the Company and its ship-owning subsidiaries are incorporated, each grants an "equivalent exemption" to United States corporations with respect to each type of shipping income earned by the Company's ship-owning subsidiaries. Therefore, the ship-owning subsidiaries will be exempt from United States federal income taxation with respect to U.S.-source shipping income if they satisfy the 50% Ownership Test. The Company believes that each of the Company's Republic of the Marshall Islands and Malta ship-owning subsidiaries will be entitled to exemption from U.S. federal income tax in respect of their U.S. source shipping income.

The Company believes that it satisfied the Publicly-Traded Test for its 2012, 2013 and 2014 Taxable Years and, therefore, 100% of the stock of its Republic of the Marshall Islands and Malta ship-owning subsidiaries will be treated as owned by individuals "resident" in the Republic of the Marshall Islands. As such, each of the Company's Republic of the Marshall Islands and Malta ship-owning subsidiaries will be entitled to exemption from U.S. federal income tax in respect of their U.S. source shipping income. The Company's ship-owning subsidiaries intend to take such position on their U.S. federal income tax returns for the 2014 taxable year.


F-53


18. Income Taxes - continued:

18.2 Drilling Segment:

Ocean Rig UDW operates through its various subsidiaries in a number of countries throughout the world. Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. The countries in which the Company operates have taxation regimes with varying nominal rates, deductions, credits and other tax attributes. Consequently, there is not an expected relationship between the provision for/or benefit from income taxes and income or loss before income taxes.

The components of the Company's income/ (losses) before taxes are as follows:

 
Year ended December 31,
  
 
2012
  
2013
  
2014
  
Domestic loss (Republic of the Marshall Islands)
  
$
(2,536
)
  
$
(66,604
 )   
$
(161,913
 ) 
Foreign income/(loss)
    
(85,843
)
    
174,518
 
    
499,539
  
Total income/(loss) before taxes
  
$
(88,379
)
  
$
107,914
    
$
337,626
  

The components of the Company's tax expense were as follows:

   
Year ended December 31,
  
   
2012
    
2013
    
2014
  
Current Tax expense
  
$
43,957
    
$
44,591
    
$
77,823
  
Income taxes
  
$
43,957
    
$
44,591
    
$
77,823
  
                         
Effective tax rate
    
(49.7
)%
    
41.3
%
    
23.1
%

The current tax expense is mainly related to withholding tax based on total contract revenue or bareboat fees. In 2014, approximately 64% of the current tax expense was related to withholding taxes in Angola. In 2013, approximately 72% of the current tax expense was related to withholding taxes in Angola, Tanzania, Sierra Leone, Liberia and Gabon, while in 2012 approximately 81% of the current tax expense was related to withholding taxes in Angola, Equatorial Guinea, Ivory Coast and Ghana.

Taxes have not been reflected in other comprehensive income/(loss) since the valuation allowances would result in no recognition of deferred tax.

   
Year Ended December 31,
  
Reconciliation of total tax expense:
  
2012
    
2013
    
2014
  
 Change in valuation allowance
  
$
6,311
    
$
-
    
$
-
  
 Differences in tax rates
    
(3,896
)
    
89
      
-
  
 Effect of permanent differences
    
120
      
-
      
-
  
 Adjustments in respect to current income tax of previous years
    
184
      
683
      
-
  
 Tax rate on interest
    
-
      
742
      
-
  
 Effect of exchange rate differences
    
(1,599
)
    
7
      
-
  
 Income tax
    
42,837
      
43,070
      
70,441
  
 Taxes on litigation matters subject to statutory rates, including interest and penalties
    
-
      
-
      
7,382
  
 Total
  
$
43,957
    
$
44,591
    
$
77,823
  

Ocean Rig UDW has from 2011 elected to use the statutory tax rate for each year based upon the location where the largest parts of its operations were domiciled. During 2012, 2013 and 2014, most of its activities were in the Republic of the Marshall Islands with tax rate of zero.

Ocean Rig UDW is subject to changes in tax laws, treaties, regulations and interpretations in and between the countries in which its subsidiaries operate. A material change in these tax laws, treaties, regulations and interpretations could result in a higher or lower effective tax rate on worldwide earnings.


F-54
 
DRYSHIPS

Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)


 
18. Income Taxes - continued:

18.2 Drilling Segment - (continued):

Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities at the applicable tax rates in effect. The Company has not recognized any deferred tax liability, while the significant components of deferred tax assets are as follows:

   
Year ended December 31,
  
   
2013
    
2014
  
Deferred tax assets
        
Net operations loss carry forward
  
$
1,723
    
$
-
  
Accelerated depreciation of assets
    
65
      
101
  
Pension
    
608
      
1,184
  
Total deferred tax assets
  
$
2,396
    
$
1,285
  
                 
Less: valuation allowance
    
(2,396
)
    
(1,285
)
Total deferred tax assets, net
  
$
-
    
$
-
  

A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. The Company provides a valuation allowance to offset deferred tax assets for net operating losses ("NOL") incurred during the year in certain jurisdictions and for other deferred tax assets where, in the Company's opinion, it is more likely than not that the financial statement benefit of these losses will not be realized. The Company provides a valuation allowance for foreign tax loss carry forward to reflect the possible expiration of these benefits prior to their utilization. As of December 31, 2014, the valuation allowance for deferred tax assets is decreased from $2,396 in 2013 to $1,285 in 2014 reflecting a decrease in net deferred tax assets during the year.

We are under tax audits in several jurisdictions for the years 2008 - 2012 and have not received any assessments or proposed assessment that we would expect to result in a material assessment of taxes.
The Company repatriates earnings from subsidiaries that are not subject to taxes and it has the intention to indefinitely reinvest the undistributed earnings of its subsidiaries that are subject to tax, thus no deferred tax liability would be recognized.

19. Subsequent Events:


20.1 On February 13, 2015 Ocean Rig executed definitive loan documentation for an up to a $475,000 syndicated secured term loan to partially finance the construction costs of the Ocean Rig Apollo. The facility has a 5 year term and approximate 12 year repayment profile and bears interest at LIBOR plus a margin.

20.2 On February 20, 2015, Tankships Investment Holdings Inc., a subsidiary of the Company, filed a registration statement on Form F-1 with the SEC relating to a possible initial public offering.

20.3 On February 24, 2015, Ocean Rigs' Board of Directors declared a quarterly cash dividend with respect to the quarter ended December 31, 2014, of $0.19 per common share, to Ocean Rig shareholders of record as of March 10, 2015 and payable on or about March 23, 2015.
 
20.4 On March 5, 2015, Ocean Rig took delivery of the Ocean Rig Apollo and drew down an amount of $462,000 under the $475 million syndicated secured term loan in connection with the delivery.

 
 
F-55
 
Schedule I- Condensed Financial Information of Dryships Inc. (Parent Company Only)
Balance Sheets
December 31, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share and per share data)


      December 31,  
   
2013
    
2014
  
         
ASSETS
        
CURRENT ASSETS:
        
Cash and cash equivalents
  
$
81
    
$
119
  
Restricted cash
    
232
      
4,043
  
Due from related parties
    
21,223
      
23,223
  
Other current assets
    
664
      
116
  
                 
Total current assets
    
22,200
      
27,501
  
                 
NON-CURRENT ASSETS:
                
Investments in subsidiaries*
    
4,842,130
      
4,900,142
  
                 
Total non-current assets
    
4,842,130
      
4,900,142
  
                 
Total assets
  
$
4,864,330
    
$
4,927,643
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
CURRENT LIABILITIES:
                
Current portion of long-term debt
  
$
820,820
    
$
487,445
  
Due to subsidiaries*
    
1,405,024
      
1,428,489
  
Financial instruments
    
10,289
      
8,725
  
Due to related parties
    
51
      
2,194
  
Other current liabilities
    
6,596
      
6,175
  
                 
Total current liabilities
    
2,242,780
      
1,933,028
  
                 
NON-CURRENT LIABILITIES
                
Financial instruments
    
8,417
      
1,794
  
                 
Total non-current liabilities
    
8,417
      
1,794
  
                 
STOCKHOLDERS' EQUITY:
                
Preferred stock, $0.01 par value; 500,000,000 shares authorized at December 31, 2013 and 2014; 100,000,000 shares designated as Series A Convertible preferred stock; 0 shares of Series A Convertible Preferred Stock issued and outstanding at December 31, 2013 and 2014, respectively
    
-
      
-
  
Common stock, $0.01 par value; 1,000,000,000 shares authorized at December 31, 2013 and 2014; 432,654,477 and 706,064,321 shares issued and outstanding at December 31, 2013 and 2014, respectively
    
4,326
      
7,060
  
Treasury stock; $0.01 par value; 21,000,000 and 36,100,000 shares at December 31, 2013 and 2014, respectively
    
(210
)
    
(361
)
Additional paid-in capital
    
2,824,702
      
3,249,376
  
Accumulated other comprehensive loss
    
(6,062
)
    
(6,622
)
Accumulated deficit
    
(209,623
)
    
(256,632
)
                 
Total stockholders' equity
    
2,613,133
      
2,992,821
  
                 
Total liabilities and stockholders' equity
  
$
4,864,330
    
$
4,927,643
  
                 

*    Eliminated in consolidation

F-56


Schedule I- Condensed Financial Information of Dryships Inc. (Parent Company Only)
Statements of Operations
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share and per share data)

  for the year ended December 31,
   
2012
    
2013
    
2014
  
             
             
EXPENSES:
            
General and administrative expenses
  
$
(29,408
)
  
$
(21,090
)
  
$
(23,893
)
                         
Operating loss
    
(29,408
)
    
(21,090
)
    
(23,893
)
                         
                         
OTHER INCOME / (EXPENSES):
                        
Interest and finance costs
    
(85,692
)
    
(89,124
)
    
(88,753
)
Interest income
    
3,065
      
226
      
989
  
Loss on interest rate swaps
    
(9,513
)
    
(774
)
    
(739
)
Other, net
    
672
      
(430
)
    
(220
)
                         
Total other (expenses), net
    
(91,468
)
    
(90,102
)
    
(88,723
)
                         
                         
Equity in earnings/(loss) of subsidiaries*
    
(125,902
)
    
(112,404
)
    
65,104
  
                         
                         
Net loss
  
$
(246,778
)
  
$
(223,596
)
  
$
(47,512
)
                         
                         
Loss per share, basic
    
(0.65
)
    
(0.58
)
    
(0.10
)
Weighted average number of shares, basic
    
380,159,088
      
384,063,306
      
456,031,628
  
Loss per share, diluted
    
(0.65
)
    
(0.58
)
    
(0.10
)
Weighted average number of shares, diluted
    
380,159,088
      
384,063,306
      
456,031,628
  

*    Eliminated in consolidation



F-57
Schedule I- Condensed Financial Information of Dryships Inc. (Parent Company Only)
Statements of Comprehensive Income/(loss)
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars – except for share and per share data)

  for the year ended December 31,
   
2012
    
2013
    
2014
  
             
- Net loss
  
$
(246,778
)
  
$
(223,596
)
   $
(47,512
)
Other comprehensive income/ (loss):
                        
- Unrealized gain/(loss) on senior notes
    
2,059
      
-
      
-
  
- Reclassification of gain associated with Senior Notes to Consolidated Statement of Operations, net
    
(709
)
    
-
      
-
  
- Reclassification of losses on previously designated cash flow hedges to Consolidated Statement of Operations, net
    
15,261
      
-
      
-
  
- Reclassification of realized losses associated with capitalized interest to Consolidated Statement of Operations, net
    
371
      
331
      
327
  
- Actuarial gains/(losses)
    
(416
)
    
2,087
      
(900
)
                         
Other comprehensive income/(loss)
  
$
16,566
    
$
2,418
     $
(573
)
                         
Comprehensive loss
  
$
(230,212
)
  
$
(221,178
)
   $
(48,085
)
                         


F-58


Schedule I- Condensed Financial Information of Dryships Inc. (Parent Company Only)
Statements of Cash Flows
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. Dollars)


        for the year ended December 31,  
   
2012
    
2013
    
2014
  
             
Net Cash Used in Operating Activities
  
$
(86,475
)
  
$
(85,042
)
   $
(68,370
)
                         
                         
Cash Flows from Investing Activities:
                        
Investments in subsidiaries
    
(107,463
)
    
8,515
      
(32,250
)
Dividends received - - 44,631
Restricted cash
    
408
      
52,033
      
(3,811
)
                         
Net Cash (Used in) Provided by Investing Activities
    
(107,055
)
    
60,548
      
8,570
 
                         
                         
Cash Flows from Financing Activities:
                        
Due to subsidiaries
    
131,516
      
(67,735
)
    
23,465
  
Payments of convertible notes
    
(72,804
)
    
(97,164
)
    
(700,000
)
Net proceeds from common stock issuance
    
-
      
23,438
      
421,911
  
Net proceeds from sale of shares in subsidiary
    
180,485
      
122,960
       -  
Proceeds from long-term term loans and notes
    
-
       -      
320,000
  
Payment of financing costs
    
(439
)
    
(2,543
)
    
(5,538
)
                         
Net Cash Provided by/ (Used in) Financing Activities
    
238,758
      
(21,044
)
    
59,838
  
                         
Net (decrease) / increase in cash and cash equivalents
    
45,228
      
(45,538
)
    
38
  
Cash and cash equivalents at beginning of year
    
391
      
45,619
      
81
  
                         
Cash and cash equivalents at end of year
  
$
45,619
    
$
81
     $
119
  
                         



F-59

Schedule I- Condensed Financial Information of Dryships Inc. (Parent Company Only)
 
In the condensed financial information of the Parent Company, the Parent Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries. The Parent Company, during the years ended December 31, 2012 and 2013, did not receive cash dividends from its subsidiaries, while during the year ended December 31, 2014 the Company received cash dividend from its subsidiary amounting of $44,631.
 
There are no legal or regulatory restrictions on the Parent Company's ability to obtain funds from its subsidiaries through dividends, loans or advances sufficient to satisfy the obligations discussed below that are due on or before December 31, 2015.

The Parent Company is the borrower under the credit facilities dated March 31, 2006 and November 14, 2014, amounting to $374,406 at December 31, 2014 and guarantor under the remaining shipping segment's loans outstanding at December 31, 2014.

On November 14, 2014, the Company entered into a facility agreement, as mentioned above, for a secured bridge loan facility in an amount of $200,000. The loan is repayable through a single repayment installment.

On November 18, 2014, the Company entered into a $120,000 unsecured facility with its subsidiary company, Ocean Rig UDW.

In November 2009 and April 2010, the Parent Company issued $400,000 and $220,000, respectively, aggregate principal amount of 5% Convertible unsecured Senior Notes (the "Notes"), which were due December 1, 2014. The full over allotment option granted was exercised and an additional $60,000 and $20,000, respectively, Notes were purchased. Accordingly, $460,000 and $240,000, respectively, in aggregate principal amount of Notes were sold, resulting in aggregate net proceeds of approximately $447,810 and $237,202, respectively, after underwriter commissions. During November 2014, the Company repurchased on the open market and cancelled $191,090 principal amount of its 5% convertible notes. On November 24, 2014, the Company repaid the remaining amount of its 5% convertible notes, amounting to $508,910.
The principal payments required to be made after December 31, 2014, for the loans discussed above are as follows:

     
Year ending December 31,
  
Amount
  
2015
  
$
494,406
  
         
Total principal payments
    
494,406
  
Less-Financing fees
    
(6,961
)
Total debt
  
$
487,445
  

As of December 31, 2014, the Company was in breach of certain financial covenants, contained in its bank loan agreement. As a result of this non-compliance and in accordance with guidance related to the classification of obligations that are callable by the creditor, the Company has classified its bank loan amounting to $374,406 as current at December 31, 2014.

See Note 3 "Going concern" and Note 9 "Long-term Debt" to the consolidated financial statements for further information.

The condensed financial information of the Parent Company should be read in conjunction with the Company's consolidated financial statements.



F-60