As filed with the Securities and Exchange Commission on June 21, 2011

Registration No. 333-      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

 

 

 

Form F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

NAVIOS MARITIME HOLDINGS INC.

NAVIOS MARITIME FINANCE II (US) INC.

(Exact name of registrant as specified in its charter)

 

 

SEE TABLE OF ADDITIONAL REGISTRANT GUARANTORS

 

Navios Maritime Holdings Inc.

85 Akti Miaouli Street\Piraeus, Greece 185 38

(011) +30-210-4595000

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

 

Angeliki Frangou

Chairman and Chief Executive Officer

85 Akti Miaouli Street

Piraeus, Greece 185 38

(011) +30-210-4595000

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

 

Copies to:

 

Stuart Gelfond, Esq.

Vasiliki Tsaganos, Esq.

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004-1980

(212) 859-8000

 

Vasiliki (Villy) Papaefthymiou

General Counsel and Secretary

Navios Maritime Holdings Inc.

85 Akti Miaouli Street

Piraeus 185 38, Greece

 

Approximate date of commencement of proposed exchange offer:  As soon as practicable after the effective date of this Registration Statement.

 

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

 

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

 

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

 

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

 

Exchange Act rule 14d-1(d)(Cross-Border Third-Party Tender Offer)  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

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

 

 

 

 

 

 

TABLE OF ADDITIONAL REGISTRANT GUARANTORS

 

 

 

 

SUBJECT TO COMPLETION, DATED JUNE 21, 2011

PROSPECTUS

 

Navios Maritime Holdings Inc.

Navios Maritime Finance II (US) Inc.

 

Exchange Offer for

$350,000,000

81/8% Senior Notes due 2019

 

We are offering to exchange up to $350,000,000 of our 81/8% senior notes due 2019, which will be registered under the Securities Act of 1933, as amended, for up to $350,000,000 of the outstanding 81/8% senior notes due 2019 which we issued on January 28, 2011. We are offering to exchange the exchange notes for the outstanding notes to satisfy our obligations contained in the registration rights agreement that we entered into when the outstanding notes were sold pursuant to Rule 144A and Regulation S under the Securities Act. We refer to the outstanding senior notes collectively as “the outstanding notes,” the senior notes which will be registered under the Securities Act collectively as “the exchange notes” and the outstanding notes and the exchange notes collectively as “the notes.” The terms of the exchange notes are identical to the terms of the outstanding notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding notes do not apply to the exchange notes.

 

The exchange offer will expire at 5:00 p.m., New York City time on          , 2011, unless we extend it.

 

Broker-dealers receiving exchange notes in exchange for outstanding notes acquired for their own account through market-making or other trading activities must acknowledge that they will deliver this prospectus in any resale of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 210 days after the expiration date of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

 

 

You should consider carefully the “Risk Factors” beginning on page 20 of this prospectus.

 

 

Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is          , 2011.

 

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not constitute an offer to sell, or solicitation of an offer to buy, to any person in any jurisdiction in which such an offer to sell or solicitation would be unlawful. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus.

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS

 

As used in this prospectus, unless the context indicates otherwise:

 

 

Unless otherwise indicated, all dollar references in this prospectus are to U.S. dollars and financial information presented in this prospectus that is derived from financial statements incorporated by reference is prepared in accordance with accounting principles generally accepted in the United States.

 

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or the SEC.

 

This summary highlights the material information contained elsewhere in this prospectus or in other documents incorporated by reference in this prospectus. As an investor or prospective investor you should carefully read the risk factors and the more detailed information that is included elsewhere in this prospectus or is contained in the documents incorporated by reference into this prospectus.

 

The Securities and Exchange Commission, or the SEC, allows us to “incorporate by reference” information contained in documents we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC, to the extent that we identify such information as being incorporated by reference into this prospectus, will automatically update and supersede this information. Information set forth in this prospectus supersedes any previously filed information that is incorporated by reference into this prospectus. We incorporate by reference into this prospectus the following information and documents:

 

 

You may request a copy of these filings, at no cost, by writing or calling us at the following address and phone number:

VASILIKI (VILLY) PAPAEFTHYMIOU
SECRETARY
NAVIOS MARITIME HOLDINGS INC.
85 AKTI MIAOULI STREET
PIRAEUS 185 38, GREECE
TELEPHONE: +30-210-4595000

 

To ensure timely delivery, please make your request as soon as practicable and, in any event, no later than          , which is five business days prior to the expiration of the exchange offer.

 

You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized any person to provide you with different information. We are offering to exchange the outstanding notes for exchange notes only in jurisdictions where offers and sales are permitted. The information in this document may only be accurate on the date of this document.

 

Certain statements in “Summary,” under the caption “Risk Factors,” and elsewhere in this prospectus constitute “forward-looking statements.” These forward-looking statements are not historical facts, but rather are based on our current expectations, estimates and projections about our business, our plans, objectives of management for future operations, our industry, and our beliefs and assumptions. Our forward-looking statements include information regarding future supply, demand and pricing dynamics, descriptions of global demand for commodities, drybulk capacity and newbuildings, freight rates, our business and acquisition strategy, our ability to continue to charter-in vessels at favorablerates and obtain favorable purchase options, and our ability to operate at low costs in the future. Words including “may,” “could,” “would,” “will,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this prospectus. We are not obligated to update these statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. For purposes of the information contained in this prospectus, when we state that a risk, uncertainty or problem may, could or would have “a material adverse effect on our business” or words to that effect, we mean that the risk, uncertainty or problem may, could or would have a material adverse effect on the business, results of operations, financial condition, cash flow or prospects of our company.”

 

In addition to the factors and matters described in this prospectus, including under “Risk Factors,” important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

 

 

 

You should read this prospectus completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this prospectus are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this prospectus, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, changes in future operating results over time or otherwise.

 

Navios Maritime Holdings Inc. is incorporated under the laws of the Republic of the Marshall Islands, and our subsidiaries are incorporated under the laws of Delaware, the Republic of the Marshall Islands, Malta, Belgium, Luxembourg, Liberia, Panama, Uruguay, Argentina, Brazil and certain other countries other than the United States, and we conduct operations in countries around the world. Several of our directors, officers and the experts named in this prospectus reside outside the United States. In addition, a substantial portion of our assets and the assets of the directors, officers and experts are located outside the United States. As a result, it may not be possible for you to serve legal process within the United States upon us or any of these persons. It may also not be possible for you to enforce, both in and outside the United States, judgments you may obtain in United States courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of such jurisdictions would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. See “Risk Factors — “We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law” and “We, and certain of our officers and directors, may be difficult to serve with process as we are incorporated in the Republic of the Marshall Islands and such persons may reside outside of the United States.” ”

 

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

 

We have obtained directors’ and officers’ liability insurance against any liability asserted against such person incurred in the capacity of director or officer or arising out of such status, whether or not we would have the power to indemnify such person.

 

PROSPECTUS SUMMARY

												Charter-out				Profit		Expiration
Vessels		Type		Built				DWT				Rate(1)				Share(*)		Date(2)
Navios Ionian		Ultra Handymax			2000				52,067				13,726			No			09/18/2012
Navios Celestial		Ultra Handymax			2009				58,063				17,550			No			01/24/2012
Navios Vector		Ultra Handymax			2002				50,296				14,725			No			12/27/2011
Navios Horizon		Ultra Handymax			2001				50,346				36,100			No			07/24/2012
Navios Herakles		Ultra Handymax			2001				52,061				16,150			No			07/02/2011
Navios Achilles		Ultra Handymax			2001				52,063				25,521	(7)		65%/$20,000 after March 2012			12/17/2013
Navios Meridian		Ultra Handymax			2002				50,316				14,250			No			03/17/2012
Navios Mercator		Ultra Handymax			2002				53,553				21,660	(7)					08/01/2011
													29,783	(7)		65%/$20,000 after March 2012			01/12/2015
Navios Arc		Ultra Handymax			2003				53,514				14,725			No			10/13/2011
Navios Hios		Ultra Handymax			2003				55,180				13,300			No			09/21/2011
Navios Kypros		Ultra Handymax			2003				55,222				20,778			50%/$19,000			01/28/2014
Navios Ulysses		Ultra Handymax			2007				55,728				31,281			No			10/12/2013
Navios Vega		Ultra Handymax			2009				58,792				15,751			No			05/23/2013
Navios Astra		Ultra Handymax			2006				53,468				15,533			No			12/11/2011
Navios Magellan		Panamax			2000				74,333				22,800			No			03/26/2012
Navios Star		Panamax			2002				76,662				16,958			No			11/27/2012
Navios Asteriks		Panamax			2005				76,801							—			—
Navios Bonavis		Capesize			2009				180,022				47,400			No			06/29/2014
Navios Happiness		Capesize			2009				180,022				52,345	(7)		50%/$32,000 after March 2012			07/24/2014
Navios Lumen		Capesize			2009				180,661				19,500	(6)		Yes			08/14/2011
													29,250	(6)		Yes			02/14/2012
													39,830	(6)		Yes			12/10/2012
													43,193	(6)		Yes			12/10/2013
													42,690	(6)		Yes			12/10/2016
													39,305	(6)		Yes			12/10/2017
Navios Stellar		Capesize			2009				169,001				36,974	(9)		No			12/22/2016
Navios Phoenix		Capesize			2009				180,242				27,075			No			12/10/2011	(8)

Charter-out

Profit

Expiration

Vessels

Type

Built

DWT

Rate(1)

Share(*)

Date(2)

Navios Antares

Capesize

2010

169,059

37,590

(9)

No

01/19/2015

45,875

(9)

No

01/19/2018

Navios Buena Ventura

Capesize

2010

179,132

29,356

50%/$38,500

10/28/2020

Navios Etoile

Capesize

2010

179,234

29,356

50% in excess of $38,500

12/02/2020

Navios Bonheur

Capesize

2010

179,259

27,888

(7)

50%/$32,000 after March 2012

12/16/2013

25,025

(7)

12/16/2022

Navios Altamira

Capesize

01/2011

179,165

24,674

No

01/27/2021

Navios Azimuth

Capesize

02/2011

179,169

26,469

(7)

50%/$34,500 after March 2012

02/13/2023

												Purchase				Charter-out				Expiration
Vessels		Type		Built				DWT				Option(3)				Rate(1)				Date(2)
Navios Primavera		Ultra Handymax			2007				53,464				Yes				14,919				10/06/2011
Navios Armonia		Ultra Handymax			2008				55,100				No				13,300				10/22/2011
Navios Orion		Panamax			2005				76,602				No				49,400				12/14/2012
Navios Titan		Panamax			2005				82,936				No				19,000				11/09/2012
Navios Altair		Panamax			2006				83,001				No				19,238				11/23/2011
Navios Esperanza		Panamax			2007				75,200				No				14,513				02/19/2013
Torm Antwerp		Panamax			2008				75,250				No								—
Golden Heiwa		Panamax			2007				76,662				No								—
Beaufiks		Capesize			2004				180,181				Yes								—
Rubena N		Capesize			2006				203,233				No								—
SC Lotta		Capesize			2009				170,500				No								—
Formosabulk Brave		Capesize			2001				170,000				No								—
Phoenix Beauty		Capesize			2010				169,150				No								—
King Ore		Capesize			2010				176,800				No								—

Delivery

Purchase

Vessels

Type

Date

Option

DWT

Navios Serenity

Handysize

10/2011

Yes

(4)

34,718

Navios TBN

Handysize

09/2012

Yes

(4)

34,718

Navios Koyo

Capesize

12/2011

Yes

181,000

Kleimar TBN

Capesize

07/2012

Yes

180,000

Navios TBN

Capesize

12/2013

Yes

180,000

Navios TBN

Ultra Handymax

02/2012

Yes

61,000

Navios TBN

Ultra Handymax

05/2013

Yes

61,000

Navios TBN

Ultra Handymax

10/2013

Yes

61,000

Navios Marco Polo

Panamax

12/2011

Yes

80,000

Navios TBN

Panamax

01/2013

Yes

82,100

Navios TBN

Panamax

07/2013

Yes

(4)

80,500

Navios TBN

Panamax

09/2013

Yes

(4)

80,500

Navios TBN

Panamax

11/2013

Yes

(4)

80,500

(1)		Daily rate net of commissions.
(2)		Expected redelivery basis midpoint of full redelivery period.
(3)		Generally, Navios Holdings may exercise its purchase option after three to five years of service.
(4)		Navios Holdings holds the initial 50% purchase option on each vessel.
(5)		Profit share based on applicable Baltic TC Average exceeding $/day rates listed.
(6)		Year eight optional (option to Navios Holdings) included in the table above. Profit sharing = 100% to Navios Holdings until net daily rate of $44,850 and becomes 50/50 thereafter.
(7)		Amount represents daily net rate of insurance proceeds following the default of the original charterer. The contracts for these vessels have been temporarily suspended and the vessels have been re-chartered to third parties for variable charter periods. Upon completion of the suspension period, the contracts with the original charterers will resume at amended terms. The obligations of our insurers are reduced by an amount equal to the mitigation charter hire revenues earned under the contracts with third parties and/or the original charterer or the applicable deductibles for any idle periods. The Company has filed claims for all unpaid amounts by the original charterer in respect of the employment of the vessels in the corporate rehabilitation proceedings. The disposition of these claims will be determined by the court at a future date.
(8)		Subject to COA of $45,500 per day for the remaining period until first quarter of 2015.
(9)		Amount represents daily rate of insurance proceeds following the default of the original charterer. These vessels have been rechartered to third parties for variable charter periods. Obligations of the insurer are reduced by an amount equal to the mitigation charter hire revenues earned under these contracts and the applicable deductibles under the insurance policy.

	•	The operation of time charters, whereby the vessel is hired out for a predetermined period but without any specification as to voyages to be performed, with the ship owner being responsible for operating costs and the charterer for voyage costs;

	•	The operation of voyage charters or spot fixtures for the carriage of a single cargo from load port to discharge port; and
	•	The use of CoAs, under which Navios Holdings contracts to carry a given quantity of cargo between certain load and discharge ports within a stipulated time frame, but does not specify in advance which vessels, will be used to perform the voyages.

Securities Offered		Up to $350,000,000 aggregate principal amount of 8 1/8% senior notes due 2019 registered under the Securities Act (the “exchange notes”). The terms of the exchange notes offered in the exchange offer are identical to those of the outstanding notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding notes do not apply to the exchange notes.
The Exchange Offer		We are offering exchange notes in exchange for a like principal amount of our outstanding notes. The exchange notes are being offered only in exchange for the 81/8% senior notes due 2019 that we issued on January 28, 2011, and not for any other notes.
		You may tender your outstanding notes for exchange notes by following the procedures described under the heading “The Exchange Offer.”
Tenders; Expiration Date; Withdrawal		The exchange offer will expire at 5:00 p.m., New York City time, on , 2011, unless we extend it. You may withdraw any outstanding notes that you tender for exchange at any time prior to the expiration of this exchange offer. See “The Exchange Offer — Terms of the Exchange Offer” for a more complete description of the tender and withdrawal period.
Conditions to the Exchange Offer		The exchange offer is not subject to any conditions, other than that:
		• the exchange offer does not violate any applicable law or applicable interpretations of the staff of the SEC;
		• the outstanding notes are validly tendered in accordance with the exchange offer; and
		• there is no action or proceeding instituted or threatened in any court or by any governmental agency that in our judgment would reasonably be expected to impair our ability to proceed with the exchange offer.
		The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered in the exchange.
Procedures for Tendering Outstanding Notes		To participate in this exchange offer, you must properly complete and duly execute a letter of transmittal, which accompanies this prospectus, and transmit it, along with all other documents required by such letter of transmittal, to the exchange agent on or before the expiration date at the address provided on the cover page of the letter of transmittal.
		In the alternative, you can tender your outstanding notes by book-entry delivery following the procedures described in this prospectus,

		whereby you will agree to be bound by the letter of transmittal and we may enforce the letter of transmittal against you.
		If a holder of outstanding notes desires to tender such notes and the holder’s outstanding notes are not immediately available, or time will not permit the holder’s outstanding notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected pursuant to the guaranteed delivery procedures described in this prospectus.
		See “The Exchange Offer — Procedures for Tendering.”
U.S. Federal Tax Considerations		Your exchange of outstanding notes for exchange notes to be issued in the exchange offer will not result in any gain or loss to you for United States federal income tax purposes. See “Certain U.S. Federal Tax Considerations” for a summary of United States federal income tax consequences of the purchase, ownership and disposition of the exchange notes and the exchange of the outstanding notes for the exchange notes.
Use of Proceeds		We will not receive any cash proceeds from the exchange offer.
Exchange Agent		Wells Fargo Bank, National Association under the indenture governing the notes, is serving as exchange agent in connection with the exchange offer. The address and telephone number of the exchange agent are set forth under the heading “The Exchange Offer — Exchange Agent.”
Consequences of Failure to Exchange Your Outstanding Notes		Outstanding notes not exchanged in the exchange offer will continue to be subject to the restrictions on transfer that are described in the legend on the outstanding notes. In general, you may offer or sell your outstanding notes only if they are registered under, or offered or sold under an exemption from, the Securities Act and applicable state securities laws. We do not currently intend to register the outstanding notes under the Securities Act. If your outstanding notes are not tendered and accepted in the exchange offer, it may become more difficult for you to sell or transfer your outstanding notes.
Resales of the Exchange Notes		Based on interpretations of the staff of the SEC, we believe that you may offer for sale, resell or otherwise transfer the exchange notes that we issue in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if:
		• you acquire the exchange notes issued in the exchange offer in the ordinary course of your business;
		• you are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the distribution of the exchange notes issued to you in the exchange offer; and
		• you are not an “affiliate” of our company, as that term is defined in Rule 405 of the Securities Act.
		If any of these conditions are not satisfied and you transfer any exchange notes issued to you in the exchange offer without delivering

		a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for, or indemnify you against, any liability you incur.
		Any broker-dealer that acquires exchange notes in the exchange offer for its own account in exchange for outstanding notes which it acquired through market-making or other trading activities must acknowledge that it will deliver this prospectus when it resells or transfers any exchange notes issued in the exchange offer. See “Plan of Distribution” for a description of the prospectus delivery obligations of broker-dealers.

Issuers		Navios Maritime Holdings Inc. and Navios Maritime Finance II (US) Inc.
Notes offered		$350,000,000 aggregate principal amount of 81/8% Senior Notes due 2019.
Maturity		The exchange notes will mature on February 15, 2019.
Interest payment dates		We will pay interest on the exchange notes semi-annually on February 15 and August 15 of each year, beginning August 15, 2011.
Ranking		The exchange notes will be the senior unsecured obligations of Navios Maritime Holdings Inc. and Navios Maritime Finance II (US) Inc. Each of our direct and indirect subsidiaries that guarantee our existing notes will guarantee the exchange notes offered hereby. The exchange notes will rank:
		• equal in right of payment to all of our existing and future unsecured obligations that are not, by their terms, expressly subordinated in right of payment to the exchange notes;
		• senior in right of payment to all existing and future obligations that are, by their terms, expressly subordinated in right of payment to the exchange notes;
		• effectively subordinated to all existing and future secured obligations, including our existing senior secured notes due 2017, and other secured obligations, to the extent of the value of the assets securing such obligations; and
		• effectively subordinated to all indebtedness of our non-guarantor subsidiaries.
		As of March 31, 2011, Navios Maritime Holdings Inc. and the subsidiary guarantors had approximately $1,308.4 million of indebtedness outstanding, including $938.4 million of secured indebtedness, which is senior to the exchange notes, and our non-guarantor subsidiaries had approximately $126.0 million of indebtedness outstanding, which is structurally senior to the exchange notes.
		Our non-guarantor subsidiaries accounted for approximately $221.5 million, or 32.6%, of our total revenue, approximately $1,553.0 million, or 42.2%, of our total assets and approximately $957.1 million, or 40.6%, of our total liabilities, in each case for the year ended December 31, 2010. As of March 31, 2011, our non-guarantor subsidiaries accounted for approximately $69.5 million, or 38.2%, of our total revenue, approximately $542.0 million, or 18.9%, of our total assets and approximately $209.1 million, or 12.2%, of our total liabilities.
		As of March 30, 2011, Navios Acquisition is no longer a consolidated subsidiary and our consolidated statement of operations for March 31, 2011 includes results for Navios Acquisition only through March 30,

		2011. From that date onwards, Navios Acquisition is considered as an affiliate entity of Navios Holdings and is not a controlled subsidiary of the Company, and the investment in Navios Acquisition is now accounted for under the equity method due to the Company’s significant influence over Navios Acquisition.
		See footnote 25 to our audited consolidated financial statements for the year ended December 31, 2010 and footnote 15 to our unaudited consolidated financial statements for the three months ended March 31, 2011 (in which the financial information for our “non-guarantor subsidiaries” includes information for Navios Acquisition and Navios Logistics, as applicable) incorporated by reference in this prospectus.
Guarantees		On the issue date, the exchange notes will be fully and unconditionally guaranteed, jointly and severally, by all of our direct and indirect subsidiaries that guarantee the existing notes, which excludes certain subsidiaries that have been or will be designated as “unrestricted subsidiaries.” Each wholly owned material subsidiary that we create or acquire following the issue date will also be required to guarantee the exchange notes unless such subsidiary has been designated as an “unrestricted subsidiary” or is a securitization subsidiary. See “Description of Notes — Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries — Subsidiary Guarantees.”
Optional redemption		We may redeem the exchange notes in whole or in part, at our option, at any time (1) before February 15, 2015, at a redemption price equal to 100% of the principal amount plus the applicable make-whole premium described under “Description of Notes — Optional Redemption” plus accrued and unpaid interest, if any, and (2) on or after February 15, 2015, at the redemption prices listed under “Description of Notes — Optional Redemption” plus accrued and unpaid interest, if any.
Equity offering optional redemption		In addition, at any time before February 15, 2014, we may redeem up to 35% of the aggregate principal amount of the exchange notes with the net proceeds of an equity offering at 108.125% of the principal amount of the exchange notes, plus accrued and unpaid interest, if any, so long as at least 65% of the originally issued aggregate principal amount of the exchange notes remains outstanding after such redemption. See “Description of Notes — Optional Redemption.”
Change of control		Upon the occurrence of certain change of control events, you will have the right, as a holder of the exchange notes, to require us to repurchase some or all of your exchange notes at 101% of their face amount, plus accrued and unpaid interest to the repurchase date. See “Description of Notes — Repurchase at the Option of Holders — Change of Control.”
Certain covenants		Navios Maritime Holdings Inc. and Navios Maritime Finance II (US) Inc. issued the exchange notes under an indenture. The indenture governing the exchange notes contain covenants that, among other things, limit the ability of Navios Maritime Holdings Inc. and its restricted subsidiaries to:
		• incur additional indebtedness or issue certain preferred stock;

		• pay dividends on, redeem or repurchase our capital stock or make other restricted payments and investments;
		• create certain liens;
		• transfer or sell assets;
		• enter into certain transactions with our affiliates;
		• merge, consolidate or sell all or substantially all of our properties and assets; and
		• create or designate unrestricted subsidiaries.
		These restrictions and prohibitions are subject to a number of important qualifications and exceptions. See “Description of Notes — Certain Covenants.”
Risk factors		You should consider carefully all of the information set forth in this prospectus and, in particular, the information under the heading “Risk Factors” before participating in the exchange offer.

		Three Months Ended
		March 31,								Year Ended December 31,
		2011				2010				2010				2009				2008				2007				2006
		(Unaudited)
		(In thousands of U.S. dollars)
Statement of Income Data
Revenue		$	181,772			$	154,369			$	679,918			$	598,676			$	1,246,062			$	758,420			$	205,375
Time charter, voyage and logistics business expenses			(59,114	)			(76,501	)			(286,136	)			(313,496	)			(1,034,435	)			(557,573	)			(84,225	)
Direct vessel expenses			(34,018	)			(20,044	)			(97,531	)			(71,796	)			(58,425	)			(27,892	)			(19,863	)
General and administrative expenses			(12,774	)			(12,193	)			(58,604	)			(43,897	)			(37,047	)			(23,058	)			(15,057	)
Depreciation and amortization			(33,321	)			(24,941	)			(101,793	)			(73,885	)			(57,062	)			(31,900	)			(37,129	)
Gain on sale of assets/gain on sale of subsidiary			—				24,383				55,432				20,785				27,817				167,511
Interest income/expense and finance cost, net			(29,437	)			(21,409	)			(102,380	)			(61,919	)			(41,375	)			(40,270	)			(43,597	)
(Loss)/gain on derivatives			(385	)			(1,838	)			4,064				375				8,092				25,100				20,322
(Loss)/gain on change in control			(35,325	)			—				17,742				—				—				—				—
Loss on bond extinguishment			(21,199	)			—				—				—				—				—				—
Other income and expense, net			(975	)			(3,799	)			(5,614	)			(14,666	)			(6,921	)			3,185				(5,431	)
(Loss)/income before equity in net earnings of affiliated companies			(44,776	)			18,027				105,098				40,177				46,706				273,523				20,395
Equity in net earnings of affiliated companies			7,015				11,584				40,585				29,222				17,431				1,929				674
(Loss)/income before taxes			(37,761	)			29,611				145,683				69,399				64,137				275,452				21,069
Income taxes			904				768				(414	)			1,565				56,113				(4,451	)			—
Net (loss)/income			(36,857	)			30,379				145,269				70,964				120,250				271,001				21,069
Less: Net loss/(income) attributable to the noncontrolling interest			(1,273	)			922				488				(3,030	)			(1,723	)			—				—
Preferred stock dividends of subsidiary			(27	)			—				—				—				—				—				—
Preferred stock dividends attributable to the noncontrolling interest			12				—				—				—				—				—				—
Net (loss)/income attributable to Navios Holdings common stockholders			(38,145	)			31,301				145,757				67,934				118,527				271,001				21,069
Less: Incremental fair value of securities offered to induce warrants exercise			—				—				—				—				—				(4,195	)			—
(Loss)/income available to Navios Holdings common shareholders		$	(38,145	)		$	31,301			$	145,757			$	67,934			$	118,527			$	266,806			$	21,069

		Three Months Ended
		March 31,								Year Ended December 31,
		2011				2010				2010				2009				2008				2007				2006
		(Unaudited)
		(In thousands of U.S. dollars)
Balance Sheet Data (at period end)
Current assets, including cash		$	317,185			$	487,442			$	349,965			$	427,680			$	505,409			$	848,245			$	195,869
Total assets			2,869,951				2,959,962				3,676,767				2,935,182				2,253,624				1,971,004				944,783
Current liabilities, including current portion of long term debt			205,396				192,105				201,603				196,080				271,532				450,491				108,979
Total long term debt, including current portion			1,434,479				1,586,406				2,075,910				1,622,706				887,715				614,049				568,062
Navios Holdings’ stockholders’ equity			1,020,781				972,063				1,059,583				925,480				805,820				769,204				274,216
Other Financial Data
Net cash provided by/(used in) operating activities			54,933				24,032				182,490				216,451				(28,388	)			128,075				56,432
Net cash (used in)/provided by investing activities			(133,566	)			58,736				(129,769	)			(802,538	)			(452,637	)			(16,451	)			(111,463	)
Net cash provided by/(used in) financing activities			51,383				(45,781	)			(19,244	)			626,396				187,082				216,285				116,952
Book value per common share			10.04				9.63				10.43				9.17				8.02				7.23				4.42
Ratio of earnings to fixed charges(1)			—				1.61				1.75				1.41				1.17				2.48				1.31
Cash dividends per common share			0.07				0.06				0.24				0.27				0.38				0.24				0.25
Cash dividends per preferred share			49.32				94.79				345.52				52.35				—				—				—
Cash paid for common stock dividend declared			7,241				6,060				24,107				27,154				28,588				26,023				15,382
Cash paid for preferred stock dividend declared			418				975				2,930				429				—				—				—
(1) The ratio of earnings to fixed charges is calculated as follows:
		March 31,								December 31,
		2011				2010				2010				2009				2008				2007				2006
Earnings:
(a) pre-tax income (loss) from continuing operations before adjustment for income or loss from equity investees			(44,776	)			18,027				105,098				40,177				46,706				273,523				20,395
(b) fixed charges			44,156				38,675				170,047				145,103				353,672				185,719				67,700
(c) amortization of capitalized interest			—				—				—				—				—				—				—
(d) distributed income of equity investees			6,126				5,377				22,197				18,944				13,250				678				583
(e) share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges			—				—				—				—				—				—				—
Less:
(a) Interest capitalized			—				—				—				—				—				—				—
(b) preference security dividend requirements of consolidated subsidiaries			(27	)			—				—				—				—				—				—
(c) noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges			—				—				—				—				—				—				—
Total			5,479				62,079				297,342				204,224				413,628				459,920				88,678

		March 31,								December 31,
		2011				2010				2010				2009				2008				2007				2006
Fixed charges:
(a) Interest expensed and capitalized			32,462				21,086				105,565				68,790				51,438				49,287				39,425
(b) amortization of debt expense and discount or premium and capitalized expenses related to indebtedness			1,331				1,614				11,752				6,682				2,077				1,856				8,004
(c) an estimate of the interest within rental expense			10,336				15,975				52,730				69,631				300,157				134,576				20,271
(d) preference security dividend requirements of consolidated subsidiaries			27				—				—				—				—				—				—
Total			44,156				38,675				170,047				145,103				353,672				185,719				67,700
Earnings to fixed charges			(A	)			1.61				1.75				1.41				1.17				2.48				1.31
(A) Additional pre-tax income from continuing operations before adjustment for income or loss from equity investees of $38,677 would be necessary to generate a ratio of earnings to fixed charges of 1.00.

 

You should carefully consider the risk factors set forth below and the other information included in or incorporated by reference into this prospectus before deciding to participate in the exchange offer. The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations. Any of these risks may have a material adverse effect on our business, financial condition, results of operations and cash flows. In such a case, you may lose all or part of your investment in the exchange notes.

 

Risks Relating to the Notes and our Business

 

We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and make payments on the notes.

 

As of March 31, 2011, Navios Holdings and its consolidated subsidiaries had $1,434.5 million in aggregate principal amount of debt outstanding of which $370.0 million was unsecured. We also have up to $30.0 million available to us under our existing credit facilities.

 

Our substantial debt could have important consequences to holders of the notes. Because of our substantial debt:

 

 

Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt. This could further exacerbate the risks associated with our substantial indebtedness.

 

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The agreements governing our senior secured credit facilities and the indentures governing our existing notes, including the exchange notes, do not fully prohibit us or our subsidiaries from doing so. As of March 31, 2011, Navios Holdings and its consolidated subsidiaries had $1,434.5 million in aggregate principal amount of debt outstanding of which $1,064.5 million was secured. Such secured indebtedness and any other secured indebtedness permitted under our senior secured credit facility and the indentures would be effectively senior to the notes to the extent of the value of the assets securing such indebtedness, as would all indebtedness of non-guarantor subsidiaries. We also may incur new indebtedness in connection with our exercise of purchase options on vessels. If new debt is added to our current

debt levels, the related risks that we now face would increase and we may not be able to meet all our debt obligations, including the repayment of the notes. In addition, the indentures governing our existing notes, including the exchange notes, do not prevent us from incurring obligations that do not constitute indebtedness as defined therein.

 

The agreements and instruments governing our debt will contain restrictions and limitations that could significantly impact our ability to operate our business and adversely affect the holders of the notes.

 

Our senior secured credit facilities, the indentures governing our existing notes, the outstanding notes and the exchange notes, impose certain operating and financial restrictions on us. These restrictions may limit our ability to:

 

 

Therefore, we will need to seek permission from our lenders in order to engage in some 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 or the interests of the holders of the notes, and we cannot guarantee that we will be able to obtain our lenders’ permission when needed. This may prevent us from taking actions that are in our best interest. Any future credit agreement may include similar or more restrictive provisions.

 

Our senior secured credit facilities contain requirements that the value of the collateral provided pursuant to the senior secured credit facilities must be equal or exceed by a certain percentage the amount of outstanding borrowings under senior secured credit facilities and that we maintain a minimum liquidity level. In addition, our senior secured credit facilities contain similar restrictive covenants as those contained in the indentures. It is an event of default under our senior secured credit facility if such covenants are not complied with or if Ms. Angeliki Frangou, our Chairman and Chief Executive Officer, ceases to hold a minimum percentage of the issued stock, does not remain actively involved in the operating business, or ceases to be our Chief Executive Officer. Our ability to comply with the covenants and restrictions contained in our senior secured credit facilities and the indentures governing our notes 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 senior secured 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 principal, premium, if any, and interest on the notes and substantially decrease the market value of the notes. If we are unable to repay debt, lenders having secured obligations, such as the lenders under our senior secured credit facilities, could proceed against that debt. In any such case, we may be unable to borrow under our senior secured credit facilities and may not be able to repay the amounts due under our senior secured credit facilities and the notes. 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, our success at

keeping our costs low and our ability to successfully implement our overall business strategy. Any future credit agreement or amendment may contain similar or more restrictive covenants.

 

The market values of our vessels, which have declined from historically high levels, may fluctuate significantly, which could cause us to breach covenants in our credit facilities.

 

Factors that influence vessel values include:

 

 

If the market values of our owned vessels decrease, we may breach covenants contained in our secured credit facilities. If we breach such covenants and are unable to remedy any relevant breach, our lenders could accelerate our debt and foreclose on that debt. Any loss of vessels would significantly decrease our ability to generate positive cash flow from operations and, therefore, service our debt. In addition, if the book value of a vessel is impaired due to unfavorable market conditions, or a vessel is sold at a price below its book value, we would incur a loss.

 

In addition, as vessels grow older, they generally decline in value. We will review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review certain indicators of potential impairment, such as undiscounted projected operating cash flows expected from the future operation of the vessels, which can be volatile for vessels employed on short-term charters or in the spot market. Any impairment charges incurred as a result of declines in charter rates would negatively affect our financial condition and results of operations. In addition, if we sell any vessel at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel’s carrying amount on our financial statements, resulting in a loss and a reduction in earnings.

 

Our ability to generate the significant amount of cash needed to pay interest and principal and otherwise service our debt and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors, many of which may be beyond our control.

 

Our ability to make scheduled payments on, or to refinance our obligations under, our debt, including our existing notes, the outstanding notes and the exchange notes, will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to the financial and business factors, many of which may be beyond our control.

 

We will use cash to pay the principal and interest on our debt, including the notes. These payments limit funds otherwise available for working capital, capital expenditures, vessel acquisitions and other purposes. As a result of these obligations, our current liabilities may exceed our current assets. We may need to take on additional debt as we expand our fleet, which could increase our ratio of debt to equity. The need to service our debt may limit funds available for other purposes and our inability to service debt in the future could lead to acceleration of our debt and foreclosure on our owned vessels.

Our senior secured credit facilities mature on various dates through September 2021. In addition, borrowings under the senior secured credit facilities have amortization requirements prior to final maturity. As a result, we may be required to refinance any outstanding amounts under these facilities prior to the scheduled maturity of the notes. We cannot assure you that we will be able to refinance any of our indebtedness or obtain additional financing, particularly because of our anticipated high levels of indebtedness and the indebtedness incurrence restrictions imposed by the agreements governing our indebtedness, as well as prevailing market conditions. We could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our indebtedness service and other obligations.

 

Our senior secured credit facilities and the indentures governing our existing notes, the outstanding notes and the exchange notes do, and any future indebtedness may, restrict our ability to dispose of assets and use the proceeds from any such dispositions. If we do not reinvest the proceeds of asset sales in our business (in the case of asset sales of non-collateral with respect to such indebtedness ) or in new vessels or other related assets that are mortgaged in favor of the lenders under our senior secured credit facilities (in the case of assets sales of collateral securing), we may be required to use the proceeds to repurchase senior indebtedness other than the notes. We cannot assure you we will be able to consummate any asset sales, or if we do, what the timing of the sales will be or whether the proceeds that we realize will be adequate to meet indebtedness service obligations when due.

 

Most of our senior secured credit facilities require that we maintain loan to collateral value ratios in order to remain in compliance with the covenants set forth therein. If the value of such collateral falls below such required level, we would be required to either prepay the loans or post additional collateral to the extent necessary to bring the value of the collateral as compared to the aggregate principal amount of the loan back to the required level. We cannot assure you that we will have the cash on hand or the financing available to prepay the loans or have any unencumbered assets available to post as additional collateral. In such case, we would be in default under such credit facility and the collateral securing such facility would be subject to foreclosure by the applicable lenders.

 

Moreover, certain of our senior secured credit facilities may be secured by vessels that are under construction pursuant to shipbuilding contracts. Because we would rely on these facilities to finance the scheduled payments as they come due under the shipbuilding contracts, it is possible that any default under such a facility would result, in the absence of other available funds, in default by us under the associated shipbuilding contract. In such a case, our rights in the related newbuild would be subject to foreclosure by the applicable creditor. In addition, a payment default under a shipbuilding contract would give the shipyard the right to terminate the contract without any further obligation to finish construction and may give it rights against us for having failed to make the required payments.

 

The notes are unsecured and structurally subordinated to the rights of our and the guarantors’ existing and future secured creditors.

 

The indentures governing the existing notes, the outstanding notes and the exchange notes, permit us to incur a significant amount of secured indebtedness, including indebtedness under our senior secured credit facilities and indebtedness to be used for acquisitions of vessels and businesses. The substantial majority of our debt has been and will continue to be secured debt used to purchase vessels. Indebtedness under our senior secured credit facilities is secured by mortgages on all our vessels owned by our wholly-owned vessel subsidiaries. The notes are unsecured and therefore do not have the benefit of such collateral. Accordingly, the notes are effectively subordinated to all such secured indebtedness. If an event of default occurs under our senior secured credit facilities or under future secured indebtedness, the senior secured lenders will have a prior right to our assets mortgaged in their favor, to the exclusion of the holders of our existing notes, the outstanding notes and the exchange notes, even if we are in default under the notes. In that event, our assets and the assets of the subsidiary guarantors would first be used to repay in full all indebtedness and other obligations secured by them (including all amounts outstanding under our senior secured credit facilities), resulting in all or a portion of our assets being unavailable to satisfy the claims of the holders of the notes and other unsecured indebtedness. Therefore, in the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of notes will participate in our remaining assets ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as such notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the notes. As a result, holders of notes may receive less, ratably, than holders of secured indebtedness.

The notes are effectively subordinated to the obligations of our current non-guarantor subsidiaries, which include our unrestricted subsidiaries, and any future non-guarantor subsidiaries.

 

The existing notes, the outstanding and the exchange the notes, are not guaranteed by certain of our subsidiaries, including Navios Logistics. Navios Logistics and certain of our other subsidiaries are also unrestricted subsidiaries and therefore are not subject to any of the covenants under the indenture governing the notes. Unrestricted subsidiaries may, among other things, incur without limitation additional indebtedness and liens, make investments and acquisitions, and sell assets or stock. In addition, we will be able to sell unrestricted subsidiaries, or distribute unrestricted subsidiaries or the proceeds from a sale of any of their assets or stock to stockholders, or enter into merger, joint venture or other transactions involving them, or any combination of the foregoing, without restrictions. Payments on the existing notes, the outstanding notes and the exchange notes, are only required to be made by us and the subsidiary guarantors. Accordingly, claims of holders of the notes will be, and claims of the existing notes are, structurally subordinated to the claims of creditors of our non-guarantor subsidiaries (which will include any subsidiary that is designated as an “unrestricted subsidiary” or is a securitization subsidiary, in each case in accordance with the indentures, and any future subsidiaries that are not wholly-owned by us), including trade creditors. We may also be able to create future non-guarantor subsidiaries or unrestricted subsidiaries under the indentures. All obligations of our non-guarantor subsidiaries, including trade payables, will have to be satisfied before any of the assets of such subsidiary would be available for distribution, upon liquidation or otherwise, to us or a subsidiary guarantor. Our non-guarantor subsidiaries accounted for approximately $221.5 million, or 32.6%, of our total revenue, approximately $1,553.0 million, or 42.2%, of our total assets and approximately $957.1 million, or 40.6%, of our total liabilities, in each case for the year ended December 31, 2010. As of March 31, 2011, our non-guarantor subsidiaries accounted for approximately $69.5 million, or 38.2%, of our total revenue, approximately $542.0 million, or 18.9%, of our total assets and approximately $209.1 million, or 12.2%, of our total liabilities. Navios Acquisition was an unrestricted subsidiary on the issue date of the outstanding notes. As of March 30, 2011, Navios Acquisition is no longer a consolidated subsidiary and our consolidated statement of operations for March 31, 2011 includes results for Navios Acquisition only through March 30, 2011. From that date onwards, Navios Acquisition is considered as an affiliate entity of Navios Holdings and is not a controlled subsidiary of the Company, and the investment in Navios Acquisition is now accounted for under the equity method due to the Company’s significant influence over Navios Acquisition. See footnote 25 to our audited consolidated financial statements for the year ended December 31, 2010 and footnote 15 to our unaudited consolidated financial statements for the three months ended March 31, 2011 (in which the financial information for our “non-guarantor subsidiaries” includes information for Navios Acquisition and Navios Logistics, as applicable) incorporated by reference in this prospectus.

 

We may be unable to raise funds necessary to finance the change of control repurchase offer required by the indenture governing the notes.

 

If we experience specified changes of control, we would be required to make an offer to repurchase all of the existing notes, the outstanding notes and the exchange notes (unless otherwise redeemed) at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the repurchase date. The occurrence of specified events that would constitute a change of control will constitute a default under our senior secured credit facilities. There are also change of control events that would constitute a default under the senior secured credit facilities that would not be a change of control under the indenture. In addition, our senior secured credit facilities prohibit the purchase of the notes by us in the event of a change of control, unless and until such time as the indebtedness under our senior secured credit facilities is repaid in full. As a result, following a change of control event, we would not be able to repurchase notes unless we first repay all indebtedness outstanding under our senior secured credit facilities and any of our other indebtedness that contains similar provisions, or obtain a waiver from the holders of such indebtedness to permit us to repurchase the existing notes, the outstanding notes and the exchange notes. We may be unable to repay all of that indebtedness or obtain a waiver of that type. Any requirement to offer to repurchase outstanding notes may therefore require us to refinance our other outstanding debt, which we may not be able to do on commercially reasonable terms, if at all. In addition, our failure to purchase the existing notes, the outstanding notes and the exchange notes, after a change of control in accordance with the terms of the indentures would constitute an event of default under the indentures, which in turn would result in a default under our senior secured credit facilities. See “Description of Notes.”

Our inability to repay the indebtedness under our senior secured credit facilities would also constitute an event of default under the indentures governing the existing notes, the outstanding notes and the exchange notes, which could have materially adverse consequences to us and to the holders of the notes. In the event of a change of control, we cannot assure you that we would have sufficient assets to satisfy all of our obligations under our senior credit facility and the existing notes, the outstanding notes and the exchange notes. Our future indebtedness may also require such indebtedness to be repurchased upon a change of control.

 

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

 

Our debt under our senior secured credit facility 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 debt 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 debt.

 

If the recent volatility in LIBOR continues, it could affect our profitability, earnings and cash flow.

 

LIBOR has recently been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the recent 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 continue, 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. Such provisions could significantly increase our lending costs, which would have an adverse effect on our profitability, earnings and cash flow.

 

The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

 

We are incorporated under the laws of the Republic of the Marshall Islands and our subsidiaries are also incorporated under the laws of the Marshall Islands, the Republic of Liberia, Malta and certain other countries other than the United States, and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency or similar proceedings involving us or one of our subsidiaries, bankruptcy laws other than those of the United States could apply. We have limited operations in the United States. If we become a debtor under the United States bankruptcy laws, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States or that a United States bankruptcy court would be entitled to, or accept, jurisdiction over such bankruptcy case or that courts in other countries that have jurisdiction over us and our operations would recognize a United States bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.

 

Our being subject to certain fraudulent transfer and conveyance statutes may have adverse implications for the holders of the notes.

 

Fraudulent transfer and insolvency laws may void, subordinate or limit the notes and the guarantees.

 

Marshall Islands

 

Navios Maritime Holdings Inc. and some of the guarantors as of the issue date are organized under the laws of the Republic of the Marshall Islands. While the Republic of the Marshall Islands does not have a bankruptcy statute or general statutory mechanism for insolvency proceedings, a Marshall Islands court could apply general U.S. principles of fraudulent conveyance, discussed below, in light of the provisions of the Marshall Islands Business Corporations Act, or the BCA, restricting the grant of guarantees without a corporate purpose. In such

case, a Marshall Islands court could void or subordinate the notes or the guarantees, including for the reasons a United States court could void or subordinate a guarantee as described below.

 

United States

 

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the notes and the incurrence of the guarantees, particularly any future guarantees of any U.S. subsidiaries we might create. Under U.S. federal bankruptcy law and comparable provisions of U.S. state fraudulent transfer or conveyance laws, if any such law would be deemed to apply, which may vary from state to state, the notes or the guarantees could be voided as a fraudulent transfer or conveyance if (1) we or any of the guarantors, as applicable, issued the notes or incurred the guarantees with the intent of hindering, delaying or defrauding creditors or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for either issuing the notes or incurring the guarantees and, in the case of (2) only, one of the following is also true at the time thereof:

 

 

If a court were to find that the issuance of the notes or the incurrence of the guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the notes or such guarantee or further subordinate the notes or such guarantee to presently existing and future indebtedness of ours or of the related guarantor, or require the holders of the notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the notes. Further, the voidance of the notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of such debt.

 

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. A debtor will generally not be considered to have received value in connection with a debt offering if the debtor did not substantially benefit directly or indirectly from the transaction. In that regard, a debtor will generally not be considered to have received value if the proceeds of a debt offering were used to make a dividend payment or otherwise retire or redeem equity securities issued by the debtor.

 

We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the issuance of the guarantees would not be further subordinated to our or any of our guarantors’ other debt. Generally, however, an entity would be considered insolvent if, at the time it incurred indebtedness:

 

 

Greece

 

If Navios Maritime Holdings Inc. or any of the guarantors files a petition for bankruptcy in Greece, Greek bankruptcy law will apply.

Under Greek law, upon a court declaration of bankruptcy, all the assets of the bankrupt party are placed under the control of a receiver to be held for the benefit of all creditors. After a court declaration of a bankruptcy, the bankrupt party may, following an application to, and approval by the bankruptcy court, continue to manage its assets with the cooperation of a receiver. In addition, certain transactions occurring prior to the declaration of bankruptcy may be found by the court to be null and void by operation of law, or may be declared null and void by the court after an examination of the merits of particular transactions if they are executed by the bankrupt party during the so-called “suspect period.” The suspect period is the time between the day of discontinuance of payments, which is determined by the Greek court and may predate the declaration of bankruptcy by up to two years, and the date of the declaration of bankruptcy.

 

Transactions that will be declared null and void by operation of law are:

 

 

The court will declare transactions in the above two categories null and void without taking into consideration any arguments from the parties to such transactions.

 

Certain other transactions entered into up to five (5) years prior to the entry into bankruptcy may be declared null and void by the bankruptcy court if it is concluded by the court that they were entered into with a malicious intent (dolus) to prevent creditors from satisfying their bona fide claims.

 

Moreover, the Greek court may declare any payments or transactions (including the issuance of notes or guarantees) during the suspect period null and void if the person who transacted with the bankrupt party knew that the latter was in a state of discontinuance of payments and if such payments or transactions were harmful to the creditors of the bankrupt party.

 

Belgium

 

Pursuant to Belgian law, a company can only carry out transactions which serve the company’s best interest. Since the group interest is not recognized, each company should be considered as an individual entity. Accordingly, a Belgian company should not grant a guarantee and encumber its own assets for obligations of other companies, whether parent or affiliated companies, unless it can demonstrate that this serves its corporate interest. Even if the granting of the guarantee is not in the corporate interest of the company, the guarantee will, in principle, remain valid. If however the beneficiary of the guarantee knew (or reasonably should have known) that the guarantee was against the corporate interest, the guarantee could be declared null and void. The final decision as to whether the corporate interest test has been met is a question of fact and will ultimately be made by a court.

 

In case bankruptcy proceedings are opened in Belgium, Belgian law will apply. Under Belgian law, in general, all the assets of the bankrupt party are placed under the control of a receiver. The bankrupt debtor is considered to be deprived of the powers of administration over its assets as of midnight on the day of the bankruptcy order. All payments and acts by the bankrupt debtor as of the day of the bankruptcy order are not enforceable against the body of creditors.

 

Pursuant to Article 5 of the Council Regulation (EC) No 1346/2000 of May 29, 2000 on insolvency proceedings (the “Insolvency Regulation”), the opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible assets, moveable or immoveable assets belonging to the bankrupt debtor within the territory of another member state of the European Union (the “EU”) (with the exception of Denmark) at the time of the opening of the bankruptcy proceedings. Actions for voidness, voidability or unenforceability of legal acts detrimental to all the creditors are, however not precluded.

 

The commercial court could render (and will sometimes be obliged to render) certain acts of the bankrupt company unenforceable against the body of creditors. Certain acts must or can be declared unenforceable if they

were performed by the company at a time when it had already ceased its payments, i.e. during the “suspect period”. The day of cessation of payments is assumed to be the date on which the company is declared bankrupt. This date can however be brought back by a court order at the request of the bankruptcy trustee or of any interested third party, up to 6 months before the date of the bankruptcy order, provided that sound and objective circumstances show unmistakably that the debtor had already ceased such payments before the date of the adjudication of bankruptcy. In case a company was wound-up more than 6 months before the bankruptcy order, the date of cessation of payments can be brought back to the date of its (factual or legal) winding-up if the winding-up was done to the prejudice of its creditors. The following actions will be declared unenforceable against the body of creditors if performed during the suspect period:

 

(i) Disposition of assets by the bankrupt debtor without consideration as well as any acts or agreements whereby the value of the assets and/or services rendered by the bankrupt debtor is substantially higher than the received consideration;

 

(ii) Payments made by the bankrupt debtor other than in cash or negotiable paper; such as bills of exchange or cheques;

 

(iii) Payments for unmatured debts; and

 

(iv) Granting of security interests for antecedent debt.

 

Even principally enforceable preference rights and mortgages which are subject to registration and inscription can be declared unenforceable if they were registered and inscribed during the suspect period and more than 15 days have passed between the deed establishing the preference right and the date of registration.

 

The court can also declare other acts unenforceable if they took place during the suspect period and if the third party was aware of the cessation of payments by the company. Finally, any acts or payments, whenever performed, that are to the fraudulent detriment of the creditors, can be declared unenforceable (actio pauliana).

 

Moreover, as a general rule of law, Article 1167 of the Belgian Civil Code allows a creditor to have a court nullify any contract between its debtor and a third party which was made with the fraudulent intent to take assets out of the creditors’ reach.

 

Pursuant to the Insolvency Regulation and thus within an EU context, Belgian rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors shall, however, not apply where the person who benefited from such act provides proof that:

 

(i) the said act is subject to the law of another EU member state (other than Denmark); and

 

(ii) that law does not allow any means of challenging that act in the relevant case.

 

Other Jurisdictions

 

The laws of the other jurisdictions in which guarantors may be organized may also limit the ability of such guarantors to guarantee debt of a parent company. These limitations arise under various provisions or principles of corporate law which include provisions requiring a subsidiary guarantor to receive adequate corporate benefit from the financing, rules governing preservation of share capital, thin capitalization and fraudulent transfer principles. In certain of these jurisdictions, the guarantees will contain language limiting the amount of debt guaranteed so that the applicable local law restrictions will not be violated. Accordingly, if you were to enforce the guarantees in such jurisdictions, your claims may be limited. Furthermore, although we believe that the guarantees of such guarantors are enforceable (subject to local law restrictions), a third party creditor may challenge these guarantees and prevail in court. We can provide no assurance that the guarantees will be enforceable.

 

You should not expect the Co-Issuer to participate in servicing the interest and principal obligations under the exchange notes.

 

The Co-Issuer is our wholly-owned subsidiary that was formed solely for the purpose of serving as a co-issuer and guarantor of our debt securities. The Co-Issuer was capitalized only with a minimal amount of common equity and did not receive any proceeds from the issuance of the outstanding notes. The Co-Issuer does not have (and is not

permitted to have) any assets (other than its equity capital), operations, revenues or debt (other than as a Co-Issuer of the notes, a guarantor of the 2017 Notes and a co-obligor or guarantor of other indebtedness permitted to be incurred by the terms of the indenture). As a result, noteholders should not expect the Co-Issuer to participate in servicing the interest and principal obligations under the exchange notes.

 

There is currently no market for the exchange notes. We cannot assure you that an active trading market will develop for the exchange notes.

 

The exchange notes offered hereby are new securities for which there presently is no established market. Although the initial purchasers have informed us that they currently intend to make a market in the exchange notes, the initial purchasers are not obligated to do so and any such market making may be discontinued at any time without notice. In addition, such market making activity may be limited during the pendency of the exchange offer or the effectiveness of a shelf registration statement in lieu thereof. Accordingly, we cannot give you any assurance as to the development or liquidity of any market for the exchange notes. We do not intend to apply for listing of the exchange notes, on any other securities exchange.

 

Even if a trading market for the exchange notes does develop, you may not be able to sell your notes at a particular time, if at all, or you may not be able to obtain the price you desire for your exchange notes. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial fluctuations in the price of securities. If the exchange notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on many factors, including prevailing interest rates, the market for similar securities, our credit rating, the interest of securities dealers in making a market for the notes, the price of any other securities we issue, our performance, prospects, operating results and financial condition, as well as of other companies in our industry.

 

The liquidity of, and trading market for the exchange notes also may be adversely affected by general declines in the market or by declines in the market for similar securities. Such declines may adversely affect such liquidity and trading markets independent of our financial performance and prospects.

 

Your failure to tender outstanding notes in the exchange offer may affect their marketability.

 

If outstanding notes are tendered for exchange and accepted in the exchange offer, the trading market, if any, for the untendered and tendered but unaccepted outstanding notes will be adversely affected. Your failure to participate in the exchange offer will substantially limit, and may effectively eliminate, opportunities to sell your outstanding notes in the future. We issued the outstanding notes in a private placement exempt from the registration requirements of the Securities Act.

 

Accordingly, you may not offer, sell or otherwise transfer your outstanding notes except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption from the securities laws, or in a transaction not subject to the securities laws. If you do not exchange your outstanding notes for exchange notes in the exchange offer, or if you do not properly tender your outstanding notes in the exchange offer, your outstanding notes will continue to be subject to these transfer restrictions after the completion of the exchange offer. In addition, after the completion of the exchange offer, you will no longer be able to obligate us to register the outstanding notes under the Securities Act.

 

Risks Associated with the Shipping Industry and Our Operations

 

The cyclical nature of the international drybulk shipping industry may lead to decreases in charter rates and lower vessel values, which could adversely affect our results of operations and financial condition.

 

The shipping business, including the dry cargo market, is cyclical in varying degrees, experiencing severe fluctuations in charter rates, profitability and, consequently, vessel values. For example, during the period from January 1, 2005 to December 31, 2010, the Baltic Exchange’s Panamax time charter average daily rates experienced a low of $3,537 and a high of $94,977. Additionally, during the period from January 1, 2009 to June 7, 2011, the Baltic Exchange’s Capesize time charter average daily rates experienced a low of $4,567 and a high of $93,197 and the Baltic Exchange Dry Index experienced a low of 772 points and a high of 4,661 points. Navios Holdings

anticipates that the future demand for its drybulk carriers and drybulk charter rates will be dependent upon demand for imported commodities, economic growth in the emerging markets, including the Asia Pacific region, India, Brazil and Russia, and in the rest of the world, seasonal and regional changes in demand and changes to the capacity of the world fleet. Recent adverse economic, political, social or other developments have decreased demand and prospects for growth in the shipping industry and thereby could reduce revenue significantly. A decline in demand for commodities transported in drybulk carriers or an increase in supply of drybulk vessels could cause a further decline in charter rates, which could materially adversely affect our results of operations and financial condition. If we sell a vessel at a time when the market value of our vessels has fallen, the sale may be at less than the vessel’s carrying amount, resulting in a loss.

 

The demand for vessels has generally been influenced by, among other factors:

 

 

The supply of vessel capacity has generally been influenced by, among other factors:

 

 

Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the European Union and other jurisdictions.

 

Our international operations could expose us to trade and economic sanctions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the European Union and its member countries. Under economic and trading sanctions laws, governments may seek to impose modifications to business practices, and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions.

 

In recent months, the scope of sanctions imposed against the government of Iran and persons engaging in certain activities or doing certain business with and relating to Iran has been expanded by a number of jurisdictions, including the United States, the European Union and Canada. In particular, the United States has enacted new legislation which imposed new sanctions that specifically restrict shipping refined petroleum into Iran (the tankers of our affiliate, Navios Maritime Acquisition Corporation have called on ports in Iran but do not engage in the activities specifically identified by these sanctions). There has also been an increased focus on economic and trade sanctions enforcement that has led recently to a significant number of penalties being imposed against shipping companies.

 

We are monitoring developments in the United States, the European Union and other jurisdictions that maintain sanctions programs, including developments in implementation and enforcement of such sanctions programs. Expansion of sanctions programs, embargoes and other restrictions in the future (including additional designations of countries subject to sanctions), or modifications in how existing sanctions are interpreted or enforced, could prevent the tankers of our affiliate from calling on ports in sanctioned countries or could limit their

cargoes. If any of the risks described above materialize, it could have a material adverse impact on our business and results of operations.

 

The economic slowdown in the Asia Pacific region has markedly reduced demand for shipping services and has decreased shipping rates, which could adversely affect our results of operations and financial condition.

 

Currently, China, India, Japan, other Pacific Asian economies and India are the main driving force behind the development in seaborne drybulk trades and the demand for drybulk carriers. Reduced demand from such economies has driven decreased rates and vessel values. A further negative change in economic conditions in any Asian Pacific country, but particularly in China or Japan, as well as India, may have a material adverse effect on our business, financial condition and results of operations, as well as our future prospects, by reducing demand and the resultant charter rates. In particular, in recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product. Furthermore, the economic uncertainty in the United States, the European Union, and other countries may deepen the economic slowdown in China, among others.

 

Our financial condition and results of operations, as well as our future prospects, would likely be adversely affected by an economic downturn in any of these countries as such downturn would likely translate into reduced demand for shipping services and lower shipping rates industry-wide. As a result, our operating results would be further materially affected.

 

Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on our ability to obtain financing required to acquire vessels or new businesses. Furthermore, such a disruption would adversely affect our results of operations, financial condition and cash flows.

 

The United States and other parts of the world are exhibiting volatile economic trends and were recently in a recession. Despite signs of recovery, the outlook for the world economy remains uncertain. For example, the credit markets worldwide and in the U.S. have experienced significant contraction, de-leveraging and reduced liquidity, and the U.S. federal government, state governments and foreign governments have implemented and are considering a broad variety of governmental action and/or new regulation of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Securities and Exchange Commission (the “SEC”), 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. Recently, a number of financial institutions have experienced serious financial difficulties and, in some cases, have entered bankruptcy proceedings or are in regulatory enforcement actions. The uncertainty surrounding the future of the credit markets in the U.S. and the rest of the world has resulted in reduced access to credit worldwide. Due to the fact that we would possibly cover all or a portion of the cost of any new vessel acquisition with debt financing, such uncertainty, combined with restrictions imposed by our current debt, could hamper our ability to finance vessels or new business acquisitions.

 

The March 2011 natural disaster in Japan and its currently uncertain resultant effects, including nuclear uncertainty may also have a significant impact on the regional and world economies. With the third largest economy in the world, an extended period of recovery for Japan and its economy could decrease oil imports to that country. Our financial condition and results of operations, as well as our future prospects, would likely be adversely affected by an economic downturn in any of these countries as such downturn would likely translate into reduced demand for shipping services and lower shipping rates industry-wide. As a result, our operating results would be further materially adversely affected. We could face risks attendant to changes in economic environments, changes in interest rates, and instability in certain securities markets, among other factors. Major market disruptions and the uncertainty in market conditions and the regulatory climate in the U.S. and worldwide could adversely affect our business or impair our ability to borrow amounts under any future financial arrangements. The current market conditions may last longer than we anticipate. These recent and developing economic and governmental factors could have a material adverse effect on our results of operations, financial condition or cash flows.

When our contracts expire, we may not be able to successfully replace them.

 

The process for concluding contracts and longer term time charters generally involves a lengthy and intensive screening and vetting process and the submission of competitive bids. In addition to the quality and suitability of the vessel, medium and longer term shipping contracts tend to be awarded based upon a variety of other factors relating to the vessel operator, including:

 

 

As a result of these factors, when our contracts including our long-term charters expire, we cannot assure you that we will be able to replace them promptly or at all or at rates sufficient to allow us to operate our business profitably, to meet our obligations, including payment of debt service to our lenders, or to pay dividends. Our ability to renew the charter contracts on our vessels on the expiration or termination of our current charters, or, on vessels that we may acquire in the future, the charter rates payable under any replacement charter contracts, will depend upon, among other things, economic conditions in the sectors in which our vessels operate at that time and the financial sector, changes in the supply and demand for vessel capacity and changes in the supply and demand for the transportation of commodities as described above.

 

However, if we are successful in employing our vessels under longer-term time charters, our vessels will not be available for trading in the spot market during an upturn in the market cycle, when spot trading may be more profitable. If we cannot successfully employ our vessels in profitable charter contracts, our results of operations and operating cash flow could be materially adversely affected.

 

We depend upon significant customers for part of our revenues. The loss of one or more of these customers could adversely affect our financial performance.

 

We have derived a significant part of our revenue from a number of charterers. During the fiscal year ended December 31, 2010 and the three-month period ended March 31, 2011, none of our customers accounted for more than 10% of the Company’s revenue. During the fiscal year ended December 31, 2009, we derived approximately 13.2% of our gross revenues from one charterer.

 

If one or more of our customers is unable to perform under one or more charters with us and we are not able to find a replacement charter, or if a customer exercises certain rights to terminate the charter, we could suffer a loss of revenues that could materially adversely affect our business, financial condition and results of operations.

 

We could lose a customer or the benefits of a time charter if, among other things:

 

 

 

We may employ vessels on the spot market and thus expose ourselves to risk of losses based on short-term decreases in shipping rates.

 

We periodically employ some of our vessels on a spot basis. The spot charter market is highly competitive and freight rates within this market are highly volatile, while longer-term charter contracts provide income at pre-determined rates over more extended periods of time. We cannot assure you that we will be successful in keeping our vessels fully employed in these short-term markets, or that future spot rates will be sufficient to enable such vessels to be operated profitably. A significant decrease in spot market rates or our inability to fully employ our vessels by taking advantage of the spot market would result in a reduction of the incremental revenue received from spot chartering and adversely affect results of operations, including our profitability and cash flows, with the result that our ability to pay debt service and dividends could be impaired.

 

We are subject to certain credit risks with respect to our counterparties on contracts, and the failure of such counterparties to meet their obligations could cause us to suffer losses on such contracts and thereby decrease revenues.

 

We charter-out our vessels to other parties, who pay us a daily rate of hire. We also enter into contracts of affreightment, or COAs pursuant to which we agree to carry cargoes, typically for industrial customers, who export or import drybulk cargoes. Additionally, we enter into Forward Freight Agreements, or (“FFAs”), parts of which are traded over-the-counter. We also enter into spot market voyage contracts, where we are paid a rate per ton to carry a specified cargo on a specified route. The FFAs and these contracts and arrangements subject us to counterparty credit risks at various levels. If the counterparties fail to meet their obligations, we could suffer losses on such contracts which could materially adversely affect our financial condition and results of operations. In addition, after a charterer defaults on a time charter, we would have to enter into charters at lower rates. It is also possible that we would be unable to secure a charter at all. If we re-charter the vessel at lower rates or not at all, our financial condition and results of operations could be materially adversely affected.

 

We have insured our charter-out contracts through a “AA+” rated governmental agency of a European Union member state, which provides that if the charterer goes into payment default, the insurer will reimburse us for the charter payments under the terms of the policy (subject to applicable deductibles and other customary limitations for such insurance).

 

In January 2011, Korea Line Corporation (“KLC”) filed for receivership, which is a reorganization under South Korean bankruptcy law. Navios Holdings has reviewed the matter in concert with the credit default insurers, as five vessels of its core fleet are chartered out to KLC. The contracts for these vessels have been temporarily suspended and the vessels have been rechartered to third paties for variable charter periods. Upon completion of the suspension period, the contracts with the original charterers will resume at amended terms. The obligations of the insurer are reduced by an amount equal to the mitigation charter hire revenues earned under the contracts with third parties and/or the original charterers or the applicable deductibles for any idle periods. The Company has filed claims for all unpaid amounts by KLC in respect of the employment of the five vessels in the KLC corporate rehabilitation proceedings. The disposition of these claims will be determined by the Korean Court at a future date.

 

Trading and complementary hedging activities in freight, tonnage and FFAs subject us to trading risks, and we may suffer trading losses which could adversely affect our financial condition and results of operations.

 

Due to drybulk shipping market volatility, success in this shipping industry requires constant adjustment of the balance between chartering-out vessels for long periods of time and trading them on a spot basis. A long-term contract to charter a vessel might lock us into a profitable or unprofitable situation depending on the direction of

freight rates over the term of the contract. We seek to manage and mitigate that risk through trading and complementary hedging activities in freight, tonnage and FFAs. We are exposed to market risk in relation to our FFAs and could suffer substantial losses from these activities in the event that our expectations are incorrect. We trade FFAs with an objective of both economically hedging the risk on the fleet, specific vessels or freight commitments and taking advantage of short-term fluctuations in market prices. There can be no assurance that we will be able at all times to successfully protect ourselves from volatility in the shipping market. We may not successfully mitigate our risks, leaving us exposed to unprofitable contracts, and may suffer trading losses resulting from these hedging activities.

 

In our hedging and trading activities, we focus on short-term trading opportunities in which there are adequate liquidity in order to limit the risk we are taking. There can be no assurance we will be successful in limiting our risk, that significant price spikes will not result in significant losses, even on short-term trades, that liquidity will be available for our positions, or that all trades will be done within our risk management policies. Any such risk could be significant. In addition, the performance of our trading activities can significantly increase the variability of our operating performance in any given period and could materially adversely affect our financial condition. The FFA market has experienced significant volatility in the past few years and, accordingly, recognition of the changes in the fair value of FFAs has caused, and could in the future cause significant volatility in earnings.

 

We are subject to certain operating risks, including vessel breakdowns or accidents, that could result in a loss of revenue from the affected vessels and which in turn could have an adverse effect on our results of operations or financial condition.

 

Our exposure to operating risks of vessel breakdown and accidents mainly arises in the context of our owned vessels. The rest of our core fleet is chartered-in under time charters and, as a result, most operating risks relating to these time chartered vessels remain with their owners. If we pay hire on a chartered-in vessel at a lower rate than the rate of hire it receives from a sub-charterer to whom we have chartered out the vessel, a breakdown or loss of the vessel due to an operating risk suffered by the owner will, in all likelihood, result in our loss of the positive spread between the two rates of hire. Although we maintain insurance policies (subject to deductibles and exclusions) to cover us against the loss of such spread through the sinking or other loss of a chartered-in vessel, we cannot assure you that we will be covered under all circumstances or that such policies will be available in the future on commercially reasonable terms. Breakdowns or accidents involving our vessels and losses relating to chartered vessels which are not covered by insurance would result in a loss of revenue from the affected vessels adversely affecting our financial condition and results of operations.

 

We are subject to various laws, regulations and conventions, including environmental and safety laws that could require significant expenditures both to maintain compliance with such laws and to pay for any uninsured environmental liabilities including any resulting from a spill or other environmental incident.

 

The shipping business and vessel operation 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 vessels operate, as well as in the country or countries of their registration. Governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make capital and other expenditures. 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 fair market price or useful life of our vessels. In order to satisfy any such requirements, we may be required to take any of our vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable us to operate our vessels, particularly older vessels, profitably during the remainder of their economic lives. This could lead to significant asset write downs. In addition, violations of environmental and safety regulations can result in substantial penalties and, in certain instances, seizure or detention of our vessels.

 

Additional conventions, laws and regulations may be adopted that could limit our ability to do business, require capital expenditures or otherwise increase our cost of doing business, which may materially adversely affect our operations, as well as the shipping industry generally. For example, in various jurisdictions legislation has been enacted, or is under consideration, that would impose more stringent requirements on air pollution and water

discharges from our vessels. For example, the International Maritime Organization (“IMO”) periodically proposes and adopts amendments to revise the International Convention for the Prevention of Pollution from Ships (“MARPOL”), such as the recent revision to Annex VI. The revised Annex VI implements a phased reduction of the sulfur content of fuel beginning in 2010 and allows for stricter sulfur limits in designated emission control areas (“ECAs”). Thus far, ECAs have been formally adopted for the Baltic Sea, the North Sea and the coasts of North America, but more ECAs, including the proposed ECA for the U.S. Caribbean, could be added. In addition, the IMO, the U.S. and states within the U.S. have proposed or implemented requirements relating to the management of ballast water to prevent the harmful effects of foreign invasive species.

 

The operation of vessels is also affected by the requirements set forth in the International Safety Management (“ISM”) Code. The ISM Code requires shipowners 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 vessel operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports.

 

We operate a fleet of product and chemical tankers that are subject to national and international laws governing pollution from such vessels. Several international conventions impose and limit pollution liability from vessels. An owner of a tanker vessel carrying a cargo of “persistent oil” as defined by the International Convention for Civil Liability for Oil Pollution Damage (the “CLC”) is subject under the convention to strict liability for any pollution damage caused in a contracting state by an escape or discharge from cargo or bunker tanks. This liability is subject to a financial limit calculated by reference to the tonnage of the ship, and the right to limit liability may be lost if the spill is caused by the shipowner’s intentional or reckless conduct. Liability may also be incurred under the CLC for a bunker spill from the vessel even when she is not carrying such cargo, but is in ballast.

 

When a tanker is carrying clean oil products that do not constitute “persistent oil” that would be covered under the CLC, liability for any pollution damage will generally fall outside the CLC and will depend on other international conventions or domestic laws in the jurisdiction where the spillage occurs. The same principle applies to any pollution from the vessel in a jurisdiction which is not a party to the CLC. The CLC applies in over 100 jurisdictions around the world, but it does not apply in the United States, where the corresponding liability laws such as the Oil Pollution Act of 1990 (The “OPA”) discussed below, are particularly stringent.

 

For vessel operations not covered by the CLC, including those operated under our fleet, at present, international liability for oil pollution is governed by the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”). In 2001, the IMO adopted the Bunker Convention, which imposes strict liability on shipowners for pollution damage and response costs incurred in contracting states caused by discharges, or threatened discharges, of bunker oil from all classes of ships not covered by the CLC. The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance to cover their liability for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime, including liability limits calculated in accordance with the Convention on Limitation of Liability for Maritime Claims 1976, as amended ( the “1976 Convention”), discussed in more detail in the following paragraph. The Bunker Convention became effective in contracting states on November 21, 2008 and as of May 5, 2011 was in effect in 58 states. In non-contracting states, liability for such bunker oil pollution typically is determined by the national or other domestic laws in the jurisdiction where the spillage occurs.

 

The CLC and Bunker Convention also provide vessel owners a right to limit their liability. The CLC includes its own liability limits and the Bunker Convention incorporates the 1976 Convention referenced above. The 1976 Convention is the most widely applicable international regime limiting maritime pollution liability. Rights to limit liability under the 1976 Convention are forfeited where a spill is caused by a shipowner’s intentional or reckless conduct. Certain jurisdictions have ratified the IMO’s Protocol of 1996 to the 1976 Convention, referred to herein as the “Protocol of 1996.” The Protocol of 1996 provides for substantially higher liability limits in those jurisdictions than the limits set forth in the 1976 Convention. Finally, some jurisdictions, such as the United States, are not a party to either the 1976 Convention or the Protocol of 1996, and, therefore, a shipowner’s rights to limit liability for maritime pollution in such jurisdictions may be uncertain.

Environmental legislation in the United States merits particular mention as it is in many respects more onerous than international laws, representing a high-water mark of regulation with which ship owners and operators must comply, and of liability likely to be incurred in the event of non-compliance or an incident causing pollution. Such regulation may become even stricter if laws are changed as a result of the May 2010 Deepwater Horizon oil spill in the Gulf of Mexico. In the United States, the OPA establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from cargo and bunker oil spills from vessels, including tankers. The OPA covers 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. Under the OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or substantial threats of discharges, of oil from their vessels. In response to the 2010 Deepwater Horizon oil incident in the Gulf of Mexico, the U.S. House of Representatives passed and the U.S. Senate considered but did not pass a bill to strengthen certain requirements of the OPA; similar legislation may be introduced in the 112th Congress.

 

In addition to potential liability under the federal OPA, vessel owners may in some instances incur liability on an even more stringent basis under state law in the particular state where the spillage occurred. For example, California regulations prohibit the discharge of oil, require an oil contingency plan be filed with the state, require that the ship owner contract with an oil response organization and require a valid certificate of financial responsibility, all prior to the vessel entering state waters.

 

In the last decade, the EU has become increasingly active in the field of regulation of maritime safety and protection of the environment. In some areas of regulation the EU has introduced new laws without attempting to procure a corresponding amendment to international law. Notably, the EU adopted in 2005 a directive, as amended in 2009, on ship-source pollution, imposing criminal sanctions for pollution not only where pollution is caused by intent or recklessness (which would be an offence under MARPOL), but also where it is caused by “serious negligence.” The concept of “serious negligence” may be interpreted in practice to be little more than ordinary negligence. The directive could therefore result in criminal liability being incurred in circumstances where it would not be incurred under international law. Criminal liability for a pollution incident could not only result in us incurring substantial penalties or fines, but may also, in some jurisdictions, facilitate civil liability claims for greater compensation than would otherwise have been payable.

 

We maintain insurance coverage for each owned vessel in our fleet against pollution liability risks in the amount of $1.0 billion in the aggregate for any one event. The insured risks include penalties and fines as well as civil liabilities and expenses resulting from accidental pollution. However, this insurance coverage is subject to exclusions, deductibles and other terms and conditions. If any liabilities or expenses fall within an exclusion from coverage, or if damages from a catastrophic incident exceed the aggregate liability of $1.0 billion for any one event, our cash flow, profitability and financial position would be adversely impacted.

 

Climate change and government laws and regulations related to climate change could negatively impact our financial condition.

 

Regarding climate change in particular, we are and will be, directly and indirectly, subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related to climate change. A number of countries have adopted or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. In the U.S., the United States Environmental Protection Agency (U.S. EPA) has declared greenhouse gases to be dangerous pollutants and has issued greenhouse gas reporting requirements for emissions sources in certain industries (which do not include the shipping industry). The U.S. EPA is also considering petitions to regulate greenhouse gas emissions from marine vessels.

 

The IMO has announced its intention to develop limits on greenhouse gases from international shipping and is working on technical and operational measures to reduce emissions. In addition, while the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which requires adopting countries to implement national programs to reduce

greenhouse gas emissions, such standards are currently under consideration by the IMO. The European Union announced in April 2007 that it planned to expand the European Union emissions trading scheme by adding vessels, and a proposal from the European Commission is expected if no global regime for reduction of seaborne emissions has been agreed by the end of 2011. We cannot predict with any degree of certainty what effect, if any, possible climate change and government laws and regulations related to climate change will have on our operations, whether directly or indirectly. While we believe that it is difficult to assess the timing and effect of climate change and pending legislation and regulation related to climate change on our business, we believe that climate change, including the possible increase in severe weather events resulting from climate change, and government laws and regulations related to climate change may affect, directly or indirectly, (i) the cost of the vessels we may acquire in the future, (ii) our ability to continue to operate as we have in the past, (iii) the cost of operating our vessels, and (iv) insurance premiums, deductibles and the availability of coverage. As a result, our financial condition could be negatively impacted by significant climate change and related governmental regulation, and that impact could be material.

 

We are subject to vessel security regulations and will incur costs to comply with recently adopted regulations and may be subject to costs to comply with similar regulations which may be adopted in the future in response to terrorism.

 

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The new chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created ISPS Code. Among the various requirements are:

 

 

Furthermore, additional security measures could be required in the future which could have a significant financial impact on us. The U.S. Coast Guard regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels had on board, by July 1, 2004, a valid International Ship Security Certificate, or ISSC, that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have implemented and will continue implement the various security measures addressed by the MTSA, SOLAS and the ISPS Code and take measures for the vessels to attain compliance with all applicable security requirements within the prescribed time periods. Although management does not believe these additional requirements will have a material financial impact on our operations, there can be no assurance that there will not be an interruption in operations to bring vessels into compliance with the applicable requirements and any such interruption could cause a decrease in charter revenues. The cost of vessel security measures has also been affected by dramatic escalation in recent years in the frequency and seriousness of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area which could have a significant financial impact on us.

 

The cost of vessel security measures has also been affected by dramatic escalation in recent years in the frequency and seriousness of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Attacks of this kind have commonly resulted in vessels and their crews being detained for several months, and being released only on payment of large ransoms. Substantial loss of revenue and other costs may be incurred as a result of such detention. So far as practicable we insure against these losses but the risk remains of uninsured losses which could significantly affect our business. Costs are incurred in taking additional security

measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP3 industry standard. A number of flag states have signed the 2009 New York Declaration, which expresses commitment to Best Management Practices in relation to piracy and calls for compliance with them as an essential part of compliance with the ISPS Code.

 

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