UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
DC 20549



FORM 20-F



|                                                |  |                                                                                                     
|----------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|o                                               |  | REGISTRATION STATEMENT
    PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR                                             
|x                                               |  | ANNUAL REPORT PURSUANT
    TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934            
|For the
    fiscal year ended December 31, 2011
|OR                                             
|o                                               |  | TRANSITION REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        
|                                               
|For
    the transition period from          to 
|OR                                             
|o                                               |  | SHELL COMPANY REPORT
    PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     



Date of event requiring this shell
company report



Commission
file number

001-32520



NEWLEAD HOLDINGS
LTD.

(Exact name of
Registrant as specified in its charter)



(Translation of
Registrant's name into English)



Bermuda

(Jurisdiction
of incorporation or organization)



83 Akti Miaouli
& Flessa Str., Piraeus Greece 185 38

(Address of principal
executive offices)



Mr. Michail
S. Zolotas

83 Akti Miaouli
& Flessa Str.

Piraeus Greece
185 38

Tel: + 30 213
014 8600, Fax: + 30 213 014 8609

E-mail: mzolotas@newleadholdings.com

(Name, Telephone,
E-mail and/or Facsimile number and Address of Company Contact Person)



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



|Title
    of each class            |  | Name
    of each exchange on which registered
|---------------------------------- |  | ---------------------------------------------
|                                   |  |                                              
|Common
    shares, $0.01 par value |  | NASDAQ Global Market                         



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



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



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



There were 7,837,649 and 19,929,763
of the registrant's common shares outstanding as of December 31, 2011 and May 15, 2012, respectively.



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



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.  YesoNox



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



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.  YesxNoo



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).  YesoNoo



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



|Large
    accelerated filero | Accelerated
    filero | Non-accelerated
    filerx
|---------------------------- | ---------------------- | --------------------------



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



|U.S. GAAPþ | International
    Financial Reporting Standards as issued
    by the International Accounting Standardso | Othero
|---------- | -------------------------------------------------------------------------------------------------------- | ------



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

Item 17oItem 18o



If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  YesoNox











Explanatory Note



This Annual Report on Form 20-F for
the year ended December 31, 2011 includes a restatement of our (1) our consolidated balance sheet as of December 31,
2010; (2) our consolidated statements of operations for the year ended December 31, 2010 and for the period October 14, 2009
to December 31, 2009; (3) our consolidated statements of changes in shareholders’ equity for the year ended December
31, 2010 and for the period October 14, 2009 to December 31, 2009; (4) certain balance sheet selected financial
data as of and for the periods referenced in (1) through (3) above and as of December 31, 2009; and (5) our management’s
discussion and analysis of financial condition and results of operations for the year ended December 31, 2010 and for the period
October 14, 2009 to December 31, 2009, contained in Item 5 of this Annual Report on Form 20-F.



Subsequent to the issuance of the Company’s
2010 and 2009 (successor) consolidated financial statements,the Company determined that the method
used to amortize the beneficial conversion feature (“BCF”) on its 7% senior unsecured convertible notes was erroneous
because the Company had previously amortized the BCF on a straight line basis, rather than using the effective interest rate method.
This resulted in a material error and the restatement of the Company’s 2010 and 2009 (successor) financial statements.The
impacts of the restatement are summarized in the following table:





|                                                         |  | As of and for the Year Ended December 31, 2010 |          |   | As of December 31, 2009 and for the Period From October
    14, 2009 to December 31, 2009 |  
|-------------------------------------------------------- |  | ---------------------------------------------- | -------- | - | ----------------------------------------------------------------------------------------- | -
|                                                         |  | As Previously Reported                         |          |   | As Restated                                                                               |  
|                                                         |  |                                                |          |   |                                                                                           |  
|Senior convertible 7% notes                              |  | $                                              | 55,877   |   |                                                                                           | $
|Total non-current liabilities                            |  | $                                              | 591,360  |   |                                                                                           | $
|Total liabilities                                        |  | $                                              | 686,099  |   |                                                                                           | $
|Accumulated deficit                                      |  | $                                              | (132,721 | ) |                                                                                           | $
|Total shareholders' equity                               |  | $                                              | 75,634   |   |                                                                                           | $
|                                                         |  |                                                |          |   |                                                                                           |  
|Interest and finance expense                             |  | $                                              | (44,899  | ) |                                                                                           | $
|Loss from continuing operations                          |  | $                                              | (97,618  | ) |                                                                                           | $
|Net loss                                                 |  | $                                              | (94,849  | ) |                                                                                           | $
|Loss per share basic and diluted - continuing operations |  | $                                              | (14.03   | ) |                                                                                           | $
|Loss per share basic and diluted – total                 |  | $                                              | (13.63   | ) |                                                                                           | $





| | * | In addition, and unconnected to the correction of the error,
                                                                 the amounts presented reflect the retrospective application of
                                                                 discontinued operations for all periods presented. Refer to Note
                                                                 25 (Discontinued Operations) in the accompanying consolidated
                                                                 financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has restated its consolidated
financial statements as of and for the year ended December 31, 2010 and for the period from October 14, 2009 to December 31, 2009
(the “Restated Financial Statements”) to reflect the adjustments discussed above. The Restated Financial Statements
are otherwise identical in all respects to the financial statements contained in the Company’s annual reports for 2010 and
2009, except as noted above. New Reports of Independent Registered Public Accounting Firms have been issued in relation to the
audit of the Restated Financial Statements.



In connection with the restatement described
above, we have concluded that we did not maintain effective disclosure controls and procedures and internal controls over financial
reporting as of December 31, 2011. Refer to “Part II —Item 15. Controls and Procedures” for additional
information.



2







TABLE OF CONTENTS



|        |           |  |  | Page                                                                            
|------- | --------- |  |  | --------------------------------------------------------------------------------
|        |           |  |  |                                                                                 
|        | ITEM 1.   |  |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
    AND ADVISERS                       
|        | ITEM 2.   |  |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                         
|        | ITEM 3.   |  |  | KEY
    INFORMATION (RESTATED)                                                  
|        | ITEM 4.   |  |  | INFORMATION ON THE COMPANY                                                      
|        | ITEM 4A.  |  |  | UNRESOLVED STAFF COMMENTS                                                       
|        | ITEM 5.   |  |  | OPERATING
    AND FINANCIAL REVIEW AND PROSPECTS (RESTATED)                     
|        | ITEM 6.   |  |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                      
|        | ITEM 7.   |  |  | MAJOR SHAREHOLDERS AND RELATED PARTY
    TRANSACTIONS                           
|        | ITEM 8.   |  |  | FINANCIAL INFORMATION                                                           
|        | ITEM 9.   |  |  | THE OFFER AND LISTING                                                           
|        | ITEM 10.  |  |  | ADDITIONAL INFORMATION                                                          
|        | ITEM 11.  |  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                  
|        | ITEM 12.  |  |  | DESCRIPTION OF SECURITIES OTHER THAN
    EQUITY SECURITIES                      
|        | ITEM 13.  |  |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                 
|        | ITEM 14.  |  |  | MATERIAL MODIFICATIONS TO THE RIGHTS
    OF SECURITY HOLDERS AND USE OF PROCEEDS
|        | ITEM 15.  |  |  | CONTROLS AND PROCEDURES                                                         
|        | ITEM 16A. |  |  | AUDIT COMMITTEE FINANCIAL EXPERT                                                
|        | ITEM 16B. |  |  | CODE OF ETHICS                                                                  
|        | ITEM 16C. |  |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                          
|        | ITEM 16D. |  |  | EXEMPTIONS FROM THE LISTING STANDARDS
    FOR AUDIT COMMITTEES                  
|        | ITEM 16E. |  |  | PURCHASES OF EQUITY SECURITIES BY THE
    ISSUER AND AFFILIATED PURCHASES       
|        | ITEM 16F. |  |  | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT                                    
|        | ITEM 16G. |  |  | CORPORATE GOVERNANCE                                                            
|        | ITEM 16H. |  |  | MINE SAFETY DISCLOSURES                                                         
|        | ITEM 17.  |  |  | FINANCIAL STATEMENTS                                                            
|        | ITEM 18.  |  |  | FINANCIAL
    STATEMENTS (RESTATED)                                             
|        | ITEM 19.  |  |  | EXHIBITS                                                                        
|EX-4.16
|EX-8.1 
|EX-12.1
|EX-12.2
|EX-13.1
|EX-13.2



3







CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



In this report,
"we," "us," "our," "NewLead" and the "Company" all refer to NewLead Holdings
Ltd. and its subsidiaries.



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



All statements
in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include,
but are not limited to, such matters as future operating or financialresults; our liquidity position and cash flows, our
ability to borrow additional amounts under our revolving credit facility and, if needed, to obtain waivers from our lenders and
restructure our debt, our ability to come to a satisfactory resolution with our lenders in our ongoing
debt restructuring process,and our ability to continue as a going concern; statements about planned, pending or recent
vessel disposalsand/or acquisitions, business strategy, future dividend payments and expected capital
spending or operating expenses, including dry-docking and insurance costs; statements about trends in the product tanker and dry
bulk vessel shipping segments, including charter rates and factors affecting supply and demand; expectations regarding the availability
of vessel acquisitions; completion of repairs; length of off-hire; availability of charters; our ability to obtain coal supplies
and trends and other factors relating to coal prices and the coal market; and anticipated developments with respect to any pending
litigation.



The forward-looking
statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including,
without limitation, management's examination of historical operating trends, data contained in our records and other data available
from third parties. Although NewLead believes that these assumptions were reasonable when made, because these assumptions are
inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond
our control, NewLead cannot assure you that it will achieve or accomplish these expectations, beliefs or projections described
in the forward-looking statements contained in this report. Important factors that, in our view, could cause actual results to
differ materially from those discussed in the forward-looking statements include our ability to come to a satisfactory resolution
with our lenders in our ongoing debt restructuring process; the strength of world economies and currencies; general market conditions,
including changes in charter rates and vessel values; failure of a seller to deliver one or more vessels; failure of a buyer to
accept delivery of a vessel; inability to procure acquisition financing; default by one or more charterers of our vessels; our
ability to complete documentation of agreements in principle; changes in demand for oil and oil products; the effect of changes
in OPEC's petroleum production levels; worldwide oil consumption and storage; changes in demand that may affect attitudes of time
charterers; scheduled and unscheduled dry-docking; additional time spent in completing repairs; changes in NewLead's voyage and
operating expenses, including bunker prices, dry-docking and insurance costs; changes in governmental rules and regulations or
actions taken by regulatory authorities; potential liability from pending or future litigation; domestic and international political
conditions; potential disruption of shipping routes due to accidents, international hostilities and political events or acts by
terrorists or pirates; material adverse events affecting NewLead; changes that may affect the price of coal and other factors
relating to the coal market; the failure of our third-party supplies to provide us with our coal supplies in accordance with our
supply contracts; and other factors discussed in NewLead's filings with the U.S. Securities and Exchange Commission, or the
SEC, from time to time.



4







PART I



|Item 1. | Identity of Directors, Senior
    Management and Advisers
|------- | ---------------------------------------------------------



Not applicable.



|Item 2. | Offer Statistics and Expected
    Timetable
|------- | -------------------------------------------



Not applicable.



|Item 3. | Key Information
|------- | ---------------



Unless the context
otherwise requires, as used in this report, the terms "the Company," "we," "us" and "our"
refer to NewLead Holdings Ltd. and all of its subsidiaries. We use the term deadweight tons, or dwt, in describing the size of
vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo
and supplies that a vessel can carry.



Recent Developments



The Fleet



As discussed
elsewhere in this annual report, we have had a significant reduction in the size of our fleet. As of May 14, 2012, we had a fleet
of five vessels. We expect further reductions in our fleet.



We continue to
negotiate with Piraeus Bank in respect of (a) the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus
will release us from all debt obligations arising under the related credit facilities in exchange for equity in the Company.



Also included
in the five vessels is one newbuilding. Due to the delay in our payment of an installment of $7.4 million, we are currently in
default under the shipbuilding contract of this hull and have not received delivery of this hull. We are currently in discussions
with the lenders, the shipyard and a potential buyer in respect of the sale of this hull and the release of our obligations under
the loan agreement.



We are currently
in negotiations with WestLB to amend the terms of the loan agreement, whereby the agreement will be amended and restated to enable
us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring described herein and enable
the Newlead Victoria, a drybulk Panamax vessel, to stay within the group. This vessel is subject to a floating rate time charter
which may expire as early as July 2012 or as late as October 2012. The vessel owner has the right to an earlier redelivery of
the vessel, at any time within the charter duration, subject to the vessel owner tendering three months’ advance notice
to the charterers.



We are currently
in negotiations with Marfin to amend the terms of the loan agreement, whereby the agreement will be amended and restated to enable
us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring described herein and enable
the Newlead Markela, a drybulk Panamax vessel to stay within the group.



Restructuring of Our Indebtedness



Due
to the economic conditions and operational difficulties of the Company, we entered into restructuring discussions with each of
the lenders under our facility and credit agreements, the holders of our 7% senior unsecured convertible
notes (the "7% Notes") and the counterparties to our capital leases (collectively, the agreements governing such
debt, the “Financing Documents”). See “Item 5. Operating and Financial Review and Prospects—Liquidity
and Capital Resources” for a discussion of the various Financing Documents. As part of those discussions, we appointed Moelis
& Company (“Moelis”) to act as our financial advisors in respect of the overall restructuring proposal described
below. The aim of the restructuring is to increase liquidity, normalize trade vendor payments and deleverage the Company on a
going forward basis (the “Restructuring”).



5







Since June 2011,
we have defaulted under each of our Financing Documents in respect of certain covenants (including, in some cases, the failure
to make amortization and interest payments, the failure to satisfy financial covenants and the triggering of cross-default provisions).
To date, we have not obtained waivers of these defaults from our lenders. From July 1, 2011 through May 14, 2012, and as
part of our restructuring efforts, our lenders seized four of our vessels and we sold 13 vessels. The sales proceeds have been
and are expected to be insufficient to fully repay the related debt and therefore, we will continue to have significant debt.
All of our debt is currently under restructuring negotiations. We are currently in discussions with our lenders regarding the
future use of three of our five remaining vessels.



During the Restructuring
process, our lenders have continued to reserve their rights in respect of such defaults other than as detailed below in respect
of the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax Syndicate
Facility Agreements and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies at this time including
demand for immediate payment; however, our lenders could change their position at any time. As such, there can be no assurance
that a satisfactory final agreement will be reached with all our lenders in the Restructuring or at all.



On November 8,
2011, we and Moelis presented to each of the lenders under the Financing Documents a commercial presentation which set out a comprehensive
global restructuring proposal (the “Restructuring Proposal”). The Restructuring Proposal included, among other things,
proposed amendments to the Financing Documents (including amortization relief and reset of financial covenants). We have been
engaged in negotiations with our lenders regarding the terms of the Restructuring Proposal but our lenders have not yet approved
the Restructuring Proposal and such changes have not been implemented as of the filing of this annual report.



Notwithstanding
the above, we have made progress in completing various parts of the Restructuring Proposal and continue to remain in discussions
with our remaining lenders. During 2011 and through May 15, 2012, we have sold, disposed of or handed
control over to our lenders a total of 17 of our vessels and hulls under construction (or our ownership of the shipowning subsidiaries)
in connection with our restructuring.



As of May 15,
2012, we remain in advanced negotiations with several lenders of our secured debt. In addition we will issue common shares to
certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.



As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     (as
                                                                                                                                     defined
                                                                                                                                     below)
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement
                                                                                                                                     (as
                                                                                                                                     defined
                                                                                                                                     below))
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     (as
                                                                                                                                     defined
                                                                                                                                     below)
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.





6







We
will continue to have a high degree of indebtedness after the completion of our ongoing restructuring.



The
following sets forth the terms of the completed steps to the Restructuring to date and a description of the status of those elements
which have yet to be completed.



Syndicate
Facility Agreement



On
December 22, 2011, with the consent of the lenders under our revolving credit facility with Bank of
Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent (the “Facility Agreement”),
we successfully completed the sale of the Newlead Fortune and the Newlead Avra with gross proceeds of approximately $64.5 million.
On January 31, 2012, with the consent of the lenders under our Facility Agreement, we successfully
completed the sale of the Newlead Compass and the Newlead Compassion with gross proceeds of approximately $80.2 million. Such
gross proceeds were applied towards the full and final satisfaction of all liabilities owed to the lenders under the Facility
Agreement (other than fees owing to the lenders of approximately $0.6 million pursuant to a letter of undertaking dated February
3, 2012 (the “Fees”)). As a result of the sale of the Newlead Compass and Newlead Compassion our overall indebtedness
was decreased by an aggregate amount of approximately $80.2 million after December 31, 2011. The sale of all four vessels has
cumulatively reduced our indebtedness by an aggregate amount of approximately $147.9 million. In addition, we are not yet released
from our obligations under the Facility Agreement until the Fees have been paid in full. We have agreed in principle with the
Bank of Scotland that these Fees may be paid at some point after the closing of the Restructuring but in any event before 24 months
from the date of signing the applicable agreed document. The definitive documentation in this regard is being negotiated with
Bank of Scotland.



Kamsarmax
Syndicate Facility Agreements



On
February 24, 2012, the Bank of Scotland plc issued notices of enforcement and notices of default and acceleration in relation
to the senior loan agreement and the junior loan agreement, each dated April 15, 2010 (collectively, the “Kamsarmax Syndicate
Facility Agreements"), between Ayasha Trading Corporation (“Ayasha”) and Bethune Properties S.A. (“Bethune”),
as borrowers, and the Bank of Scotland, BMTU Capital Corporation, and the Bank of Ireland, as lenders. In addition, the Bank of
Scotland filed claim forms in the High Court of England and Wales against the borrowers representing claims for approximately
$62.7 million and $13.9 million under the Kamsarmax Syndicate Facility Agreements and sought a declaration, that, among other
things, the Bank of Scotland is entitled to make a demand against the Company in respect of sums owing under the Kamsarmax Syndicate
Facility Agreements. Ayasha and Bethune were the shipowning companies of the motor vessels “Newlead Tomi” and “Newlead
Gujarat,” respectively. Pursuant to such notices, the Bank of Scotland, as the agent and security trustee under each of
the Kamsarmax Syndicate Facility Agreements, exercised its rights to foreclose on the shares of Ayasha and Bethune, which secured
the loans under the Kamsarmax facilities and the vessels were handed over to the lenders’ control.



We
have agreed in principle with the Bank of Scotland in respect of releasing us from all of our obligations and liabilities under
the Kamsarmax Syndicate Facility Agreements in return for a waiver from us to any claims, actions or remedies that we may have
against the Bank of Scotland and a definitive release documentation on this point is being negotiated. The vessels have already
been delivered to the new managers. We are currently working towards definitive documentations that would release us from our
obligations under the Kamsarmax Syndicate Facility Agreements.However, there can be no assurance that
we will be able to reach an agreement with the Bank of Scotland under acceptable terms or at all.



First
Business Bank (FBB) Credit Facility



On
August 12, 2011, we entered into an agreement with FBB-First Business Bank S.A. (“FBB”) for the sale of two vessels,
the Newlead Spartounta and the Newlead Prosperity (the “FBB Vessel Agreement”), with the net proceeds of such sales
to be applied towards (a) the full and final satisfaction of all indebtedness owed to FBB under the credit facilities relating
to the Newlead Spartounta and the Newlead Prosperity, and (b) the payment of outstanding trade and vendor payments. The sale of
these vessels has been completed and FBB has released us from all of our liabilities and obligations under these credit facilities
and related documents.



EFG
Eurobank Credit Facility



On
February 10, 2012, with the consent of EFG Eurobank (“EFG”), we agreed to the sale of the Newlead Esmeralda for proceeds
of approximately $11.4 million with the net proceeds of the sale being applied towards (a) the full and final satisfaction of
all indebtedness owed to EFG under our loan agreement with EFG and (b) the payment of outstanding trade and vendor payments. The
sale of this vessel has been completed and EFG has released us from all of our liabilities and obligations under this credit facility
and related documents. As result of such sale, our overall indebtedness was decreased by an aggregate amount of $11.0 million.



7







Marfin Credit Facility and 7% Notes



On April 5, 2012,
with the consent of Marfin Egnatia Bank Societe Anonyme (“Marfin”), we entered into an agreement for the sale of the
Newlead Venetico and that vessel was delivered to the buyer on May 8, 2012 for net proceeds of approximately $9.0 million. Marfin
applied the net proceeds of such sale received by it towards the payment of certain amounts relating to claims against the Newlead
Venetico, the payment of certain fees and the prepayment of the total outstanding amounts due under the loan agreement for the
Newlead Venetico. We are currently in discussions with Marfin regarding certain amendments to our credit facility with them (the
“Marfin Credit Facility”) whereby this facility would be amended and restated to reduce the overall committed amount
thereunder to the existing outstanding amount of approximately $31.2 million and to enable us to comply with certain covenants
under the facility on an ongoing basis after the closing of the Restructuring. We are also in discussions with Marfin regarding
a conversion agreement in respect of the 7% Notes (for which Marfin is the indenture trustee), whereby Marfin would convert all
debt claims Marfin may have against us arising under the 7% Notes into equity of the Company. The terms of any such amendment
and restatement agreement, debt conversion and share issuance is still under negotiation and subject to the execution of legally
binding agreements. There is no assurance that we will complete such documentation or the Restructuring in this regard.



Piraeus Bank (Piraeus) Credit Facilities



On December 29,
2011, with the consent of Piraeus Bank, we entered into an agreement for the sale of the Grand Ocean and that vessel was delivered
to the buyer on January 11, 2012 for net proceeds of approximately $8.2 million. Piraeus applied the net proceeds of such sale
received by it towards (a) the prepayment of the total outstanding amounts due under the loan agreement for the Grand Ocean in
a total aggregate amount of $6.5 million and (b) the payment of outstanding trade and vendor payments. The total outstanding balance
under the loan agreement for the Grand Ocean is $11.2 million as of May 14, 2012.



We continue to
negotiate with Piraeus Bank in respect of (a) the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus
will release us from all debt obligations arising under the related credit facilities in exchange for equity in the Company.



The terms and
conditions of any agreement between ourselves and Piraeus Bank regarding the sale of Hiona and Hiotissa, and any agreements relating
to the release of obligations under the related agreements is subject to negotiating and executing legally binding documentation.
There are no assurances that we will be able to complete such documentation or the Restructuring in this regard.



WestLB Bank Credit Facility



We are currently
in negotiations with WestLB to amend the terms of the loan agreement, whereby the agreement will be amended and restated to enable
us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring and enable the Newlead Victoria
vessel to stay within the group. The terms and conditions of any agreement between us and WestLB are subject to negotiating and
executing legally binding documentation. There are no assurances that we will be able to complete such documentation or the Restructuring
in this regard.



Handysize Syndicate Facility Agreement



On March 21,
2012, with the consent of the lenders, we entered into a memorandum of agreement with an unrelated party for the sale of the Navios
Serenity by which the vessel would be sold and the proceeds of the sale would be applied towards the outstanding balance owed
under our credit facility with DVB Bank, Nord LB and Emporiki Bank (the “Handysize Syndicate Facility Agreement”).
The vessel was sold on March 26, 2012 for net proceeds of approximately $26.0 million and delivered to the buyer, thereby reducing
overall indebtedness owed under that facility by $25.0 million. We remain liable under the Handysize Facility Agreement to the
lenders in respect of the Hull 4029 and are in discussions with the lenders, the yard and the buyer in respect of the sale of
this vessel. The lenders will not release us from all of our obligations under the Handysize Syndicate Facility Agreement and
related documents unless and until this vessel is sold. The terms and conditions of any agreement between us and the lenders are
subject to negotiating and executing legally binding documentation. There is no assurance that we will complete such documentation
or the Restructuring in this regard.



8







Northern Shipping Fund (NSF)



On March 14,
2012, the Companyreceived enforcement notices from Endurance Shipping LLC whereby, among other things,
Endurance Shipping LLC exercised its rights to foreclose on the pledge of the shares of Curby Navigation Ltd., which secured the
bareboat charter. On March 31, 2012, the Company entered into a deed of release with Endurance Shipping LLC, the owner of
the Newlead Endurance, pursuant to which the Company was unconditionally released from its guarantee under the bareboat charter
for the Newlead Endurance, which had been chartered-in by Curby Navigation Ltd. In connection with the enforcement notices, the
Company also received a termination notice in respect of the ship management agreement between Curby Navigation Ltd. and NewLead
Bulkers S.A., which had been the manager of the Newlead Endurance.



On March 14,
2012, we redelivered the Newlead Endurance to NSF pursuant to a redelivery agreement in respect of the capital leasing arrangement.
As part of this redelivery agreement, the Company was released from all its obligations and liabilities under the relevant finance
lease documentation, resulting in a decrease of $26.3 million under the finance lease liability.



Lemissoler Sale and Leaseback Agreements



On January 31,
2012, February 7, 2012, February 11, 2012, and March 19, 2012, respectively, pursuant to various redelivery addendums to certain
sale and leaseback agreements, we completed the redelivery of four dry bulk vessels, the "Australia", the "Grand
Rodosi", the "China" and the "Brazil", to their owners which are affiliates of Lemissoler Maritime Company
W.L.L. ("Lemissoler"). Although these vessels have been redelivered to Lemissoler, we are still liable under the sale
and leaseback agreements in respect of settlement of trade payables, amounts owing to the owners as a result of the termination
of those agreements and other liabilities in relation to the four vessels. We are in discussions with Lemissoler to address these
outstanding issues and are seeking to enter into a settlement agreement in this regard whereby Lemissoler will convert any debt
claims they may have against us into equity of the Company.



The terms and
conditions of any agreement between us and Lemissoler are subject to negotiating and executing legally binding documentation.
There are no assurances that we will be able to complete such documentation or the Restructuring in this regard.



New Joint Venture for purchase
and trading of coal



In April 2012,
our U.S. subsidiary entered into a joint venture arrangement with a third party to purchase thermal coal (used in power plants
for electricity generation and any other industrial use) from reserves located in Kentucky, USA.  The joint venture has entered
into agreements to purchase certain quantities of thermal coal with specified minimum qualities (after processing at the mine
by the mine operator) over a five-year period with roll-over options.  We expect to market and distribute the thermal coal
to end users or distributors, located primarily in Asia, and transport it using vessels from the market as well as our vessels. 
In connection with entering into the joint venture arrangement, our U.S. subsidiary was converted from a Delaware limited liability
company into a Delaware corporation and its name was changed from NewLead Holdings (US) LLC to NewLead Holdings (US) Corp. Once
the new joint venture becomes operational, it may result in a new segment.



Share Issuances to Employees,
Directors, Officers, Vendors, Former Employees and Consultants



On February 15,
2012,we issued the following common shares: (i) 1,261,166 shares to employees, officers and consultants under our 2005 Equity
Incentive Plan (the "Plan"); (ii) 560,000 shares to board of directors members under the Plan; (iii) 69,334 shares to
Terra Stabile A.E. and 5,247 shares to Meltemi Deck E.P.E. in accordance with the resolutions of the Compensation Committee, dated
December 21, 2011, and the related settlement agreements for amounts due to them; (iv) 50,057 shares to former employees, officers
and consultants, which vested immediately, in accordance with the resolutions of the Compensation Committee, dated December 21,
2011; (v) 866,668 shares to two of our executive officers, Nicholas G. Fistes, Chairman, and Michail S. Zolotas, Deputy Chairman,
Chief Executive Officer and President.



On February 28,
2012, we issued 6,550,000 common shares to various vendors to settle outstanding invoices in accordance with the resolutions of
the Compensation Committee, dated February 24, 2011.



On
April 24, 2012, we issued the following common shares: (i) 507,000 additional shares to former employees, officers and consultants,
which vested immediately, in accordance with the resolutions of the Compensation Committee, dated April 6, 2012;(ii)
227,273 shares to Terra Stabile A.E. and 11,229 shares to Terra Norma SA in accordance with the resolutions of the Compensation
Committee, dated April 6, 2012, and the related settlement agreements for amounts due to them; (iii) 731,140 shares to J Mining
and Energy Group, Inc in accordance with the resolutions of the Board of Directors, dated April 5, 2012 and the related share
issuance agreement; (iv) 303,864 common shares to two vendors to settle outstanding invoices in accordance with the resolutions
of the Compensation Committee, dated April 6, 2012 and the related settlement agreements for amounts due to them and (v) 750,000
common shares to one vendor to settle an outstanding balance in accordance with the resolutions of the Board of Directors, dated
April 17, 2012, and the related settlement agreement for amounts due to the vendor.



9







Employment Agreements and Severance
Agreements



On January 2,
2012, we entered into employment agreements with two of our executive officers, Nicholas G. Fistes, Chairman, and Michail S. Zolotas,
Deputy Chairman, Chief Executive Officer and President, which entitle each executive to an annual base salary and an annual incentive
bonus that is payable in common shares. On January 2, 2012, we also entered into severance agreements with certain of our key
employees, other than Messrs. Fistes and Zolotas. See “Item 6. Directors, Senior Management and Employees” for more
details relating to the employment agreements and the severance agreements.



NASDAQ Compliance Notice



On March 15,
2012,wereceived notification from the NASDAQ Listing Qualifications department that we had regained
compliance with the minimum Market Value of Publicly Held Shares (“MVPHS”) of $5,000,000 for continued listing set
forth in Listing Rule 5450(b)(1)(C) as our MVPHS was $5,000,000 or more for 10 consecutive business days. Furthermore, on March
29, 2012, we received notification from the NASDAQ Listing Qualifications department that we had regained compliance with the
bid price requirement pursuant to NASDAQ Listing Rule 5810 (c)(3)(A) as the closing bid price of our common shares exceeded $1.00
for 10 consecutive business days.



|A. | Selected
    Financial Data
|-- | ---------------------------



The NewLead historical
successor information is derived from the audited consolidated financial statements of NewLead for the years ended December 31,
2011 and 2010and for the period from October 14, 2009 to December 31, 2009. The NewLead historical predecessor information
is derived from the audited consolidated financial statements as of and for the years ended December 31, 2008, 2007, and
for the period from January 1, 2009 to October 13, 2009. The information is only a summary and should be read in conjunction
with "Item 5. Operating and Financial Review and Prospects" and our audited consolidated financial statements and
the audited financial statements of our predecessor and notes thereto contained in this report. "Predecessor" refers
to NewLead Holdings Ltd. prior to the Company’s $400 million recapitalization on October 13, 2009, and "Successor"
refers to NewLead Holdings Ltd. after the recapitalization on October 13, 2009. Please see the discussion in "Item 5.
Operating and Financial Review and Prospects — Lack of Historical Operating Data for Vessels Before their Acquisition."



We have also
restated our previously issued 2010 and 2009 (successor) consolidated financial statements. See the discussion immediately following
the table below for a summary of the restatement.



10







|                                                             |  | Successor    |           |   | Predecessor  | 
|------------------------------------------------------------ |  | ------------ | --------- | - | ------------ | 
|                                                             |  | Year Ended   |           |   | Year Ended   | 
|                                                             |  | December 31, |           |   | December 31, | 
|                                                             |  | 2011         |           |   | 2010         | 
|                                                             |  |              |           |   | (Restated)   | 
|Statement of Operations
    Data                             |  |              |           |   |              | 
|Operating revenues                                           |  |              | 68,637    |   |              | 
|Vessel operating expenses                                    |  |              | (23,542   | ) |              | 
|Management fees                                              |  |              | -         |   |              | 
|General & administrative
    expenses                        |  |              | (20,541   | ) |              | 
|Depreciation and amortization expenses                       |  |              | (31,695   | ) |              | 
|Impairment losses                                            |  |              | (203,683  | ) |              | 
|Operating (loss)/income from continuing
    operations       |  |              | (214,258  | ) |              | 
|Interest and finance expense, net                            |  |              | (44,261   | ) |              | 
|Other income/(expenses), net                                 |  |              | 97        |   |              | 
|Loss from continuing operations                              |  |              | (258,215  | ) |              | 
|Net loss                                                     |  |              | (290,395  | ) |              | 
|Loss per share (basic and diluted)
    continuing operations |  |              | (34.84    | ) |              | 
|Loss per share (basic and diluted)                           |  |              | (39.18    | ) |              | 
|Cash dividends declared per share                            |  |              | -         |   |              | 
|Weighted average number of shares (basic and diluted)        |  |              | 7,411,600 |   |              | 
|Balance Sheet
    Data (at period end)                       |  |              |           |   |              | 
|Cash and cash equivalents                                    |  |              | 5,119     |   |              | 
|Restricted cash (current)                                    |  |              | 250       |   |              | 
|Total current assets                                         |  |              | 33,723    |   |              | 
|Restricted cash (non-current)                                |  |              | 31        |   |              | 
|Total assets                                                 |  |              | 396,752   |   |              | 
|Current portion of long-term debt                            |  |              | 339,722   |   |              | 
|Total current liabilities                                    |  |              | 583,604   |   |              | 
|Long-term debt                                               |  |              | -         |   |              | 
|Total liabilities                                            |  |              | 599,186   |   |              | 
|Total shareholders' equity / (deficit)                       |  |              | (202,434  | ) |              | 
|Other Financial
    Data (for period ending)                 |  |              |           |   |              | 
|Net cash (used in)/provided by operating
    activities      |  |              | (3,089    | ) |              | 
|Net cash (used in)/provided by investing
    activities      |  |              | (69,612   | ) |              | 
|Net cash provided by/(used in) financing
    activities      |  |              | 10,289    |   |              | 
|Net (decrease)/increase in cash and
    cash equivalents     |  |              | (62,412   | ) |              | 
|Cash dividends paid                                          |  |              | -         |   |              | 
|Fleet Data (at
    period end)                               |  |              |           |   |              | 
|Number of product tankers owned (1)                          |  |              | 4         |   |              | 
|Number of container vessels owned
    (2)                    |  |              | -         |   |              | 
|Number of dry bulk vessels owned
    (3)                     |  |              | 13        |   |              | 



| | (1): | Includes two tankers for 2011 and four tankers for other
                                                                    periods presented. Considered to be discontinued operations
                                                                    for all periods presented.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2): | Considered discontinued operations for all periods presented.
| | ---- | -------------------------------------------------------------

| | (3): | Includes four dry bulk vessels for 2011 and 2010 and one
                                                                    dry bulk vessel for the October to December 2009 period considered
                                                                    to be discontinued operations for all periods presented.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Restatement of Previously Issued Financial Statements



Subsequent to
the issuance of the Company’s 2010 and 2009 (successor) consolidated financial statements, the Company determined that the
method used to amortize the beneficial conversion feature (“BCF”) on its 7% senior unsecured convertible notes was
erroneous because the Company had previously amortized the BCF on a straight line basis, rather than using the effective interest
rate method. This resulted in a material error and the restatement of the Company’s 2010 and 2009 (successor) financial
statements. The impacts of the restatement are summarized in the following table:





|                                                         |  | As of and for the Year Ended December 31, 2010 |          |   | As of December 31, 2009 and for the Period From October
    14, 2009 to December 31, 2009 |  
|-------------------------------------------------------- |  | ---------------------------------------------- | -------- | - | ----------------------------------------------------------------------------------------- | -
|                                                         |  | As Previously Reported                         |          |   | As Restated                                                                               |  
|                                                         |  |                                                |          |   |                                                                                           |  
|Senior convertible 7% notes                              |  | $                                              | 55,877   |   |                                                                                           | $
|Total non-current liabilities                            |  | $                                              | 591,360  |   |                                                                                           | $
|Total liabilities                                        |  | $                                              | 686,099  |   |                                                                                           | $
|Accumulated deficit                                      |  | $                                              | (132,721 | ) |                                                                                           | $
|Total shareholders' equity                               |  | $                                              | 75,634   |   |                                                                                           | $
|                                                         |  |                                                |          |   |                                                                                           |  
|Interest and finance expense                             |  | $                                              | (44,899  | ) |                                                                                           | $
|Loss from continuing operations                          |  | $                                              | (97,618  | ) |                                                                                           | $
|Net loss                                                 |  | $                                              | (94,849  | ) |                                                                                           | $
|Loss per share basic and diluted - continuing operations |  | $                                              | (14.03   | ) |                                                                                           | $
|Loss per share basic and diluted – total                 |  | $                                              | (13.63   | ) |                                                                                           | $





| | * | In addition, and unconnected to the correction of the error,
                                                                 the amounts presented reflect the retrospective application of
                                                                 discontinued operations for all periods presented. Refer to Note
                                                                 25 (Discontinued Operations) in the accompanying consolidated
                                                                 financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11







|B. | Capitalization
    and Indebtedness
|-- | -----------------------------------



Not applicable.



|C. | Reasons
    for the Offer and Use of Proceeds
|-- | ---------------------------------------------



Not applicable.



|D. | Risk
    Factors
|-- | ----------------



The following
risks relate principally to the industry in which we operate and our business in general. Other risks relate to the securities
market and ownership of our common shares. If any of the circumstances or events described below actually arises or occurs, our
business, results of operations, cash flows, financial condition and ability to pay dividends in the future could be materially
adversely affected. In any such case, the market price of our common shares could decline, and you may lose all or part of your
investment.



Company Specific Risk Factors



There
is substantial doubt about our ability to continue as a going concern. Although we are currently undertaking
restructuring efforts to strengthen our financial position, there is no guarantee that we will be able to complete our restructuring
efforts in a satisfactory manner.



Our financial statements were prepared
using principles under Generally Accepted Accounting Principles in the United States of America (GAAP) applicable to a going concern.
However, because of our losses, working capital deficiency, negative operating cash flow and shareholders’ deficiency, we
concluded that there is substantial doubt as to our ability to continue as a going concern.



Over the past year, we have experienced
a decline in our liquidity and cash flows, which has affected, and which we expect will continue to affect, our ability to satisfy
our obligations. Charter rates for product tankers and bulkers have experienced a high degree of volatility. Currently, charter
rates for product tankers are significantly lower than applicable historical averages and charter hire rates for bulkers, after
showing signs of stabilization for a period, have declined to historical lows.



Furthermore, recent economic conditions
have caused certain of our charterers to experience financial difficulties as well. This has resulted in an increase in the time
it takes for us to realize our receivables. In certain instances, our charterers have been unable to fulfill their obligations
under their charters. One of our charterers, who chartered three of our vessels during 2011, was having difficulty performing
its obligations and, since the end of March 2011, has been late on a number of payments causing us to arrest vessels which are
owned by the particular charterer and/or by such charterer’s affiliated companies on two occasions in order to collect payment.
In connection thereto and due to delayed payments by this charterer, we have withdrawn two of the vessels from their employment
during 2011 and the third vessel during 2012 and filed a claim for amounts already due as well as damages arising from cancelling
those employment contracts. These vessels were chartered out at rates significantly above market, and since we were forced to
reclaim and re-charter these vessels, we experienced a significant reduction in the cash flow from these vessels, which in turn
further impaired our liquidity.



12







As a result of the conditions set out
above, since June 2011, we have defaulted under each of our Financing Documents in respect of certain covenants (including, in
some cases, the failure to make amortization and interest payments, the failure to satisfy financial covenants and the triggering
of cross-default provisions). To date, we have not obtained waivers of these defaults from our lenders. During the Restructuring
process, our lenders have continued to reserve their rights in respect of such defaults other than those as detailed in this annual
report in respect of the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax
Syndicate Facility Agreements and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies at this
time, including demand for immediate payment; however, our lenders could change their position at any time. As such, there can
be no assurance that a satisfactory final agreement will be reached with all our lenders in the Restructuring Proposal, or at
all.



Due to the economic
conditions and operational difficulties described elsewhere in this annual report, we entered into restructuring discussions with
the lenders under the Financing Documents. As part of those discussions, we appointed Moelis to act as our financial advisors
in respect of the overall Restructuring Proposal.



On November 8,
2011, we and Moelis presented to each of the lenders under the Financing Documents a commercial presentation which set out a comprehensive
Restructuring Proposal. The Restructuring Proposal included, among other things, proposed amendments to the Financing Documents
(including amortization relief and reset of financial covenants). We have been engaged in negotiations with our lenders regarding
the terms of the Restructuring Proposal but our lenders have not yet approved the Restructuring Proposal and such changes have
not been implemented as of the filing of this annual report. See “Item 3. Key Information—Recent Developments—Restructuring
of Our Indebtedness” for a discussion of the status of our restructuring negotiations.



During 2011 and
through May 15, 2012, we have sold, disposed of or handed control over to our lenders a total of 17 of our vessels and hulls under
construction (or our ownership of the shipowning subsidiaries) in connection with our restructuring.



As of May 15,
2012, we remain in advanced negotiations with several lenders of our secured debt. In addition we will issue common shares to
certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



13







We will continue
to have a high degree of indebtedness after the completion of our ongoing restructuring.



Furthermore,
although the Restructuring, if successful, will reduce our outstanding debt obligations, we will likely be issuing significant
additional equity that will dilute the existing shareholders. The dilution will not be determined until the final terms of the
entire Restructuring have been finalized or, following such completion, if there are any contingent obligations. Such additional
issuances, individually or in the aggregate, will significantly impact the trading price of our common shares and may also impact
our continued listing on NASDAQ.



During the restructuring
process, we will most likely be unable to incur any additional indebtedness. Furthermore, it may continue to be difficult for
us to incur additional debt on commercially reasonable terms after the restructuring is completed, even if we are permitted to
do so under our debt agreements. This may limit our ability to pursue activities that our management considers to be beneficial
to us, which may further impair our financial condition.



Additionally,
the ultimate accounting impact of the Restructuring is unknown and will not be determined until the final terms of the Restructuring
is reached between the various lenders. Ultimately, we anticipate that our shareholders’ equity will be significantly impacted
by the Restructuring, which could negatively impact the trading of our common shares and our ability to remain listed on NASDAQ.



All of the above
raises substantial doubt regarding our ability to continue as a going concern.



Long-term debt
and capital lease obligations have been classified as current liabilities due to covenant violations that give the lenders the
right to call the debt at the balance sheet date, absent waivers. Accordingly, as of December 31, 2011, we have reclassified all
of our long term debt and capital leases as current liabilities in our consolidated balance sheet, since we have not received
waivers in respect of the covenants that were breached at such time. The financial statements have been prepared assuming that
we will continue as a going concern and do not include any adjustments that might be necessary if we are unable to continue as
a going concern. See also Item 5. “Operating and Financial Review and Prospects – Going Concern” for more information.



Our
existing debt agreements contain and our future debt agreements will contain restrictions and limitations that could significantly
impact our ability to operate our businessand if we receive waivers and/or restructure our indebtedness,
our lenders may impose additional restrictions on us and/or modify the terms of our loans. Any default or breach of the covenants
in our debt agreements could have a material adverse effect on our operations and financial position.



As a result of
our recapitalization in 2009, new financial covenants were put in place. Except for working capital (as defined in each respective
facility agreement) and minimum liquidity, all other covenants will become effective in a period ranging from 30 to 36 months
from the effective date of each of the facility agreements. Our facility agreements require us to maintain compliance with certain
financial covenants as of the end of each fiscal quarter. They contain certain restrictions and limitations that could significantly
limit our ability to operate our business. In the absence of a consent or waiver, these restrictions may limit our ability to:



| | • | incur or guarantee additional indebtedness;
| | - | -------------------------------------------



| | • | create liens on our assets;
| | - | ---------------------------



| | • | make investments;
| | - | -----------------



| | • | engage in recapitalizations and acquisitions;
| | - | ---------------------------------------------



| | • | redeem capital stock;
| | - | ---------------------



| | • | make capital expenditures;
| | - | --------------------------



| | • | change the management of our vessels or terminate
                                                                          the management agreements we have relating to our vessels;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | enter into long-term charter arrangements without
                                                                          the consent of the lender; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | sell any of our vessels.
| | - | ------------------------



14







In addition,
our existing credit facilities require us, among other things, to maintain compliance with financial covenants, which include
the maintenance of the following ratios (all as defined in the respective credit facilities):



| | • | specific
                                                                                                            ratios of shareholders'
                                                                                                            equity as a percentage
                                                                                                            of our total assets,
                                                                                                            adjusting the book
                                                                                                            value of our fleet
                                                                                                            to its market value;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | working
                                                                                                            capital of not less
                                                                                                            than zero dollars;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | maintenance
                                                                                                            of minimum liquidity
                                                                                                            requirements at five
                                                                                                            per cent of the outstanding
                                                                                                            loans;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | maintenance
                                                                                                            of ratio of EBITDA
                                                                                                            to interest payable
                                                                                                            to specific levels;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | maintenance
                                                                                                            of specific value
                                                                                                            to loan ratios;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | cash
                                                                                                            sweep on the earnings
                                                                                                            of the vessels;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | minimum
                                                                                                            interest coverage
                                                                                                            ratios; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | minimum
                                                                                                            market adjusted equity
                                                                                                            ratios.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of
such covenants, 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. As discussed elsewhere
in this annual report, we are also in default under all of our debt agreements and are in restructuring discussions with our lenders
and, as a result, any permission or waiver to take any action under our debt agreements will most likely have to occur as part
of our ongoing restructuring process. Our lenders' interests may be different from our interests, our shareholders' interests
or the interests of the holders of our notes, and we cannot guarantee that we will be able to obtain our lenders' permission when
needed or at all. This may prevent us from taking actions that are in our best interest. Any future debt agreement, including
any debt agreement resulting from the ongoing restructuring process, may include similar or more restrictive covenants.



Our ability to
comply with the covenants and restrictions contained in our existing and future debt agreements and other indebtedness may be
affected by economic, financial and industry conditions and other factors beyond our control. As discussed in this annual report,
we are currently in the process of restructuring our indebtedness. If we are not able to come to a resolution with our lenders
regarding our existing defaults or, if we are able to come to a successful resolution, but default on our future debt obligations,
and such defaults are not waived by the required lenders, the applicable creditors may accelerate such indebtedness and, in the
absence of any agreement with the lenders, if such indebtedness is secured, such creditors could proceed against the collateral
securing that indebtedness. In any such case, we may be unable to borrow under our credit facility agreements, if any are available
at such time, and may not be able to repay the outstanding amounts due under our credit facility agreements and our outstanding
notes. Furthermore, if any of our debt is accelerated, all of our other indebtedness may be accelerated pursuant to cross-acceleration
or cross-default provisions. 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 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 or debt instrument may contain similar or more restrictive covenants.



Furthermore,
in connection with any waivers and/or restructuring of our indebtedness, our lenders may impose additional requirements or restrictions
on us. Such additional restrictions may further limit our ability to engage in actions that we believe would be in the best interest
of our company.The covenants under our debt agreements may also restrict our ability to fully draw
on any borrowing capacity under such agreements, and in such event, any such restrictions could limit our ability to operate our
business.



As
discussed in this annual report, we are currently in default under our debt agreements and are in the process of restructuring
our indebtedness. Certain of our indebtedness is anticipated to remain outstanding with amended terms. As part of this process,
our lenders may require us to comply with certain terms, including ones that are more stringent than the terms to which we are
currently subject.See “Item 3. Key Information—Recent Developments—Restructuring of Our Indebtedness”
for a discussion of the status of our restructuring negotiations and the risk factor above titled “—The
report of our independent registered public accounting firm states that there is substantial doubt about our ability to continue
as a going concern. Although we are currently undertaking restructuring efforts to strengthen our financial position, and
there is no guarantee that we will be able to complete our restructuring efforts in a satisfactory manner.”



15







We are highly leveraged and
anticipate that we will continue to have a high degree of leverage after our restructuring. Nevertheless, we may be able to incur
substantial additional debt, which could materially adversely affect our financial health and our ability to obtain financing
in the future, react to changes in our business and make debt service payments.



As
of December 31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial
conversion feature, or BCF, treated as discount on the outstanding $125.0 million of 7% Notes. Despite our restructuring efforts
over the last several months, as of May 14, 2012, we anticipate that we will continue to have a high degree of indebtedness
after the completion of our ongoing restructuring.



Although it
is likely that any agreements governing our future indebtedness, including the terms of any indebtedness remaining outstanding
as a result of the restructuring, will contain limitations on our ability to incur indebtedness, the covenants in such debt agreements
typically contain a number of exceptions. As such, we may still be able to incur a significant amount of additional indebtedness.
Our high level of indebtedness could have important consequences to our shareholders.





As discussed
elsewhere in this annual report, we are currently unable to meet our debt service requirements. Even if the restructuring transactions
with our lenders are completed on the proposed terms being discussed, we anticipate that our indebtedness will be significant.
However, subsequent to the restructuring, we anticipate that our fleet will only consist of two vessels and, as a result, we will
have significantly fewer vessels from which we will be able to generate revenue. Furthermore, although we have entered into a
joint venture arrangement for the purchase and trading of coal, this new joint venture remains subject to significant risks. See
“Risks Relating to Our Coal Business” below. Since our relative leverage will continue to remain high after our restructuring,
and since we will have a diminished basis from which we can generate revenue, there is no assurance we will be able to service
our significant indebtedness even if we complete our restructuring.



Because we are
highly leveraged and expect to remain highly leveraged after the restructuring, we will continue to remain subject to the following
risks:



| | • | our
                                                                                                            ability to obtain
                                                                                                            additional financing
                                                                                                            for working capital,
                                                                                                            capital expenditures,
                                                                                                            debt service requirements,
                                                                                                            vessel or other acquisitions
                                                                                                            or general corporate
                                                                                                            purposes may be impaired
                                                                                                            in the future;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | if
                                                                                                            new debt is added
                                                                                                            to our debt levels,
                                                                                                            the related risks
                                                                                                            that we now face would
                                                                                                            increase and we may
                                                                                                            not be able to meet
                                                                                                            all of our debt obligations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
                                                                                                            substantial portion
                                                                                                            of our cash flow from
                                                                                                            operations must be
                                                                                                            dedicated to the payment
                                                                                                            of principal and interest
                                                                                                            on our indebtedness,
                                                                                                            thereby reducing the
                                                                                                            funds available to
                                                                                                            us for other purposes,
                                                                                                            and there can be no
                                                                                                            assurance that our
                                                                                                            operations will generate
                                                                                                            sufficient cash flow
                                                                                                            to service this indebtedness;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we
                                                                                                            will be exposed to
                                                                                                            the risk of increased
                                                                                                            interest rates because
                                                                                                            our borrowings under
                                                                                                            facility agreements
                                                                                                            will be at variable
                                                                                                            rates of interest;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | it
                                                                                                            may be more difficult
                                                                                                            for us to satisfy
                                                                                                            our obligations to
                                                                                                            our lenders, resulting
                                                                                                            in possible defaults
                                                                                                            on and acceleration
                                                                                                            of such indebtedness
                                                                                                            and the cross-acceleration
                                                                                                            or cross-default of
                                                                                                            our other indebtedness;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we
                                                                                                            may be more vulnerable
                                                                                                            to general adverse
                                                                                                            economic and industry
                                                                                                            conditions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we
                                                                                                            may be at a competitive
                                                                                                            disadvantage compared
                                                                                                            to our competitors
                                                                                                            with less debt or
                                                                                                            comparable debt at
                                                                                                            more favorable interest
                                                                                                            rates;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our
                                                                                                            ability to refinance
                                                                                                            indebtedness may be
                                                                                                            limited or the associated
                                                                                                            costs may increase; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our
                                                                                                            flexibility to adjust
                                                                                                            to changing market
                                                                                                            conditions and ability
                                                                                                            to withstand competitive
                                                                                                            pressures could be
                                                                                                            limited, or we may
                                                                                                            be prevented from
                                                                                                            carrying out capital
                                                                                                            spending that is necessary
                                                                                                            or important to our
                                                                                                            growth strategy and
                                                                                                            efforts to improve
                                                                                                            operating margins
                                                                                                            or our business.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Highly leveraged
companies are significantly more vulnerable to unanticipated downturns and setbacks, whether directly related to their business
or flowing from a general economic or industry condition, and therefore are more vulnerable to a business failure or bankruptcy.
Accordingly, it also heightens the risk of owning our securities.



The market values of our vessels
and the related charters, if applicable, have declined and may further decrease, which could lead to the loss of our vessels and/or
we may incur a loss if we sell vessels following a decline in their market value.



The fair values
of our vessels have generally experienced high volatility and have recently declined significantly and resulted in an impairment
charge of $152.5 million (for vessels and other fixed assets, backlog assets and vessels under construction) for the year
ended December 31, 2011. If we sell one or more of our vessels at a time when vessel prices have fallen and before we have recorded
an impairment adjustment to our consolidated financial statements, the sale may be less than the vessel's carrying value on our
consolidated financial statements, resulting in a loss and a reduction in earnings. Furthermore, if vessel values fall significantly,
we may have to record further impairment adjustments in our consolidated financial statements, which could materially adversely
affect our financial results.



16







Furthermore, our existing debt agreements
contain, and our future debt agreements may contain, financial covenants based on a security cover ratio. We are currently in
breach of the security cover ratio under certain of our debt arrangements (see “Item 5. Operating and Financial Review and
Prospects—Liquidity and Capital Resources”) and we may violate similar covenants in any future debt agreements if
the value of our vessels decrease significantly. Any such violation would materially and adversely affect our financial condition.



We are currently engaged in restructuring
discussions with our lenders to finalize the satisfaction and release of our obligations under certain of our debt agreements
and the amendment of the terms of certain other debt agreements. As part of our restructuring efforts, we have sold, and expect
to continue to sell, vessels as part of the arrangements with our lenders to reduce and discharge our obligations. During 2011
and through May 15, 2012, we have sold, disposed of or handed control over to our lenders 17 of our vessels and hulls under construction
(or our ownership of the shipowning subsidiaries) in connection with our restructuring. We anticipate that we will sell or surrender
to our lenders approximately three additional vessels, including one newbuilding. To the extent that we have sold our vessels,
the sales proceeds have been used to repay related debt. However, proceeds from sale of vessels are and are expected to be insufficient
to fully repay the related debt and, therefore, it is likely that we will continue to have significant debt unless we enter into
satisfactory arrangements with our lenders for the discharge of all such obligations. There can be no assurance that we will be
able to reach a final arrangement with our lenders at acceptable terms or at all.



For the periods from January 1,
2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009 we were dependent upon three significant
charterers for a majority of our revenues, and for the years ended December 31, 2011 and 2010, we derived 48% and 64%, respectively,
of our revenue from continuing operations from three charterers, one of which is experiencing financial difficulties.



We have historically
derived a significant part of our revenue from a small number of charterers. For the year ended December 31, 2011, 48% of our
revenue from continuing operations was derived from three charterers (each of which comprised 22%, 16% and 10% of revenues, respectively).
One of these charterers, which is chartering one of our vessels and accounted for approximately 22% of our revenues for the year
ended December 31, 2011, is experiencing financial difficulties. See “Operating and Review and Prospects - Going Concern”.
For the year ended December 31, 2010 and for the periods from January 1, 2009 to October 13, 2009 and from October 14,
2009 to December 31, 2009, approximately 64%, 67% and 79%, respectively, of our revenue was derived from three charterers.
The loss of charterers upon whom we have historically been dependent may adversely affect our results of operations, cash flows
and financial condition. Refer to Note 20 (Segment Information) in the accompanying consolidated financial statements.



Recent economic
conditions have caused certain of our charterers to experience financial difficulties. This has resulted in an increase in the
time it takes for us to realize our receivables. In certain instances, our charterers have been unable to fulfill their obligations
under their charters. One of our charterers, who chartered three of our vessels during 2011, was having difficulty performing
its obligations and, since the end of March 2011, has been late on a number of payments causing us to arrest vessels which are
owned by the particular charterer and/or by such charterer’s affiliated companies on two occasions in order to collect payment.
In connection thereto that and due to delayed payments by this charterer, we have withdrawn two of the vessels from their employment
during 2011 and the third vessel during 2012 and filed a claim for amounts already due as well as damages arising from cancelling
those employment contracts. These vessels were chartered out at rates significantly above market, and since we were forced to
reclaim and re-charter these vessels, we experienced a significant reduction in the cash flow from these vessels, which in turn
further impaired our liquidity.



Our charterers may terminate
or default on their charters, which could materially affect our results of operations and cash flow. When the charter agreements
expire or terminate, we will need to find new employment for the affected vessels in the currently depressed charter market, which
may adversely affect our results of operations and cash flows.



Our charterers
may terminate their charters earlier than the dates indicated in their charter agreements. The terms of our charters vary as to
which events or occurrences will cause a charter to terminate or give the charterer the option to terminate the charter, but these
generally include a total or constructive total loss of the related vessel, the requisition for hire of the related vessel or
the failure of the related vessel to meet specified performance criteria. In addition, the ability of each of our charterers to
perform its obligations under a charter will depend on a number of factors that are beyond our control. These factors may include
general economic conditions, the condition of a specific shipping market sector, the charter rates received for specific types
of vessels and various operating expenses. The costs and delays associated with the default by a charterer of a vessel may be
considerable and may materially adversely affect our business, results of operations, cash flows and financial condition.



17







Recent economic
conditions may cause certain of our charterers to experience financial difficulties. This has resulted in an increase in the time
it takes for us to realize our receivables. In certain instances, our charterers have been unable to fulfill their obligations
under their charters. One of our charterers, who chartered three of our vessels during 2011, was having difficulty performing
its obligations and, since the end of March 2011, has been late on a number of payments causing us to arrest vessels which are
owned by the particular charterer and/or by such charterer’s affiliated companies on two occasions in order to collect payment.
In connection thereto and due to delayed payments by this charterer we have withdrawn two of the vessels from their employment
during 2011 and the third vessel during 2012 and filed a claim for amounts already due as well as damages arising from cancelling
those employment contracts. We also cannot predict whether our charterers will, upon the expiration
of their charters, recharter our vessels on favorable terms or at all. If our charterers decide not to recharter our vessels,
we may not be able to recharter them on terms similar to the terms of our current charters. In the future, we may also employ
our vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market.



Recently, charter
rates for product tankers and bulkers have experienced a high degree of volatility. Currently, charter hire rates for product
tankers are significantly lower than applicable historical averages and charter rates for bulkers, after showing signs of stabilization
for a period, have declined to historical lows.



In addition,
in depressed market conditions, our charterers may no longer need a vessel that is currently under charter or may be able to obtain
a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter parties
or avoid their obligations under those contracts. Should counterparty fail to honor its obligations under agreements with us,
we could sustain significant losses, which could have a material adverse effect on our business, results of operations, cash flows
and financial condition.



Furthermore,
as noted in Item 4B, one of our two dry bulkers is time chartered with floating hire based on the market
index (BPI), such charter is set to expire in 2012 and our two tankers, for which we are presently negotiating their sale, are
employed in a tanker pool and, as a result, the earnings of these tankers are highly affected by the spot market results.
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 remaining four vessels or keeping them fully employed in these short-term markets, or that future spot rates will
be sufficient to enable any of 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 reduce the incremental revenue received from spot chartering
and adversely affect our results of operations, including our profitability and cash flows, which, in turn, could impair our ability
to service our debt.



Our vessels may be subject to periods of off-hire, which
could materially adversely affect our business, financial condition and results of operations.



Under the terms of the charter agreements
under which our vessels operate, or are expected to operate in the case of our newbuilding vessel, when a vessel is “off-hire,”
or not available for service or otherwise deficient in its condition or performance, the charterer generally is not required to
pay the hire rate, and we will be responsible for all costs (including the cost of bunker fuel) unless the charterer is responsible
for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off-hire if there is an
occurrence preventing the full working of the vessel due to, among other things:



| | • | operational deficiencies;
| | - | -------------------------



| | • | the removal of a vessel from the water for
                                                                                 repairs, maintenance or inspection, which is
                                                                                 referred to as drydocking;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | equipment breakdowns;
| | - | ---------------------



| | • | delays due to accidents or deviations from
                                                                                 course;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | • | occurrence of hostilities in the vessel’s
                                                                                 flag state;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | • | crewing strikes, labor boycotts, certain
                                                                                 vessel detentions or similar problems; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our failure to maintain the vessel in compliance
                                                                                 with its specifications, contractual standards
                                                                                 and applicable country of registry and international
                                                                                 regulations or to provide the required crew.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18







Furthermore,while the vessel is seized by pirates, the charterer may withhold charter payments until the vessel is released. A charterer
may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and it is therefore
entitled to cancel the charter party, a claim that we would dispute. Despite the fact that our vessels are covered against such
risks, we may not be adequately insured to cover losses from these incidents, which could have a material
adverse effect on us. In addition, any detention and/or hijacking of our vessels as a result of an act of piracy, or an increase
in cost or unavailability of insurance for our vessels could have a material adverse impact on our business, financial condition,
results of operations and ability to reinstate the payment of dividends.



We may be unable to attract
and retain key management personnel and other employees in the shipping industry, which may negatively impact the effectiveness
of our management and our results of operations.



Our success depends
to a significant extent upon the abilities and efforts of our management team. On January 2, 2012, we entered into employment
contracts with Nicholas G. Fistes, our Chairman, and Michail S. Zolotas, our Deputy Chairman, Chief Executive Officer and President.
Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary.
The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring
and retaining replacement personnel could have a similar effect. We do not maintain "key man" life insurance on any
of our officers.



If our two tanker vessels exit
the tanker pool and we are unable to operate these and other tanker vessels that we may acquire efficiently, we may be unsuccessful
in competing in the highly competitive international tanker market.



The operation
of tanker vessels and transportation of petroleum products is extremely competitive. Competition arises primarily from other tanker
owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources
than our own. Competition for the transportation of oil and oil products can be intense and depends on price, location, size,
age, condition and the acceptability of the tanker and its operators to the charterers. Due in part to the highly fragmented market,
competitors with greater resources could enter the product tanker shipping markets and operate larger fleets through consolidations
or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. Our market
share may decrease in the future. We may not be able to compete profitably as we expand our business into new geographic regions
or provide new services. New markets may require different skills, knowledge or strategies than we use in our current markets,
and the competitors in those new markets may have greater financial strength and capital resources than we do.



The operation of tankers involves
certain unique operational risks.



The operation
of tankers has unique operational risks associated with the transportation of oil. Compared to other types of vessels, tankers
are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due
to the high flammability and high volume of the oil transported in tankers. If we are unable to maintain or safeguard our
vessels adequately, we may be unable to prevent these events. Any of these circumstances or events could negatively impact our
business. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.



We may not be able to grow or
effectively manage our growth, which may negatively impact our cash flows and operating results



A part of our
strategy may involve growth through expanding our fleet as opportunities are identified. Our future growth will depend on a number
of factors. One of our potential growth strategies is to expand our fleet as opportunities are identified and the success of this
strategy will depend on numerous factors. These factors include our ability to:



| | • | identify vessels for acquisition;
| | - | ---------------------------------



| | • | consummate acquisitions;
| | - | ------------------------



| | • | integrate acquired vessels successfully with our
                                                                          existing operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | • | identify businesses engaged in managing, operating
                                                                          or owning vessels for acquisitions or joint ventures;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | hire, train and retain qualified personnel and crew
                                                                          to manage and operate our growing business and fleet;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | identify additional new markets;
| | - | --------------------------------



19







| | • | improve our operating, financial and accounting
                                                                          systems and controls; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | • | obtain required financing for our existing and new
                                                                          operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



A deficiency
in any of these factors could adversely affect our ability to achieve growth. In addition, competition from other buyers could
reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.



The process of
integrating acquired vessels into our operations may result in unforeseen operating difficulties, may absorb significant management
attention and may require significant financial resources that would otherwise be available for the ongoing development and expansion
of our existing operations. Future acquisitions could result in the incurrence of additional indebtedness and liabilities that
could have a material adverse effect on our business, results of operations, cash flows and financial condition. Further, if we
issue additional common shares, your interest in our Company will be diluted.



Capital expenditures and other
costs necessary to operate and maintain our vessels may increase due to changes in governmental regulations or safety or other
equipment standards.



Changes in governmental
regulations or 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 additional expenditures to operate and maintain our vessels.
These expenditures could increase as a result of changes in:



| | • | the cost of our labor and materials;
| | - | ------------------------------------



| | • | the cost of suitable replacement vessels;
| | - | -----------------------------------------



| | • | customer/market requirements;
| | - | -----------------------------



| | • | increases in the size of our fleet; and
| | - | ---------------------------------------



| | • | governmental regulations and maritime self-regulatory
                                                                          organization standards relating to safety, security
                                                                          or the environment.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In order to satisfy
these requirements, we may, from time to time, be required to take 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
some or all of our vessels profitably during the remainder of their economic lives.



If we are unable to fund our
capital expenditures, we may not be able to take delivery of and/or operate our vessels, which would have a material adverse effect
on our business.



In
order to fund our capital expenditures, we may be required to incur additional borrowings or raise capital through the sale of
debt or equity securities. Our ability to access the capital markets through future offerings may be limited by our financial
condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general
economic conditions and contingencies and uncertainties that are beyond our control.Generally, significant capital expenditures
are required to take delivery of future newbuilding vessels, if any. In addition, our existing vessels may require significant
capital expenditures, such as expenditures for scheduled and unscheduled dry-docking and regulatory compliance, to continue operations.
As a result, the failure to obtain the funds necessary for our capital expenditurescould have a material
adverse effect on our business, results of operations and financial condition.



Recently, due
to the delay in our payment of an installment of $7.4 million, we received a default letter from the shipyard after the completion
of the steel cutting process for Hull 4029 in September 2011. We are currently in default under the loan agreement for this hull
and have not received delivery of this hull. We are currently in discussions with the lenders, the shipyard and the purchaser
in respect of the sale of this vessel and the release of our obligations under the loan agreement.



20







Unless we set aside reserves
or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel's useful life, which would
materially adversely affect our business, results of operations and financial condition.



Unless we maintain
reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon
the expiration of their useful lives, which we estimate to be at a range of 25 to 30 years. Our cash flows and income are
dependent on the revenues earned by the chartering of our vessels to customers. If we are unable to replace the vessels in our
fleet upon the expiration of their useful lives, our business, results of operations and financial condition in the future will
be materially and adversely affected. Any reserves set aside for vessel replacement may not be available for dividends, if any,
in the future.



Exposure to currency exchange
rate fluctuations will result in fluctuations in our cash flows and operating results.



Our vessel-owning
subsidiaries generate revenues in U.S. dollars but incur certain expenses in other currencies, primarily Euros. During the
year ended December 31, 2011, the value of the U.S. dollar reached a high of $1.47 and a low of $1.30 compared to the
Euro. Due to the sovereign debt crisis in certain EU-member countries, the U.S. dollar-Euro exchange rate continues to experience
volatility. An adverse or positive movement in these currencies could increase our expenses. During the year ended December 31,
2011, the effect was minimal.



Our incorporation under the
laws of Bermuda may limit the ability of our shareholders to protect their interests.



We are a Bermuda
company. Our memorandum of association and bye-laws and the Bermuda Companies Act of 1981, as amended, or the BCA, govern our
corporate affairs. Investors may have more difficulty in protecting their interests in the face of actions by management, directors
or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. Under Bermuda
law, a director generally owes a fiduciary duty only to the company, not to the company's shareholders. Our shareholders may not
have a direct cause of action against our directors. In addition, Bermuda law does not provide a mechanism for our shareholders
to bring a class action lawsuit. Further, our bye-laws provide for the indemnification of our directors or officers against any
liability arising out of any act or omission, except for an act or omission constituting fraud or dishonesty. There is a statutory
remedy under Section 111 of the BCA, which provides that a shareholder may seek redress in the courts as long as such shareholder
can establish that our affairs are being conducted, or have been conducted, in a manner oppressive or prejudicial to the interests
of some of our shareholders, including such shareholder.



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



It may not be possible for investors
to enforce U.S. judgments against us.



We and the majority
of our subsidiaries are incorporated in jurisdictions outside the U.S. (with the exception of NewLead Holdings (US) LLC,
which is incorporated in Delaware), and substantially all of our assets and those of our subsidiaries are located outside the
U.S. In addition, most of our directors and officers are non-residents of the U.S., and all or a substantial portion of the
assets of such officers and directors are located outside the U.S. As a result, it may be difficult or impossible for U.S. investors
to serve process within the U.S. upon us, our subsidiaries or our directors and officers or to enforce a judgment against
us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our
subsidiaries are incorporated or where our or the assets of our subsidiaries are located (1) would enforce judgments of U.S. courts
obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and
state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on the
laws of such jurisdictions.



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



A foreign corporation
will be treated as a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes if either
(1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at
least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive
income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or
exchange of investment property, and rents and royalties other than rents and royalties which are received from unrelated parties
in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance
of services does not constitute "passive income." U.S. shareholders of a PFIC are subject to a disadvantageous
U.S. federal income tax regime applicable to the income derived by the PFIC, the distributions they receive from the PFIC,
and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.



21







Based on our
method of operation, we do not believe that we have been, are or will be a PFIC. In this regard, we treat the gross income we
derive or are deemed to derive from our chartering activities as services income, rather than rental income. Accordingly, we believe
that our income from our chartering activities does not constitute "passive income," and the assets that we own and
operate in connection with the production of that income do not constitute passive assets.



There is, however,
no direct legal authority under the PFIC rules addressing our method of operation. Accordingly, no assurance can be given that
the U.S. Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or
a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for
any future taxable year if there were to be changes in the nature and extent of our operations.



If the IRS were
to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse and special U.S. tax
consequences. Among other things, the distributions a shareholder received with respect to our shares and the gain, if any, a
shareholder derived from his sale or other disposition of our shares would be taxable as ordinary income (rather than as qualified
dividend income or capital gain, as the case may be), would be treated as realized ratably over his holding period in our common
shares, and would be subject to an additional interest charge. However, a U.S. shareholder may be able to make certain tax
elections that would ameliorate these consequences. See the discussion under "Taxation — United States Federal
Income Taxation of U.S. Holders — Passive Foreign Investment Company Status and Significant Tax Consequences."



We may have to pay tax on U.S.-source
income, which would reduce our earnings.



Under the United
States Internal Revenue Code, referred to herein as the Code, 50% of the gross shipping income of a vessel-owning or chartering
corporation, such as our Company and our subsidiaries, that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States is characterized as U.S.-source shipping income and is subject to a 4% United States
federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883
of the Code and the related treasury regulations, referred to herein as "Treasury Regulations".



We expect that
we and each of our subsidiaries qualify for this statutory tax exemption, and we take this position for United States federal
income tax reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit
of this tax exemption and thereby become subject to United States federal income tax on our U.S.-source income. If we or our subsidiaries
are not entitled to exemption under Section 883 of the Code for any taxable year, the imposition of a 4% U.S. federal
income tax on our U.S.-source shipping income and that of our subsidiaries could have a negative effect on our business and would
result in decreased earnings available for distribution to our shareholders. See the discussion under "Taxation —
United States Federal Income Taxation of Our Company."



Industry Specific Risk Factors



Charter rates for product
tankers and drybulkers are experiencing high volatility and, in view of the cyclical nature of the business, may decrease further
in the future, which may adversely affect our earnings.



The
degree of charter rate volatility among different types of product tankers and dry bulk vessels has varied widely and after reaching
historical highs in mid-2008, charter rates for product tankers and dry bulk vessels have declined significantly. If the shipping
industry is depressed when our charters expire or are otherwise terminated, our revenues, earnings and available cash flow may
be adversely affected. In addition, a further decline in charter rates will likely cause the value of our vessels to further decline.
Furthermore, in 2012, one of our dry bulkers is time chartered with floating hire based on the market index (BPI) and our two
tankers are employed in a tanker pool and, as a result, the earnings of these tankers are highly affected by the spot market results.Also, in case any of our charterers experience financial difficulties, it may result in an increase in time for us to realize
our receivables and/or our charterers may be unable to fulfill their obligations under their charters. If any of our charterers
are unable to perform their obligations, we may be forced to reclaim and re-charter the related vessel(s).Given
the currently depressed market conditions, we may not be able to successfully charter these vessels in the future or renew our
existing charters at rates sufficient to allow us to operate our business profitably. Our ability to re-charter tanker vessels
on the expiration or termination of our current charters, the charter rates payable under any replacement charters and vessel
values will depend upon, among other things, economic conditions in the product tanker markets at that time, changes in the supply
and demand for vessel capacity and changes in the supply and demand for oil and oil products. We anticipate that the future demand
for our 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 (including China), India, Brazil and Russia and 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.



22







Furthermore,
the recent economic slowdown in the U.S. and Japan, together with the deteriorating economic situation in Europe caused by the
sovereign debt crises in certain European Union (“EU”) member countries may further reduce demand for transportation
of oil over long distances and supply of tankers that carry oil, which may materially and adversely affect our future revenues,
profitability and cash flows.



The product tanker
and drybulk vessel markets are cyclical with high volatility in charter rates and industry profitability. The factors affecting
the supply and demand for product tankers and drybulk vessels are outside of our control and are unpredictable. The nature, timing,
direction and degree of changes in industry conditions are also unpredictable.



The factors that
influence the demand for tonnage capacity include:



| | • | demand for cargoes (e.g., oil and oil products for
                                                                          tankers, coal, raw materials, agricultural products
                                                                          and steel products for bulkers);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | supply of cargoes;
| | - | ------------------



| | • | oil prices;
| | - | -----------



| | • | demand of energy in developing countries;
| | - | -----------------------------------------



| | • | continuing growth of industrialization in the emerging
                                                                          countries;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | regional availability of refining capacity;
| | - | -------------------------------------------



| | • | the globalization of manufacturing;
| | - | -----------------------------------



| | • | global and regional economic and political conditions;
| | - | ------------------------------------------------------



| | • | armed conflicts,
                                                                                                            acts of piracy and
                                                                                                            terrorism;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | developments in international trade;
| | - | ------------------------------------



| | • | changes in seaborne and other transportation patterns,
                                                                          including changes in the distances over which cargoes
                                                                          are transported;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | environmental and other regulatory developments;
| | - | ------------------------------------------------



| | • | currency exchange rates; and
| | - | ----------------------------



| | • | weather.
| | - | --------



The factors that
influence the supply of vessel capacity include:



| | • | the number of newbuilding deliveries;
| | - | -------------------------------------



| | • | the scrapping activity and age of vessels in the
                                                                          existing world fleet;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the price of steel;
| | - | -------------------



| | • | changes in environmental and other regulations that
                                                                          may limit the useful lives of vessels;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the conversion of vessels from one type to another;
| | - | ---------------------------------------------------



23







| | • | vessel casualties;
| | - | ------------------



| | • | the number of vessels (tankers mainly) that are
                                                                          used for storage;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | the number of vessels that are in or out of service; and
| | - | --------------------------------------------------------



| | • | port or canal congestion and increased waiting days
                                                                          at port.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



If the number
of new vessels delivered exceeds the number of vessels being scrapped, lost and converted, tonnage capacity will increase. If
the supply of tonnage capacity increases but the demand for tonnage capacity does not increase correspondingly, charter rates
and vessel values could materially decline.



Downturns in the product tankers
and drybulk vessels charter markets may have an adverse effect on our earnings, affect compliance with our existing and future
loan covenants and our ability to pay dividends if reinstated in the future.



Charter rates
for product tankers and dry bulk vessels have declined sharply since the highs of 2008. The increase of supply (because of the
newbuilding deliveries) and the decrease of demand (because of the decrease in world production and/or consumption) drove down
charter rates during 2009, 2010 and 2011. Freight rates started falling during the fourth quarter of 2008 and weakened gradually
to the lowest level in September 2009 followed by a steady upturn in the fourth quarter of 2009; however freight rates remained
at low levels during 2010, especially the second half of the year.



During 2011,
the rapid growth of the product tanker fleet has clearly had a debilitating impact on the freight market. The downturn resulted
in lower operating revenues for the product tanker charter markets, especially during the second half of the year. According to
market reports, the products tanker market did not perform well during 2011 with earnings remaining close to $10,000/day for much
of the year. The clean products market initially offered some resistance to the slowdown in oil demand, but as the fleet has continued
to grow, the availability of spot tonnage soon outstripped demand. The decline in charter rates in the product tanker market has
resulted in a commensurate decline in our tanker vessel values, which in turn has affected our cash flows and liquidity. During
2011, the two main Baltic Tanker Indices that reflect the market dynamics, BDTI (for crude tankers that carry crude oil or residual
fuel oil, or dirty products) and BCTI (for product tankers that carry refined petroleum products, or clean products), were still
approximately 32.70% and 24.00% respectively below their respective 10 year market averages. The 10 year (2002 to 2011) average
of BDTI was 1,163 points while the average of the same index for 2011 was 782.37 points. The other tanker index, BCTI, had a 10
year average of 949.60 points, while the average for 2011 was 720.93 points. The other tanker index, BCTI, had a 10 year average
of 989.99 points, while the average for 2010 was 732 points. Both indices followed a similar change, but BDTI experienced more
volatility.



Seaborne dry
bulk trade increased slightly by more than 2% annually during the 1990s, while the average growth was 5.7% annually between 2000
and 2008. During 2009, dry bulk trade decreased by 3%, but the market was stronger than expected as China increased its imports
by 41% to partially offset the approximately 107 million ton decrease in the rest of the world. In 2010, dry bulk trade started
to rebound, with an annual growth of 13%, as compared with the dry bulk trade of 2009, due to the fast recovery of world production,
especially of the Asian countries (China and India). However, the growth rate of the dry bulk market fell again during 2011 to
6%. This decrease in the growth rate is reflected on the Panamax 4 Time Charter routes, which was at an average of about $14,000
per day during 2011, representing a fall of about 44% as compared with the average BPI index of 2010. If the market remains at
or below these levels, it will have a negative effect on our earnings.



During 2012,
our two tanker vessels, the Hiona and the Hiotissa (two Handysize tankers), will participate in the Handymax tanker pool of Scorpio
Ship Management (“Scorpio”) while we continue to negotiate with Piraeus Bank in respect of (a) the sale of the vessels
Hiona and Hiotissa and (b) an agreement by which Piraeus will release us from all debt obligations arising under the related credit
facilities in exchange for equity in the Company. In addition, one of our dry bulk vessels is time chartered with floating hire
based on the market index (BPI) which charter is set to expire in 2012. See Item 4B. If the charter rates in the product tanker
market decrease again and the dry bulk market continues at the current low market levels through a significant portion of 2012,
and we are consequently exposed to then-prevailing charter rates, our earnings may be adversely affected. If these trends continue,
in order to remain viable, we may have to sell additional vessels in our fleet and we may continue to be unable to pay dividends.
At the same time, we endeavor to charter vessels in our fleet under period charters with floor hire rates plus profit sharing
elements in order to benefit from a potential increase in the charter market. However, we cannot assure you that we will be able
to enter into such period charters with upside potential.



24







Our impairment
analysis on long lived assets and goodwill performed for the year ended December 31, 2011 resulted in impairment losses of $234.1 million
(continuing and discontinued operations). However, the current assumptions used and the estimates made are highly subjective and
could be negatively impacted by further significant deterioration in charter rates or vessel utilization over the remaining life
of the vessels, which could require us to record additional impairment charges in future periods, which may be material.



Disruptions in world financial
markets, global economic weakness and the resulting governmental action in the United States and in other parts of the world could
have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price
of our common shares to further decline.



Many
parts of the world experienced deteriorating economic trends and were in a recession in 2008 and 2009 and continued to experience
weakness in 2010 and 2011.Despite recent signs of recovery, the outlook for the world economy remains uncertain. General
market volatility has resulted from uncertainty about sovereign debt and fears of countries such as Greece, Portugal, Spain and
Ireland defaulting on their governments’ financial obligations. In addition, continued hostilities in the Middle East and
recent tensions in North Africa could adversely affect the economies of the United States and other countries.



The credit markets
in the United States have experienced significant contraction, deleveraging and reduced liquidity, and the United States'
federal government and state governments have implemented and are considering a broad variety of governmental action and/or new
regulation of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The SEC, other regulators, self-regulatory organizations and exchanges are authorized to take
extraordinary actions in the event of market emergencies, and may affect 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 United States and
the rest of the world has resulted in reduced access to credit worldwide. As of December 31, 2011, we had total outstanding indebtedness
of approximately $572.2 million, excluding the $71.6 million of beneficial conversion feature, or BCF, treated as a debt
discount to the $125.0 million of 7% Notes.



We anticipate
that a significant number of the port calls made by our vessels will continue to involve the loading or discharging of commodities
in ports in the Asia Pacific region. In recent years, China has been one of the world's fastest growing economies in terms of
gross domestic product, which has had a significant impact on shipping demand. As a result, negative changes in economic conditions
in any Asia Pacific country, particularly in China, may exacerbate the effect of recent slowdowns in the economies of the United
States and the European Union and may have a material adverse effect on our business, financial condition and results of operations,
as well as our future prospects. Moreover, the current economic weakness in the economies of the United States, the European Union
and other Asian countries may further adversely affect economic growth in China and other emerging countries. Our business, financial
condition and results of operations, as well as our future prospects, will likely be materially and adversely affected by a further
economic downturn in any of these countries.



We face risks
attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets
around the world, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory
climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under any
existing or future financial arrangements. We cannot predict how long the current market conditions will last. However, these
recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values,
may have a material adverse effect on our results of operations, financial condition or cash flows, have caused the trading price
of our common shares on the NASDAQ Global Select Market to decline and could cause the price of our common shares to continue
to decline.



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



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



25







The value of our vessels may
fluctuate, which may adversely affect our liquidity.



Vessel values
can fluctuate substantially over time due to a number of different factors, including:



| | • | general economic and market conditions affecting
                                                                          the shipping industry;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | • | increase/decrease in demand for vessels' acquisitions;
| | - | ------------------------------------------------------



| | • | the types and sizes of available vessels;
| | - | -----------------------------------------



| | • | increase/decrease in the supply of tonnage capacity;
| | - | ----------------------------------------------------



| | • | expected newbuilding deliveries and future market
                                                                          expectations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | the cost of newbuildings;
| | - | -------------------------



| | • | availability of acquisition finance;
| | - | ------------------------------------



| | • | prevailing charter rates; and
| | - | -----------------------------



| | • | technological
                                                                                                            advances in vessel
                                                                                                            design or equipment,
                                                                                                            changes in applicable
                                                                                                            environmental or other
                                                                                                            regulations or standards,
                                                                                                            or otherwise.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition,
as vessels grow older, they generally decline in value. Due to the cyclical nature of the product tanker and dry bulk vessel markets,
if for any reason we sell vessels at a time when prices have fallen, we could incur a loss and our business, results of operations,
cash flows, financial condition and ability to pay dividends in the future could be adversely affected. Furthermore, our existing
debt agreements contain, and our future debt agreements may contain, financial covenants based on a security cover ratio. We are
currently in breach of the security cover ratio under certain of our debt arrangements (see “Item 5. Operating and Financial
Review and Prospects—Liquidity and Capital Resources”) and we may violate similar covenants in any future debt agreements
if the value of our vessels decrease significantly. Any such violation would materially and adversely affect our financial condition.



An oversupply of tanker capacity
may lead to reductions in charter rates, which could materially adversely affect our profitability.



The handysize
tanker fleet expanded by 3.3% to about 104.55 million dwt between December 2010 and December 2011, while the increase in
the total tanker fleet was approximately 5.9% to about 476.42 million dwt during the same period. As of December 2011, tankers
on order represented about 18% of the existing fleet, and the supply of tankers, which is affected by a number of factors as described
above, is expected to increase both in 2012 and 2013. However, the demolition of older tankers, as well as the conversion of tankers
to non-tanker vessels, is expected to prevent fleet growth from a large oversupply. The International Energy Agency (IEA) estimated
in its February report that global oil supply increased by 0.1 million bpd month-over-month to 90.2 million bpd in January2012,
with increases in OPEC crude production overcoming a0.2 million bpd decline in non-OPEC countries. Furthermore, in its same report,
the IEA projects that global oil demand is expected to increase by 0.9% year-over-year in full year 2012 to reach 89.9 million
bpd. The estimate is a downward revision on the previous month’s forecast, as concerns about the health of the global economy
remain pertinent.



26







Furthermore,
the current high oil price is likely to cut down demand in 2012. For the year as a whole, OECD demand is projected to decline
by 0.9% year-over-year to 45.2 million bpd in 2012. However, this increase in demand may not fully offset any oversupply of tanker
capacity if the growth in demand is less than the growth in supply for product tankers. If there is an oversupply of tanker capacity,
this may result in a reduction of charter rates. If a reduction in charter rates occurs, upon the expiration or termination of
our vessels' current charters, we may only be able to re-charter our vessels at reduced or unprofitable rates or we may not be
able to charter these vessels at all, which could lead to a material adverse effect on our results of operations.



An
oversupply of dry bulk vessel capacity may lead to further reductions in charter rates,and disproportionately
affect older vessels,which could materially adversely affect our profitability.



The market supply
of dry bulk vessels has been increasing, and the carrying capacity (measured in dwt) on order is at a historically high level.
As of April 2012, approximately 191 million dwt of dry bulk vessels are on order, representing approximately 30% of the existing
fleet. This may lead to an oversupply of dry bulk vessel capacity, resulting in a reduction of charter rates and a decrease in
the value of our dry bulk vessels. Even in the case of high order cancellations and high delayed deliveries, new deliveries are
expected to be higher than usual and it is unclear whether this increase of supply will be absorbed by the increase of demand.
Significant fleet expansion would cap rate levels over the next couple of years. The reduction in rates may affect the ability
of our customers who charter our dry bulk vessels to make charter hire payments to us. This and other factors affecting the supply
and demand for dry bulk vessels are outside our control and the nature, timing and degree of changes in the industry may affect
the ability of our charterers to make charter hire payments to us.



During periods
when the shipping industry is experiencing excess capacity, falling demand and/or declining rates, older vessels are generally
adversely affected in a disproportionate manner because newer vessels are generally preferred by customers. As the severity and
length of such periods increase, the scrap rate for older vessels tends to rise because the costs for keeping an older vessel
in the fleet may exceed the benefits. However, we may be unable to scrap some of our older vessels if, for example, such vessels
have loan obligations that exceed their scrap values. In such a case, we may be restricted from taking the most economically prudent
course of action, which may negatively affect our results of operations. See also “—The risks and costs associated
with vessels increase as the vessels age.”



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



Acts
of piracy have historically affected ocean-going vessels trading in certain regions of the world, such as the South China Sea
and in the Gulf of Aden off the coast of Somalia. Throughout 2008 to 2011, the frequency of piracy incidents increased significantly,
particularly in the Gulf of Aden off the coast of Somalia, with dry bulk vessels and tankers particularly vulnerable to such attacks.A recent and significant example of the heightened level of piracy came in February 2011 when the M/V Irene SL, a crude
oil tanker which was not affiliated with us, was captured by pirates in the Arabian Sea while carrying crude oil estimated to
be worth approximately $200 million. In April 2010, the M/V Samho Dream, another crude oil tanker not affiliated with us,
was captured off the Somali coast while carrying approximately $170 million in crude oil. In
December 2009, the M/V Navios Apollon, a cargo vessel not affiliated with us, was seized by pirates 800 miles off the coast
of Somalia while transporting fertilizer from Tampa, Florida to Rozi, India. The vessel was released in late February 2010 upon
the payment of an unreported sum of money. In April 2009, the Maersk Alabama, a cargo vessel not affiliated with us, was captured
by pirates off the coast of Somalia and was released following military action by the U.S. Navy. If these piracy attacks
result in regions in which our vessels are deployed being characterized as "war risk" zones by insurers, as the Gulf
of Aden temporarily was in May 2008, or Joint War Committee (JWC) "war and strikes" listed areas, premiums payable for
insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew
costs, including costs due to employing onboard security guards, could increase in such circumstances. In addition, when
the vessel is seized by pirates, the charterer may withhold charter payments until the vessel is released. A charterer may also
claim that a vessel seized by pirates was not “on-hire” for a certain number of days and it is therefore entitled
to cancel the charter party, a claim that we would dispute. Despite the fact that our vessels are covered against such risks,
we may not be adequately insured to cover losses from these incidents, which could have a material
adverse effect on us. In addition, any detention and/or hijacking of our vessels as a result of an act of piracy, or an increase
in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition,
results of operations and ability to reinstate the payment of dividends.



Increases in fuel, or bunker
prices, may adversely affect profits.



While we generally
do not bear the cost of fuel, or bunkers, under our time charters, fuel is a significant factor in negotiating charter rates.
As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter
negotiation or when our vessels trade in the spot market. Fuel is also a significant, if not our largest, expense in our shipping
operations when vessels are under voyage charter. Increases in the price of fuel may adversely affect our profitability. The price
and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply
and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions,
regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may
reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.



27







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



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. Many of these requirements are designed to reduce the risk of oil spills, air emissions or other pollution.
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. Compliance with these laws
and regulations, as well as with standards imposed by maritime self-regulatory organizations and customer requirements or competition,
may require us to make capital and other expenditures; affect the resale value or useful lives of our vessels; require reductions
in cargo capacity, ship modifications or other operational changes or restrictions; lead to reduced availability of insurance
coverage or increased policy costs; or result in denial of access to certain jurisdictional ports or waters, or detention in certain
ports. In order to satisfy any such requirements, we may be required to take 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 profitably, particularly older vessels, during the remainder of their economic lives. This could lead to
significant asset write-downs.



A failure to
comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or suspension
or termination of our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits,
licenses and certificates with respect to our operations. A decision by an agency to deny or delay issuing a new or renewed permit,
license or certificate, or to revoke or substantially modify an existing one, could materially adversely affect our operations.



Government
regulation of vessels, particularly environmental and safety requirements, may become stricter in the future and require us to
incur significant capital expenditure on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether.
Additional legislation or amendments to existing legislation is expected in areas such as ship recycling, sewage systems, emission
control (including emission of greenhouse gases) and ballast treatment and handling. For example, amendments to revise the regulations
of the International Convention for the Prevention of Pollution from Ships, or MARPOL, regarding the prevention of air pollution
from ships were approved and formally adopted by the Marine Environment Protection Committee, or MEPC, in October 2008. The amendments
establish a series of progressive standards limiting the sulfur content in fuel oil and new tiers of nitrogen oxide emission standards
for new marine diesel engines. The amendments entered into force in July 2010 and we incurred significant costs for compliance.The amendments implement a phased reduction of the sulfur content of fuel and allows for stricter sulfur limits in designated
emission control areas (“ECAs”). Thus far, ECAs have been formally adopted for the Baltic Sea and the North Sea including
the English Channel. It is expected that waters off the North American coast will be established as an ECA from August 1,
2012, and the United States Caribbean Sea ECA will come into force on January 1, 2013, with an effective date of January 1,
2014.

These ECAs will limit sulfur oxide
(SOx), nitrogen oxide (NOx) and particulate matter emissions.



In addition,
various jurisdictions and regulatory organizations, including the International Maritime Organization, or 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 introduction
of foreign invasive species having adverse ecological impacts. Significant expenditures for the installation of new equipment
or new systems on board our vessels and changes in operating procedure may be necessary to comply with future regulations regarding
ballast water management. Such future regulations may also result in increased port disposal costs.



Additionally,
as a result of marine accidents in recent years, safety regulation of the shipping industry is likely to continue to become more
stringent and more expensive for us and our competitors. The IMO and the European Union have both accelerated their existing phase-out
schedules for vessels without double hulls in response to highly publicized oil spills and shipping accidents involving companies
unrelated to us. Legislation is also being discussed that would subject vessels to centralized routing. Future incidents may result
in the adoption of even more stringent laws and regulations, which could limit our operations or our ability to do business, require
capital expenditures or otherwise increase our cost of doing business, which may adversely affect our operations, as well as the
shipping industry generally.



28







We could incur material liabilities,
including cleanup obligations and natural resource damages, in the event there is a release of oil or other hazardous substances
from our vessels or otherwise in connection with our operations.



For all vessels,
including those operated under our fleet, at present, international liability for bunker oil pollution is governed by the International
Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention. In 2001, the IMO adopted the Bunker Convention,
which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges
of "bunker oil." The Bunker Convention defines "bunker oil" as "any hydrocarbon mineral oil, including
lubricating oil, used or intended to be used for the operation or propulsion of the ship, and any residues of such oil."
The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance for pollution damage
in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding
the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended, or
the 1976 Convention). The Bunker Convention entered into force on November 21, 2008, and as of February 29, 2012 was in effect
in 64 countries. In other jurisdictions, liability for spills or releases of oil from ships' bunkers continues to be determined
by the national or other domestic laws in the jurisdiction where the events or damages occur.



With respect
to oil pollution liability, generally, many countries have ratified and follow the liability plan adopted by the IMO and set out
in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this
convention, and depending on whether the country in which the damage results is a party to the CLC, a registered owner of a tanker
that is carrying a cargo of "persistent oil" as defined by the CLC is strictly liable for pollution damage caused in
the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses and liability
limits. This liability is subject to a financial limit calculated by reference to the tonnage of the ship. The right to limit
liability may be lost if the spill is caused by the owner's intentional or reckless conduct. Vessels trading to states that are
parties to these conventions must provide evidence of insurance covering the liability of the owner. When a tanker is carrying
clean oil products that do not constitute "persistent oil" for the purposes of CLC, liability for any pollution damage
will generally fall outside the CLC and will depend on national or other domestic laws in the jurisdiction where the spillage
occurs. The United States is not a party to the CLC. In jurisdictions where the CLC has not been adopted, various legislative
schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the CLC.



The most widely
applicable international regime limiting maritime pollution liability is the 1976 Convention referred to above. Rights to limit
liability under the 1976 Convention are forfeited when a spill is caused by a shipowner's intentional or reckless conduct. Certain
states have ratified the IMO's 1996 Protocol, or the 1996 LLMC Protocol, to the 1976 Convention. The 1996 LLMC Protocol provides
for substantially higher the liability limits to apply in those jurisdictions than the limits set forth in the 1976 Convention.
Finally, some jurisdictions are not a party to either the 1976 Convention or the 1996 LLMC Protocol, 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. U.S. federal legislation, including notably the Oil Pollution Act
of 1990, or the OPA, establishes an extensive regulatory and liability regime for the protection and cleanup of the environment
from oil spills, including bunker oil spills from dry bulk vessels as well as cargo or bunker oil spills from tankers. The OPA
affects all shipowners and operators whose vessels trade in the United States, its territories and possessions, or whose vessels
operate in U.S. 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 future sessions of the Congress. In addition to potential liability under the 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.



In
some areas of regulation of ship-source pollution, the EU has introduced new laws without attempting to procure a corresponding
amendment of international law. Notably, in 2005, it adopted a directive, as amended in 2009, on ship-source pollution, imposing
criminal sanctions for pollution not onlywhere this is caused by intent or recklessness (which would be an offence under
the 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 thereforeresult 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 currently
maintain, for each of our owned vessels, insurance coverage against pollution liability risks in the amount of $1.0 billion
per incident. 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 $1.0 billion limitation
of coverage per incident, our cash flow, profitability and financial position could be adversely impacted.



29







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



In addition
to other climate-related risks set forth in this "Risk Factors" section, 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. 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 (“UNFCCC”),
which requires adopting countries to implement national programs to reduce greenhouse gas emissions,the IMO intends to
develop limits on greenhouse gases from international shipping. It has responded to the global focus on climate change and greenhouse
gas emissions by developing specific technical and operational efficiency measures and a work plan for market-based mechanisms
in 2011. These include the mandatory measures of the “SEEMP”, outlined below, and an energy efficiency design index
(“EEDI”) for new ships. The IMO is also considering its position on market-based measures through an expert working
group, which will report back to its Marine Environment Protection Committee (“MEPC”) later this year. Among the numerous
proposals being considered by the working group are the following: a port state levy based on the amount of fuel consumed by the
vessel on its voyage to the port in question; a global emissions trading scheme which would allocate emissions allowances and
set an emissions cap; and an international fund establishing a global emissions reduction target for international shipping, to
be set either by the UNFCCC or the IMO. In December 2011, UN climate change talks took place in Durban and concluded with an agreement
referred to as the Durban Platform for Enhanced Action. The Durban Conference did not result in any proposals specifically addressing
the shipping industry’s role in climate change but the progress that has been made by the IMO in this area was widely acknowledged
throughout the negotiating bodies of the UNFCCC process.



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 was expected if no global regime for reduction of seaborne emissions had been agreed to by the end of 2011. That deadline
has now expired and it remains to be seen what position the EU will take in this regard in 2012.Similarly,
the U.S. EPAhas 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. 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 international
safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in, certain ports.



The operation
of our vessels is affected by the requirements set forth in the IMO International Management Code for the Safe Operation of Ships
and Pollution Prevention, or ISM Code. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and
maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies.The
IMO is also introducing the first ever mandatory measures for an international greenhouse gas reduction regime for a global industry
sector. The measures will come into effect on January 1, 2013 and apply to all ships of 400 gross tonnage and above. These
measures set a ship energy efficiency management plan (“SEEMP”) which is akin to a safety management plan, which the
industry will have to comply with.The failure of a shipowner or bareboat charterer to comply with
the ISM Codeor IMO measures may subject it to increased liability, may invalidate existing insurance or decrease available insurance
coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. For example, the United
States Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited
from trading in ports in the United States and European Union. As of the date of this report, each of our vessels is ISM code-certified.
However, there can be no assurance that such certification will be maintained indefinitely.



30







Our vessels and/or the cargoes
carried on board our vessels may suffer damage due to the inherent operational risks of the seaborne transportation industry and
we may experience unexpected dry-docking costs, which could adversely affect our business and financial condition.



Our vessels
and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions
caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances
or events. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher
insurance rates, damage to our customer relationships, delay or rerouting. Any resulting legal proceedings may be complex,
lengthy, costly and, if decided against us, any of these proceedings or other proceedings involving similar claims or claims for
substantial damages may harm our reputation and have a material adverse effect on our business, results of operations, cash flow
and financial position. In addition, the legal systems and law enforcement mechanisms in certain countries in which we operate
may expose us to risk and uncertainty. Further, we may be required to devote substantial time and cost defending these proceedings,
which could divert the attention of management from our business. If our vessels suffer damage, they
may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We
may have to pay dry-docking costs that our insurance does not cover in full. The loss of revenue while these vessels are being
repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, space at dry-docking
facilities is sometimes limited and not all dry-docking facilities are conveniently located. We may be unable to find space at
a suitable dry-docking facility or our vessels may be forced to travel to a dry-docking facility that is not conveniently located
to our vessels' positions. The loss of revenue while these vessels are forced to wait for space or to steam to more distant dry-docking
facilities would decrease our earnings. For example, on October 8, 2010, the Grand Rodosi, one of our bulk carriers, was
involved in a collision with a docked fishing vessel at Port Lincoln, Australia. While no personal injuries or environmental damage
were incurred, the collision resulted in physical damage to the two vessels. The damage was fully covered by our insurance.
The total loss or damage of any of our vessels or cargoes could harm our reputation as a safe and reliable vessel owner and operator.
If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss
that could negatively impact our business, financial condition, results of operations, cash flowsand
ability to reinstate the payment of dividends.



Our insurance may not be adequate
to cover our losses that may result from our operations, which are subject to the inherent operational risks of the seaborne transportation
industry.



We carry insurance
to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery
insurance, protection and indemnity insurance, which includes pollution risks, crew insurance and war risk insurance. However,
we may not be adequately insured to cover losses from all of our operational risks, which could have a material adverse effect
on us. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement, which
may result in the loss of revenue. Additionally, our insurers may refuse to pay particular claims and our insurance may be voidable
by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable
maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse
effect on our business, results of operations, cash flows and financial condition. In addition, we may not be able to obtain adequate
insurance coverage at reasonable rates in the future during adverse insurance market conditions.



As a result of
the September 11, 2001 attacks, the U.S. response to the attacks and the related concerns regarding terrorism, insurers
have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. Accordingly, premiums
payable for terrorist coverage have increased substantially and the level of terrorist coverage has been significantly reduced.



In addition,
while we carry loss of hire insurance to cover 100% of our fleet, we may not be able to maintain this level of coverage. Accordingly,
any loss of a vessel or extended vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our
business, results of operations, financial condition and our ability to pay dividends, if reinstated to our shareholders in the
future.



Because we obtain some of our
insurance through protection and indemnity associations, we may also be subject to calls in amounts based not only on our own
claim records, but also on the claim records of other members of the protection and indemnity associations.



We may be subject
to calls in amounts based not only on our claim records but also on the claim records of other members of the protection and indemnity
associations through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment
of these calls could result in significant expense to us, which could have a material adverse effect on our business, results
of operations, cash flows and financial condition.



In addition,
in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both
the vessel that is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or
controlled by the same owner. Claimants could try to assert "sister ship" liability against one vessel in our fleet
for claims relating to another of our vessels.



31







The risks and costs associated with vessels increase
as the vessels age.



The costs to
operate and maintain a vessel in operation increase with the age of the vessel. The average age of our bulker fleet is 16.21 years
(without newbuildings) and the average age of our tanker fleet 8.45 years. Most dry bulk and tanker vessels have an expected life
ranging between 25 to 30 years. In some instances, charterers prefer newer vessels that are more fuel efficient than older vessels.
Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers as well. In addition,
older vessels could have loan obligations in excess of their scrap value. Governmental regulations, safety or other equipment
standards related to the age of the vessels may require expenditures for alterations or the addition of new equipment to vessels
and may restrict the type of activities in which these vessels may engage. We cannot assure you that, as our vessels age, market
conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful
lives. If we sell vessels, we may have to sell them at a loss, and if charterers no longer charter-out vessels due to their age,
our earnings could be materially adversely affected.



A failure to pass inspection
by classification societies could result in one or more vessels being unemployable unless and until they pass inspection, resulting
in a loss of revenues from such vessels for that period and a corresponding decrease in operating cash flows.



The hull and
machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification
society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of
registry of the vessel and with International Convention for the Safety of Life at Sea, or SOLAS. Our fleet is currently enrolled
with Bureau Veritas and Det Norske Veritas.



A vessel must
undergo an annual survey, an intermediate survey and a special survey. In lieu of a special survey, a vessel's machinery may be
on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are
on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel may be also required
to be dry-docked every two to three years for inspection of the underwater parts of such vessel.



If any vessel
fails any annual survey, intermediate survey or special survey, the vessel may be unable to trade between ports and, therefore,
would be unemployable, potentially causing a negative impact on our revenues due to the loss of revenues from such vessel until
she is able to trade again.



If we purchase any newbuilding
vessels, delays, cancellations or non-completion of deliveries of newbuilding vessels could harm our operating results.



If we purchase
any newbuilding vessels, the shipbuilder could fail to deliver the newbuilding vessel as agreed or their counterparty could cancel
the purchase contract if the shipbuilder fails to meet its obligations. In addition, under charters we may enter into that are
related to a newbuilding vessel, if our delivery of the newbuilding vessel to our customer is delayed, we may be required to pay
liquidated damages during the delay. For prolonged delays, the customer may terminate the charter and, in addition to the resulting
loss of revenues, we may be responsible for additional, substantial liquidated damages.



The completion
and delivery of newbuilding vessels could be delayed, cancelled or otherwise not completed because of:



| | • | quality or engineering problems;
| | - | --------------------------------



| | • | changes in governmental regulations or maritime
                                                                          self-regulatory organization standards;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | work stoppages or other labor disturbances at the
                                                                          shipyard;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | • | bankruptcy or other financial crisis of the shipbuilder;
| | - | --------------------------------------------------------



| | • | a backlog of orders at the shipyard;
| | - | ------------------------------------



| | • | political or economic disturbances;
| | - | -----------------------------------



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



| | • | requests for changes to the original vessel specifications;
| | - | -----------------------------------------------------------



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



32







| | • | inability to finance the construction or conversion
                                                                          of the vessels; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | inability to obtain requisite permits or approvals.
| | - | ---------------------------------------------------



In addition to
the above, we are currently facing liquidity constraints that may result in our inability to make contractual payments in a timely
manner or at all, which may negatively affect our ability to accept delivery of newbuilding vessels in a timely manner. If delivery
of a vessel is materially delayed, it could materially adversely affect our results of operations and financial condition and
our ability to make cash distributions.



Labor interruptions could disrupt
our business.



Our vessels are
manned by masters, officers and crews that are employed by third parties. If not resolved in a timely and cost-effective manner,
industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have
a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends,
if reinstated in the future.



Maritime claimants could arrest
our vessels through foreclosure proceedings, which would interrupt our business.



Crew
members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against
a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting
or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt
our business or require us to pay large sums of money to have the arrest lifted, which would have a negative effect on our cash
flows. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability,
a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated”
vessel, which is any vessel owned or controlled by the same owner. As a result, claimants could try to assert “sister ship”
liability against one vessel in our fleet for claims relating to another vessel in our fleet.



Governments could requisition
our vessels during a period of war or emergency without adequate compensation.



A government
could requisition or seize our vessels. Under requisition for title, a government takes control of a vessel and becomes its owner.
Under requisition for hire, a government takes control of a vessel and effectively becomes its charterer at dictated charter rates.
Generally, requisitions occur during periods of war or emergency. Although we would be entitled to compensation in the event of
a requisition, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively
impact our business, financial condition and results of operations.



We operate our vessels worldwide
and, as a result, our vessels are exposed to international risks that could reduce revenue or increase expenses.



The international
shipping industry is an inherently risky business involving global operations. Our vessels are at risk of damage or loss because
of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss, natural disasters and bad weather.
In addition, changing economic, regulatory and political conditions in some countries, including political and military conflicts,
have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These
sorts of events could interfere with shipping routes and result in market disruptions that may reduce our revenue or increase
our expenses.



Terrorist attacks, international
hostilities and political instability can affect the seaborne transportation industry, which could adversely affect our business
and results of operations.



We
conduct most of our operations outside of the United States, and our business, results of operations, cash flows and financial
condition may be adversely affected by changing economic, political and government conditions in the countries and regions where
our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted
by the effects of political instability, terrorist or other attacks, war or international hostilities. Terrorist attacks such
as the attacks on the United States on September 11, 2001, in London on July 7, 2005 and in Mumbai on November 26,
2008 and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks
in the United States or elsewhere, continue to cause uncertainty in the world financial markets and may affect our business, operating
results and financial condition. The continuing presence of the United States and other armed forces in Iraq and Afghanistan may
lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability
in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on
terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways
and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have
also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia.In
addition, continuing conflicts and recent developments in North Africa and the Middle East and future hostilities or other political
instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations by causing
delays in shipping on certain routes or making shipping impossible on such routes, thereby causing a decrease in revenues.Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.



33







Terrorist attacks
on vessels, such as the October 2002 attack on the M/V Limburg, a very large crude carrier not related to us, may in the future
also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist
attacks could result in increased volatility and turmoil in the financial markets in the United States and globally. Any of these
occurrences could have a material adverse impact on our revenues and costs.



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 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:



| | • | on-board installation of automatic information
                                                                                 systems, or AIS, to enhance vessel-to-vessel
                                                                                 and vessel-to-shore communications;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | on-board installation of ship security alert
                                                                                 systems;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | • | the development of vessel security plans;
                                                                                 and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | • | compliance with flag state security certification
                                                                                 requirements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



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 the
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. 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. We insure against these
losses to the extent practicable, but the risk remains that uninsured losses 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.



Economic sanctions and other international trade restrictions
imposed by the United States, the European Union, and other jurisdictions could increase the legal compliance risks and costs
associated with our international activities.



Economic sanctions and/or other trade
restrictions imposed by the United States or other governments or organizations, including the United Nations, the European Union
and its member states, could increase the legal costs of, and risks associated with, our international operations. Our compliance
with the prohibitions of economic sanctions and foregoing business with countries subject to sanctions could also lead to loss
of revenue.



34







Under economic sanctions and related trade
laws, governments may impose modifications to business activities and practices and modifications to compliance programs, which
may increase compliance costs, increase the risk of violations of law, and, in the event of a violation of such laws, may subject
us to fines and other penalties. Engaging in sanctions-triggering activity, such as that outlined under the Comprehensive Iran
Sanctions, Accountability and Divestment Act of 2010 (“CISADA”), could also result in the imposition of sanctions
against us.



In recent months, the scope of sanctions
imposed against Iran and persons engaging in certain activities or doing certain business with or involving Iran has been expanded
by a number of jurisdictions, including the United States, the EU, and Canada. The EU has strengthened sanctions against Iran
by prohibiting a wider universe of transactions and activities involving Iran. The EU sanctions against Iran now prohibit the
transportation of petroleum as well as petrochemical products from Iran. CISADA, enacted by the United States, also strengthens
existing U.S. sanctions against Iran, and, inter alia,provides for the imposition of sanctions against foreign (non-U.S.)
entities that transport or otherwise supply refined petroleum products (“RPP”) to Iran. U.S. Executive Order 13590
expands and adds to the universe of activity triggering sanctions under CISADA.



We are monitoring developments in the
United States, the EU 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 or entities subject to sanctions), or modifications in how existing sanctions are interpreted or enforced,
could prevent our tankers from calling on ports in sanctioned countries or could limit their cargoes and also could expose us
to sanctions based on the activities of the vessels while the vessels are chartered out to third parties, even though we do not
control such third parties.



We constantly keep abreast of legal developments
in the economic sanctions and trade restrictions area, and we adjust our compliance programs and internal policies accordingly.
We believe that we are in compliance with all applicable laws, including all laws impacting the trade of our vessels with Iran
and other countries identified by the United States as state sponsors of terrorism or as engaging in activities related to nuclear
proliferation. Our vessels are not authorized to engage in unlawful trade, or, save for vessels acquired while already on charter,
any sanctions-triggering activity. Moreover, our vessels’ trade with the foregoing countries is infrequent, and the revenue
we derive from such activity is de minimus. Additionally, our vessels are not chartered to entities that have been designated
as sanctions targets by the United States or the European Union.



In an affirmative step to guard against
violations and to prevent our vessels from engaging in any sanctions-triggering trade, we now include provisions in all of our
new charters designed to prevent our charter parties from violating applicable laws relating to existing sanctions and from engaging
in sanctions-triggering activity.



As it relates to Iran, the provisions
in the charter parties/contracts for our vessels contain exclusions that prohibit the use of our vessels in unlawful and/or sanctions-triggering
trade with Iran. However, one of the vessels we recently acquired was already subject to a charter signed in 2007, before our
acquisition of the vessel, which did not contain such provisions/exclusions. This vessel was instructed by her time charterers
to call Iran in between the 4th and 14th June 2011 in order to discharge approximately 60,000 tons of soya
beans. Although this vessel called in Iran, neither the transportation/discharge of the soya beans, nor the parties involved were
subject to any sanctions. With respect to Iran, none of our tankers are authorized to engage in unlawful trade or in any activities
that could trigger sanctions under CISADA. Despite the fact that we are always seeking to exclude Iran and all other countries
which are subject to sanctions, there is nevertheless some risk that the charter parties could violate the terms of charter parties
and engage in activity that could (indirectly) cause us to violate applicable law, expose us to sanctions under CISADA and any
similar laws, and, as a consequence, cause reputational and other damage that could have a material adverse impact on our business
and operations.



Where trade exclusions
with respect to Iran do not exist in our charter parties, we affirmatively notify charterers of our vessels that they themselves
could face sanctions if they use our vessels in sanctions-triggering trade with Iran.



Risks Relating to Our Coal Business



Our coal distribution business is operated as a joint
venture. Our joint venture is restricted in operational flexibility and actions taken by our joint venture partners may negatively
affect us and our ability to realize benefits from our joint venture.



In April 2012, our U.S. subsidiary entered
into a joint venture arrangement with a third party to purchase thermal coal (used in power plants for electricity generation)
from reserves located in Kentucky, USA.  The joint venture has entered into agreements to purchase certain quantities of
thermal coal with specified minimum qualities (after processing at the mine by the mine operator) over a five-year period. One
of our subsidiaries and our joint venture partner each hold a 50% interest in the joint venture.



35







The joint venture agreement requires the
joint venture to be managed by a board of managers that includes one representative from each of us and our joint venture partner.
Since the managers representing a majority of the interests in the joint venture have the authority to constitute a valid act
of the board, unless we acquire additional interests in the joint venture, the joint venture will only be able to take actions
in which both we and our joint venture partner agree. Actions that would require such board action include, without limitation,
the incurrence of debt, the issuance of securities, the sale of assets or the purchase of assets, and the determination of a budget
and strategic business plan. As such, we will not have the flexibility to control the actions of the joint venture, even if we
believe that taking such actions would be in the best interest of us and our joint venture.



Furthermore, we are limited in our ability
to dispose of our interest in the joint venture. Prior to transferring our equity contribution in the joint venture, we would
be required to comply with certain rights of first refusal of our joint venture partner. Upon the occurrence of certain events,
such as our breach of the joint venture agreement or our being subject to bankruptcy proceedings, our partners will have the ability
to require us to sell our interest to them.



Such limitations may have a negative effect
on us and our joint venture. We may also enter into other joint venture arrangements in the future which could pose risks similar
to risks described above.



We rely solely on third parties for the coal that we
sell to our customers. Disruptions in the quantities of coal produced by our coal suppliers could impair our ability to fill customer
orders.



We rely solely on third party suppliers
to source the coal that we sell to our customers. Operational difficulties at mines operated by third parties from whom we purchase
coal, changes in demand for contract miners from other coal producers and other factors beyond our control could affect the availability,
pricing, and quality of coal produced for or purchased by us. Although our contractual agreements are long term in nature, such
contractual arrangements by themselves cannot fully mitigate such risks related to sourcing our coal solely from third parties.
Disruptions in the quantities of coal produced for or purchased by us could impair our ability to fill our customer orders or
require us to purchase coal from other sources in order to satisfy those orders. If we are unable to fill a customer order or
if we are required to purchase coal from other sources in order to satisfy a customer order, we could lose customers and our operating
costs could increase.



Coal prices are subject to change and a substantial or
extended decline in prices could materially and adversely affect our business, results of operations and financial position.



Our profitability depends upon the prices
we receive for the coal we sell and the prices we pay for the coal we purchase. The contract prices for our purchases and sales
of coal depend upon factors beyond our control, including the following:



| | · | the
                                                                                                                      domestic
                                                                                                                      and foreign
                                                                                                                      supply and
                                                                                                                      demand for
                                                                                                                      coal;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                                      quantity
                                                                                                                      and quality
                                                                                                                      of coal
                                                                                                                      available
                                                                                                                      from coal
                                                                                                                      producers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | competition
                                                                                                                      for production
                                                                                                                      of electricity
                                                                                                                      from non-coal
                                                                                                                      sources,
                                                                                                                      including
                                                                                                                      the price
                                                                                                                      and availability
                                                                                                                      of alternative
                                                                                                                      fuels;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | domestic
                                                                                                                      and international
                                                                                                                      air emission
                                                                                                                      standards
                                                                                                                      for coal-fueled
                                                                                                                      power plants
                                                                                                                      and the
                                                                                                                      ability
                                                                                                                      of coal-fueled
                                                                                                                      power plants
                                                                                                                      to meet
                                                                                                                      these standards
                                                                                                                      by installing
                                                                                                                      scrubbers
                                                                                                                      or other
                                                                                                                      means;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | adverse
                                                                                                                      weather,
                                                                                                                      climatic
                                                                                                                      or other
                                                                                                                      natural
                                                                                                                      conditions,
                                                                                                                      including
                                                                                                                      natural
                                                                                                                      disasters;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | domestic
                                                                                                                      and foreign
                                                                                                                      economic
                                                                                                                      conditions,
                                                                                                                      including
                                                                                                                      economic
                                                                                                                      slowdowns;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | legislative,
                                                                                                                      regulatory
                                                                                                                      and judicial
                                                                                                                      developments,
                                                                                                                      environmental
                                                                                                                      regulatory
                                                                                                                      changes
                                                                                                                      or changes
                                                                                                                      in energy
                                                                                                                      policy and
                                                                                                                      energy conservation
                                                                                                                      measures
                                                                                                                      that would
                                                                                                                      adversely
                                                                                                                      affect the
                                                                                                                      coal industry,
                                                                                                                      such as
                                                                                                                      legislation
                                                                                                                      limiting
                                                                                                                      carbon emissions
                                                                                                                      or providing
                                                                                                                      for increased
                                                                                                                      funding
                                                                                                                      and incentives
                                                                                                                      for alternative
                                                                                                                      energy sources;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                                      proximity
                                                                                                                      of our coal
                                                                                                                      sources
                                                                                                                      to, the
                                                                                                                      capacity
                                                                                                                      of and the
                                                                                                                      cost of
                                                                                                                      transportation
                                                                                                                      and port
                                                                                                                      facilities;
                                                                                                                      and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | market
                                                                                                                      price fluctuations
                                                                                                                      for sulfur
                                                                                                                      dioxide
                                                                                                                      emission
                                                                                                                      allowances.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A substantial or extended decline in the
prices we receive for our future coal purchase and sales contracts could materially and adversely affect our business, results
of operations and financial position.



36







Trends within the coal industry could put downward pressure
on coal prices and, as a result, materially and adversely affect our revenues and profitability.



There are a number of coal producers in
the United States for domestic sales. International demand for U.S. coal also affects the U.S. coal industry. The demand for U.S.
coal exports depends upon a number of factors outside our control, including the overall demand for electricity in foreign markets,
currency exchange rates, ocean freight rates, port and shipping capacity, the demand for foreign-priced steel, both in foreign
markets and in the U.S. market, general economic conditions in foreign countries, technological developments and environmental
and other governmental regulations. Foreign demand for U.S. coal has increased in recent periods. If foreign demand for U.S. coal
were to decline, this decline could cause competition among coal producers for the sale of coal in the United States to intensify,
potentially resulting in significant downward pressure on domestic coal prices.



In addition, during the mid-1970s and
early 1980s, increased demand for coal attracted new investors to the coal industry, spurred the development of new mines and
resulted in additional production capacity throughout the industry, all of which led to increased competition and lower coal prices.
Increases in coal prices over the past several years have encouraged the development of expanded capacity by coal producers and
may continue to do so. Any resulting overcapacity and increased production could materially reduce coal prices and therefore materially
reduce our revenues and profitability.



Because the demand and pricing for coal is greatly influenced
by consumption patterns of the domestic electricity generation industry and the worldwide steel industry, a reduction in the demand
for coal by these industries would likely cause our revenues and profitability to decline significantly.



Demand for our coal and the prices that
we will be able to obtain primarily will depend upon coal consumption patterns of the electric utility industry and the worldwide
steel industry. Consumption by the utility industry is affected by the demand for electricity, environmental and other governmental
regulations, technological developments and the price of competing coal and alternative fuel supplies including nuclear, natural
gas, oil and renewable energy sources, including hydroelectric power.  Demand by the electricity industry is impacted
by weather patterns, overall economic activity and the associated demand for power by industrial users. Demand by the steel industry
is primarily affected by economic growth and the demand for steel used in construction as well as appliances and automobiles.
Any downward pressure on coal prices could have a negative impact on our business, results of operation and financial condition.



Electric utility deregulation is expected
to provide incentives to generators of electricity to minimize their fuel costs and is believed to have caused electric generators
to be more aggressive in negotiating prices with coal suppliers.  To the extent utility deregulation causes our customers
to be more cost-sensitive, deregulation may have a negative effect on our profitability.



The use of alternative energy sources for power generation
could reduce coal consumption by U.S. electric power generators, which could result in lower prices for our coal, which could
negatively affect our business and results of operations.



The amount of coal consumed for U.S. electric
power generation is affected by, among other things:



| | · | the
                                                                                                                      location,
                                                                                                                      availability,
                                                                                                                      quality
                                                                                                                      and price
                                                                                                                      of alternative
                                                                                                                      energy sources
                                                                                                                      for power
                                                                                                                      generation,
                                                                                                                      such as
                                                                                                                      natural
                                                                                                                      gas, fuel
                                                                                                                      oil, nuclear,
                                                                                                                      hydroelectric,
                                                                                                                      wind, biomass
                                                                                                                      and solar
                                                                                                                      power; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | technological
                                                                                                                      developments,
                                                                                                                      including
                                                                                                                      those related
                                                                                                                      to alternative
                                                                                                                      energy sources.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gas-fueled generation has the potential
to displace coal-fueled generation, particularly from older, less efficient coal-powered generators. We expect that many of the
new power plants needed to meet increasing demand for electricity generation will be fueled by natural gas because gas-fired plants
are cheaper to construct and permits to construct these plants are easier to obtain as natural gas is seen as having a lower environmental
impact than coal-fueled generators. In addition, state and federal mandates for increased use of electricity from renewable energy
sources could have an impact on the market for our coal. Several states have enacted legislative mandates requiring electricity
suppliers to use renewable energy sources to generate a certain percentage of power. There have been numerous proposals to establish
a similar uniform, national standard although none of these proposals have been enacted to date. Possible advances in technologies
and incentives, such as tax credits, to enhance the economics of renewable energy sources could make these sources more competitive
with coal.



Any reduction in the amount of coal consumed
by domestic electric power generators could reduce the price of coal that we sell, thereby reducing our revenues and materially
and adversely affecting our business and results of operations.



37











Changes in the export and import markets for coal products
could affect the demand for our coal, our pricing and our profitability.



We compete in a worldwide market. The
pricing and demand for our coal is affected by a number of factors beyond our control. These factors include:



| | · | currency exchange rates;                             
| | - | -----------------------------------------------------
| | · | growth of economic development;                      
| | · | price of alternative sources of electricity or steel;
| | · | worldwide demand; and                                
| | · | ocean freight rates.                                 



Any decrease in the amount of coal exported
from the United States, or any increase in the amount of coal imported into the United States, could have a material adverse impact
on the demand for our coal, our pricing and our profitability.



The availability and reliability of transportation facilities
and fluctuations in transportation costs could affect the demand for our coal or impair our ability to supply coal to our customers.



We depend upon barge, ship, rail, truck
and belt transportation systems, as well as seaborne vessels and port facilities, to receive coal from our coal supplier and to
deliver coal to our customers. Disruptions in transportation services due to weather-related problems, mechanical difficulties,
strikes, lockouts, bottlenecks, and other events could impair our ability to supply coal to our customers. We do not have long-term
contracts with most of our transportation providers to ensure consistent and reliable service. Decreased performance levels over
longer periods of time could cause our customers to look to other sources for their coal needs. In addition, increases in transportation
costs, including the price of gasoline and diesel fuel, could make coal a less competitive source of energy when compared to alternative
fuels or could make coal produced in one region of the United States less competitive than coal produced in other regions of the
United States or abroad. If we experience disruptions in our transportation services or if transportation costs increase significantly
and we are unable to find alternative transportation providers, our coal supply and delivery may be disrupted, and our profitability
could decrease significantly.



Our profitability depends upon the coal supply agreements
we have with our customers. Changes in purchasing patterns in the coal industry could make it difficult for us to extend our existing
coal supply agreements or to enter into new agreements in the future.



We intend to sell a portion of our coal
under longer-term coal supply agreements with terms greater than one year. We anticipate that such agreements may include terms
that fix the prices of coal shipped during the initial year with adjustment provisions for the prices for later years. As a result,
at any given time the market prices for similar-quality coal may exceed the prices for coal shipped under these arrangements.
If we enter into such arrangements, changes in the coal industry may cause some of our customers not to renew or extend such long-term
agreements or enter into new long-term coal supply agreements with us or to enter into agreements to purchase fewer tons of coal
than in the past or on different terms or prices. In addition, uncertainty caused by federal and state regulations, including
the Clean Air Act, could deter our customers from entering into long-term coal supply agreements.



If we sell a portion of our coal production
under long-term coal supply agreements, our ability to capitalize on more favorable market prices may be limited. Conversely,
at any given time we are subject to fluctuations in market prices for the quantities of coal that we have produced but which we
have not committed to sell. As described above in the risk factor titled "Coal prices are subject to change and a substantial
or extended decline in coal prices could negatively affect our business, results of operations and financial position," the
market prices for coal may be volatile and may depend upon factors beyond our control. Our profitability may be adversely affected
if we are unable to sell any of the coal we have sourced under our supply arrangements at favorable prices or at all.



Extensive environmental regulations, including existing
and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal
as a fuel source and cause coal prices and sales of our coal to materially decline.



Coal contains impurities, including but
not limited to sulfur, mercury, chlorine, carbon and other elements or compounds, many of which are released into the air when
coal is burned. The operations of our customers are subject to extensive environmental regulation particularly with respect to
air emissions. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur
dioxide, particulate matter, nitrogen oxides, and other compounds emitted into the air from electric power plants. A series of
more stringent requirements relating to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air
pollutants are expected to be proposed or become effective in coming years. In addition, concerted conservation efforts that result
in reduced electricity consumption could cause coal prices and sales of our coal to materially decline.



38







Considerable uncertainty is associated
with these air emissions initiatives. The content of regulatory requirements in the United States is in the process of being developed,
and many new regulatory initiatives remain subject to review by federal or state agencies or the courts. Stringent air emissions
limitations are either in place or are likely to be imposed in the short to medium term, and these limitations will likely require
significant emissions control expenditures for many coal-fueled power plants and other traditional users of coal. As a result,
these power plants and other users of coal may switch to other fuels that generate fewer of these emissions or may install more
effective pollution control equipment that reduces the need for low sulfur coal, possibly reducing future demand for coal and
a reduced need to construct new coal-fueled power plants and other facilities that use coal. The EIA's expectations for the coal
industry assume there will be a significant number of as yet unplanned coal-fired plants built in the future which may not occur.
Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could
have a material adverse effect on demand for and prices received for our coal.



Regulation of greenhouse gas emissions as well as uncertainty
concerning such regulation could adversely impact the market for coal and the regulation of greenhouse gas emissions may increase
our operating costs and negatively affect us.



While climate change legislation in the
U.S. is unlikely in the next several years, the issue of global climate change continues to attract considerable public and scientific
attention with widespread concern about the impacts of human activity, especially the emissions of greenhouse gases (GHGs), such
as carbon dioxide and methane. Combustion of fossil fuels, such as the coal and gas we produce, results in the creation of carbon
dioxide emissions into the atmosphere by coal and gas end users, such as coal-fired electric power generation plants. Numerous
proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government
that are intended to limit emissions of GHGs. Several states have already adopted measures requiring reduction of GHGs within
state boundaries. Internationally, the Kyoto Protocol, which set binding emission targets for developed countries (including the
United States but has not been ratified by the United States) expires in 2012. Regulation of GHGs could occur in the United States
pursuant to the Environmental Protection Agency (EPA) regulation under the Clean Air Act. On December 23, 2010 the EPA announced
that it will propose standards for GHG emissions for gas, oil and coal fired power plants in July 2011 and issue final standards
in May 2012. These proposed standards were published in March 2012. Apart from governmental regulation, on February 4, 2008,
three of Wall Street's largest investment banks announced that they had adopted climate change guidelines for lenders. The guidelines
require the evaluation of carbon risks in the financing of electric power generation plants which may make it more difficult for
utilities to obtain financing for coal-fired plants.



If comprehensive regulation focusing on
GHGs emission reductions is adopted for the United States by the EPA or in other countries where we sell coal, or if utilities
were to have difficulty obtaining financing in connection with coal-fired plants, it may make it more costly to operate fossil
fuel fired (especially coal-fired) electric power generation plants and make fossil fuels less attractive for electric utility
power plants in the future. Depending on the nature of the regulation or legislation, power generation through natural gas or
other means could become more economically attractive than coal-fueled power generation. Apart from actual regulation, uncertainty
over the regulation of GHG emissions may inhibit utilities from investing in the building of new coal-fired plants to replace
older plants or investing in the upgrading of existing coal-fired plants. Any reduction in the amount of coal or possibly natural
gas consumed by domestic electric power generators as a result of actual or potential regulation of greenhouse gas emissions could
decrease demand for our fossil fuels, thereby reducing our revenues and materially and adversely affecting our business and results
of operations. Our customers may also have to invest in carbon dioxide capture and storage technologies in order to burn coal
or natural gas and comply with future GHG emission standards.



Risks
Relating to Our Common Shares



Our restructuring efforts to strengthen our financial
position and reduce our debt may adversely affect our common shareholders through dilution or complete loss in value.



We may effect various transactions to
restructure our capital structure and reduce our debt service obligations, which may include additional issuances of equity securities
in exchange for our indebtedness. In addition, as part of the restructuring, certain of our indebtedness may continue to remain
outstanding, and the agreements relating to such indebtedness will contain various restrictive covenants. Any debt that remains
outstanding or we may incur as part of the restructuring will remain senior in right of payment over our common shares.



In connection with our restructuring efforts,
we have issued an aggregate of 8,648,087 common shares from January 1, 2012 until May 15, 2012, and we anticipate issuing more
shares if we finalize the restructuring under the terms being discussed. The issuance of additional shares of our common stock
may be dilutive to our stockholders, including holders who received common shares in any restructuring.



39







We cannot predict the extent to which
this dilution and the possibility of additional issuances and sales of our common shares will negatively affect the trading price
or the liquidity of our common shares. In addition, there is a possibility that any of our restructuring efforts may result in
holders of our common shares receiving no value for their holdings and the holders of our existing debt receiving a significant
portion or all the equity interest in the Company.



There
may not be an active market for our common shares, which may cause our common shares to trade at a discount and make it difficult
to sell the common shares you purchase.



We
cannot assure you that an active trading market for our common shares will be sustained. We cannot assure you of the price at
which our common shares will trade in the public market in the future or that the price of our shares in the public market will
reflect our actual financial performance. You may not be able to resell your common shares at or above their current market price.
Additionally, a lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price
of our common shares and limit the number of investors who are able to buy the common shares. The product tanker markets have
been highly unpredictable and volatile. The market price of our common shares may be similarly volatile.



Michail
S. Zolotas, our Chief Executive Officer, President and Deputy Chairman, beneficially owns approximately 56.4% of our outstanding
common shares and, as a result, he is able to influence the outcome of shareholder votes.



As
of May 15, 2012, Michail S. Zolotas, our Chief Executive Officer, President and Deputy Chairman, beneficially owns approximately 56.4%
of our outstanding common shares through his ownership of common shares directly and indirectly through Grandunion and
other entities affiliated with Mr. Zolotas, and his beneficial ownership of the common shares underlying the 7% senior unsecured
convertible notes (the "7% Notes").For so long as Mr.Zolotas
beneficially owns a significant percentage of our outstanding common shares, he will be able to control or influence the outcome
of any shareholder vote, including the election of directors, the adoption or amendment of provisions in our memorandum of association
or bye-laws and possible recapitalizations, amalgamations, corporate control contests and other significant corporate transactions.
This concentration of beneficial ownership may have the effect of delaying, deferring or preventing a change in control, recapitalization,
amalgamation, consolidation, takeover or other business combination. This concentration of beneficial ownership could also discourage
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn have an adverse
effect on the market price of our common shares. In addition, this concentration of beneficial ownership has had, and may continue
to have, an adverse effect on the liquidity of our common shares.



Anti-takeover
provisions in our constitutional documents and in our loan/financing agreements could have the effect of discouraging, delaying
or preventing a recapitalization, amalgamation or acquisition or other business combination, which could adversely affect the
market price of our common shares.



Several
provisions of our bye-laws and the loan/financing agreements to which we are party could discourage, delay or prevent a recapitalization
or acquisition that shareholders may consider favorable. These include provisions:



| | • | authorizing our board of directors to issue "blank
    check" preference shares without shareholder approval;                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                         
| | • | establishing a classified board of directors with staggered,
    three-year terms;                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                         
| | • | prohibiting us from engaging in a "business combination"
    with an "interested shareholder" for a period of three years after the date of the transaction in which the person
    becomes an interested shareholder unless certain conditions are met;
| |   |                                                                                                                                                                                                                                                         
| | • | not permitting cumulative voting in the election of directors;                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                         
| | • | authorizing the removal of directors only for cause and only
    upon the affirmative vote of the holders of at least 80% of our outstanding common shares;                                                                                             



40







| | • | limiting the persons who may call special meetings
    of shareholders to our board of directors, subject to certain rights guaranteed to shareholders under the BCA;                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | requiring Grandunion, or Nicholas Fistes and Michail Zolotas,
    to maintain directly or indirectly, legal and beneficial ownership of not less than 10% of the issued and outstanding share
    capital of the Company (whereas in two loan agreements the requirement is for Michail Zolotas and Nicholas Fistes to maintain,
    directly or indirectly, legal and beneficial ownership of not less than 33.3% of the issued and outstanding share capital
    of the Company);
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | requiring Nicholas Fistes and Michail Zolotas to be at any given
    time the beneficial owners of at least 50.1% of the voting share capital of Grandunion;                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | requiring Nicholas Fistes and Michail Zolotas to remain at any
    given time the Chairman, and the President and Chief Executive Officer of the Company, respectively; and                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | establishing advance notice requirements for nominations for
    election to our board of directors and for proposing matters that can be acted on by shareholders at our shareholder meetings.                                                                                                                                                                                                                                                                                    



These
provisions could have the effect of discouraging, delaying or preventing a recapitalization, amalgamation or acquisition, which
could adversely affect the market price of our common shares.



Our
board of directors has determined to suspend the payment of cash dividends in order to preserve capital and to allow management
to focus on improving our operating results, and until conditions improve in the international shipping industry and credit markets,
management will continue to evaluate whether to reinstate the payment of dividends.



On
September 12, 2008, our board of directors determined to immediately suspend payment of our quarterly dividend. The decision
followed our management's strategic review of our business and reflected our focus on improving our long-term strength and operational
results. We will make dividend payments to our shareholders only if our board of directors, acting in its sole discretion, determines
that such payments would be in our best interest and in compliance with relevant legal and contractual requirements. The principal
business factors that our board of directors expects to consider when determining the timing and amount of dividend payments will
be our earnings, financial condition and cash requirements at the time. Currently, the principal contractual and legal restrictions
on our ability to make dividend payments are those contained in various credit facilities and those required by Bermuda law.



Our debt agreements
contain covenants that limit our ability to pay dividends. For example, our credit facility with Marfin Egnatia Bank S.A. prohibits
us from paying dividends without our lender’s consent. Our facility
agreements further require us to maintain financial ratios and minimum liquidity and working capital amounts.



Under
Bermuda law, we may not declare or pay dividends if there are reasonable grounds for believing that (1) we are, or would
after the payment be, unable to pay our liabilities as they become due or (2) the realizable value of our assets would thereby
be less than the sum of our liabilities, our issued share capital (the total par value of all outstanding shares) and share premium
accounts (the aggregate amount paid for the subscription for our shares in excess of the aggregate par value of such shares).
Consequently, events beyond our control, such as a reduction in the realizable value of our assets, could cause us to be unable
to make dividend payments.



We
may incur other expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends in the
future. We may also enter into new agreements or new legal provisions may be adopted that will restrict our ability to pay dividends
in the future. As a result, we cannot assure you that we will be able to reinstate the payment of dividends.



|Item 4. | Information on the Company
|------- | --------------------------





|A. | History
    and Development of the Company
|-- | ------------------------------------------



The
legal and commercial name of the Company is NewLead Holdings Ltd., a company incorporated under the Bermuda Companies Act of 1981
on January 12, 2005. NewLead's principal place of business is 83 Akti Miaouli & Flessa Street, Piraeus Greece 185
38 and its telephone number is (30) 213-014-8600.



41







Historically,
NewLead has been an international shipping company engaged in the transportation of refined products, such as gasoline and jet
fuel, and dry bulk goods, such as iron ore, coal and grain. We currently operate a fleet of two double-hulled product tankers
(which are being negotiated for sale with our lenders) and three drybulk carriers (including one newbuilding for which we are
currently in negotiations with the yard and the lender for its disposal) with a combined carrying capacity of approximately 0.39
million dwt. We seek to provide our customers with safe, reliable and environmentally sound seaborne transportation services that
meet stringent internal and external standards while endeavoring to capitalize on the dynamics of the shipping industry.



Since
July 1, 2011, we have been engaged in restructuring discussions with our lenders to finalize the satisfaction and release of our
obligations under certain of our debt agreements and the amendment of the terms of certain other debt agreements. During
2011 and through May 15, 2012, we have sold, disposed of or handed control over to our lenders a total of 17 of our vessels and
hulls under construction (or our ownership of the shipowning subsidiaries) in connection with our restructuring.As a result,
as of May 15, 2012, we currently have two double-hulled product tankers and
three dry bulk carriers, including one newbuilding.



As of May 15,
2012, we remain in advanced negotiations with the remaining lenders of our secured debt. In addition we will issue common shares
to certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.See “Item 3. Key Information—Recent Developments.”





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



We will continue
to have a high degree of indebtedness after the completion of our ongoing restructuring.



We
have also entered into a joint venture for the purchase and trading of coal. See “Item 3. Key Information—Recent Developments.”



2009
Recapitalization



On
October 13, 2009, we completed an approximately $400.0 million recapitalization, which resulted in Grandunion acquiring
control of the Company. Pursuant to the Stock Purchase Agreement entered into on September 16, 2009, Grandunion, a company
controlled by Michail S. Zolotas and Nicholas G. Fistes, acquired 1,581,483 newly issued common shares of the Company in exchange
for three dry bulk carriers. Of such shares, 222,223 were transferred to Rocket Marine, a company controlled by two former directors
and principal shareholders in the Company, in exchange for Rocket Marine and its affiliates entering into a voting agreement with
Grandunion.



42







The voting agreement
between Rocket Marine Inc. and Grandunion was terminated effective as of February 29, 2012. As a result, these shares of
Rocket Marine Inc. are no longer included in the beneficial ownership of any of Mr. Zolotas, Mr. Fistes or Grandunion.
In connection with the recapitalization, the Company issued $145.0 million in aggregate
principal amount of 7% Notes. The 7% Notes are convertible into common shares at a conversion price of $9.00 per share,
subject to adjustment for certain events, including certain distributions by the Company of cash, debt and other assets, spin
offs and other events. In November 2009, Focus Maritime Corp., a company controlled by Mr. Zolotas, the Company's Deputy
Chairman, President and Chief Executive Officer, converted $20.0 million of the 7% Notes into approximately 2.2 million
new common shares. As a result, in the aggregate, $125.0 million of the 7% Notes remain outstanding (carrying value
of $53.4 million, net of unamortized BCF). Upon the successful completion of the recapitalization and the appointment of new management,
we subsequently changed our name to NewLead Holdings Ltd.



Name
Change and Amended Bye-Laws



NewLead
Holdings Ltd. was incorporated on January 12, 2005 under the name "Aries Maritime Transport Limited" and, on December 21,
2009, upon the receipt of shareholder approval, the Company changed its name to NewLead Holdings Ltd. at which time the Company
changed its trading symbol on the NASDAQ Stock Market to "NEWL." In addition, upon the receipt of shareholder approval
at the same special general meeting, the Company adopted a change to its bye-laws to permit written resolutions to be approved
by a majority of the shareholders rather than unanimously.



B.
Business Overview



FLEET



As
discussed in more detail elsewhere in this annual report, we are currently undergoing a restructuring of our indebtedness and,
as part of such restructuring, we have sold, and expect to continue to sell, vessels as part of the arrangements with our lenders
to reduce and discharge our obligations. During 2011 and through May 15, 2012, we have sold, disposed of or handed control over
to our lenders a total of 17 of our vessels and hulls under construction (or our ownership of the shipowning subsidiaries) in
connection with our restructuring. We anticipate that we will sell or surrender to our lenders approximately three additional
vessels, including one newbuilding. We have long-established charter and pool operator relationships which we believe are
well regarded within the international shipping community. Our management’s assessment of a charterer’s and pool operator’s
financial condition and reliability is an important factor in negotiating employment of our vessels. The Company has established
stringent requirements for selecting qualified charterers and pool operators that are being practiced and adhered to.



The
fleet of five vessels consists of three dry bulk carriers (including the one dry bulk newbuilding for which we are currently in
negotiations with the yard and the lenders for its disposal) totaling 0.32 million dwt and two double-hull product tankers
totaling 0.07 million dwt also in negotiations for sale. The total dwt for the fleet is 0.39 million. Of the fleet,
the four vessels currently in operation have an average age of 12.33 years. As of December 31, 2011, we had contracted 68%,
41% and 23% of our available days on a charter-out-basis for 2012, 2013 and 2014, respectively. As a result, as of such date,
we had $39.8 million of total contracted revenue through 2014. The employment profile of the fleet as of May 15, 2012 is reflected
in the table below:



|Vessel Name            |  | Size (dwt) |        |  | Vessel Type |          | Year Built |  |      | Charter Expiration |  |  |                                                                                                                                                                                                                     |  | Net Daily Charter Hire Rate |     |  | 
|---------------------- |  | ---------- | ------ |  | ----------- | -------- | ---------- |  | ---- | ------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --- |  | 
|Product Tanker Vessels |  |            |        |  |             |          |            |  |      |                    |  |  |                                                                                                                                                                                                                     |  |                             |     |  | 
|Hiotissa               |  |            | 37,329 |  |             | Handymax |            |  | 2004 |                    |  |  | -                                                                                                                                                                                                                   |  |                             | (1) |  | 
|Hiona                  |  |            | 37,337 |  |             | Handymax |            |  | 2003 |                    |  |  | -                                                                                                                                                                                                                   |  |                             | (1) |  | 
|                       |  |            |        |  |             |          |            |  |      |                    |  |  |                                                                                                                                                                                                                     |  |                             |     |  | 
|Dry bulk Vessels       |  |            |        |  |             |          |            |  |      |                    |  |  |                                                                                                                                                                                                                     |  |                             |     |  | 
|Newlead Victoria       |  |            | 75,966 |  |             | Panamax  |            |  | 2002 |                    |  |  | min:
                                                                                         July 2012
                                                                                         max: October 2012  |  |                             |     |  | 
|Newlead Markela        |  |            | 71,733 |  |             | Panamax  |            |  | 1990 |                    |  |  | min:
                                                                                         February 2013
                                                                                         max: June 2013 |  |                             |     |  | 



43







|Newbuildings |  |  | Size (dwt) |  | Vessel
    Type |  | Expected
    Delivery Date |  | Charter term |                                                                                                                               |  | Charter Rate
    (daily, net) |                                 |  |    
|------------ |  |  | ---------- |  | --------------- |  | -------------------------- |  | ------------ | ----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------------------------------- |  | ---
|Newlead TBN  |  |  | 35,000     |  | Handysize       |  | Q3 2012                    |  |              | Twelve
                                                                                                    years +/- 4 months |  |                               | $12,000 plus 40% profit sharing |  | (3)



| | (1) | The Hiotissa and
                                                                                                         the Hiona entered the
                                                                                                         Handymax Tanker Pool
                                                                                                         of Scorpio Management
                                                                                                         in April 2011 and in
                                                                                                         July 2011, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The vessel owner has the right to an earlier redelivery
                                                                       of the vessel, at any time within the charter duration,
                                                                       subject to the vessel owner tendering three months’
                                                                       advance notice to the charterers.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Base rate is $12,000 per
                                                                       day. Above a rate of $14,000 per day, profit sharing is
                                                                       40% based on open book accounting on actual earnings. Charterers
                                                                       have a 50% purchase option.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fleet
Management





On
April 1, 2010, we completed the acquisition of six vessels (four dry bulk vessels and two product tankers) and Newlead Shipping
and its subsidiaries, an integrated technical and commercial management company, pursuant to the terms of the Purchase Agreement.
Newlead Shipping and certain of its subsidiaries provide technical and commercial management services to our product tanker vessels.
Newlead Bulkers, which is a subsidiary of Newlead Shipping that was acquired as part of this transaction, provides technical and
commercial management services to our dry bulk vessels. As of December 31, 2011 and May15, 2012, the commercial and technical
management services of all of our owned and operated vessels are managed in-house.



At
December 31, 2009, the vessel-owning companies of the vessels Newlead Avra (formerly Altius), Newlead Fortune (formerly Fortius),
High Land, High Rider and Ostria had technical ship management agreements with International Tanker Management Limited (“
ITM”). The agreed annual management fees were approximately $0.165 million per vessel for both 2010 and 2009. During the
year ended December 31, 2010, the vessel owning companies of Newlead Avra and Newlead Fortune terminated their ship management
agreements with ITM. Accordingly, the vessel owning companies of the vessels have signed agreements for the provision of both
technical and commercial ship management services with Newlead Shipping, a company which was controlled by Grandunion and currently
is NewLead's subsidiary. The agreed annual management fees were approximately $0.20 million per vessel, and were in effect
until Newlead Shipping became a subsidiary of Newlead.



The
Chinook had a technical ship management agreement with Ernst Jacob, which was terminated upon the sale of the vessel on April 15,
2010. In January 2010, the vessel owning company of the Nordanvind also signed a technical ship management agreement with Ernst
Jacob, which was terminated upon the sale of the vessel on September 7, 2010. The annual management fees per vessel for 2010
and 2009 were approximately €153,000 and €150,000, respectively (equal to approximately $0.2 million per vessel).



At
December 31, 2009, the Australia had a commercial and technical ship management agreement with Stamford Navigation Inc.,
or Stamford, and the China and the Brazil each had a commercial and technical ship management agreement with Newfront Shipping
S.A., or Newfront. During the first quarter of 2010, these agreements were terminated. Accordingly, the vessel owning companies
signed agreements for the provision of commercial and technical ship management services with Newlead Bulkers S.A., or Newlead
Bulkers, a company which was controlled by Grandunion and currently is NewLead's subsidiary. The annual management fee under each
of the agreements was approximately $0.19 million per vessel; however, all payments to Newlead Bulkers have been eliminated
since the date on which Newlead Bulkers became a subsidiary of Newlead.



Magnus
Carriers Corporation, or Magnus Carriers, a company owned by two of our former officers and directors, provided the ship-owning
companies of the Newlead Avra, the Newlead Fortune, the High Land, the High Rider, the Ostria and the Chinook with non-exclusive
commercial management services in accordance with commercial management agreements that were cancelled by us effective May 1,
2009.



Crewing
and Employees



As
of December 31, 2011, all of our employees (except for our Chairman, our CEO and our CFO who are employed by NewLead Holdings
Ltd.) were employed by our wholly-owned subsidiaries, Newlead Shipping and Newlead Bulkers, which employed 43 persons and
32 persons, respectively, all of whom are shore-based. We employ an average of 23 crew members per vessel owned.



44







Our
technical managers ensure that all seamen have the qualifications and licenses required to comply with international regulations
and shipping conventions and that our vessels employ experienced and competent personnel. All of the employees of our managers
are subject to a general collective bargaining agreement covering employees of shipping agents. These agreements set industry-wide
minimum standards.



Inspection
by a Classification Society



Our
vessels have been certified as being "in class" by Bureau Veritas , or Det Norske Veritas, each of which is a member
of the International Association of Classification Societies. Every commercial vessel's hull and machinery is evaluated by a classification
society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained
in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's
country of registry and the international conventions of which that country is a member. Each vessel is inspected by a surveyor
of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every
two to three years for intermediate surveys and every four to five years for special surveys. Should any defects be found, the
classification surveyor will issue a "recommendation" for appropriate repairs, which have to be made by the shipowner
within the time limit prescribed. Vessels may be required, as part of the annual and intermediate survey process, to be dry-docked
for inspection of the underwater portions of the vessel and for necessary repair stemming from the inspection. Special surveys
always require dry-docking. Our fleet is currently enrolled with Bureau Veritas and Det Norske Veritas.



Competition



We
operate in shipping markets that are diversified, highly competitive and highly fragmented. Our business fluctuates in line with
the main patterns of trade of the major dry bulk cargoes and varies according to changes in the supply and demand for these items.
We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation
as an operator. We typically arrange our charters in the period market through the use of brokers, who negotiate the terms of
the charters based on market conditions. We compete primarily with owners of dry bulk ships and owners of product tankers in the
Aframax, Panamax and Handymax class sizes. The dry bulk shipping markets are divided among approximately 1,400 independent dry
bulk carrier owners. The world's active dry bulk fleet consists of approximately 7,000 vessels, aggregating approximately
460 million dwt. To the extent we seek to charter out our vessels, it is likely that we will face substantial competition
for long term charter business from a number of experienced companies. Many of these competitors will have significantly greater
financial resources than we do. It is also likely that we will face increased numbers of competitors entering into our transportation
sectors, including in the dry bulk sector. Many of these competitors have strong reputations and extensive resources and experience.
Increased competition may cause greater price competition, especially for long term charters.



Environmental
and Other Regulations



Government
regulation significantly affects the ownership and operation of our fleet. We are subject to various international conventions,
laws and regulations in force in the countries in which our vessels may operate or are registered. Compliance with such laws,
regulations and other requirements can entail significant expense, including vessel modification and implementation of certain
operating procedures. Noncompliance with such regulations and requirements could result in the imposition of substantial penalties
or require us to incur substantial costs or temporarily suspend operations of one or more of the vessels in our fleet.



A
variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities
include the local port authorities (applicable national authorities, such as the U.S. Coast Guard and harbor masters), classification
societies, flag state administration (country of registry) and charterers, particularly terminal operators, and oil companies.
Some of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our
fleet. Our failure to maintain necessary permits or approvals could result in imposition of substantial penalties or require us
to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet.



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



45







International
Maritime Organization



The
IMO has negotiated a number of international conventions concerned with preventing, reducing or controlling pollution from ships.
These fall into two main categories, consisting firstly of those concerned generally with ship safety standards, and secondly
of those specifically concerned with measures to prevent pollution. The primary IMO regulations are discussed below.



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



Vessel
Construction and Safety Requirements



The
IMO has adopted MARPOL, which implements standards for the control, minimization or elimination of accidental, deliberate, or
negligent discharge of oil, garbage, noxious liquids, harmful substances in packaged forms, sewage and air emissions.MARPOL
contains regulations for the prevention of pollution by oil (Annex I), by noxious liquid substances in bulk (Annex II), by harmful
substances in packaged forms within the scope of the International Maritime Dangerous Goods Code (Annex III), by sewage (Annex
IV), by garbage (Annex V), and by air emissions (Annex VI).These regulations,
which have been implemented in many jurisdictions in which our vessels operate, provide, in part, that:



| | • | 25-year-old tankers must be of double-hull construction
    or of a mid-deck design with double-sided construction, unless:
| | - | ---------------------------------------------------------------------------------------------------------------------------

(1) they
have wing tanks or double-bottom spaces not used for the carriage of oil which cover at least 30% of the length of the cargo tank
section of the hull or bottom; or

(2) they
are capable of hydrostatically balanced loading (loading less cargo into a tanker so that in the event of a breach of the hull,
water flows into the tanker, displacing oil upwards instead of into the sea);



| | • | 30-year-old tankers must be of double-hull construction
    or mid-deck design with double-sided construction; and
| | - | ------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                   
| | • | all tankers will be subject to enhanced inspections.                                                              



Also,
under IMO regulations, a newbuild tanker of 5,000 dwt and above must be of double-hull construction or a mid-deck design with
double-sided construction or be of another approved design ensuring the same level of protection against oil pollution if the
tanker:



| | • | is the subject of a contract for a major conversion
    or original construction on or after July 6, 1993;
| | - | ----------------------------------------------------------------------------------------------------------
| |   |                                                                                                           
| | • | commences a major conversion or has its keel laid on or after
    January 6, 1994; or                     
| |   |                                                                                                           
| | • | completes a major conversion or is a newbuilding delivered on
    or after July 6, 1996.                  



Effective
September 2002, the IMO accelerated its existing timetable for the phase-out of single-hull oil tankers. At the time, these regulations
required the phase-out of most single-hull oil tankers by 2015 or earlier, depending on the age of the tanker and whether it has
segregated ballast tanks. Under the regulations, the flag state may allow for some newer single-hull ships registered in its country
that conform to certain technical specifications to continue operating until the 25th anniversary of their delivery. Any
port state, however, may deny entry of those single-hull tankers that are allowed to operate until their 25th anniversary
to ports or offshore terminals.



However,
as a result of the oil spill in November 2002 relating to the loss of the MT Prestige, which was owned by a company not affiliated
with us, in December 2003, the Marine Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to the MARPOL
Convention, which became effective in April 2005. The amendment revised an existing Regulation 13G accelerating the phase-out
of single-hull oil tankers and adopted a new Regulation 13H on the prevention of oil pollution from oil tankers when carrying
heavy grade oil.



46







Under
the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond their phase-out
date in accordance with the above schedule. Under Regulation 13G, the flag state may allow for some newer single-hull oil
tankers registered in its country that conform to certain technical specifications to continue operating until the earlier of
the anniversary of the date of delivery of the vessel in 2015 or the 25th anniversary of their delivery. Under Regulations
13G and 13H, as described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may be allowed
by the flag state to continue operations until their 25th anniversary of delivery. Any port state, however, may deny entry
of those single-hull oil tankers that are allowed to operate under any of the flag state exemptions.



In
October 2004, the MEPC adopted a unified interpretation of Regulation 13G that clarified the delivery date for converted
tankers. Under the interpretation, where an oil tanker has undergone a major conversion that has resulted in the replacement of
the fore-body, including the entire cargo carrying section, the major conversion completion date shall be deemed to be the date
of delivery of the ship, provided that:



| | • | the oil tanker conversion was completed before July 6,
    1996;                                                                                                                                                                             
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                              
| | • | the conversion included the replacement of the entire cargo
    section and fore-body and the tanker complies with all the relevant provisions of the MARPOL Convention applicable at the
    date of completion of the major conversion; and
| |   |                                                                                                                                                                                                                                              
| | • | the original delivery date of the oil tanker will apply when
    considering the 15 years of age threshold relating to the first technical specifications survey to be completed in accordance
    with the MARPOL Convention.               



In
December 2003, the MEPC adopted a new Regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy
grade oil, or HGO, which includes most grades of marine fuel. The new regulation bans the carriage of HGO in single-hull oil tankers
of 5,000 dwt and above after April 5, 2005, and in single-hull oil tankers of 600 dwt and above but less than 5,000 dwt,
no later than the anniversary of their delivery in 2008.



Under
Regulation 13H, HGO means any of the following:



| | • | crude oils having a density at 15 ̊C higher
    than 900 kg/m3;                                                                
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                               
| | • | fuel oils having either a density at 15 ̊C higher than 900
    kg/m3 or a kinematic viscosity at 50 ̊C higher than 180 mm2/s; or
| |   |                                                                                                                               
| | • | bitumen, tar and their emulsions.                                                                                             



Under
Regulation 13H, the flag state may allow continued operation of oil tankers of 5,000 dwt and above, carrying crude oil with
a density at 15 ̊C higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain technical specifications and if,
in the opinion of the flag state, the ship is fit to continue such operation, having regard to the size, age, operational area
and structural conditions of the ship, provided that the continued operation shall not go beyond the date that is 25 years
after the date of its delivery. The flag state may also allow continued operation of a single-hull oil tanker of 600 dwt and above
but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of the flag state, the ship is fit to continue such operation,
having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not
go beyond the date that is 25 years after the date of its delivery.



The
flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively
within an area under its jurisdiction, or is engaged in voyages exclusively within an area under the jurisdiction of another party,
provided the party within whose jurisdiction the ship will be operating agrees. The same applies to vessels operating as floating
storage units of HGO.



Any
port state, however, can deny entry of single-hull tankers carrying HGO that have been allowed to continue operation under the
exemptions mentioned above, into the ports or offshore terminals under its jurisdiction, or deny ship-to-ship transfer of HGO
in areas under its jurisdiction except when this is necessary for the purpose of securing the safety of a ship or saving life
at sea.



Revised
Annex I to the MARPOL Convention entered into force in January 2007. Revised Annex I incorporates various amendments
adopted since the MARPOL Convention entered into force in 1983, including the amendments to Regulation 13G (Regulation 20
in the revised Annex I) and Regulation 13H (regulation 21 in the revised Annex I). Revised Annex I
also imposes construction requirements for oil tankers delivered on or after January 1, 2010. A further amendment to revised
Annex I includes an amendment to the definition of HGO that will broaden the scope of Regulation 21. On August 1,
2007, regulation 12A (an amendment to Annex I) came into force requiring oil fuel tanks to be located inside the
double hull in all ships with an aggregate oil fuel capacity of 600 m 3 and above, which are delivered on or after August 1,
2010, including ships for which the building contract is entered into on or after August 1, 2007 or, in the absence of a
contract, for which the keel is laid on or after February 1, 2008.



47







All
of the tankers in our fleet are double-hulled. The phasing out of single-hull tankers in accordance with the MARPOL Convention
and its amendments is expected to decrease tanker supply, which may help to prevent further decline in charter rates in the product
tanker market.



Ballast
Water Requirements



The
IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention,
in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange
requirements (beginning in 2009), to be replaced in time with mandatory concentration limits. The BWM Convention will not enter
into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not
less than 35% of the gross tonnage of the world's merchant shipping. To date, there has not been sufficient adoption of this standard
by governments that are members of the convention for it to take force.As of February 29, 2012, the Convention has
been ratified by 33 states representing 26.5% of the global merchant shipping fleet’s tonnage, and its entry into force
with attendant compliance costs may therefore be anticipated in the foreseeable future.



Air
Emissions



In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to address air pollution from ships. Effective in May 2005,
Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits deliberate
emissions of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel
oil. We believe that all our vessels are currently compliant in all material respects with these existing regulations. Additional
or new conventions, laws and regulations may be also adopted that could require the installation of expensive emission control
systems. Such future emission control requirements could adversely affect our business, cash flows, results of operations and
financial condition.



In
October 2008, the IMO adopted amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emission
standards that entered into force on July 1, 2010. The amended Annex VI aims to reduce air pollution from vessels by,
among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships, with the global sulfur
cap reduced initially to 3.5% (from the current cap of 4.5%), effective from January 1, 2012, then progressively reduced
to 0.50%, effective from January 1, 2020, subject to a feasibility review to be completed no later than 2018; and (ii) establishing
new tiers of stringent nitrogen oxide emissions standards for marine engines, depending on their date of installation. We incurred
significant costs to comply with these revised standards.



The
revised Annex VI also allows for designation, in response to proposals from member parties, of Emission Control Areas (ECAs) that
impose accelerated and/or more stringent requirements for control of sulfur oxide, particulate matter, and nitrogen oxide emissions.
Such ECAs have been formally adopted for the Baltic Sea, the North Sea including the English Channel. It is expected that
waters off the North American coast will be established as an ECA, where NOx, SOx and particulate matter emissions will be regulated,
from August 1, 2012, and the United States Caribbean Sea ECA will come into force on January 1, 2013, with an effective
date of January 1, 2014. For the currently-designated ECAs, much lower sulfur limits
on fuel oil content are being phased in (1% in July 2010 for the Baltic and North Sea ECAs and beginning
in 2012 for the North American ECA; and 0.1% in these ECAs beginning in 2015), as well as nitrogen oxide after treatment requirements
that will become applicable in 2016. These more stringent fuel standards, when fully in effect, are expected to require measures
such as fuel switching, vessel modification adding distillate fuel storage capacity, or addition of exhaust gas cleaning scrubbers,
to achieve compliance, and may require installation and operation of further control equipment at significant increased cost.



Safety
Requirements



The
IMO has also adopted the International Convention for the Safety of Life at Sea, or SOLAS Convention, and the International Convention
on Load Lines, 1966, or LL Convention, which impose a variety of standards to regulate design and operational features of ships.
SOLAS Convention and LL Convention standards are revised periodically. We believe that all our vessels are in substantial compliance
with SOLAS Convention and LL Convention standards.



Under
Chapter IX of SOLAS, the requirements contained in the International Safety Management Code for the Safe Operation of Ships
and for Pollution Prevention, or ISM Code, promulgated by the IMO, the party with operational control of a vessel is required
to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding
to emergencies. In 1998, the ISM Code became mandatory with the adoption of Chapter IX of SOLAS. We intend to rely upon the
safety management systems that our ship management companies, Newlead Shipping and Newlead Bulkers, have developed.



48







The
ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate
evidences compliance by a vessel's management with ISM Code requirements for a safety management system. No vessel can obtain
a safety management certificate unless its operator has been awarded a document of compliance, issued by each flag state, under
the ISM Code. Our ship management companies, Newlead Shipping and Newlead Bulkers, have obtained documents of compliance for their
offices and safety management certificates for the vessels in our fleet for which such certificates are required by the IMO. These
documents of compliance and safety management certificates are renewed as required.



Non-compliance
with the ISM Code and other IMOregulations, such as the mandatory ship energy efficiency management plan (“SEEMP”)
which is akin to a safety management plan and comes into effect on January 1, 2013, may
subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for
affected vessels and may result in the denial of access to, or detention in, some ports. For example, the U.S. Coast Guard
and European Union (EU) authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading
in U.S. and EU ports.



Another
amendment of SOLAS, made after the terrorist attacks in the United States on September 11, 2001, introduced special measures
to enhance maritime security, including the International Ship and Port Facilities Security Code, or ISPS Code. Our fleet maintains
ISM and ISPS certifications for safety and security of operations.



Oil
Pollution Liability



With
respect to oil pollution liability, many countries have ratified and follow the liability plan adopted by the IMO and set out
in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this
convention and depending on whether the country in which the damage results is a party to the CLC, a vessel's registered owner
is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. The limits on liability outlined in the IMO Protocol of 1992, or 1992 Protocol, use the
International Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became
effective on November 1, 2003 for vessels of 5,000 to 140,000 gross tons (a unit of measurement for the total enclosed
spaces within a vessel), liability will be limited to approximately 4.51 million SDR, or $7.159 million, plus 631 SDR, or
$1001.58 million, for each additional gross ton over 5,000. For vessels over 140,000 gross tons, liability will be limited
to 89.77 million SDR, or $142.49 million. The exchange rate between SDRs and U.S. dollars was 0.65 SDR per U.S. dollar
on May 7, 2012. The right to limit liability is forfeited under the CLC where the spill is caused by the owner's actual fault
and under the 1992 Protocol where the spill is caused by the owner's intentional or reckless conduct. Vessels trading to states
that are parties to these conventions must provide evidence of insurance covering the liabilityof the owner. The CLC applies
in over 100 states around the world, but it does not apply in the United States of America, where the corresponding liability
laws such as the OPA are particularly stringent.In jurisdictions where the CLC has not
been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a
manner similar to that of the CLC. We believe thatour insurance will cover the liability under the
plan adopted by the IMO.



The
most widely applicable international regime limiting maritime pollution liability is the 1976 Convention. Rights to limit liability
under the 1976 Convention are forfeited where a spill is caused by a shipowner's intentional or reckless conduct. Some jurisdictions
have ratified the 1996 LLMC Protocol to the 1976 Convention, which provides for liability limits substantially higher than those
set forth in the 1976 Convention to apply in such states. Finally, some jurisdictions are not a party to the CLC, the 1976 Convention
or the 1996 LLMC Protocol, and, therefore, shipowners' rights to limit liability for maritime pollution in such jurisdictions
may be uncertain.



International
laws governing Bunker Oil Pollution



In
2001, the IMO adopted the Bunker Convention, which imposes strict liability on ship owners for pollution damage in jurisdictional
waters of ratifying states caused by discharges of "bunker oil." The Bunker Convention defines "bunker oil"
as "any hydrocarbon mineral oil, including lubricating oil, used or intended to be used for the operation or propulsion of
the ship, and any residues of such oil." The Bunker Convention also requires registered owners of ships over a certain size
to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international
limitation regime (but not exceeding the amount calculated in accordance with the 1976 Convention, discussed above). The Bunker
Convention entered into force on November 21,2008, and as of February 29, 2012 it was in effect in 64 states.
In other jurisdictions liability for spills or releases of oil from ships'bunkers continues to be determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Outside the United States, national laws generally provide for the owner to bear strict liability for pollution, subject to a
right to limit liability under applicable national or international regimes for limitation of liability.



49







United
States Requirements

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



In
1990, the U.S. Congress enacted the OPA, to establish an extensive regulatory and liability regime for environmental protection
and cleanup of oil spills. OPA affects all owners and operators whose vessels trade with the U.S. or its territories or possessions,
or whose vessels operate in the waters of the U.S., which include the U.S. territorial sea and the 200 nautical mile exclusive
economic zone around the U.S. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes
liability for clean-up and natural resource damage from the release of hazardous substances (other than oil) whether on land or
at sea. Both OPA and CERCLA are potentially applicable to our operations in the U.S.



Under
OPA, vessel owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless
the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up
costs and other damages arising from oil spills from their vessels. These other damages are defined broadly to include:



| | • | natural resource damages and related assessment
    costs;                                                                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                        
| | • | real and personal property damages;                                                                                                                    
| |   |                                                                                                                                                        
| | • | net loss of taxes, royalties, rents, profits or earnings capacity;                                                                                     
| |   |                                                                                                                                                        
| | • | net cost of public services necessitated by a spill response,
    such as protection from fire, safety or health hazards;                              
| |   |                                                                                                                                                        
| | • | loss of profits or impairment of earning capacity due to injury,
    destruction or loss of real property, personal property and natural resources; and
| |   |                                                                                                                                                        
| | • | loss of subsistence use of natural resources.                                                                                                          



Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability with respect to tanker vessels with a qualifying
double hull, to the greater of $2,000 per gross ton or $17.088 million per vessel that is over 3,000 gross tons, and
with respect to non-tanker vessels, to the greater of $1,000 per gross ton or $854,400 per vessel (subject to periodic adjustment
for inflation). OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and some state environmental laws impose for unlimited liability for discharge of
pollutants including oil, within their waters. CERCLA, which applies to owners and operators of vessels, contains a similar liability
regime and provides for clean-up, removal and natural resource damages relating to the discharge of hazardous substances (other
than oil). Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a
hazardous substance as cargo or residue and the greater of $300 per gross ton or $0.5 million for any other vessel.



These
limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction
or operating regulations, or by the responsible party's gross negligence or willful misconduct. These limits also do not apply
if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal
activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We currently
have no OPA or CERCLA claims pending against us. However, in the event of an oil spill or release of hazardous substances from
our vessels, we could be subject to such claims, which could adversely affect our cash flow, profitability and financial position.



Under
OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount
sufficient to meet its potential liabilities under OPA and CERCLA. Under the regulations, evidence of financial responsibility
may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under the self-insurance provisions, the ship owner
or operator must have a net worth and working capital, measured in assets located in the U.S. against liabilities located
anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the U.S. Coast
Guard regulations by providing a certificate of responsibility from third party entities that are acceptable to the U.S. Coast
Guard evidencing sufficient self-insurance. The U.S. Coast Guard's regulations concerning certificates of financial responsibility
provide, in accordance with OPA, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates
of financial responsibility. In the event that such insurer or guarantor is sued directly, it is prohibited from asserting any
contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to
the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial responsibility under pre-OPA laws, including the major protection
and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject
to direct actions or required to waive insurance policy defenses. This requirement may have the effect of limiting the availability
of the type of coverage required by the U.S. Coast Guard and could increase our costs of obtaining this insurance as well
as the costs of our competitors that also require such coverage.



50







We
have arranged insurance for our vessels with pollution liability insurance in the maximum commercially available amount of $1.0 billion
per incident. 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 $1.0 billion limitation
of coverage per incident, our cash flow, profitability and financial position would be adversely impacted.



Under
OPA, with certain limited exceptions, all newly-built or converted vessels operating in U.S. waters must be built with double
hulls, and existing vessels that do not comply with the double-hull requirement will be prohibited from trading in U.S. waters
over a 20-year period (1995-2015) based on size, age and place of discharge, unless retrofitted with double hulls. All of the
tankers in our fleet are double-hulled. Owners or operators of tankers operating in the waters of the U.S. must file vessel
response plans with the U.S. Coast Guard, and their tankers are required to operate in compliance with their U.S. Coast
Guard approved plans. These response plans must, among other things:



| | • | address a "worst case" scenario and identify
    and ensure, through contract or other approved means, the availability of necessary private response resources to respond
    to a "worst case discharge";
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                            
| | • | describe crew training and drills; and                                                                                                                                                                     
| |   |                                                                                                                                                                                                            
| | • | identify a qualified individual with full authority to implement
    removal actions.                                                                                                                      



We
have obtained vessel response plans approved by the U.S. Coast Guard for our vessels operating in the waters of the U.S. In
addition, we conduct regular oil spill response drills in accordance with the guidelines set out in OPA.



In
response to the 2010 Deepwater Horizon incident in the Gulf ofMexico,the
U.S. Congress proposed, but did not formally adopt legislation that would amend OPA to mandate stronger safety standards and increased
liability and financial responsibility for offshore drilling operations. The bill did not seek to change the OPA liability limits
applicable to vessels. While Congressional activity on this topic is expected to continue
to focus on offshore facilities rather than on vessels generally, it cannotbe known with certainty
what form any such new legislative initiatives may take.



As
discussed above, OPA does not prevent individual states from imposing their own liability regimes with respect to oil pollution
incidents occurring within their boundaries, including adjacent coastal waters. In fact, most U.S. states that border a navigable
waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting
from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.



Additional
U.S. Environmental Requirements



The
U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the U.S. Environmental
Protection Agency, or EPA, to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants.
Under the CAA, EPA regulations require to vapor control systems ("VCSs") for certain cargoes when loading, unloading,
ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to adopt State Implementation
Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial
areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of
vapor control equipment. Also under the CAA, the U.S. Coast Guard has since 1990 regulated the safety of VCSs that are required
under EPA and state rules. Our vessels operating in regulated port areas have installed VCSs that are compliant with EPA, state
and U.S. Coast Guard requirements. In October 2010, the U.S. Coast Guard proposed a rule that would make its VCS requirements
more compatible with new EPA and State regulations, reflect changes in VCS technology, and codify existing U.S. Coast Guard guidelines.
It appears unlikely that the updated U.S. Coast Guard rule when finalized will impose a material increase in costs.



In
April 2010, U.S. EPA adopted regulations implementing the provisions of MARPOL Annex VI. Under these regulations, both
U.S. and foreign-flagged ships subject to the engine and fuel standards of MARPOL Annex VI must comply with the applicable
Annex VIprovisions including the stricter North America Emission Control Area (ECA) standards which take effect in
August 2012 when theyenter U.S. ports or operate in most
internal U.S. waters including the Great Lakes. MARPOL Annex VI requirements are discussed in greater detail above under
"Air Emissions."



51







The
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances into navigable waters and imposes strict liability
in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal,
remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative
penalties in the case of a discharge of petroleum or hazardous materials into state waters.



Effective
February 6, 2009, the EPA regulates the discharge of ballast water and other substances incidental to the normal operation
of vessels in U.S. waters using a Vessel General Permit, or VGP, system pursuant to the CWA, in order to combat the risk
of harmful foreign organisms that can travel in ballast water carried from foreign ports. Compliance with the conditions of the
VGP is required forcommercial vessels 79 feet in length or longer (other than commercial fishing vessels). In November
2011, the EPA issued a revised draft VGP that is expected to go into effect in 2013. This new VGP will impose a numeric standard
to control the release of non-indigenous invasive species in ballast water discharges.In
addition, through the CWA certification provisions that allow U.S. statesto place additional conditions
on use of the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast water requirements
including, in some states, specific treatment standards. Compliance with new U.S. federal and state requirements could require
the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port
facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering
U.S. waters.



Ballast
water is also addressed under the U.S. National Invasive Species Act, or NISA. U.S. Coast Guard regulations adopted
under NISA impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters.



European
Union Restrictions



European
regulations in the maritime sector are in general based on international law. However, since the Erika incident in 1999, the European
Union has become increasingly active in the field of regulation of maritime safety and protection of the environment. It has been
the driving force behind a number of amendments of MARPOL (including, for example, changes to accelerate the time-table for the
phase-out of single-hull tankers, and to prohibit the carriage in such tankers of heavy grades of oil). If dissatisfied either
with the extent of such amendments or with the time-table for their introduction, the European Union has been prepared to legislate
on a unilateral basis. In some instances where it has done so, international regulations have subsequently been amended to the
same level of stringency as that introduced in Europe. However, European Union regulations may from time to time impose burdens
and costs on ship owners and operators that are additional to those involved in complying with international rules and standards.
In some areas of regulation, the European Union has introduced new laws without attempting to procure a corresponding amendment
of international law. Notably, it adopted in 2005 a directive on ship-source pollution, imposing criminal sanctions for pollution
not only where this 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.



In
response to the MT Prestige oil spill in November 2002, the European Union adopted legislation that prohibits all single-hull
tankers from entering into its ports or offshore terminals by June 2010 or earlier depending on age. The European Union has also
banned all single-hull tankers carrying heavy grades of oil from entering or leaving its ports or offshore terminals or anchoring
in areas under its jurisdiction. Certain single-hull tankers above 15 years of age are also restricted from entering or leaving
European Union ports or offshore terminals and anchoring in areas under European Union jurisdiction.



The
European Union has also adopted legislation that: (1) strengthens regulation against manifestly sub-standard vessels (defined
as those over 15 years old that have been detained by port authorities at least twice in a six-month period) from European
waters and creates an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment
and (2) provides the European Union with greater authority and control over classification societies, including the ability
to seek to suspend or revoke the authority of negligent societies. It is difficult to accurately predict what legislation or additional
regulations, if any, may be promulgated by the European Union or any other constituent country or authority in Europe.



52







Greenhouse
Gas Regulation



In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which we refer to as the Kyoto
Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to
reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming.
Currently, the emissions of greenhouse gases from international shipping are not subject to the KyotoProtocol. In December
2011, UN climate change talks took place in Durban and concluded with an agreement referred to as the Durban Platform for Enhanced
Action. In preparation for the Durban Conference, the International Chamber of Shipping (“ICS”) produced a briefing
document, confirming the shipping industry’s commitment to cut shipping emissions by 20% by 2020, with significant further
reductions thereafter. The ICS called on the participants in the Durban Conference to give the IMO a clear mandate to deliver
emissions reductions through market-based measures, for example a shipping industry environmental compensation fund. Notwithstanding
the ICS’ request for global regulation of the shipping industry, the Durban Conference did not result in any proposals specifically
addressing the shipping industry’s role in climate change. 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 was expected
if no global regime for reduction of seaborne emissions had been agreed to by the end of 2011. That deadline has now expired and
it remains to be seen what position the EU takes in this regard in 2012. In the United States, in 2007 the California Attorney
General and a coalition of environmental groups petitioned the U.S. Environmental Protection Agency (“EPA”) in
October 2007 to regulate greenhouse gas emissions from ocean-going ships under the Clean Air Act, and in 2010 another coalition
of environmental groups filed suit to require the EPA to do the same. Any passage of climate control legislation or other regulatory
initiatives by the IMO, European Union, or individual countries where we operate, including the U.S. that restrict emissions
of greenhouse gases from vessels could require us to make significant financial expenditures we cannot predict with certainty
at this time.



Vessel
Security Regulations



Since
the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security.
On November 25, 2002, the U.S. 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 U.S. Similarly, in December 2002,
amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new chapter became
effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained
in the International Ship and Port Facilities Security Code, or the ISPS Code. The objective of the ISPS Code is to establish
the framework that allows detection of security threats and implementation of preventive measures against security incidents that
can affect ships or port facilities used in international trade. To trade internationally, a vessel must attain an International
Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel's flag state. Among the various
requirements are:





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



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



| | • | the
                                                                                                            development of vessel
                                                                                                            security plans;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
                                                                                                            ship identification
                                                                                                            number to be permanently
                                                                                                            marked on a vessel's
                                                                                                            hull;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | • | compliance
                                                                                                            with flag state security
                                                                                                            certification requirements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security
measures for non-U.S. vessels that have on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance
with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by MTSA, SOLAS
and the ISPS Code, and our fleet is in compliance with applicable security requirements.



53







Risk
of Loss and Insurance



The
operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss
or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition,
there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities
arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners,
operators and charterers of any vessel trading in the United States' exclusive economic zone for certain oil pollution accidents
in the United States, has made liability insurance more expensive for ship owners and operators trading in the U.S. market.
While we believe that our present insurance coverage is adequate, not all risks can be insured against, and there can be no guarantee
that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.



On
October 8, 2010, Grand Rodosi, one of our bulk carriers, was involved in a collision with a docked fishing vessel at Port
Lincoln, Australia. While no personal injuries or environmental damage were sustained, the collision resulted in physical damage
to the two vessels. The damage was fully covered by our insurance.



We
have obtained marine hull and machinery and war risk insurance, which includes the risk of actual or constructive total loss,
for all our vessels. The vessels are each covered up to at least fair market value.



We
also arranged increased value insurance for most of our vessels. Under the increased value insurance, in case of total loss of
the vessel, we will be able to recover the sum insured under the policy in addition to the sum insured under our hull and machinery
policy. Increased value insurance also covers excess liabilities that are not recoverable in full by the hull and machinery policies
by reason of under-insurance.



Protection
and indemnity insurance, which covers our third-party liabilities in connection with our shipping activities, is provided by mutual
protection and indemnity associations, or P&I Associations. This insurance covers third-party liability and other related
expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions
with other vessels,damage to other third-party property, pollution arising from oil or other substances, and salvage,
towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance,
extended by protection and indemnity mutual associations, or "clubs." Our coverage, except for pollution, is unlimited.



Our current protection
and indemnity insurance coverage for pollution is $1.0 billion per vessel per incident. The 13 P&I Associations that
compose the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement
to reinsure each association's liabilities. All qualifying claims in excess of $8 million up to, currently, approximately
$60.0 million are shared between the P&I Associations in accordance with the terms of the pooling agreement. Any claim in
excess of $60.0 million is reinsured by the International Group under the General Excess of Loss Reinsurance Contract. This
policy currently provides an additional $2.0 billion of coverage for non-oil pollution claims. Further to this, overspill
protection has been placed by the International Group for claims up to $1 billion in excess of $2.06 billion, or $3.06 billion
in total. For passengers and crew claims, the overall limit is $3.0 billion for any one event relating to any one vessel with
a sub-limit of $2.0 billion for passengers. As a member of a P&I Association that is a member of the International Group,
we are subject to calls payable to the associations based on our claim records as well as the claim recordsof all other members of the individual associations and members of the International Group.



The International TankerShipping Industry



Liquid cargoes include crude oil, refined
petroleum products, vegetable oils, gases and chemicals. Crude oil, refined products and vegetable oils are carried on tankers
while specialized vessels are used for gases (LPG/ LNG) and chemical cargos (chemical tankers).



Average crude tanker spot freight rates
were weaker during the second half of 2010 and during2011, as compared to historical averages. Despite the increase of the oil
demand during 2010 and 2011 (after the decrease during 2009 due to the downturn of the global economy), an oversupply of vessels
relative to tanker demand was the main factor which weighed upon tanker rates. The oversupply was attributed to a relatively high
number of new tanker deliveries over the course of 2010 and 2011 coupled with the return to the fleet of vessels that were previously
being used for floating storage. Some strength in spot tanker rates was seen during the winter season of 2010 due to increased
seasonal demand in Europe and North America and weather-related transit delays(which decreased the available tonnage).Rates subsequently
weakened, however, in January 2011 upon easing of weather-related seasonal factors and have remained at depressed levels.



The value of tanker vessels has also declined.
The price of a 5 year old Suezmax decreased approximately 20.30% from December 2010 to December 2011. The price of a 5 year old
Panamax tanker decreased about 16.1% from $36 million at the end of 2010 to $31 million at the end of 2011.



54







In order to benefit from economies of
scale, tanker charterers will typically charter the largest possible vessel to transport oil or products, consistent with port
and canal dimensional restrictions and optimal cargo lot sizes. A tanker’s carrying capacity is measured in deadweight tons,
or dwt, which is the amount of crude oil measured in metric tons that the vessel is capable of loading. The oil tanker fleet is
generally divided into the following five major types of vessels, based on vessel carrying capacity:



| | · | Ultra
                                                                                                                     Large Crude
                                                                                                                     Carrier(“ULCC”),
                                                                                                                     with a size
                                                                                                                     range of
                                                                                                                     approximately
                                                                                                                     320,000 to
                                                                                                                     450,000 dwt
                                                                                                                     and Very
                                                                                                                     Large Crude
                                                                                                                     Carrier(“VLCC”),
                                                                                                                     with a size
                                                                                                                     range of
                                                                                                                     approximately
                                                                                                                     200,000 to
                                                                                                                     320,000 dwt.
                                                                                                                     ULCCs and
                                                                                                                     VLCCs typically
                                                                                                                     transport
                                                                                                                     crude oil
                                                                                                                     in long-haul
                                                                                                                     trades, such
                                                                                                                     as from the
                                                                                                                     Arabian Gulf
                                                                                                                     to China
                                                                                                                     via the Cape
                                                                                                                     of Good Hope.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Suezmax-size
                                                                                                                     range of
                                                                                                                     approximately
                                                                                                                     120,000 to
                                                                                                                     200,000 dwt.
                                                                                                                     Suezmax
                                                                                                                     vessels are
                                                                                                                     capable of
                                                                                                                     passing through
                                                                                                                     the Suez
                                                                                                                     Canal fully
                                                                                                                     loaded.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Aframax-size
                                                                                                                     range of
                                                                                                                     approximately
                                                                                                                     80,000 to
                                                                                                                     120,000 dwt.
                                                                                                                     A
                                                                                                                     product tanker
                                                                                                                     of the same
                                                                                                                     carrying
                                                                                                                     capacity
                                                                                                                     is called
                                                                                                                     LR2 (Long
                                                                                                                     Range 2).Aframax-size
                                                                                                                     vessels generally
                                                                                                                     engage in
                                                                                                                     both medium-and
                                                                                                                     short-haul
                                                                                                                     trades of
                                                                                                                     less than
                                                                                                                     1,500 miles
                                                                                                                     and carry
                                                                                                                     crude oil
                                                                                                                     or petroleum
                                                                                                                     products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Panamax-size
                                                                                                                     range of
                                                                                                                     approximately
                                                                                                                     60,000 to
                                                                                                                     80,000 dwt
                                                                                                                     and
                                                                                                                     contains
                                                                                                                     both crude
                                                                                                                     tankers and
                                                                                                                     product tankers.
                                                                                                                     A Panamax
                                                                                                                     tanker with
                                                                                                                     coated tanks
                                                                                                                     is usually
                                                                                                                     referred
                                                                                                                     to as belonging
                                                                                                                     to the LR1
                                                                                                                     (Long Range
                                                                                                                     1) segment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Handysizeand MR
                                                                                                                     (Medium Range)
                                                                                                                     tanker have
                                                                                                                     a size of
                                                                                                                     approximately
                                                                                                                     10,000 dwt
                                                                                                                     to 60,000
                                                                                                                     dwt. Smaller
                                                                                                                     tankers,
                                                                                                                     like Handysize
                                                                                                                     and MR(Medium
                                                                                                                     Range), mostly
                                                                                                                     transport
                                                                                                                     petroleum
                                                                                                                     products
                                                                                                                     in short-haul
                                                                                                                     to medium-haul
                                                                                                                     trades as
                                                                                                                     their smaller
                                                                                                                     size makes
                                                                                                                     them less
                                                                                                                     economic
                                                                                                                     for the transport
                                                                                                                     of crude
                                                                                                                     oil.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The drybulk shipping market is the primary
provider of global commodities transportation since dry bulk cargoes comprise approximately one third of seaborne trade. Dry bulk
cargoes are divided into two main categories–major bulk cargoes and minor bulk cargoes. Major bulk cargos consist of iron
ore, coal and grains, while minor bulk cargoes include, among others, bauxite/alumina, sugar, fertilizers, steel products, forest
products and cement.



The
global dry bulk carrier fleet may be divided into the following categories based on a vessel's carrying capacity:



| | • | Capesize vessels have carrying capacities of more than
    130,000 dwt. These vessels generally operate along long haul iron ore and coal trade routes. There are relatively few ports
    around the world with the infrastructure to accommodate vessels of this size.                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Mini cape vessels have dwt from 110,000 to 130,000 dwt.                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Postpanamax vessels have dwt from 85,000 to 110,000 dwt
    and the beams of these vessels exceed the Panama canal limitations.                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Kamsarmax:are approximately 82,000 dwt Panamax vessels
    with increased length overall (the length of a vessel, referred to herein as "LOA") of 229 meters ("m")
    and are named for Port Kamsar in Equatorial Guinea.                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Panamax vessels have a carrying capacity of between 60,000
    and 85,000 dwt. These vessels carry coal, grains, and, to a lesser extent, minor bulks, including steel products, forest products
    and fertilizers. Panamax vessels are able to pass through the Panama Canal making them more versatile than larger vessels.                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Handymax vessels have a carrying capacity of between
    35,000 and 60,000 dwt. These vessels operate along a large number of geographically dispersed global trade routes mainly carrying
    grains and minor bulks. Vessels below 60,000 dwt are sometimes built with on-board cranes enabling them to load and discharge
    cargo in countries and ports with limited infrastructure.
| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Handysize vessels have a carrying capacity of up to 35,000
    dwt. These vessels carry exclusively minor bulk cargo. Increasingly, these vessels have operated along regional trading routes.
    Handysize vessels are well suited for small ports with length and draft restrictions that may lack the infrastructure for
    cargo loading and unloading.                             



55







After three consecutive years in which
demand for seaborne trade grew faster than supply, the situation was reversed in mid-2005. While demand growth slowed, a new all-time
high for newbuilding deliveries, together with minimal scrapping, resulted in a weaker market in 2005 which continued in the first
half of 2006. Beginning with the second half of 2006, the market showed signs of significant strength which continued in 2007
with the BDI closing the year 2007 at 9,143. The market remained at high levels until May 20, 2008 when the BDI reached an all-time
high.



Following May 2008, the BDI fell over
90% from May 2008 through December 16, 2008 and almost 75% during the fourth quarter of 2008 through December 16, 2008, reaching
a low of 663, or 94% below the May 2008 high point. The BDI recovered during2009, at a rate of 350%, to close the year at 3,005
points. From January 2009 through December 2009, the BDI reached a high of 4,661, or 700% above the December 2008 low point, in
November 2009.



The recuperated charter market in 2009
was a good setting for a fundamentally more stable 2010, although significant order book influx put pressure on overall fleet
utilization. In 2010, the BDI traded in a broad range between a high of 4,209 points in May and a low of 1,700 points in July,
overall averaging 2,758 points in 2010 or 5% over the 2009 BDI average.



In 2011, the drybulk market experienced
a decline, with BDI averaging 1,549 points or 44% below the previous year's average, reaching its lowest point in February 2011
at 1,043 points, which however moderately reverted later in the year to reach a high of 2,173 points in October 2011. On December
23, 2011, the BDI was at 1,738 points. The general decline in the drybulk charter market has resulted in lower charter rates for
vessels exposed to the spot market and time charters linked to the indices of BDI.



Panamax rates, which averaged $75,248
per day in June 2008 and fell to approximately $4,100 per day in December 2008,surging thereafter to an average $25,040 for the
year 2010, averaged $14,000 per day in 2011, approximately 44% lower than the previous year. The lowest Panamax rate in 2011 was
at $10,372 per day on February 2 and the highest at $17,115 per day on March 11. The Panamax rate was at $13,798 per day on April
26, 2012, about 70% higher than the levels of the same index at the beginning of the same month (April 2012). Volatility in dry
bulk market remains very high.



The decline of the dry bulk market has
primarily been attributable to vessel oversupply gradually taking its toll on the market. The increased demand for drybulk commodities
has been unable to fully absorb the approximately 98 million of new deadweight tonnage that entered the market in 2011, despite
almost record high scrapping levels of approximately 22.3 million deadweight tonnage and an approximately 30% delivery slippage.
2011 was the second consecutive year of double-digit growth in the global drybulk fleet, as indicated by the fleet's 14% increase
in deadweight tonnage carrying capacity for the year.



On the demand side, global steel consumption
experienced an increase of approximately 4% in 2011, despite the somewhat moderate GDP growth rate of the three largest steel
consuming regions, China, the European Union and the United States. China's GDP growth of 9.2% in 2011 was somewhat lower than
the 10.4% in 2010, whereas the GDP growth rates of 1.6% and 1.8% in 2011 for the Euro zone and the United States, respectively,
have likely been reflective of the weaker economic conditions these regions experienced during 2011.China remained the world's
largest iron ore importer in 2011, showing an increase of approximately 10% in its imports of the commodity as compared to 2010,
with Brazil reporting record high iron ore export levels in 2011, 5% higher than those in 2010 and 22% above those in 2009.



In the coal trade segment, global thermal
coal trade remained firm in 2011, underpinned by a sharp demand increase of approximately 20% in India, where new coal-fired power
stations continue to be constructed. Steam coal trade has also been supported by steady demand levels on the part of other major
importing regions, such as China and Europe, despite a slight decrease in Japan's imports in 2011 following the earthquake and
tsunami in March 2011.



While global trade is likely to continue
to grow, we expect the overcapacity in the shipping market to continue to exert considerable pressure on charter rates, negating
any upward trends possibly arising from any favorable price and volume developments in the underlying markets. There can be no
assurance as to how long charter rates will remain at low levels or whether they will improve or deteriorate and, if so, when
and to what degree.



As a result of the volatility and rate
decline witnessed in the charter markets, the continued lack of availability of credit to finance vessel acquisitions and an overwhelming
order book during 2011, vessel values have remained under severe pressure. Indicatively, as of December 2011, values of five-year
Panamax vessels with 76,000 deadweight ton carrying capacity have reportedly decreased by about 26.4% compared to the same values
in December 2010, whereas five-year modern Capesize vessels of 170,000 to 180,000 deadweight ton carrying capacity were valued
28% less compared to December 2010.



56







C. Organizational Structure



NewLead
is the sole owner of all outstanding shares of the subsidiaries listed in Note 2 of our consolidated financial statements
included in this report, except for Newlead Trading, Inc. In 2012, we also entered into a joint venture for the purchase and trading
of coal. In connection with this new joint venture, NewLead owns a 52.0% interest in NewLead Holdings (US) Corp., which in turn
owns a 50% interest in New Lead JMEG LLC. See “Item 3. Key Information—Recent Developments.”



|D. | Properties,
    Plants and Equipment
|-- | ------------------------------------
|   | Not applicable.                     



|Item 4A.  
      Unresolved Staff Comments
|------------------------------------------
|                                          



57







|Item 5. | Operating and Financial
    Review and Prospects  (Restated)
|------- | ------------------------------------------------------------



The
following is a discussion of NewLead Holdings Ltd., as "Successor" to the 2009 recapitalization, as discussed below
and in Note 1 to the consolidated financial statements, as of and for the years ended December 31, 2011 and 2010 and for
the period from October 14, 2009 to December 31, 2009 and as "Predecessor" of the recapitalization for the
period from January 1, 2009 to October 13, 2009. All of these financial statements have been prepared in accordance
with U.S. GAAP. You should read this section together with the consolidated financial statements including the notes to those
financial statements for the years and periods mentioned above, which are included elsewhere in this document.



This
report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Reform Act of
1995. These forward-looking statements are based on our current expectations and observations. The factors that, in management's
view, could cause actual results to differ materially from the forward-looking statements include, among others, those discussed
in Item 3.b. “Risk Factors”, and such differences may be material. For additional information regarding forward-looking
statements used in this report please refer to the section "Cautionary Statement Regarding Forward-Looking Statements."



Restatement
of Previously Issued Financial Statements:



Subsequent
to the issuance of the Company’s 2010 and 2009 (successor) consolidated financial statements, the Company determined that
the method used to amortize the beneficial conversion feature (“BCF”) on its 7% senior unsecured convertible notes
was erroneous because the Company had previously amortized the BCF on a straight line basis, rather than using the effective interest
rate method. This resulted in a material error and the restatement of the Company’s 2010 and 2009 (successor) financial
statements. The impacts of the restatement are summarized in the following table:





|                                                         |  | As of and for the Year Ended December 31, 2010 |          |   | As of December 31, 2009 and for the Period From October 14,
    2009 to December 31, 2009 |  
|-------------------------------------------------------- |  | ---------------------------------------------- | -------- | - | ----------------------------------------------------------------------------------------- | -
|                                                         |  | As Previously
    Reported                     |          |   | As Restated                                                                               |  
|                                                         |  |                                                |          |   |                                                                                           |  
|Senior convertible 7% notes                              |  | $                                              | 55,877   |   |                                                                                           | $
|Total non-current liabilities                            |  | $                                              | 591,360  |   |                                                                                           | $
|Total liabilities                                        |  | $                                              | 686,099  |   |                                                                                           | $
|Accumulated deficit                                      |  | $                                              | (132,721 | ) |                                                                                           | $
|Total shareholders' equity                               |  | $                                              | 75,634   |   |                                                                                           | $
|                                                         |  |                                                |          |   |                                                                                           |  
|Interest and finance expense                             |  | $                                              | (44,899  | ) |                                                                                           | $
|Loss from continuing operations                          |  | $                                              | (97,618  | ) |                                                                                           | $
|Net loss                                                 |  | $                                              | (94,849  | ) |                                                                                           | $
|Loss per share basic and diluted - continuing operations |  | $                                              | (14.03   | ) |                                                                                           | $
|Loss per share basic and diluted – total                 |  | $                                              | (13.63   | ) |                                                                                           | $
|                                                         |  |                                                |          |   |                                                                                           |  



| | * | In addition, and unconnected to the correction of the error,
                                                                 the amounts presented reflect the retrospective application of
                                                                 discontinued operations for all periods presented. Refer to Note
                                                                 25 (Discontinued Operations) in the accompanying consolidated
                                                                 financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent
Developments



The Fleet



As discussed elsewhere in this annual
report, we have had a significant reduction in the size of our fleet. As of May 14, 2012, we had a fleet of five vessels. We expect
further reductions in our fleet.



We continue to negotiate with Piraeus
Bank in respect of (a) the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus will release us from all
debt obligations arising under the related credit facilities in exchange for equity in the Company.



58







Also included in the five vessels is one
newbuilding. Due to the delay in our payment of an installment of $7.4 million, we are currently in default under the shipbuilding
contract of this hull and have not received delivery of this hull. We are currently in discussions with the lenders, the shipyard
and a potential buyer in respect of the sale of this hull and the release of our obligations under the loan agreement.



We are currently in negotiations with
WestLB to amend the terms of the loan agreement, whereby the agreement will be amended and restated to enable us to comply with
certain of its covenants on an ongoing basis after the closing of the Restructuring described herein and enable the Newlead Victoria,
a drybulk Panamax vessel, to stay within the group. This vessel is subject to a floating rate time charter which may expire as
early as July 2012 or as late as October 2012. The vessel owner has the right to an earlier redelivery of the vessel, at any time
within the charter duration, subject to the vessel owner tendering three months’ advance notice to the charterers.



We
are currently in negotiations with Marfin to amend the terms of the loan agreement, whereby the agreement will be amended and
restated to enable us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring described
herein and enable the Newlead Markela, a drybulk Panamax vessel to stay within the group.



Restructuring
of Our Indebtedness



Due to the economic conditions and operational
difficulties of the Company, we entered into restructuring discussions with each of the lenders under our facility and credit
agreements, the holders of our 7% senior unsecured convertible notes (the "7% Notes") and the counterparties to our
capital leases (collectively, the agreements governing such debt, the “Financing Documents”). See “Liquidity
and Capital Resources” for a discussion of the various Financing Documents. As part of those discussions, we appointed Moelis
& Company (“Moelis”) to act as our financial advisors in respect of the overall restructuring proposal described
below. The aim of the restructuring is to increase liquidity, normalize trade vendor payments and deleverage the Company on a
going forward basis (the “Restructuring”).



Since June 2011, we have defaulted under
each of our Financing Documents in respect of certain covenants (including, in some cases, the failure to make amortization and
interest payments, the failure to satisfy financial covenants and the triggering of cross-default provisions). To date, we have
not obtained waivers of these defaults from our lenders. From July 1, 2011 through May 14, 2012, and as part of our restructuring
efforts, our lenders seized four of our vessels and we sold 13 vessels. The sales proceeds have been and are expected to be insufficient
to fully repay the related debt and therefore, we will continue to have significant debt. All of our debt is currently under restructuring
negotiations. We are currently in discussions with our lenders regarding the future use of three of our five remaining vessels.
During the Restructuring process, our lenders have continued to reserve their rights in respect of such defaults other than as
detailed below in respect of the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for
the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies
at this time , including demand for immediate payment; however, our lenders could change their position at any time. As such,
there can be no assurance that a satisfactory final agreement with be reached with all our lenders in the Restructuring, or at
all.



On November 8,
2011, we and Moelis presented to each of the lenders under the Financing Documents a commercial presentation which set out a comprehensive
global restructuring proposal (the “Restructuring Proposal”). The Restructuring Proposal included, among other things,
proposed amendments to the Financing Documents (including amortization relief and reset of financial covenants). We have been
engaged in negotiations with our lenders regarding the terms of the Restructuring Proposal but our lenders have not yet approved
the Restructuring Proposal and such changes have not been implemented as of the filing of this annual report.



Notwithstanding
the above, we have made progress in completing various parts of the Restructuring Proposal and continue to remain in discussions
with our remaining lenders. During 2011 and through May 15, 2012, we have
sold, disposed of or handed control over to our lenders a total of 17 of our vessels and hulls under construction (or our ownership
of the shipowning subsidiaries) in connection with our restructuring.



59







As of May 15,
2012, we remain in advanced negotiations with several lenders of our secured debt. In addition we will issue common shares to
certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



We will continue
to have a high degree of indebtedness after the completion of our ongoing restructuring.



The following
sets forth the terms of the completed steps to the Restructuring to date and a description of the status of those elements which
have yet to be completed.



Syndicate Facility Agreement



On December
22, 2011, with the consent of the lenders under our revolving credit facility with
Bank of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent (the “Facility Agreement”),
we successfully completed the sale of the Newlead Fortune and the Newlead Avra with gross proceeds of approximately $64.5 million.
On January 31 2012, with the consent of the lenders under our Facility Agreement,
we successfully completed the sale of the Newlead Compass and the Newlead Compassion with gross proceeds of approximately $80.2
million. Such gross proceeds were applied towards the full and final satisfaction of all liabilities owed to the lenders under
the Facility Agreement (other than fees owing to the lenders of approximately $0.6 million pursuant to a letter of undertaking
dated February 3, 2012 (the “Fees”)). As a result of the sale of the Newlead Compass and Newlead Compassion our overall
indebtedness was decreased by an aggregate amount of approximately $80.2 million after December 31, 2011. The sale of all four
vessels has cumulatively reduced our indebtedness by an aggregate amount of approximately $147.9 million. In addition, we are
not yet released from our obligations under the Facility Agreement until the Fees have been paid in full. We have agreed in principle
with the Bank of Scotland that these Fees may be paid at some point after the closing of the Restructuring but in any event before
24 months from the date of signing the applicable agreed document. The definitive documentation in this regard is being negotiated
with Bank of Scotland.



60







Kamsarmax Syndicate Facility Agreements



On February 24,
2012, the Bank of Scotland plc issued notices of enforcement and notices of default and acceleration in relation to the Kamsarmax
Syndicate Facility Agreements, each dated April 15, 2010, between Ayasha and Bethune, as borrowers, and the Bank of Scotland,
BMTU Capital Corporation, and the Bank of Ireland, as lenders. In addition, the Bank of Scotland filed claim forms in the High
Court of England and Wales against the borrowers representing claims for approximately $62.7 million and $13.9 million under the
Kamsarmax Syndicate Facility Agreements and sought a declaration, that, among other things, the Bank of Scotland is entitled to
make a demand against the Company in respect of sums owing under the Kamsarmax Syndicate Facility Agreements. Ayasha and Bethune
were the shipowning companies of the motor vessels “Newlead Tomi” and “Newlead Gujarat,” respectively.
Pursuant to such notices, the Bank of Scotland, as the agent and security trustee under each of the Kamsarmax Syndicate Facility
Agreements, exercised its rights to foreclose on the shares of Ayasha and Bethune, which secured the loans under the Kamsarmax
facilities and the vessels were handed over to the lenders control.



We have agreed
in principle with the Bank of Scotland in respect of releasing us from all of our obligations and liabilities under the Kamsarmax
Syndicate Facility Agreements in return for a waiver from us to any claims, actions or remedies that we may have against the Bank
of Scotland and a definitive release documentation on this point is being negotiated. The vessels have already been delivered
to the new managers. We are currently working towards definitive documentations that would release us from our obligations under
the Kamsarmax Syndicate Facility Agreements. However, there can be no assurance that we will be able to reach an agreement with
the Bank of Scotland under acceptable terms or at all.



First Business Bank (FBB) Credit
Facility



On August 12,
2011, we entered into the FBB Vessel Agreement with FBB for the sale of two vessels, the Newlead Spartounta and the Newlead Prosperity,
with the net proceeds of such sales to be applied towards (a) the full and final satisfaction of all indebtedness owed to FBB
under the credit facilities relating to the Newlead Spartounta and the Newlead Prosperity, and (b) the payment of outstanding
trade and vendor payments. The sale of these vessels has been completed and FBB has released us from all of our liabilities and
obligations under these credit facilities and related documents.



EFG Eurobank Credit Facility



On February 10,
2012, with the consent of EFG, we agreed to the sale of the Newlead Esmeralda for proceeds of approximately $11.4 million with
the net proceeds of the sale being applied towards (a) the full and final satisfaction of all indebtedness owed to EFG under our
loan agreement with EFG and (b) the payment of outstanding trade and vendor payments. The sale of this vessel has been completed
and EFG has released us from all of our liabilities and obligations under this credit facility and related documents. As result
of such sale, our overall indebtedness was decreased by an aggregate amount of $11.0 million.



Marfin Credit Facility and 7% Notes



On April 5, 2012,
with the consent of Marfin Bank, we entered into an agreement for the sale of the Newlead Venetico and that vessel was delivered
to the buyer on May 8, 2012 for net proceeds of approximately $9.0 million. Marfin applied the net proceeds of such sale received
by it towards the payment of certain amounts relating to claims against the Newlead Venetico, the payment of certain fees and
the prepayment of the total outstanding amounts due under the loan agreement for the Newlead Venetico. We are currently in discussions
with Marfin regarding certain amendments to the Marfin Credit Facility, whereby this facility would be amended and restated to
reduce the overall committed amount there under to the existing outstanding amount of approximately $31.2 million and enable us
to comply with certain covenants under the facility on an ongoing basis after the closing of the Restructuring. We are also in
discussions with Marfin regarding a conversion agreement in respect of the 7% Notes (for which Marfin is the indenture trustee),
whereby Marfin would convert all debt claims Marfin may have against us arising under the 7% Notes into equity of the Company.
The terms of any such amendment and restatement agreement, debt conversion and share issuance is still under negotiation and subject
to the execution of legally binding agreements. There is no assurance that we will complete such documentation or the Restructuring
in this regard.



Piraeus Bank (Piraeus) Credit Facilities



On December 29,
2011, with the consent of Piraeus Bank, we entered into an agreement for the sale of the Grand Ocean and that vessel was delivered
to the buyer on January 11, 2012 for net proceeds of approximately $6.5 million. Piraeus applied the net proceeds of such sale
received by it towards (a) the prepayment of the total outstanding amounts due under the loan agreement for the Grand Ocean in
a total aggregate amount of $6.5 million and (b) the payment of outstanding trade and vendor payments. The total outstanding balance
under the loan agreement for the Grand Ocean is $11.2 million as of May 14, 2012.



We continue to
negotiate with Piraeus Bank in respect of (a) the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus
will release us from all debt obligations arising under the related credit facilities in exchange for equity in the Company.



61







The terms and
conditions of any agreement between ourselves and Piraeus Bank regarding the sale of Hiona and Hiotissa, and any agreements relating
to the release of obligations under the related agreements is subject to negotiating and executing legally binding documentation.
There are no assurances that we will be able to complete such documentation or the Restructuring in this regard.



WestLB Bank Credit Facility



We are currently
in negotiations with WestLB to amend the terms of the loan agreement, whereby the agreement will be amended and restated to enable
us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring and enable the Newlead Victoria
vessel to stay within the group. The terms and conditions of any agreement between us and WestLB are subject to negotiating and
executing legally binding documentation. There are no assurances that we will be able to complete such documentation or the Restructuring
in this regard.



Handysize Syndicate Facility Agreement



On March 21,
2012, with the consent of the lenders, we entered into a memorandum of agreement with an unrelated party for the sale of the Navios
Serenity by which the vessel would be sold and the proceeds of the sale would be applied towards the outstanding balance owed
under our credit facility with DVB Bank, Nord LB and Emporiki Bank (the “Handysize Syndicate Facility Agreement”).
The vessel was sold on March 26, 2012 for net proceeds of approximately $26.0 million and delivered to the buyer, thereby reducing
overall indebtedness owed under that facility by $25.0 million. We remain liable under the Handysize Facility Agreement to the
lenders in respect of the Hull 4029 and are in discussions with the lenders, the yard and the buyer in respect of the sale of
this vessel. The lenders will not release us from all of our obligations under the Handysize Syndicate Facility Agreement and
related documents unless and until this vessel is sold. The terms and conditions of any agreement between us and the lenders are
subject to negotiating and executing legally binding documentation. There is no assurance that we will complete such documentation
or the Restructuring in this regard.



Northern Shipping Fund (NSF)



On March 14,
2012, the Companyreceived enforcement notices from Endurance Shipping LLC whereby, among other things,
Endurance Shipping LLC exercised its rights to foreclose on the pledge of the shares of Curby Navigation Ltd., which secured the
bareboat charter. On March 31, 2012, the Company entered into a deed of release with Endurance Shipping LLC, the owner of
the Newlead Endurance, pursuant to which the Company was unconditionally released from its guarantee under the bareboat charter
for the Newlead Endurance, which had been chartered-in by Curby Navigation Ltd. In connection with the enforcement notices, the
Company also received a termination notice in respect of the ship management agreement between Curby Navigation Ltd. and NewLead
Bulkers S.A., which had been the manager of the Newlead Endurance.



On March 14,
2012, we redelivered the Newlead Endurance to NSF pursuant to a redelivery agreement in respect of the capital leasing arrangement.
As part of this redelivery agreement, the Company was released from all its obligations and liabilities under the relevant finance
lease documentation.

Lemissoler Sale and Leaseback Agreements



On January 31,
2012, February 7, 2012, February 11, 2012, and March 19, 2012, respectively, pursuant to various redelivery addendums to certain
sale and leaseback agreements, we completed the redelivery of four dry bulk vessels, namely the "Australia", the "Grand
Rodosi", the "China" and the "Brazil", to their owners which are affiliates of Lemissoler. Although these
vessels have been redelivered to Lemissoler, we are still liable under the sale and leaseback agreements in respect of settlement
of trade payables, amounts owing to the owners as a result of the termination of those agreements and other liabilities in relation
to the four vessels. We are in discussions with Lemissoler to address these outstanding issues and are seeking to enter into a
settlement agreement in this regard whereby Lemissoler will convert any debt claims they may have against us into equity of the
Company.



The terms and
conditions of any agreement between us and Lemissoler are subject to negotiating and executing legally binding documentation.
There are no assurances that we will be able to complete such documentation or the Restructuring in this regard.

New Joint Venture for purchase
and trading of coal



In April 2012,
our U.S. subsidiary entered into a joint venture arrangement with a third party to purchase thermal coal (used in power plants
for electricity generation and any other industrial use) from reserves located in Kentucky, USA.  The joint venture has entered
into agreements to purchase certain quantities of thermal coal with specified minimum qualities (after processing at the mine
by the mine operator) over a five-year period with roll-over options.  We expect to market and distribute the thermal coal
to end users or distributors, located primarily in Asia, and transport it using vessels from the market as well as our vessels. 
In connection with entering into the joint venture arrangement, our U.S. subsidiary was converted from a Delaware limited liability
company into a Delaware corporation and its name was changed from NewLead Holdings (US) LLC to NewLead Holdings (US) Corp.



62







Share
Issuances to Employees, Directors, Officers, Vendors, Former Employees and Consultants



On February 15,
2012,we issued the following common shares: (i) 1,261,166 shares to employees, officers and consultants under our 2005
Equity Incentive Plan (the "Plan"); (ii)560,000shares to board
of directors members under the Plan; (iii) 69,334 shares to Terra Stabile A.E. and 5,247 shares to Meltemi Deck E.P.E. in accordance
with the resolutions of the Compensation Committee, dated December 21, 2011, and the related settlement agreements for amounts
due to them; (iv) 50,057 shares to former employees, officers and consultants in accordance with the resolutions of the Compensation
Committee, dated December 21, 2011; (v) 866,668 shares to two of our executive officers, Nicholas
G. Fistes, Chairman, and Michail S. Zolotas, Deputy Chairman, Chief Executive Officer and President.



On February 28,
2012,we issued 6,550,000 common shares to various vendors to settle outstanding invoices in accordance with the resolutions of
the Compensation Committee, dated February 24, 2011.



On
April 24, 2012, we issued the following common shares: (i) 507,000 additional shares to former employees, officers and consultants,
which vested immediately, in accordance with the resolutions of the Compensation Committee, dated April 6, 2012;(ii)
227,273 shares to Terra Stabile A.E. and 11,229 shares to Terra Norma SA in accordance with the resolutions of the Compensation
Committee, dated April 6, 2012, and the related settlement agreements for amounts due to them; (iii) 731,140 shares to J Mining
and Energy Group, Inc in accordance with the resolutions of the Board of Directors, dated April 5, 2012 and the related share
issuance agreement; (iv) 303,864 common shares to two vendors to settle outstanding invoices in accordance with the resolutions
of the Compensation Committee, dated April 6, 2012 and the related settlement agreements for amounts due to them; and (v) 750,000
common shares to one vendor to settle an outstanding balance in accordance with the resolutions of the Board of Directors, dated
April 17, 2012 and the related settlement agreement for amounts due to the vendor.



Employment Agreements and Severance
Agreements



We entered into
employment agreements with two of our executive officers, Nicholas G. Fistes, Chairman,
and Michail S. Zolotas, Deputy Chairman, Chief Executive Officer and President, which entitle each executive to an annual
base salary and an annual incentive bonus that is payable in common shares. We also entered into severance agreements with certain
of our key employees, other than Messrs. Fistes and Zolotas. See “Item 6.Directors,
Senior Management and Employees” for more details relating to the employment agreements and the severance agreements.



NASDAQ Compliance Notice



On March 15,
2012,wereceived notification from the NASDAQ Listing Qualifications department that we had regained
compliance with the minimum MVPHS of $5,000,000 for continued listing set forth in Listing Rule 5450(b)(1)(C) as our MVPHS was
$5,000,000 or more for 10 consecutive business days. Furthermore, on March 29, 2012, we received notification from the NASDAQ
Listing Qualifications department that we had regained compliance with the bid price requirement pursuant to NASDAQ Listing Rule
5810 (c)(3)(A) as the closing bid price of our common shares exceeded $1.00 for 10 consecutive business days.



Overview



General



The
legal and commercial name of the Company is NewLead Holdings Ltd., a company incorporated under the Bermuda Companies Act of 1981
on January 12, 2005. NewLead's principal place of business is 83 Akti Miaouli & Flessa Street, Piraeus Greece 185 38
and its telephone number is (30) 213-014-8600.



NewLead
Holdings Ltd. is an international shipping company engaged in the transportation of refined products, such as gasoline and jet
fuel, and dry bulk goods, such as iron ore, coal and grain. We currently operate a fleet of two double-hulled product tankers
(which are being negotiated for sale with our lenders) and three drybulk carriers (including one newbuilding for which, we are
currently in negotiations with the yard and the lender for its disposal) with a combined carrying capacity of approximately 0.39 million
dwt. We seek to provide our customers with safe, reliable and environmentally sound seaborne transportation services that meet
stringent internal and external standards while endeavoring to capitalize on the dynamics of the shipping industry.



63







In
October 2009, our predecessor company, Aries Maritime Transport Limited, underwent an approximately $400.0 million recapitalization
and installed new executive management. Upon the successful completion of these two initiatives, we subsequently changed our name
to NewLead Holdings Ltd.



Recently,
we have been engaged in restructuring discussions with our lenders to finalize the satisfaction and release of our obligations
under certain of our debt agreements and the amendment of the terms of certain other debt agreements. During 2011 and through
May 15, 2012, we have sold, disposed of or handed control over to our lenders a total of 17 of our vessels and hulls under construction
(or our ownership of the shipowning subsidiaries) in connection with our restructuring.



As
a result, as of May 15, 2012, we currently have two double-hulled product tankers and three dry bulk carriers. As of May15, 2012,we remain in advanced negotiations with several lenders of our secured debt. In addition we will issue common shares to
certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



We will continue
to have a high degree of indebtedness after the completion of our ongoing restructuring.



See
“Recent Developments” above.



We
have also entered into a joint venture for the purchase and trading of coal. See “Recent Developments” above.



64







A.
Operating results



The
following discussion solely reflects results from continuing operations, unless otherwise noted. See Note 25, "Discontinued
Operations", to our consolidated financial statements for a discussion of our discontinued operations.



Going
Concern



Over the past year, we have experienced
losses, working capital deficiency, negative operating cash flow and shareholders’ deficiency, which has affected, and which
we expect will continue to affect, our ability to satisfy our obligations. Charter rates for product tankers and bulkers have
experienced a high degree of volatility. Currently, charter rates for product tankers are significantly lower than applicable
historical averages and charter hire rates for bulkers, after showing signs of stabilization for a period, have declined to historical
lows.



Furthermore, recent economic conditions
have caused certain of our charterers to experience financial difficulties as well. This has resulted in an increase in the time
it takes for us to realize our receivables. In certain instances, our charterers have been unable to fulfill their obligations
under their charters. One of our charterers, who chartered three of our vessels during 2011, was having difficulty performing
its obligations and, since the end of March 2011, has been late on a number of payments causing us to arrest vessels which are
owned by the particular charterer and/or by such charterer’s affiliated companies on two occasions in order to collect payment.
In connection thereto and due to delayed payments by this charterer, we have withdrawn two of the vessels from their employment
during 2011 and the third vessel during 2012 and filed a claim for amounts already due as well as damages arising from cancelling
those employment contracts. These vessels were chartered out at rates significantly above market, and since we were forced to
reclaim and re-charter these vessels, we experienced a significant reduction in the cash flow from these vessels, which in turn
further impaired our liquidity.



As a result of the conditions set out
above, since June 2011, we have defaulted under each of our Financing Documents in respect of certain covenants (including, in
some cases, the failure to make amortization and interest payments, the failure to satisfy financial covenants and the triggering
of cross-default provisions). To date, we have not obtained waivers of these defaults from our lenders. During the Restructuring
process, our lenders have continued to reserve their rights in respect of such defaults other than those as detailed in this annual
report in respect of the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax
Syndicate Facility Agreements and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies at this
time, including demand for immediate payment; however, our lenders could change their position at any time. As such, there can
be no assurance that a satisfactory final agreement will be reached with all our lenders in the Restructuring Proposal, or at
all.



Due to the economic conditions and operational
difficulties described elsewhere in this annual report, we entered into restructuring discussions with the lenders under the Financing
Documents. As part of those discussions, we appointed Moelis to act as our financial advisors in respect of the overall Restructuring
Proposal.



On November 8, 2011, we and Moelis presented
to each of the lenders under the Financing Documents a commercial presentation which set out a comprehensive Restructuring Proposal.
The Restructuring Proposal included, among other things, proposed amendments to the Financing Documents (including amortization
relief and reset of financial covenants). We have been engaged in negotiations with our lenders regarding the terms of the Restructuring
Proposal but our lenders have not yet approved the Restructuring Proposal and such changes have not been implemented as of the
filing of this annual report. See “Item 3. Key Information—Recent Developments—Restructuring of Our Indebtedness”
for a discussion of the status of our restructuring negotiations.



During
2011 and through May 15, 2012, we have sold, disposed of or handed control over to our lenders a total of 17 of our vessels and
hulls under construction (or our ownership of the shipowning subsidiaries)in connection with our restructuring.As of May
15, 2012, we remain in advanced negotiations with several lenders of our secured debt. In addition we will issue common shares
to certain remaining lenders as part of their consideration for releasing us from all debt obligations arising under their respective
Financing Documents. We have not resolved various issues in respect of the remaining lenders and therefore the completion of the
Restructuring is still subject to the negotiation and execution of definitive agreements. As such, there is no assurance that
such agreements will be reached on the contemplated terms as highlighted herein or at all.





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



65









| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



We will continue to have a high degree
of indebtedness after the completion of our ongoing restructuring.



While we continue to use our best efforts
to complete the Restructuring, there can be no assurance that a successful resolution can be reached with our lenders or that
the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will obtain the releases
from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could materially and adversely
affect our business and operations and the impact of the final terms of any Restructuring is uncertain. Although the Restructuring,
if successful, will reduce our outstanding debt obligations, we will likely be issuing significant additional equity that will
dilute the existing shareholders. The dilution will not be determined until the final terms of the entire Restructuring is have
been finalized or, following such completion, if there are any contingent obligations. Such additional issuances, individually
or in the aggregate, will significantly impact the trading price of our common shares and may also impact our continued listing
on NASDAQ.



During the restructuring process, we will
most likely be unable to incur any additional indebtedness. Furthermore, it may continue to be difficult for us to incur additional
debt in commercially reasonable terms after the restructuring is completed, even if we are permitted to do so under our debt agreements.
This may limit our ability to pursue activities that our management considers to be beneficial to us, which may further impair
our financial condition.



Additionally, the ultimate accounting
impact of the Restructuring is unknown and will not be determined until the final terms of the Restructuring is reached between
the various lenders. Ultimately, we anticipate that our shareholder equity will be significantly impacted by the Restructuring,
which could negatively impact the trading of our common shares and our ability to remain listed on NASDAQ.



All of the above raises substantial doubt
regarding our ability to continue as a going concern.



Long-term debt and capital lease obligations
have been classified as current liabilities due to covenant violations that give the lender the right to call the debt at the
balance sheet date, absent waivers. Accordingly, as of December 31, 2011, we have reclassified all of our long term debt and capital
leases as current liabilities in our consolidated balance sheet, since we have not received waivers in respect of the covenants
that were breached at such time. The financial statements have been prepared assuming that we will continue as a going concern
and do not include any adjustments that might be necessary if we are unable to continue as a going concern.



66







Important
Factors to Consider When Evaluating Our Historical and Future Results of Operations



Charters



We have historically had many long-established
charter relationships which we believe are well regarded within the international shipping community. Our management's assessment
of a charterer's financial condition and reliability is an important factor in negotiating employment of our vessels. We have
established stringent requirements for selecting qualified charterers. We generate revenues by charging customers for the transportation
of oil and petroleum products in our product tankers business and for a wide array of unpackaged cargo in our dry bulk business
through various charter agreements. A time charter is a contract for the use of a vessel for a specific period of time during
which the charterer pays all of the voyage expenses, including port and canal charges and the cost of bunkers, but the vessel
owner pays the vessel operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs
of spares and consumable stores and tonnage taxes. Under a spot-market charter, the vessel owner pays both the voyage expenses
(less specified amounts covered by the voyage charterer) and the vessel operating expenses. Under both types of charters, we pay
commissions to ship brokers depending on the number of brokers involved with arranging the charter. Vessels operating in the spot-charter
market generate revenues that are less predictable than time charter revenues, but may enable us to capture increased profit margins
during periods of improvements in charter rates. As of May 14, 2012 we have 5 vessels, 3 of which are under sale negotiation.
Two of these three are not under charter and the third is a newbuild that has not been delivered, is in default and we are negotiating
its sale. Of the remaining two vessels, one is under a floating rate charter that expires in 2012 and the other under a fixed
charter that expires in 2013. For one of these latter 2 vessels, we are currently in negotiations with WestLB to amend the terms
of the loan agreement, whereby the agreement will be amended and restated to enable us to comply with certain of its covenants
on an ongoing basis after the closing of the Restructuring and enable the Newlead Victoria vessel to stay within the group.



We believe that our future results of
operations are largely driven by the economic, regulatory, political and governmental conditions that affect the shipping industry
generally and that affect conditions in countries and markets in which our vessels engage in business. Please read the section
titled "Risk Factors" for a discussion of certain risks inherent in our business.



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



|• | Market exposure: We manage the size and composition
    of our fleet by chartering our owned vessels to international charterers. In order to diversify our market risk, we attempt
    to achieve an appropriate balance of the composition of our vessels between wet and dry vessels.                                                                                                                                                                                                                                                                                                                                                                          
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | Available days: Available days are the total number of
    days a vessel is controlled by a company less the aggregate number of days that the vessel is off-hire due to scheduled repairs
    or repairs under guarantee, vessel upgrades or special surveys. The shipping industry uses available days to measure the number
    of days in a period during which vessels should be capable of generating revenues.                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | Operating days: Operating days are the number of available
    days in a period less the aggregate number of days that the vessels are off-hire due to any reason, including lack of demand
    or unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period
    during which vessels actually generate revenues.                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | Fleet utilization: Fleet utilization is obtained by dividing
    the number of operating days during a period by the number of available days during the period for the core vessels. The shipping
    industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing
    the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel
    upgrades, special surveys or vessel positioning.                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | Equivalent vessels: Equivalent vessels are equal to the
    available days of the fleet divided by the number of the calendar days in the respective period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | TCE rates: Time Charter Equivalent, or TCE, rates are
    defined as voyage, time charter and bareboat revenues, less voyage expenses and commissions during a period, divided by the
    number of available days during the period. The TCE rate is a standard shipping industry performance measure used primarily
    to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters,
    because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts, while charter rates
    for vessels on time charters generally are expressed in such amounts.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|• | Direct daily vessel operating expenses: Direct daily
    vessel operating expenses are defined as the sum of the vessel operating expenses, excluding provision for claims, and management
    fees, divided by the vessels calendar days.                                                                                                                                                                                                                                                                                                                                                                                                                        



67







Set forth below are our selected historical
and statistical unaudited data as of December 31, 2011 with respect to charter coverage for our fleet that we believe may be useful
in better understanding our financial position and results of operations.



|                                       |  | Successor                 |         |  | Predecessor               | 
|-------------------------------------- |  | ------------------------- | ------- |  | ------------------------- | 
|                                       |  | January 1 to December 31, |         |  | January 1 to December 31, | 
|                                       |  | 2011                      |         |  | 2010                      | 
|Available days                         |  |                           | 3,978   |  |                           | 
|Operating days                         |  |                           | 3,839   |  |                           | 
|Fleet utilization (1)                  |  |                           | 96.5%   |  |                           | 
|Fleet utilization dry sector(1)        |  |                           | 97.6%   |  |                           | 
|Fleet utilization wet sector(1)        |  |                           | 91.6%   |  |                           | 
|Equivalent vessels                     |  |                           | 10.9    |  |                           | 
|Time Charter Equivalent Rate           |  |                           | $16,513 |  |                           | 
|Direct daily vessel operating expenses |  |                           | $5,393  |  |                           | 



| | (1): | Fleet utilization for the years 2010 and 2009 excludes
                                                                    non-core vessels (the High Rider, the High Land, the Ostria,
                                                                    the Nordanvind and the Chinook)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Principal Factors that Affect Our
Shipping Business



The principal factors that affect
our financial position, results of operations and cash flows include:



| | • | charter rates and periods of
    charter hire;                                                                                                          
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                         
| | • | vessel operating expenses and voyage costs,
    which are incurred in both U.S. dollars and other currencies, primarily Euros;                          
| |   |                                                                                                                                                         
| | • | depreciation expenses, which are a function
    of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives
| |   |                                                                                                                                                         
| | • | impairment loss; and                                                                                                                                    
| |   |                                                                                                                                                         
| | • | financing costs related to our indebtedness.                                                                                                            



You should read
the following discussion together with the information contained in the table of vessel information under Item 4. "Information
on the Company — Business Overview — Our Fleet." Revenues from period charters are stable over the
duration of the charter, provided there are no unexpected or periodic survey off-hire periods and there are no performance claims
from the charterer or charterer defaults. We cannot guarantee that actual results will be as anticipated. The discussions hereafter
represent only our continuing operations, except where specifically mentioned.



Revenues



Revenues are
driven primarily by the number of vessels in the fleet, the number of days during which such vessels operate and the amount of
daily charter rates that the vessels earn under charters, which, in turn, are affected by a number of factors, including:



| | • | the duration of the charters;                           
| | - | --------------------------------------------------------
| |   |                                                         
| | • | the level of spot market rates at the time of charter;  
| |   |                                                         
| | • | decisions relating to vessel acquisitions and disposals;



68







| | • | the amount of time spent positioning vessels;                                         
| | - | --------------------------------------------------------------------------------------
| |   |                                                                                       
| | • | the amount of time that vessels spend in dry-dock undergoing
    repairs and upgrades;
| |   |                                                                                       
| | • | the age, condition and specifications of the vessels; and                             
| |   |                                                                                       
| | • | the aggregate level of supply and demand in the dry bulk shipping
    industry.       



Time charters
are available for varying periods, ranging from a single trip (spot charter) to long-term, which may be many years. In general,
a long-term time charter assures the vessel owner of a consistent stream of revenue. Operating the vessel in the spot market affords
the owner greater spot market opportunity, which may result in high rates when vessels are in high demand or low rates when vessel
availability exceeds demand. Vessel charter rates are affected by world economics, international events, weather conditions, strikes,
governmental policies, supply and demand, and many other factors that might be beyond the control of management.



Commissions



Commissions are
paid to brokers and are typically based on a percentage of the charter rate. A typical commission is 1.25% of the gross charter
hire/freight earned (including demurrage) for each broker involved in a fixture. We are currently paying aggregate commissions
ranging from 1.0% to 6.5% per vessel per fixture (including address commission, which represents money deducted from the charterer
at source).



Voyage Expenses



Voyage expenses
are incurred due to a vessel being en route from a loading port to a discharging port, to repair facilities or on a repositioning
voyage, and include fuel (bunkers) cost, port expenses, agent's fees, canal dues and extra war risk insurance. Under time charters,
the charterer is responsible for paying voyage expenses while the vessel is on hire.



General and Administrative Expenses



These expenses
include executive and director compensation (inclusive of shares granted), staff wages, legal fees, audit fees, liability insurance
premium and Company administration costs.



Vessel Operating Expenses



Vessel operating
expenses are the costs of operating a vessel, primarily consisting of crew wages and associated costs, insurance premiums, lubricants
and spare parts, and repair and maintenance costs. Vessel operating expenses exclude fuel cost, port expenses, agents' fees, canal
dues and extra war risk insurance, which are included in "voyage expenses."



Certain vessel
operating expenses are higher during the initial period of a vessel's operation. Initial daily vessel operating expenses are usually
higher than normal as newly acquired vessels are inspected and modified to conform to the requirements of our fleet.



Under multi-year
time charters and under short-term time charters, we pay for vessel operating expenses. Under bareboat charters, our charterers
bear most vessel operating expenses, including the costs of crewing, insurance, surveys, dry-dockings, maintenance and repairs.



Impairment



In
the event of impairment of an asset group, the fair value of the related long-lived asset is determined and an impairment charge
is recorded to operations calculated by comparing the asset’s carrying value to its fair value. Fair value is estimated
primarily through the use of third-party valuations performed on an individual asset group basis.



69







Depreciation



Depreciation
is the periodic cost charged to our income for the reduction in usefulness and long-term value of our vessels. We depreciate the
cost of our vessels over 25 to 30 years on a straight-line basis. No charge is made for depreciation of vessels under construction
until they are delivered.



Amortization
of Special Survey and Dry-docking Costs



Our
vessels are subject to regularly scheduled dry-docking and special surveys, which are carried out every 30 or 60 months to
coincide with the renewal of the related certificates issued by the Classification Societies, unless a further extension is obtained
in rare cases and under certain conditions. The costs of dry-docking and special surveys (mainly shipyard costs, paints and class
renewal expenses) are deferred and amortized over the above periods or to the next dry-docking or special survey date if such
date has been determined. Costs incurred during the dry-docking period relating to routine repairs and maintenance are expensed.
The unamortized portion of special survey and dry-docking costs for vessels sold is included as part of the carrying amount of
the vessel in determining the gain/(loss) on sale of the vessel.



Interest
and Finance Expenses



Interest
expenses include interest, commitment fees, arrangement fees, amortization of deferred financing costs, amortization of the debt
discount and other similar charges. Interest incurred during the construction of a newbuilding is capitalized in the cost of the
newbuilding. The amount of interest expense is determined by the amount of loans and advances outstanding from time to time and
interest rates. The effect of changes in interest rates may be reduced (increased) by interest rate swaps or other derivative
instruments. We use interest rate swaps to economically hedge our interest rate exposure under our loan agreements.





Change
in Fair Value of Derivatives



At
the end of each quarter, the fair values of our interest rate swaps are valued to market. Changes in the fair value between quarters
are recognized in the statements of operations.



Foreign
Exchange Rates



Foreign
exchange rate fluctuations, particularly between the Euro and the U.S. dollar, have had a minimal impact on our vessel operating
expenses and administrative expenses. We actively seek to manage such exposure. Close monitoring of foreign exchange rate trends,
maintaining foreign currency accounts and buying foreign currency in anticipation of our future requirements are the main ways
we manage our exposure to foreign exchange risk. See below Item 11. “Quantitative and Qualitative Disclosures about Market
Risk” under “Foreign Exchange Rates."



Critical
Accounting Policies (Restated)





NewLead's
consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated
financial statements requires NewLead Holdings Ltd. to make estimates in the application of its accounting policies based on the
best assumptions, judgments and opinions of management. The following is a discussion of the accounting policies that involve
a higher degree of judgment and the methods of their application that affect the reported amount of assets and liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities at the date of its consolidated financial statements.
Actual results may differ from these estimates under different assumptions or conditions.



Critical
accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different
results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies,
because they generally involve a comparatively higher degree of judgment in their application. For a description of our significant
accounting policies, please refer to Note 2 of our consolidated financial statements included herein.



70







Use
of estimates





The
preparation of consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as
of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an
ongoing basis, management evaluates the estimates and judgments, including those related to future dry-dock dates, the selection
of useful lives for tangible and intangible assets, expected future cash flows from long-lived assets to support impairment tests,
expected future cash flows from reporting units to support goodwill impairment tests, provisions necessary for accounts receivables,
provisions for legal disputes, and contingencies. Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates under different assumptions and/or conditions.



Vessels
and Other Fixed Assets, net



Vessels
are stated at cost, which consists of the contract price, delivery and acquisition expenses, interest cost while under construction,
and, where applicable, initial improvements. Vessels acquired through an asset acquisition or through a business combination are
stated at fair value. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably
extend the life, increase the earnings capacity or improve the efficiency or safety of a vessel; otherwise, these amounts are
charged to expenses as incurred.



Depreciation
of a vessel is computed using the straight-line method over the estimated useful life of the vessel, after considering the estimated
salvage value of the vessel. Each vessel's salvage value is equal to the product of its lightweight tonnage and estimated scrap
value per lightweight ton. Management estimates the useful life of our vessels to be at a range of 25 to 30 years from the
date of its initial delivery from the shipyard.



However,
when regulations place limitations over the ability of a vessel to trade, its useful life is adjusted to end at the date such
regulations become effective.



Fixed
assets are stated at cost. The cost and related accumulated depreciation of fixed assets sold or retired are removed from the
accounts at the time of sale or retirement and any gain or loss is included in the accompanying statement of operations.



Impairment
of Long-lived Assets



Long-lived
assets and certain identifiable intangibles held and used by an entity are required to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the future net undiscounted
cash flows from the assets are less than the carrying values of the asset, an impairment loss is recorded equal to the difference
between the asset's carrying value and its fair value.



Undiscounted
projected net operating cash flows are determined for each asset group and compared to the carrying value of the vessel and related
carrying value of the intangible (backlog asset and deferred charter revenue) with respect to the time charter agreement attached
to that vessel or the carrying value of deposits for newbuildings. Within the shipping industry, vessels are customarily bought
and sold with a charter attached. The value of the charter may be favorable (backlog asset) or unfavorable (deferred charter revenue)
when comparing the charter rate to then current market rates. The loss recognized either on impairment (or on disposition) will
reflect the excess of carrying value over fair value (selling price) for the vessel asset group. For vessels under construction,
the net estimated cash flows also includes the future cash outflows to make vessels ready for use, all remaining progress payments
to shipyards and other pre-delivery expenses (e.g. capitalized interest).



The significant
factors and assumptions we use in the undiscounted projected net operating cash flow analysis included, among others, operating
revenues, off-hire revenues, dry-docking costs, operating expenses and management fee estimates. Revenue assumptions are based
on a number factors for the remaining life of the vessel: (a) contracted time charter rates up to the end of life of the current
contract of each vessel, (b) the most recent ten-year average historical one-year time charter rates (adjusted for market conditions),
(c) the respective vessel's age as well as considerations such as scheduled and unscheduled off-hire days based on historical
experience and (d) the likelihood of the sale of the asset group. Operating expense assumptions included an annual escalation
factor. All estimates we use and assumptions made are in accordance with our historical experience.



The current assumptions
used and the estimates made are highly subjective, and could be negatively impacted by further significant deterioration in charter
rates or vessel utilization over the remaining life of the vessels, which could require us to record a material impairment charge
in future periods. We performed an impairment assessment of the long-lived assets groups (i) as of September 30, 2009, (ii) as
of December 31, 2009, (iii) during the years ended December 31, 2011, and 2010, when certain vessels were disposed of, (iv) as
of December 31, 2010 and (v) as of December 31, 2011.For certain asset groups as of December
31, 2011, the future net undiscounted cash flows from the assets were less than the carrying values of the assets and, therefore,
were adjusted to fair value. For the year ended December 31, 2011, we recorded an impairment charge totaling $73.3 million
in continuing operations on eleven of the thirteen vessels that were held and used as of December 31, 2011. In addition, an impairment
charge in continuing operations of $43.2 million was recorded on back log assets, and an impairment charge in continuing operations
of $5.5 million was recorded on vessels under construction. For two of the four vessels that qualified as assets held for sale
as of December 31, 2011, the vessels were adjusted to their fair value as of December 31, 2011, and a total impairment charge
of $30.4 million was recorded within Loss from discontinued operations (see Note 11 of our consolidated financial statements).
For the year ended December 31, 2010, we recorded an impairment charge on vessels in the amount of $15.6 million, which were recorded
within continuing operations. Our impairment analysis as of December 31, 2009 did not result in an impairment loss. The impairment
analysis as of September 30, 2009 resulted in an impairment loss of $40.9 million from continuing operations and $50.7 million
from discontinued operations for the period from January 1, 2009 to October 13, 2009.



71







Deferred
Dry-docking and Special Survey Costs



Our
vessels are subject to regularly scheduled dry-docking and special surveys, which are carried out every 30 or 60 months to
coincide with the renewal of the related certificates issued by the Classification Societies, unless a further extension is obtained
in rare cases and under certain conditions. The costs of dry-docking and special surveys are deferred and amortized over the above
periods or to the next dry-docking or special survey date if such date has been determined. Costs incurred during the dry-docking
period relating to routine repairs and maintenance are expensed. Unamortized dry-docking or special survey costs of vessels sold
are written off to income in the year the vessel is sold. The unamortized portion of special survey and dry-docking costs for
vessels sold is included as part of the carrying amount of the vessel in determining the gain/(loss) on sale of the vessel.



Share-based
compensation



Share-based
compensation reflects grants of common shares, restricted common shares and share options approved by the board of directors.
The restricted common shares and share option awards are subject to applicable vesting and unvested common shares and options
may be forfeited under specified circumstances. The fair values of share option grants have been calculated based on the Binomial
lattice model method. The fair value of common share grants is determined by reference to the quoted share price on the date of
grant.



Trade
Receivables, net and Other Receivables



The
amount shown as trade receivables, net at each balance sheet date includes estimated recoveries from charterers for hire, freight
and demurrage billings, net of allowance for doubtful accounts. An estimate is made of the allowance for doubtful accounts based
on a review of all outstanding amounts at each period, and an allowance is made for any accounts which management believes are
not recoverable. Bad debts are written off in the year in which they are identified. The allowance for doubtful accounts at December 31,
2011 and 2010 amounted to $1.6 million and $1.4 million, respectively, which relates to continued and discontinued operations.



Revenue
Recognition



Revenues
are generated by chartering our vessels to our charterers to transport petroleum products and wide array of unpackaged cargo.
In recognizing revenue, we are required to make certain estimates and assumptions. Historically, differences between our estimates
and actual results have not been material to our financial results.



We
have provided services to our customers under the following types of contractual relationships:



Voyage
Charters, which are contracts made in the spot market for the use of a vessel for a specific voyage at a specified charter
rate.



Time
Charters, which are contracts for the use of a vessel for a fixed period of time at a specified daily rate. All expenses related
to the time charter voyages are assumed by the charterers.



Bareboat
Charters, which are contracts pursuant to which the vessel owner provides the vessel to the charterer for a fixed period of
time at a specified daily rate, and the customer provides for all of the vessel's operating expenses including crewing repairs,
maintenance, insurance, stores lube oils and communication expenses in addition to the voyage costs (with the exception of commissions)
and generally assumes all risks of operation.



Profit
sharing represents our portion of the excess of the actual net daily charter rate earned by our charterers from the employment
of our vessels over a predetermined base charter rate, as agreed between us and our charterers. Such profit sharing is recognized
in revenue when mutually settled.



72







Fair
Value of Financial Instruments



We
have entered into various interest rate swaps agreements in order to economically hedge interest expense arising from our long-term
borrowings detailed in Note 21 of our consolidated financial statements included herein. Under the interest rate swaps, we
agree with the counter-party to exchange, at specified intervals, the difference between a fixed rate and floating rate interest
amount calculated by reference to the agreed notional amount. In determining the fair value of interest rate swaps, a number of
assumptions and estimates are required to be made. These assumptions include future interest rates.



These
assumptions are assessed at the end of each reporting period based on available information existing at that time. Accordingly,
the assumptions upon which these estimates are based are subject to change and may result in a material change in the fair value
of these items.



The
7% Notes have two embedded conversion options — (1) an "Any time" conversion option and (2) a
"Make Whole Fundamental Change" conversion option, which gives the holder 10% more shares upon conversion, in certain
circumstances.



(1) The
"Any time" conversion option meets the definition of a derivative under the Financial Accounting Standards Board's,
or FASB, Accounting Standard Codification, or ASC, 815; however, this embedded conversion option meets the ASC 815-10-15
scope exception, as it is both (a) indexed to its own stock and (b) would be classified in shareholders’ equity,
if freestanding. As a result, this conversion option is not bifurcated and separately accounted for and is not recorded as a derivative
financial instrument liability.



(2) The
"Make Whole Fundamental Change" conversion option meets the definition of a derivative under ASC 815. However,
this embedded conversion option does not meet the ASC 815-10-15 scope exception, since this conversion option cannot be considered
indexed to its own stock. As a result, the conversion option has been bifurcated from the host contract, the 7% Notes, and
separately accounted for and is recorded as a derivative financial instrument liability. This conversion option expired in 2011.



The
market price of our common shares on the date of issuance of the 7% Notes was $15.24 and the stated conversion price is $9.00
per share. Since the "any time" conversion option has not been bifurcated, we recorded a BCF totaling $100.5 million,
as a contra liability (discount) to the 7% Notes that will be amortized into the income statement (via interest charge) over the
life of the 7% Notes. For the years ended December 31, 2011 and 2010, and for the period from October 14, 2009
to December 31, 2009, $8.2 million, $5.9 million and $14.9 million, respectively, of amortized BCF non-cash
interest was expensed in the consolidated statement of operations.



Purchase
of Vessels



When
we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible
and intangible assets or liabilities at fair value. Fair value is determined by reference to market data.We value any
asset or liability arising from the time or bareboat charters assumed based on the market value at the time a vessel is acquired.
The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current
fair value of a charter with similar characteristics as the time or bareboat charter assumed and the net present value of future
contractual cash flows from the time or bareboat charter contract assumed. When the net present value of the time or bareboat
charter assumed is greater than the current fair value of a charter with similar characteristics, the difference is recorded as
a backlog asset. When the net present value of the time or bareboat charter assumed is lower than the current fair value of a
charter with similar characteristics, the difference is recorded as deferred charter revenue. Such assets and liabilities, respectively,
are amortized as an increase in, or a reduction of, “Depreciation and Amortization Expense” over the remaining period
of the time or bareboat charters acquired.The determination of the fair value of acquired
assets and assumed liabilities requires us to make significant assumptions and estimates of many variables including market charter
rates, expected future charter rates, future vessel operating expenses, the level of utilization of our vessels and our weighted
average cost of capital. The use of different assumptions could result in a material change in the fair value of these items,
which could have a material impact on our financial position and results of operations.



Goodwill



We evaluate goodwill for impairment using
a two-step process. First, the aggregate fair value of the reporting unit is compared to its carrying amount, including goodwill.
We determine the fair value based on a discounted cash flow analysis.



If the fair value of the reporting unit
exceeds its carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds its fair value, then we
must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it with
its carrying amount. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all
the assets and liabilities of that reporting unit, as if the reporting unit had been acquired in a business combination and the
fair value of the reporting unit was the purchase price. If the carrying amount of the goodwill exceeds its implied fair value,
then a goodwill impairment is recognized by writing the goodwill down to the implied fair value.



Results
of Continuing Operations



The
following discussion solely reflects results from continuing operations, unless otherwise noted. See Note 25, "Discontinued
Operations", to our consolidated financial statements for a discussion of our discontinued operations.



Year
Ended December 31, 2011 and Year Ended December 31, 2010



The
following table presents consolidated revenue and expense information for the years ended December 31, 2011and December 31, 2010.
This information was derived from the consolidated revenue and expense accounts of the Company for the respective years.



73







|                                          |  | Year Ended
    December 31,
    2011 |           |   | Year Ended
    December 31,
    2010 |  
|----------------------------------------- |  | ------------------------------------ | --------- | - | ------------------------------------ | -
|                                          |  |                                      |           |   | (Restated)                           |  
|OPERATING REVENUES                        |  | $                                    | 68,637    |   |                                      | $
|                                          |  |                                      |           |   |                                      |  
|EXPENSES:                                 |  |                                      |           |   |                                      |  
|Commissions                               |  |                                      | (1,072    | ) |                                      |  
|Voyage expenses                           |  |                                      | (2,154    | ) |                                      |  
|Vessel operating expenses                 |  |                                      | (23,542   | ) |                                      |  
|General and administrative expenses       |  |                                      | (20,541   | ) |                                      |  
|Depreciation and amortization expenses    |  |                                      | (31,695   | ) |                                      |  
|Impairment losses                         |  |                                      | (203,683  | ) |                                      |  
|Loss / (gain) on sale from vessels, net   |  |                                      | (208      | ) |                                      |  
|Management fees                           |  |                                      | -         |   |                                      |  
|                                          |  |                                      | (282,895  | ) |                                      |  
|                                          |  |                                      |           |   |                                      |  
|Operating loss from continuing operations |  |                                      | (214,258  | ) |                                      |  
|                                          |  |                                      |           |   |                                      |  
|OTHER (EXPENSES) / INCOME, NET:           |  |                                      |           |   |                                      |  
|Interest and finance expense              |  |                                      | (44,261   | ) |                                      |  
|Interest income                           |  |                                      | 207       |   |                                      |  
|Other  income / (expense), net            |  |                                      | 97        |   |                                      |  
|Change in fair value of derivatives       |  |                                      | -         |   |                                      |  
|                                          |  |                                      |           |   |                                      |  
|Total other expenses, net                 |  |                                      | (43,957   | ) |                                      |  
|                                          |  |                                      |           |   |                                      |  
|Loss from continuing operations           |  |                                      | (258,215  | ) |                                      |  
|                                          |  |                                      |           |   |                                      |  
|Loss from discontinued operations         |  |                                      | (32,180   | ) |                                      |  
|                                          |  |                                      |           |   |                                      |  
|Net loss                                  |  | $                                    | (290,395  | ) |                                      | $
|                                          |  |                                      |           |   |                                      |  
|Loss per share:                           |  |                                      |           |   |                                      |  
|Basic and diluted                         |  |                                      |           |   |                                      |  
|Continuing operations                     |  | $                                    | (34.84    | ) |                                      | $
|Discontinued operations                   |  | $                                    | (4.34     | ) |                                      | $
|Total                                     |  | $                                    | (39.18    | ) |                                      | $
|                                          |  |                                      |           |   |                                      |  
|Weighted average number of shares:        |  |                                      |           |   |                                      |  
|Basic and diluted                         |  |                                      | 7,411,600 |   |                                      |  



Revenues



For
the year ended December 31, 2011, operating revenues were $68.6 million, compared to $57.9 million for the year ended
December 31, 2010. The increase in revenue was attributable primarily to the 13.3% growth in our fleet (due to the newbuilt deliveries
and acquisition of vessels) and the corresponding increase in available and operating days by 18.0% and 33.9%, respectively. As
a result, we had on average 11.1 vessels in operation for the year ended December 31, 2011, compared to 9.8 vessels in operation
in the year ended December 31, 2010. For the years ended December 31, 2011 and December 31, 2010, our time charter equivalent
(TCE) rates were $16,513 per day and $15,302 per day, respectively. Such increase reflected the favorable charters attached
to the new vessels that were incorporated into our fleet which was partially offset by the decrease in the market charter rates
of the existing vessels.



74







Fleet
utilization for the years ended December 31, 2011 and December 31, 2010remained stable at 96.5%. Fleet utilization for the year
ended December 31, 2011 was suppressed by 56 unemployment days, which was mainly attributable to the adverse conditions in the
tanker market and the corresponding decrease in demand. During the years 2011 and 2010, 97.2% and79.6% of our fleet, respectively,
was fixed on time charters.



Commissions



Chartering
commissions decreased to $1.1 million for the year ended December 31, 2011, compared to $1.2 million during the year ended
December 31, 2010.The decrease corresponds mainlyto the decreased
number of vessels that operated on the spot market during the year ended December 31, 2011 as compared to the same period in 2010,
since commissions on the spot market are higher than commissions for time charters.



Voyage
Expenses



Voyage
expenses were $2.2 million during the year ended December 31, 2011, compared to $5.7 million during the year ended December
31, 2010. The decrease was mainly attributable to the decreased number of vessels that operated on the spot market, since voyage
expenses are only incurred on spot market vessels.



Vessel
Operating Expenses



Vessel
operating expenses were $23.5 million during the year ended December 31, 2011, compared to $24.5 million during the
year ended December 31, 2010. This decrease is mainly attributable to a 19.9% reduction in our direct daily vessel operating expenses,
to $5,393 in the twelve months of 2011 from $6,733 in the twelve months of 2010, mainly related to the better efficiencies arising
from bringing the technical management in-house, which was offset by the18.0% and 33.9% growth in the available and operating
days, respectively, as a result of the growth of our fleet.



General
and Administrative Expenses



General
and administrative expenses were $20.5 million during the year ended December 31, 2011, compared to $15.5 million during
the year ended December 31, 2010. The increase is mainly attributable to legal and consultancy fees related to restructuring which
was partially offset by the one-off transaction costs of $1.3 million that were incurred in the year ended December 31, 2010,
mainly relating to the acquisition of new vessels.



Depreciation
and Amortization



Depreciation
and amortization was $31.7 million during the year ended December 31, 2011, compared to $22.2 million during the year
ended December 31, 2010. This increase reflected the 13.3% increase in operating fleet growth, as well as the amortization of
the intangible assets created as a result of the 2010 asset acquisitions.



Impairment
Loss



In
light of the market conditions along with company-specific conditions that existed in the years of 2011 and 2010, we evaluated
the carrying amounts of our long-lived assets during and at the end of each of those periods. We recognized an impairment loss
of $122.1 millionon our long-lived assets (vessels and intangibles) in
the year ended December 31, 2011. Following our decision in 2010, to sell our non-core fleet, memorandums of agreements were signed
for the sale of five such vessels. Accordingly, for the year ended December 31, 2010, we recorded an impairment loss of $15.7 millionon our long-lived assets based on the future cash flows that these
vessels expected to generate as a consequence of the sale.



Moreover,
we evaluated the recoverability of goodwill in our reporting units, and we recognized an impairment loss of $54.0 million in the
wet reporting unit and of $27.6 in the dry reporting unit for the year ended December 31, 2011 which fully wrote-off goodwill
compared to $18.7 million of impairment loss in the wet reporting unit for the year ended December 31, 2010.



Furthermore,
in the third quarter of 2010, we entered into an agreement for the acquisition of one 2006 built, 37,582 dwt, MR1 Tanker
for approximately $31.8 million, which was to be delivered in the fourth quarter of 2010. On
December 1, 2010, we cancelled such agreement and subsequently agreed to the full and final settlement of all the claims
under the subject sale and purchase contract. In compliance with the terms and conditions of this settlement agreement, dated
December 21, 2010, we released to the sellers the deposit of $3.2 million, and further incurred a termination fee of $1.9 million
which was paid in January2011. As a consequence of the foregoing charges, the aggregate impairment loss for the year ended December
31, 2010 was $39.5 million.



Gain / (loss) on sale from vessels,
net



As a result of
the sale and leaseback transaction related to the Newlead Endurance, we recognized a loss of $0.2 million in the year ended December
31, 2011 compared to a net gain of $0.7 million in the year ended December 31, 2010. The latter consisted of a
gain of $1.1 million recorded as a result of the divestiture of the three non-core vessels in September 2010. This gain was partially
offset by a loss of $0.4 million, recognized on vessel Brazil as a
result of its sale and leaseback transaction.



75







Management
Fees



Management
fees were zero for the year ended December 31, 2011, compared to $0.8 million during the year ended December 31, 2010. The
decrease was due to bringing in-house the technical management of our vessels.



Interest
and Finance Expense / Interest Income (Restated)



|                                                                       |  | Year ended December 31,
    2011 |      |   | Year ended December 31,
    2010 |  
|---------------------------------------------------------------------- |  | -------------------------------- | ---- | - | -------------------------------- | -
|                                                                       |  |                                  |      |   | (Restated)                       |  
|Interest expense excluding change in fair value of interest rate swaps |  | $                                | 29.3 |   |                                  | $
|Other finance expenses                                                 |  |                                  | 7.9  |   |                                  |  
|                                                                       |  |                                  | 37.2 |   |                                  |  
|Amortization of the beneficial conversion feature                      |  |                                  | 8.2  |   |                                  |  
|Change in fair value of interest rate swaps                            |  |                                  | (1.1 | ) |                                  |  
|                                                                       |  |                                  | 7.1  |   |                                  |  
|Interest and finance expense                                           |  | $                                | 44.3 |   |                                  | $



Interest
and finance expense was $44.3 million during the year ended December 31, 2011, compared to $28.7 million during the
year ended December 31, 2010. The expense for 2011 included a $8.2 million non-cash charge from the amortization of the BCF
embedded in the 7% Notes. Excluding the amortization of the beneficial conversion feature and a $1.1 million gain from the
change in the fair value of our interest rate swaps, interest and finance expenses were $37.2 million, reflecting$500.6
million of indebtedness as of December 31, 2011, which is net of the
$71.6 million of unamortized BCF related to the $125.0 million of 7% Notes.
Furthermore, during the year ended December 31, 2011, we received interest income of $0.2 million. The expense for 2010 included
a $5.9 million non-cash charge from the amortization of the BCF embedded in the 7% Notes. Excluding the amortization of the
BCF and $4.0 million gain from the change in the fair value of our interest rate swaps, interest and finance expenses were
$26.8 million, reflecting $578.0 million of indebtedness as of December 31, 2010 (net of the $79.8 million of
unamortized BCF related to the $125.0 million of 7% Notes),which included,
among other things, approximately $298.5 million in loans assumed and drawdowns during the year ended December 31, 2010 related
to fleet growth and our newbuilding program,$49.0 million related to the drawdown of the $62.0 million revolving credit
facility, as well as the $2.4 million net proceeds from the sale and leaseback transaction.
Furthermore, during the year ended December 31, 2010, we received interest income of $0.6 million.



Change
in Fair Value of Derivatives



The
mark to market of the fair value of warrants classified as liabilitiesduring the year ended December 31, 2010 resulted in an unrealized gain of $1.6 million.No such amount was applicable
for the year ended December 31, 2011because thewarrants are classified
as equity in year 2011.



Loss
from discontinued operations



Loss
from discontinued operations was $32.2 million for the year ended December 31, 2011, compared to $9.1 million for the year ended
December 31, 2010. Such increase was attributed to $30.4 million impairment losses recognized in the year ended December 31, 2011,
a reduction from operational activities of $8.7 million and an increase in interests and finance expenses of $2.6 million, which
was partially offset by reduced depreciation and amortization expenses of $5.2 million, as well as by an increased gain on sale
of vessels of $13.4 million.



Net
Loss



Loss
from continuing operations was $258.2 million for the year ended December 31, 2011, compared to $77.3 million for the
year ended December 31, 2010.



The
net loss for the years ended December 31, 2011 and 2010 was $290.4 million and $86.3 million, respectively. This
loss included loss from discontinued operations of$32.2 million and $9.1 million in the years ended December 31, 2011
and 2010, respectively, which were related primarily to: (i)our restructuring process which resulted in the sale of certain tanker
and dry bulk vessels and(ii) our strategic decision to exit from the container market.



76













Year
Ended December 31, 2010 and Year Ended December 31, 2009 (Restated)



Comparison
between these two years is of limited value as a result of the recapitalization on October 13, 2009. The period from
January 1, 2009 to October 13, 2009 (prior to the recapitalization) is reported as the predecessor period and the period from
October 14, 2009 to December 31, 2009 (after the recapitalization) is reported as the successor period.



As
a result of the recapitalization and the fair value adjustments to the predecessor assets and liabilities, the successor and predecessor
periods are not comparable.



The
following table presents consolidated revenues and expenses information for the year ended December 31, 2010 and the periods January
1, 2009 to October 13, 2009 and October 14, 2009 to December 31, 2009. This information was derived from the consolidated revenues
and expenses accounts of the Company for the respective years/periods.





|                                          |  | Successor                   |           |   | Predecessor                 |  
|----------------------------------------- |  | --------------------------- | --------- | - | --------------------------- | -
|                                          |  | Year Ended
    December 31, |           |   | October 14, to December 31, |  
|                                          |  | 2010                        |           |   | 2009                        |  
|                                          |  | (Restated)                  |           |   | (Restated)                  |  
|OPERATING REVENUES                        |  | $                           | 57,926    |   |                             | $
|                                          |  |                             |           |   |                             |  
|EXPENSES:                                 |  |                             |           |   |                             |  
|Commissions                               |  |                             | (1,182    | ) |                             |  
|Voyage expenses                           |  |                             | (5,740    | ) |                             |  
|Vessel operating expenses                 |  |                             | (24,486   | ) |                             |  
|General and administrative expenses       |  |                             | (15,455   | ) |                             |  
|Depreciation and amortization expenses    |  |                             | (22,185   | ) |                             |  
|Impairment losses                         |  |                             | (39,515   | ) |                             |  
|Gain on sale from vessels                 |  |                             | 745       |   |                             |  
|Management fees                           |  |                             | (807      | ) |                             |  
|                                          |  |                             | (108,625  | ) |                             |  
|                                          |  |                             |           |   |                             |  
|Operating loss from continuing operations |  |                             | (50,699   | ) |                             |  
|                                          |  |                             |           |   |                             |  
|OTHER (EXPENSES) / INCOME, NET:           |  |                             |           |   |                             |  
|Interest and finance expense              |  |                             | (28,723   | ) |                             |  
|Interest income                           |  |                             | 547       |   |                             |  
|Other (expense) / income, net             |  |                             | (3        | ) |                             |  
|Change in fair value of derivatives       |  |                             | 1,592     |   |                             |  
|                                          |  |                             |           |   |                             |  
|Total other expenses, net                 |  |                             | (26,587   | ) |                             |  
|                                          |  |                             |           |   |                             |  
|Loss from continuing operations           |  |                             | (77,286   | ) |                             |  
|                                          |  |                             |           |   |                             |  
|Loss from discontinued operations         |  |                             | (9,063    | ) |                             |  
|                                          |  |                             |           |   |                             |  
|Net loss                                  |  | $                           | (86,349   | ) |                             | $
|                                          |  |                             |           |   |                             |  
|Loss per share:                           |  |                             |           |   |                             |  
|Basic and diluted                         |  |                             |           |   |                             |  
|Continuing operations                     |  | $                           | (11.11    | ) |                             | $
|Discontinued operations                   |  | $                           | (1.30     | ) |                             | $
|Total                                     |  | $                           | (12.41    | ) |                             | $
|                                          |  |                             |           |   |                             |  
|Weighted average number of shares:        |  |                             |           |   |                             |  
|Basic and diluted                         |  |                             | 6,958,903 |   |                             |  





77









Revenues



For
the year ended December 31, 2010, operating revenues were $57.9 million, and for the periods from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009, operating revenues were $14.5 million and $7.3 million,
respectively.The increase in revenue was attributable primarily to the 81.5% growth in our fleet and the corresponding
increase in available and operating days by 131.6% and 146.0%, respectively, reflecting our initiatives to continue the fleet
expansion strategy and bring operational, commercial and technical management capabilities in-house.As a result, we had on average 9.8 vessels in operation for the year ended December 31, 2010, and for the periods from January 1,
2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, we had on average five and seven vessels
in operation, respectively. For the year ended December 31, 2010, and for the periods from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009, our TCE rates were $15,302 per day, $6,611 per day and$11,615 per
day, respectively. Such increase in TCE rates reflectsthe favorable charters attached to the vessels that were incorporated
in our fleet, which was partially offset by the decrease in the charter rates of the vessels operating on the spot market.



Fleet utilization
excluding non-core vessels for the year ended December 31, 2010, and for the periods from
January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009,were 96.5%, 0%
and 100%, respectively. Fleet utilization excluding non-core vessels for year ended December 31, 2010 was suppressed by 5unemployment
days. During the year ended December 31, 2010 and for the periods from January 1, 2009
to October 13, 2009 and from October 14, 2009 to December 31, 2009, 99.8%, 0% and 100%, respectively, of
our fleet (excluding non-core vessels) was fixed on time charters.



Commissions



Chartering
commissions were $1.2 million during the year ended December 31, 2010, and $0.4 million and $0.2 million for the periods
from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively, which
corresponds to the increase in revenue (as previously discussed).



Voyage
Expenses



Voyage
expenses were $5.7 million during the year ended December 31, 2010, and $6.1 million and $2.2 million for the periods
from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively. The
decrease was mainly attributable to the decrease in the number of days for vessels operating on the spot market has decreased
to 687 days in the year ended December 31, 2010 from 753 days and 271 days for the periods
from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively.



Vessel
Operating Expenses



Vessel
operating expenses were $24.5 million during the year ended December 31, 2010, and $15.3 million and $4.6 million for the
periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively,
reflecting the 131.6% and 146.0% growth in the available and operating days, respectively,
as a result of the growth of our fleet. Excluding provision for claims, vessel operating expenses were $23.5 million for
the year ended December 31, 2010,and $15.0 million and $4.6 million for the
periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively.
While the operating expenses increased in total, our direct daily vessel operating expenses decreased to $6,733 in the twelve
months of 2010 from $10,895 and $8,647 for the periods from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009, respectively, due to the integration of operational, commercial
and technical management since the second quarter of 2010, as well as incremental expenses that occurred in the third quarter
of 2009 related to extensive vessel main machinery repairs.



General
and Administrative Expenses



General
and administrative expenses were $15.5 million during the year ended December 31, 2010, and $8.4 million and $11.9 million
for the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively.
Excluding transaction costs, mainly relating to the dropdown transactions and the 2009 recapitalization, general
and administrative expenses were $14.2 million for year ended December 31, 2010, and $4.9 million and $3.0 million for the periods
from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively, reflecting
our growth, particularly the 211% increase in the number of personnel.



Depreciation
and Amortization



Depreciation
and amortization was $22.2 million during the year ended December 31, 2010, and $6.3 million and $1.5 million for the
periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively,
reflecting the 81.5% increase in operating fleet growth, as well as the amortization of the intangible assets created as
a result of the recapitalization in 2009 and the business and asset acquisitions in 2010.





78









Impairment
Losses



In
light of current market conditions, we evaluated the carrying amounts of our long-lived assets. Following our decision to sell
our non-core fleet, memorandums of agreements were signed for the sale of five such vessels during the year ended December 31,
2010. Accordingly, we recorded an impairment loss of $15.7 million based on the future cash flows that these vessels expected
to generate. All five vessels were sold during the year ended December 31, 2010. Moreover, we evaluated the recoverability of
goodwill in our reporting units and we recognized an impairment loss of $18.7 million in the wet reporting unit. Furthermore,
in the third quarter of 2010, we entered into an agreement for the acquisition of one 2006 built, 37,582 dwt, MR1 Tanker
for approximately $31.8 million, which was to be delivered in the fourth quarter of 2010. On
December 1, 2010, we cancelled such agreement and subsequently agreed to the full and final settlement of all the claims
under the subject sale and purchase contract. In compliance with the terms and conditions of this settlement agreement, dated
December 21, 2010, we released to the sellers the deposit of $3.2 million, and further incurred a termination fee of $1.9 million
which was paid in January2011. As a consequence of the foregoing charges, the aggregate impairment loss for the year ended December
31, 2010 was $39.5 million. Pursuant to GAAP, we evaluated the carrying amounts of our long-lived assets in light of the fiscal
year 2009 market conditions. The total impairment loss for the periods from January 1, 2009 to October 13, 2009 and
from October 14, 2009 to December 31, 2009, amounted to $40.9 million and $0, respectively.



Loss
on sale from vessels, net



As
a result of the sale and leaseback transaction, we recognized a loss of $0.4 million related to the vessel Brazil. This loss was
partially offset by a gain of $1.1 million recorded as a result of the divestiture of the three non-core vessels in September
2010.For the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009,
no such a loss or gain was recognized.



Management
Fees



Management
fees were $0.8 million for the year ended December 31, 2010, and $0.6 million and $0.2 million for the periods from
January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively. This flat
change resulted from the decrease due primarily to the integration of the technical management in-house, which was offset bythe
fees paid for the termination of the management agreements for the High Rider and the Chinook during the second quarter of 2010,
and for the Ostria, the Nordanvind and the High Land during the third quarter of 2010.



Interest
and Finance Expense / Interest Income (Restated)



Interest
and finance expense was $28.7 million during the year ended December 31, 2010, and $6.6 million and $20.7 million for the
periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively.
The expense for 2010 included a $5.9 million non-cash charge from the amortization of the BCF embedded in the 7%Notes issued
in October 2009 in connection with our 2009 recapitalization. Excluding the amortization of the BCFand the $4.0 million
gain from the change in the fair value of our interest rate swaps, interest and finance expense was $26.8 million reflecting $578.0
million of indebtedness as of December 31, 2010, which is net of the $79.8 million
of BCF related to the $125.0 million of 7% Notes and which included, among others, approximately $298.5 million in new loans assumed
and drawdowns during the year ended December 31, 2010 related to fleet growth and our newbuilding program, $49.0 million related
to the drawdown of the new $62.0 million revolving credit facility, as well as the $2.4 million net proceeds from the sale and
leaseback transaction.The effective interest rate was approximately 6.08% per annum and
5.81% per annum at December 31, 2010 and December 31, 2009, respectively. Furthermore, during the year ended December 31, 2010,
we received interest income of $0.6 million. Interest and finance expense for the period October 14, 2009 to December 31,
2009 included primarily the $14.9 million amortization of the BCF embedded in the 7% Notes issued in October 2009 in connection
with our 2009 recapitalization, reflecting the portion of the 7% Notes that was converted in November 2009 resulting in accelerated
amortization. Interest and finance expense for the periods from January 1, 2009 to October 13, 2009 and from October 14,
2009 to December 31, 2009, consisted of interest expenses of $5.5 million and $4.3 million, respectively, mainly related
to the outstanding indebtedness of$276.6 million as of December 31, 2009,
which is net of the $85.7 million of BCF related to the $125.0 million of 7% Notes.



Change
in Fair Value of Derivatives



The
mark to market in fair value derivative during the year ended December 31, 2010, resulted in an unrealized gain of $1.6 million.
For the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, the
relative mark to market in fair value derivative resulted in an unrealized gain of $3.0 million and $2.6 million, respectively.





79









Loss
from discontinued operations



Loss
from discontinued operations was $9.1 million during the year ended December 31, 2010, and $58.7 million and $4.4 million for
the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively. The decrease
was mainly due to impairment losses of $50.7 million and loss on sale of vessels during the period from January 1, 2009 to October
13, 2009 of $5.6 million, which were partially offset by an increase of $3.4 million of depreciation and amortization expenses
during the year ended December 31, 2010.



Net
Loss



Loss
from continuing operations was $77.3 million for the year ended December 31, 2010, and $67.1 million and $31.3 million
for the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31, 2009, respectively.



The
net loss for the year ended December 31, 2010, and for the periods from January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, was $86.3 million, $125.8 million and $35.7 million, respectively. These
losses included loss from discontinued operations of $9.1 million for the year ended December 31, 2010 and losses of $58.7
million and $4.4 million for the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009
to December 31, 2009, respectively, which were related primarily to (i) our restructuring process which resulted in the sale
of certain tanker and dry bulk vessels during 2011 and 2012 and; (ii) our strategic decision to exit from the container market.



Liquidity
and Capital Resources



Overview



We
operate in a capital intensive industry. Our principal sources of liquidity are cash flows from operations, equity and debt. Our
future liquidity requirements relate to: (i) our operating expenses; (ii) quarterly and six month payments of interest
and other debt-related expenses and the repayment of principal; (iii) funding of newbuilding contracts; (iv) maintenance
of minimum liquidity requirements under our credit facility agreements; (v) payments for dry-docking and special survey costs;
and (vi) maintenance of cash reserves to provide for contingencies.



As
of December 31, 2011, our currents assets amounted to $33.7 million, while current liabilities amounted to $583.6 million, resulting
in a negative working capital position of $549.9 million. Our independent registered public accounting firm has indicated
in their report that there is substantial doubt about our ability to continue as a going concern.



As
previously announced, due to the economic conditions and operational difficulties described elsewhere in this annual report,
we entered into restructuring discussions with each of the lenders under the Financing Documents. As a result of such conditions,
over a period of time, we defaulted under each of our Financing Documents in respect of certain covenants (including, in some
cases, the failure to make amortization and interest payments, the failure to satisfy financial covenants and the triggering of
cross-default provisions). To date, we have not obtained waivers of these defaults from our lenders. During the Restructuring
process, our lenders have continued to reserve their rights in respect of such defaults other than those as detailed below in
respect of the Kamsarmax Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax Syndicate
Facility Agreements and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies at this time, including
demand for immediate payment; however, our lenders could change their position at any time. As such, there can be no assurance
that a satisfactory final agreement will be reached with all our lenders in the Restructuring Proposal, or at all. See “Recent
Developments” above for a discussion of the status of our restructuring negotiations.



As
of December 31, 2011, our liquidity reflected $5.4 million of total cash ($5.1 million of unrestricted cash and $0.3 million
of restricted cash), compared with $110.8 million in total cash as of December 31, 2010. The decrease of $105.4 million in total
cash was attributable primarily to vessel acquisitions and vessels under construction, as well as debt service and was partially
offset by the proceeds from the sale and leaseback of one vessel and the proceeds from the sale of four vessels.Total debt on our balance sheet as of December 31, 2011 and December 31, 2010
was $500.6 million and $578.0 million, respectively, representing a $77.4 million decrease. The decrease was attributable mainly
to the loan repayments of $78.6 million as well as $16.3 million of debt amortizations and the capital lease payments of $4.0
million. The overall decrease in indebtedness was partially offset by: (i) $8.2 million from the amortization of the BCF
attributed to the 7% Notes; (ii) the $11.9 of million proceeds from the FBB bank credit facility; (iii) the aggregate drawdown
of $39.4 million of debt related to the Newlead Gujarat and the Navios Serenity newbuildings; and (iv) the proceeds of $26.6 million
from the sale and leaseback transaction related to the Newlead Endurance.



The
following table below summarizes the cash flows from our operations for each of the years ended December 31, 2011 and 2010, as
well as for the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31,
2009:





80









|                                                                  |  | Successor                   |         |   | Predecessor                 |  
|----------------------------------------------------------------- |  | --------------------------- | ------- | - | --------------------------- | -
|                                                                  |  | Year Ended
    December 31, |         |   | Year Ended
    December 31, |  
|                                                                  |  | 2011                        |         |   | 2010                        |  
|Net cash used in operating activities                             |  | $                           | (3,089  | ) |                             | $
|Net cash (used in) / provided by investing activities             |  |                             | (69,612 | ) |                             |  
|Net cash provided by / (used in) provided by financing activities |  |                             | 10,289  |   |                             |  
|Net (decrease) / increase in cash and cash equivalents            |  |                             | (62,412 | ) |                             |  
|Cash and cash equivalents, beginning of year/period               |  |                             | 67,531  |   |                             |  
|Cash and cash equivalents, end of year/period                     |  | $                           | 5,119   |   |                             | $





Cash
Flows



Net
cash used in operating activities



Net
cash used in operating activities was $3.1 million for the year ended December 31, 2011, compared to net cash used in
operating activities of $9.7 million for the year ended December 31, 2010. In determining net used in operating activities, net
loss is adjusted for the effects of certain non-cash items such as depreciation and amortization, impairment losses, gains and
losses from sales of vessels and unrealized gains and losses on derivatives.



The
cumulative effect of non-cash adjustments to reconcile net loss to net cash used in operating activities was a $282.6 million
increase for the year ended December 31, 2011 which consisted mainly of the following adjustments:$234.1 million of impairment
losses; $36.9 million of depreciation and amortization charges; $8.2 million from the amortization of the BCF of the
7% Notes; $8.1 million from the amortization of the backlog asset/deferred charter revenue; $1.6 million relating to share-based
compensation; $7.9 million of amortization and write-off of deferred finance fees; and a $0.2 million provision for
doubtful receivables. These adjustments were partially offset by a $1.1 million gain from the valuation of derivatives, and
a gain on vessels sales of $13.4 million.



Furthermore,
the cash inflow from operations of $4.7 million for the year ended December 31, 2011, resulted mainly from: a $11.6 million
increase in accrued liabilities; a $5.3 million increase in accounts payable; and a $1.3 million decrease in inventories. This
was partially offset by: a $6.7 million payment for dry-docking and special survey costs; a $6.8 million increase in
trade receivables; and a $1.2 increase in other receivables.



Net
cash used in operating activities was $9.7 million for the year ended December 31, 2010, and $10.6 million and
$5.9 million for the periods from January 1, 2009 to October 13, 2009 and from October 14, 2009 to December 31,
2009, respectively.



The
cumulative effect of non-cash adjustments to reconcile net loss to net cash used in operating activities was a $83.5 million
increase for the year ended December 31, 2010 which consisted mainly of the following adjustments: $39.5 million of impairment
losses; $30.0 million of depreciation and amortization charges; $5.9 million from the amortization of the BCF of the
7% Notes; $10.7 million from the amortization of the backlog asset/deferred charter revenue; $2.7 million relating to share-based
compensation; $3.7 million of amortization of deferred finance fees; and a $0.3 million provision for doubtful receivables.
These adjustments were partially offset by an $8.4 million gain from the valuation of derivatives, and again on vessel sales
of $0.9 million. The cumulative effect of non-cash adjustments to reconcile net loss to net cash used in operating activities
was a $111.5 million increase and a $27.2 increase for the periods from January 1, 2009 to October 13, 2009 and
from October 14, 2009 to December 31, 2009, respectively, which consisted mainly of the following: $91.6 million
of impairment losses and $5.6 million losses on vessels sale for the period from January 1, 2009 to October 13, 2009;
and $14.9 million from the amortization of the BCF of the 7% Notes, $4.0 million relating to share-based compensation and
$4.0 million relating to warrants compensation expense for the period from October 14, 2009 to December 31, 2009.



Furthermore,
the cash outflow from operations of $9.7 million for the year ended December 31, 2010, resulted mainly from: a $3.5 million
payment for dry-docking and special survey costs; a $2.1 million decrease in amounts due to managing agents; a $0.6 million
increase in amounts due from managing agents; a $0.7 million decrease in amounts due to related parties; a $0.9 million decrease
in accrued liabilities; and a $0.8 million decrease in accounts payable. This was partially offset by a $0.6 million decrease
inventories and a $0.7 million decrease in prepaid expenses.



Net
cash (used in) / provided by investing activities



For
the year ended December 31, 2011, our net cash used in investing activities was $69.6 million. This cash outflow resulted from
advances for vessels under construction of $89.4 million, as well as vessel acquisitions of $23.9 million and $0.2 million for
other fixed asset acquisitions, which was partially offset by the proceeds from vessel disposals of $32.7 million and the restricted
cash of $6.0 million related to a letter of guarantee issued in connection with an installment payment in respect of the Newlead
Prosperity acquisition and $ 5.0 in respect of the delivery installment of Newlead Gujarat.





81









For
the year ended December 31, 2010, our net cash used in investing activities was $22.2 million. This cash outflow resulted from
advances for vessels under construction of $45.1 million, as well as vessel acquisitions of $1.6 million, advances for vessel
acquisitions of $3.2 million and the restricted cash of $11.0 million related to letters of guarantee issued in connection with
future installments in respect of newbuildings and other vessel acquisitions, and $0.1 million for other fixed asset acquisitions,
which was partially offset by the proceeds from vessel disposals of $37.2 million, as well as the net cash of $1.6 million acquired
through the business combination that occurred on April 1, 2010.For the periods from January 1, 2009 to October 13,
2009 and October 14, 2009 to December 31, 2009, our net cash provided by investing activities were $2.2 million
(related to proceeds from vessels sale) and $0, respectively.



Net
cash provided by / (used in) financing activities



For
the year ended December 31, 2011, our net cash provided by financing activities was $10.2 million compared to our net cash used
in financing activities of $6.9 million for the year ended December 31, 2010. The cash outflow in 2011 resulted from the $43.6
million net principal repayments of our debt, the capital lease payments of $4.0 million and the payments of deferred charges
of $0.7 million. This outflow was partially offset by the $26.6 million proceeds from the sale and leaseback transaction and the
$32.0 million in restricted cash that was used to pay down debt (resulting mainly from the proceeds of the sale of the five non-core
vessels occurred in 2010).



The
cash outflow in 2010 resulted from the $62.8 million net principal repayments of our debt, the increase in restricted cash of
$21.0 million mainly related to the disposal from the five non-core vessels (retention accounts) which was used either to acquire
vessels or pay down debt, the capital lease payments of $1.8 million and the payments of deferred charges of $8.0 million. This
outflow was partially offset by the $86.8 million proceeds from the sale and leaseback transaction. For the periods from January 1,
2009 to October 13, 2009 and October 14, 2009 to December 31, 2009, our net cash provided by financing activities
was $4.3 million and $112.1 million, respectively.



Indebtedness



Certain of our
debt arrangements, including our Facility Agreement, contain covenants that require us to maintain certain minimum financial ratios,
including a minimum ratio of shareholders’ equity to total assets (starting from the third quarter of 2012), a minimum amount
of working capital, and a minimum EBITDA to interest coverage ratio (starting from the third quarter of 2012). Our Facility Agreement
requires that we maintain at all times a minimum amount of liquidity in the form of cash and cash equivalents equal to at least
5% of the outstanding loan at all times under such agreement. Moreover, certain of our other debt arrangements require that we
maintain at all times a minimum amount of liquidity in the form of cash and cash equivalents equal to at least 5% of the total
outstanding indebtedness.



As a result of
the conditions described elsewhere in this annual report, within 2011, we have defaulted under each of our debt agreements described
below and are currently not in compliance with certain covenants (including, in some cases, the failure to make amortization and
interest payments, the failure to satisfy financial covenants and the triggering of cross-default provisions) under such loan
agreements. To date, we have not obtained waivers of these defaults from our lenders and during the Restructuring process, our
lenders have continued to reserve their rights in respect of such defaults. Since our lenders have the right, absent receipt of
waivers, to demand at any given time the repayment of our debt, we reclassified our long term debt and capital lease obligations
as current liabilities in our consolidated balance sheet as of December 31, 2011. See “—Going Concern.”



As
of December 31, 2011 and December 31, 2010, our total indebtedness was approximately $500.6 million and $578.0 million, respectively,which is net of $71.6 million and $79.8 million of unamortized BCF related to the
$125.0 million of 7% Notes, respectively. Indebtedness as of December 31, 2011 reflected,
among other things, the $76.8 million of debt related to the acquisition of two Kamsarmax vessels; the $143.5 million of
debt related to the dropdown of vessels completed in 2010; the $39.3 million of debt under the revolving credit facility with
Marfin Egnatia Bank S.A.; the capital lease obligations of $107.5 million which include the proceeds of $26.6 million from
the sale and leaseback transaction related to the Newlead Endurance;and $53.4 million relating
to the $125.0 million of 7% Notes, after netting the impact of the BCF (discount) as described below under "Recapitalization".





As of December
31, 2011, our outstanding indebtedness was $572.2 million, excluding the $71.6 million of unamortized beneficial conversion
feature, or BCF, treated as a discount on the outstanding $125.0 million of 7% Notes. From January 1, 2012 through May 14, 2012,
and as a result of the sale, disposal of or handing control of vessels and hulls to our lenders, our indebtedness has been decreased
by an aggregate amount of approximately $157.1 million. Despite our restructuring efforts over the last several months, as of
May 14, 2012 we continue to have:



| | · | $56.5
                                                                                                                                     million
                                                                                                                                     ($31.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Marfin
                                                                                                                                     Credit
                                                                                                                                     Facility
                                                                                                                                     and
                                                                                                                                     $25.3
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     WestLB
                                                                                                                                     loan
                                                                                                                                     agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     will
                                                                                                                                     remain
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     after
                                                                                                                                     the
                                                                                                                                     completion
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     Restructuring.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





82











| | · | $75.6
                                                                                                                                     million
                                                                                                                                     ($69.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Piraeus
                                                                                                                                     Bank
                                                                                                                                     credit
                                                                                                                                     facilities
                                                                                                                                     and
                                                                                                                                     $5.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Handysize
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreement)
                                                                                                                                     of
                                                                                                                                     outstanding
                                                                                                                                     debt
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     currently
                                                                                                                                     in
                                                                                                                                     our
                                                                                                                                     possession
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     expect
                                                                                                                                     to
                                                                                                                                     sell
                                                                                                                                     and
                                                                                                                                     apply
                                                                                                                                     the
                                                                                                                                     proceeds
                                                                                                                                     thereof
                                                                                                                                     against
                                                                                                                                     the
                                                                                                                                     related
                                                                                                                                     debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $158
                                                                                                                                     million
                                                                                                                                     ($76.8
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Kamsarmax
                                                                                                                                     Syndicate
                                                                                                                                     Facility
                                                                                                                                     Agreements
                                                                                                                                     and
                                                                                                                                     $81.2
                                                                                                                                     million
                                                                                                                                     relating
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     Lemissoler
                                                                                                                                     Sale
                                                                                                                                     and
                                                                                                                                     Leaseback
                                                                                                                                     agreements)
                                                                                                                                     of
                                                                                                                                     liabilities
                                                                                                                                     for
                                                                                                                                     vessels
                                                                                                                                     that
                                                                                                                                     we
                                                                                                                                     already
                                                                                                                                     handed
                                                                                                                                     control
                                                                                                                                     over
                                                                                                                                     to
                                                                                                                                     the
                                                                                                                                     lenders
                                                                                                                                     but
                                                                                                                                     have
                                                                                                                                     not
                                                                                                                                     yet
                                                                                                                                     obtained
                                                                                                                                     final
                                                                                                                                     releases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | $125
                                                                                                                       million
                                                                                                                       of 7% Notes
                                                                                                                       outstanding,
                                                                                                                       for which
                                                                                                                       we are
                                                                                                                       currently
                                                                                                                       in negotiations
                                                                                                                       to convert
                                                                                                                       such notes
                                                                                                                       to equity
                                                                                                                       prior to
                                                                                                                       the completion
                                                                                                                       of the
                                                                                                                       Restructuring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we continue
to use our best efforts to complete the Restructuring, there can be no assurance that a successful resolution can be reached with
our lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that the Company will
obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such releases could
materially and adversely affect our business and operations and the impact of the final terms of any restructuring is uncertain.



We will continue
to have a high degree of indebtedness after the completion of our ongoing restructuring.



The
following is a discussion of our debt agreements that are in existence or were in existence during fiscal 2011. As discussed elsewhere
in this annual report, we are in the process of restructuring all of our indebtedness. Although the descriptions relating to our
indebtedness below have been updated to reflect the current status of our restructuring efforts, the below descriptions may be
of limited use upon the completion of our restructuring. There can be no assurance that our restructuring efforts will lead to
a final agreement with our lenders.



Recapitalization



Prior
to the recapitalization on October 13, 2009, the Company was in default of its $360.0 million fully revolving credit
facility with Bank of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent which had an outstanding
balance of $221.4 million. As part of the recapitalization, our existing syndicate of lenders entered into a new $221.4 million
facility agreement, referred to herein as the "Facility Agreement", by and among us and the banks identified therein
in order to refinance our existing revolving credit facility.



The
Facility Agreement was originally payable in 19 quarterly installments of approximately $2.0 million each, and a sum of $163.4 million
(comprised of a repayment installment of $2.0 million and a balloon repayment of $161.4 million) was due in October 2014.
In January 2010, we paid an aggregate amount of $9.0 million from the proceeds of the sale of the two container vessels,
the Saronikos Bridge and the MSC Seine. In January 2011, we paid an aggregate amount of $32.0 million after receiving
the proceeds from the sale of the five non-core vessels, the High Rider, the High Land, the Chinook, the Ostria and the Nordanvind.
After giving effect to the application of these sale proceeds, the quarterly installments have been reduced to approximately $1.6 million
each, and a sum of $128.8 million (comprised of a repayment installment of $1.6 million and a balloon repayment of $127.2 million)
will be due in October 2014.



On
April 26, 2010, we entered into a Supplemental Deed (the “Deed”) relating to this term Facility Agreement. The
Deed was supplemental to the Loan Agreement dated October 13, 2009, as supplemented and amended from time to time, and was
entered into among us and the banks (Bank of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent)
signatory thereto. Pursuant to the terms of the Deed, the minimum liquidity amount that must be maintained under the original
Deed may be applied to prepay sums outstanding under the original loan without triggering an event of default. All amounts so
applied will be made available by banks for re-borrowing without restriction and will be deemed to constitute part of the minimum
liquidity amount and be deemed to constitute cash for purposes of determining the minimum liquidity amount.



Our
obligations under the Facility Agreement are secured by a first priority security interest, subject to permitted liens, on all
vessels in our fleet and any other vessels we subsequently acquire to be financed under this Facility Agreement. In addition,
the lenders will have a first priority security interest on all earnings and insurance proceeds from our vessels, all existing
and future charters relating to our vessels, our ship management agreements and all equity interests in our subsidiaries. Our
obligations under the new Facility Agreement are also guaranteed by all subsidiaries that have an ownership interest in any of
our vessels, excluding the three vessels transferred to us as part of the recapitalization.



Under
the terms of the Facility Agreement, amounts drawn bear interest at an annual rate equal to LIBOR plus a margin equal to:





| | • | 1.75% if our
                                                                                  total shareholders' equity divided by our total
                                                                                  assets, adjusting the book value of our fleet
                                                                                  to its market value, is equal to or greater
                                                                                  than 50%;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





83









| | • | 2.75% if our
                                                                                  total shareholders' equity divided by our total
                                                                                  assets, adjusting the book value of our fleet
                                                                                  to its market value, is equal to or greater
                                                                                  than 27.5% but less than 50%; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 3.25% if our
                                                                                  total shareholders' equity divided by our total
                                                                                  assets, adjusting the book value of our fleet
                                                                                  to its market value, is less than 27.5%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







As
a result of the recapitalization, new financial covenants were put in place. Except for the working capital (as defined in the
loan facility) and the minimum liquidity covenants, all other covenants will become effective in a period ranging from 30 to 36 months
from the effective date of the Facility Agreement to allow a sufficient period of time for new management to implement its business
strategy.





The
following are the financial covenants to which we must adhere as of the end of each fiscal quarter, under the new Facility Agreement:



| | • | our shareholders' equity as a percentage
                                                                                  of our total assets, adjusting the book value
                                                                                  of our fleet to its market value, must be no
                                                                                  less than:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(a) 25%
from the financial quarter ending September 30, 2012 until June 30, 2013; and



(b) 30%
from the financial quarter ending September 30, 2013 onwards.



| | • | we must maintain, on a consolidated basis
                                                                                  on each financial quarter, working capital(as
                                                                                  defined in the loan facility) of not
                                                                                  less than zero dollars ($0) (as
                                                                                  of December 31, 2011, the Company was in breach
                                                                                  of this covenant);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we must maintain a minimum liquidity equal
                                                                                  to at least5% of the outstanding loan(as of December 31, 2011, the Company was in
                                                                                  breach of this covenant); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the ratio of EBITDA (earnings before interest,
                                                                                  taxes, depreciation and amortization) to interest
                                                                                  payable must be no less than;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(a) 2.00
to 1.00 from the financial quarter day ending September 30, 2012 until June 30, 2013; and



(b) 2.50
to 1.00 from the financial quarter day ending September 30, 2013 onwards.





The
Company is also subject to a covenant that requires the maintenance of a security value of (a) at least 100% of the loan during
the period that is between the 30 month and the 36 month anniversary of the effective date of the Facility Agreement and (b) at
least 120% of the loan after the 36 month anniversary of the effective date of the Facility Agreement.On December
22, 2011, with the consent of the lenders under our revolving credit facility with Bank
of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent (the “Facility Agreement”),
we successfully completed the sale of the Newlead Fortune and the Newlead Avra with gross proceeds of approximately $64.5 million.
On January 31, 2012, with the consent of the lenders under our Facility Agreement,
we successfully completed the sale of the Newlead Compass and the Newlead Compassion with gross proceeds of approximately $80.2
million. Such gross proceeds were applied towards the full and final satisfaction of all liabilities owed to the lenders under
the Facility Agreement (other than fees owing to the lenders of approximately $0.6 million pursuant to a letter of undertaking
dated February 3, 2012 (the “Fees”)). As a result of the sale of Newlead Compass and Newlead Compassion our overall
indebtedness was decreased by an aggregate amount of approximately $80.2 million after December 31, 2011. The sale of all four
vessels has cumulatively reduced our indebtedness by an aggregate amount of approximately $147.9 million. In addition, we are
not yet released from our obligations under the Facility Agreement until the Fees have been paid in full. We have agreed in principle
with the Bank of Scotland that these Fees may be paid at some point after the closing of the Restructuring but in any event before
24 months from the date of signing the applicable agreed document. The definitive documentation in this regard is being negotiated
with Bank of Scotland.



In
connection with the recapitalization on October 13, 2009, we issued $145,000 in aggregate principal amount of 7% senior unsecured
convertible notes ("7% Notes") due 2015. The 7% Notes are convertible into common shares at a conversion price of $9.00
per share ("Any time" conversion option), subject to adjustment for certain events, including certain distributions
by the Company of cash, debt and other assets, spin offs and other events. The issuance of the 7% Notes was pursuant to the Indenture
dated October 13, 2009 between the Company and Marfin Egnatia Bank S.A., and the Note Purchase Agreement, executed by each
of Investment Bank of Greece and Focus Maritime Corp. as purchasers. Currently, Investment Bank of Greece retains $100 outstanding
principal amount of the 7% Notes which we purchased in cash and has received warrants for advisory services (for more details
see Note 21 of our consolidated financial statements). The remainder of the 7% Notes is owned by Focus Maritime Corp., a company
controlled by Michail S. Zolotas, the Company's Vice Chairman, President and Chief Executive Officer and a member of its board
of directors. All of the outstanding 7% Notes owned by Focus Maritime Corp. were pledged to, and their acquisition was financed
by, Marfin Egnatia Bank S.A. $20,000 of the proceeds of the 7% Notes were used to partially repay a portion of existing indebtedness
and the remaining proceeds were used for general corporate purposes and to fund vessel acquisitions. The Note Purchase Agreement
and the Indenture with respect to the 7% Notes contain certain covenants, including among others, limitations on the incurrence
of additional indebtedness, except for approved vessel acquisitions, and limitations on mergers and consolidations. In connection
with the issuance of the 7% Notes, the Company entered into a Registration Rights Agreement providing the holders of the 7% Notes
with certain demand and other registration rights for the common shares underlying the 7% Notes





84









As of December
31, 2011, we were in default of an interest payment that was initially due on October 1, 2011.



In
November 2009, Focus Maritime Corp. converted $20 million of the 7% Notes into approximately 2.22 million new common
shares. Accordingly, in the aggregate, $125,000 of the 7% Notes remain outstanding as at December 31, 2011 and December 31, 2010.



The
7% Notes had two embedded conversion options — (1) An "Any time" conversion option and (2) A "Make
Whole Fundamental Change" conversion option, which gives the holder 10% more shares upon conversion, in certain circumstances.



(1) The
"Any time" conversion option meets the definition of a derivative under the FASB’s ASC 815. However, this embedded
conversion option meets the ASC 815-10-15 scope exception, as it is both (1) indexed to its own stock and (2) would
be classified in shareholders’ equity, if freestanding. As a result, this conversion option is not bifurcated and separately
accounted for and is not recorded as a derivative financial instrument liability.



(2) The
"Make Whole Fundamental Change" conversion option meets the definition of a derivative under ASC 815. This embedded
conversion option does not meet the ASC 815-10-15 scope exception, since this conversion option cannot be considered indexed to
its own stock. As a result, the conversion option has been bifurcated from the host contract, the 7% Notes, and separately accounted
for and is recorded as a derivative financial instrument liability.



Our
market price on the date of issuance was $15.24 and the stated conversion price is $9.00 per share. We recorded a BCF totaling
$100.5 million, as a contra liability (discount) that will be amortized into the income statement (via interest charge) over
the life of the 7% Notes. For the year ended December 31, 2011, $8.2 million of the BCF was amortized and reflected as interest
expense in the statement of operations ($5.9 million for the year ended December 31, 2010, and $14.9 million for the period from
October 14, 2009 to December 31, 2009).



We are in discussions
with Marfin regarding a conversion agreement in respect of the 7% Notes, whereby Marfin would convert all debt claims Marfin may
have against us arising under the 7% Notes into equity of the Company. The terms of any such debt conversion and share issuance
is still under negotiation and subject to the execution of legally binding agreements. There is no assurance that we will complete
such documentation or the Restructuring in this regard.



For
additional information regarding our interest rate swaps, read Item11. "Quantitative and Qualitative Disclosures about Market
Risk — Interest Rate Exposure" herein.



Marfin
Revolving Credit Facility



On December 10,
2010, we entered into a Loan Agreement with Marfin for a reducing revolving credit facility of up to $62.0 million, in order
to refinance the loans of the Newlead Venetico and the Newlead Markela, which were previously financed by Commerzbank and Emporiki
Bank, respectively, and to finance working and investment capital needs. The facility limit is being reduced by 10 quarterly installments
of $0.1 million during the course of the term. On October 31, 2011, we applied $9.7 million towards the partial repayment of the
facility. Moreover, the provisions of the agreement include a cash sweep of all surplus of quarterly earnings of the Newlead Venetico,
the Newlead Markela, the Australia, the Brazil, the China and the Grand Rodosi. Borrowings under this loan facility currently
bear an approximate effective interest rate, including the margin, of 5.6%. The floating portion of the approximately $49.0 million
drawn to date is approximately $19.4 million and bears an interest rate of approximately 4.0% (assuming current LIBOR of 0.506%,
plus a 3.5% margin) while the fixed portion drawn is $29.6 million and bears an interest rate of 7.6% (assuming a current fixed
swap rate of 4.1% plus a 3.5% margin).



The
loan facility includes financial covenants, all as described in the loan facility, including: (i) our shareholders' equity as
a percentage of our total assets, adjusting the book value of our fleet to its market value, must be no less than: (a) 25% from
the financial quarter day ending September 30, 2012 untilthe financial quarter day endingJune 30, 2013; and (b) 30% from the financial quarter day ending September 30, 2013 onwards; (ii) the maintenance,
on a consolidated basis on each financial quarter, of working capital (as defined in the loan facility) of not less than zero
dollars ($0) (as of December 31, 2011, we were in breach of this covenant); (iii) the maintenance of minimum liquidity equal to
at least 5% of the outstanding loan (as of December 31, 2011, we were in breach of this covenant); and (iv) the maintenance of
the ratio of EBITDA (as defined in the loan facility) to interest payable on a trailing four financial quarter basis to be no
less than: (a) 2.00 to 1.00 from the financial quarter day ending September 30, 2012 untilthe financial quarter
day endingJune 30, 2013; and (b) 2.50 to 1.00 from the financial quarter day
ending June 30, 2013 onwards. The Company is also subject to a covenant that requires the maintenance of a security value
of at least 130% of the facility and the maximum swap exposure as specified in the agreement. As May 15, 2012,assuming
that the proceeds from the sale of the vessel are applied by our lenders against our indebtedness under this facility,the outstanding balance of the loan was $31.2 million. As of December 31, 2011, we have defaulted on interest payments under
the loan facility.





85









On April 5, 2012,
with the consent of Marfin Bank, we entered into an agreement for the sale of the Newlead Venetico and that vessel was delivered
to the buyer on May 8, 2012 for net proceeds of approximately $9.0 million. Marfin applied the net proceeds of such sale received
by it towards the payment of certain amounts relating to claims against the Newlead Venetico, the payment of certain fees and
the prepayment of the total outstanding amounts due under the loan agreement for the Newlead Venetico. We are currently in discussions
with Marfin regarding certain amendments to the Marfin Credit Facility, whereby this facility would be amended and restated to
reduce the overall committed amount there under to the existing outstanding amount of approximately $31.2 million and to enable
us to comply with certain covenants under the facility on an ongoing basis after the closing of the Restructuring. The terms of
any such amendment and restatement agreement is still under negotiation and subject to the execution of legally binding agreements.
There is no assurance that we will complete such documentation or the Restructuring in this regard.



West
LB Bank Credit Facility



On April 1,
2010, we assumed a Loan Agreement with West LB, dated October 16, 2007, as novated, amended and restated on March 31, 2010,
relating to a term loan facility of up to $27.5 million in relation to the Grand Victoria. The loan is payable in 20 quarterly
installments of $0.375 million, followed by 15 quarterly installments of $0.475 million and a balloon payment of $12.875 million
due on the last payment date. Borrowings under this loan facility currently bear an effective interest rate, including the margin,
of approximately 3.8% (assuming current LIBOR of 0.506%, plus a 3.25% margin). The applicable margin is calculated as follows:
(a) 3.25% per annum at any time when the vessel is not subject to an approved charter and the security cover ratio is less than
125%; (b) 3% per annum at any time when the vessel is subject to an approved charter and the security cover ratio is less
than 125%; (c) 2.75% per annum at any time when the vessel is not subject to an approved charter and the security cover ratio
is equal to or greater than 125%; and (d) 2.50% per annum at any time when the vessel is subject to an approved charter and
the security cover ratio is equal to or greater than 125%. The vessel's excess cash must be applied towards the prepayment of
the balloon installment until such time as the balloon installment has been reduced to $6.0 million, in accordance with the
following, all as described in the loan facility: (i) if we are in compliance with the value to loan ratio, 50% of the excess
cash must be applied towards the prepayment of the loan facility; and (ii) if we are not in compliance with the value to loan
ratio, 100% of the excess cash must be applied towards the prepayment of the loan facility. The value to loan ratio is set at
100% until December 31, 2012 and 125% thereafter. As of December 31, 2011, we were not in compliance with this ratio. The
loan facility includes, among other things, financial covenants including: (i) a minimum market adjusted equity ratio of 25% for
the period from September 30, 2012 until June 30, 2013, increasing to 30% thereafter; (ii) a minimum liquidity equal
to at least 5% of the total debt during the period the loan facility remains outstanding (as of December 31, 2011, we were in
breach of this covenant); (iii) working capital (as defined in the loan facility) must not be less than zero dollars ($0) during
the period the loan facility remains outstanding (as of December 31, 2011, we were in breach of this covenant); and (iv) a minimum
interest coverage ratio of 2:1 for the period from September 30, 2012 until June 30, 2013, increasing to 2.5:1 thereafter.
As of December 31, 2011, we have defaulted on a principal payment. As of May 14, 2012, the outstanding balance was $25.3 million.



We are currently
in negotiations with WestLB, to amend the terms of the loan agreement whereby the agreement will be amended and restated to enable
us to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring and enable the Newlead Victoria
vessel to stay within the group. The terms and conditions of any agreement between us and WestLB are subject to negotiating and
executing legally binding documentation. There are no assurances that we will be able to complete such documentation or the Restructuring
in this regard.



Piraeus
Bank Credit Facilities



On April 1,
2010, we assumed a Loan Agreement with Piraeus Bank, dated March 19, 2008, as supplemented by a First Supplemental Agreement,
dated February 26, 2009, and a Second Supplemental Agreement, dated March 31, 2010, for a loan of up to $76.0 million
in relation to the Hiona and the Hiotissa. The loan is payable in one quarterly installment of $1.5 million, followed by
four quarterly installments of $1.25 million, followed by 19 quarterly installments of $1.125 million and a balloon
payment of $37.225 million due in April 2016. Borrowings under this loan facility currently bear an effective interest
rate, including the margin, of approximately 4.0% (assuming current LIBOR of 0.506%, plus a 3.5% margin). The loan facility includes,
among other things, financial covenants, all as described in such loan facility, including: (i) the minimum net worth of the corporate
guarantor’s group, adjusted to the market value of the vessels, during the period the loan facility remains outstanding,
must not be less than $60.0 million, although we were not subject to such covenant through the period ended December 31,
2011; (ii) the maximum leverage of the corporate guarantor, during the period the loan facility remains outstanding, must not
be more than 75%, although we were not subject to such covenant through the period ended December 31, 2011; (iii) the minimum
liquidity of the corporate guarantor, during the period the loan facility remains outstanding, must be equal to at least 5% of
the total outstanding debt obligations of the corporate guarantor; (as of December 31, 2011, we were in breach of this covenant);
(iv) the value to loan ratio must be at least 130% during the period the loan facility remains outstanding, although we were not
subject to such covenant through the period ended February 28, 2012; and (v) Borrower’s (each) total amounts payable
(except loans) should not exceed a) $0.4 million on each calendar quarter; and b) $0.8 million any other time (as of December
31, 2011, we were in breach of this covenant). As of December 31, 2011, we have defaulted on a number of principal and interest
payments. As of May 14, 2012, the outstanding balance was $58.6 million. We continue to negotiate with Piraeus Bank in respect
of (a) the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus will release us from all debt obligations
arising under the related credit facilities in exchange for equity in the Company. The terms and conditions of any agreement between
ourselves and Piraeus Bank regarding the sale of Hiona and Hiotissa, and any agreements relating to the release of obligations
under the related agreements is subject to negotiating and executing legally binding documentation. There are no assurances that
we will be able to complete such documentation or the Restructuring in this regard.





86









On April 1,
2010, we also assumed a Loan Agreement with Piraeus Bank, dated March 31, 2010, for a loan of up to $21.0 million relating
to the Grand Ocean. The loan facility is payable in one quarterly installment of $0.85 million, followed by six quarterly
installments of $0.8 million, followed by seven quarterly installments of $0.75 million and a balloon payment of $10.1 million
due in November 2013. Borrowings under this loan facility currently bear an effective interest rate, including the margin,
of approximately 4.0% (assuming current LIBOR of 0.506%, plus a 3.5% margin). The loan facility includes financial covenants,
all as described in the loan facility, including: (i) the minimum net worth of the corporate guarantor, adjusted to the market
value of the vessels, during the period the loan facility remains outstanding, must not be less than $60.0 million, although
we were not subject to this covenant through the period ended December 31, 2011; (ii) the maximum leverage of the corporate guarantor,
during the period the loan facility remains outstanding, must not be more than 75%, although we were not subject to this covenant
through the period ended December 31, 2011; (iii) the minimum liquidity of the corporate guarantor, during the period the loan
facility remains outstanding, must be equal to at least 5% of the total outstanding debt obligations of the corporate guarantor
(as of December 31, 2011, we were in breach of this covenant); (iv) the value to loan ratio must be at least 130% during the period
the loan facility remains outstanding, although we were not subject to this covenant through the period ended February 28,
2012; and (v) Borrower’s (each) total amounts payable (except loans) should not exceed a) $0.6 million on each calendar
quarter, and b) $1.0 million any other time (as of December 31, 2011, the Company was in breach of this covenant). As of December
31, 2011, we have defaulted on a number of principal and interest payments.



On December 29,
2011, with the consent of Piraeus Bank, we entered into an agreement for the sale of the Grand Ocean and that vessel was delivered
to the buyer on January 11, 2012 for net proceeds of approximately $8.2 million. Piraeus applied the net proceeds of such sale
received by it towards (a) the prepayment of the total outstanding amounts due under the loan agreement for the Grand Ocean in
a total aggregate amount of $6.5 million and (b) the payment of outstanding trade and vendor payments. The total outstanding balance
under the loan agreement for the Grand Ocean, assuming that the proceeds from the sale of the vessel are applied by our lenders
against our indebtedness under this facility, would be $11.2 million as of May 14, 2012.



Kamsarmax Syndicate
Facility Agreements



On
April 15, 2010, we assumed two facility agreements in relation to the two acquired Kamsarmaxes (“Kamsarmax Syndicate”).
The senior facility agreement, which was entered into with Bank of Scotland, BTMU Capital Corporation and Bank of Ireland, was
for $66.7 million and was payable in20 quarterly installments of $1.52 million and a final payment of $36.3 million
due no later than October 26, 2017. Borrowings under this facility agreement bore an effective interest rate, including margin,
prior to the initial delivery date (with respect to the newbuilding vessel referred to as Newlead Tomi) and the final delivery
date (with respect to the newbuilding vessel referred to as Newlead Gujarat), of 7.5% (assuming a fixed swap rate of 4.0%, plus
a 3.5% margin). Thereafter, the applicable margin was to be calculated based on the security coverage. For a security coverage
of less than 115%, between 115% and 129.9% and greater than or equal to130%, the applicable margin was 3.4%, 3.2% and 2.75%, respectivelyThis senior facility agreement included an interest rate swap that had a maturity date of April 4, 2013. This swap was
amended and extended to conform to the notional amounts, anticipated drawings and repayment schedule as per the loan facility.
This amended and extended swap agreement began July 6, 2010 and had a maturity date of October 15, 2015. The notional
amount was $63.64 million, while the fixed rate of 4.0% was linked to the three-month U.S. dollar LIBOR reference rate. As of
December 31, 2011, we have defaulted on a number of payments concerning the interest rate swap agreement.



The junior facility
agreement, which was entered into with Bank of Scotland and BTMU Capital Corporation, was for $13.3 million and was payable
in 20 quarterly installments of $0.13 million and a final payment of $10.7 million due no later than April 15, 2015.
Borrowings under this facility agreement bore an approximate effective interest rate, including margin, prior to the initial delivery
date (with respect to the newbuilding vessel referred to as Newlead Tomi) and the final delivery date (with respect to the newbuilding
vessel referred to as Newlead Gujarat), of 9.5% (assuming a fixed swap rate of 4.0%, plus a 5.5% margin). Thereafter, the applicable
margin was to be calculated based on the security coverage. For a security coverage of less than 115%, between 115% and 129.9%
and greater than or equal to 130%, the applicable margin was 5.2%, 4.9% and 4.5%, respectively. As of December 31, 2011, we have
defaulted on a number of principal and interest payments. This junior facility agreement included an interest rate swap that had
a maturity date of April 4, 2013. This swap was amended and extended to conform to the notional amounts, anticipated drawings
and repayment schedule as per the loan facility. This amended and extended swap agreement began July 6, 2010 and had a maturity
date of October 15, 2015. The notional amount was $13.1 million, while the fixed rate of 4.0% was linked to the three-month
U.S. dollar LIBOR reference rate. As of December 31, 2011, we have defaulted on a number of payments concerning the interest rate
swap agreement.





87









Both facility
agreements include financial covenants, all as described in the loan facilities, including: (i) the security coverage must be
at least 115% up to and including the second anniversary of final delivery date, 120% up to the third anniversary date, 125% up
to the fourth anniversary date and 130% thereafter (as of December 31, 2011, the Company was in breach of this covenant); (ii)
the minimum liquidity of the corporate guarantor, during the period the loan facility remains outstanding, must be equal to at
least 5% of the total outstanding debt obligations of the corporate guarantor (as of December 31, 2011, the Company was in breach
of this covenant); (iii) the ratio of EBITDA (as defined in the loan facility) to interest expense must be no less than: (a) 1.10
to 1.00 from the financial quarter day ending June 30, 2012; and (b) 1.20 to 1.00 from the financial quarter day ending
June 30, 2013 going forward; (iv) working capital (as defined in the loan facility) must not be less than zero dollars ($0)
during the period the loan facility remains outstanding; (as of December 31, 2011, the Company was in breach of this covenant);
and (v) the equity ratio must not be less than: (a) 25% from the financial quarter day ending September 30, 2012; and
(b) 30% from the financial quarter day ending September 30, 2013 onwards. As of December 31, 2011, we are not in compliance
with the minimum liquidity requirements under these loan agreements.



On February 20,
2012, the Bank of Scotland plc issued notices of enforcement and notices of default, acceleration in relation to the Kamsarmax
facilities. In addition, the Bank of Scotland filed claim forms in the High Court of England and Wales against the borrowers representing
claims for approximately $62.7 million and $13.9 million under the Kamsarmax facilities and sought a declaration, that, among
other things, the Bank of Scotland is entitled to make a demand against the Company in respect of sums owing under the Kamsarmax
facilities. Ayasha Trading Corporation ("Ayasha") and Bethune Properties S.A. ("Bethune") are the shipowning
companies of the Kamsarmax motor vessels the Newlead Tomi and the Newlead Gujarat, respectively. Pursuant to such notices, the
Bank of Scotland, as the agent and security trustee under each of the Kamsarmax Syndicate Facility Agreements, exercised its rights
to foreclose on the shares of Ayasha and Bethune, which secured the loans under the Kamsarmax facilities and the vessels were
handed over to the lenders’ control.



We have agreed
in principle with the Bank of Scotland in respect of releasing us from all of our obligations and liabilities under the Kamsarmax
Syndicate Facility Agreements in return for a waiver from us to any claims, actions or remedies that we may have against the Bank
of Scotland and a definitive release documentation on this point is being negotiated. The vessels have already been delivered
to the new managers. We are currently working towards definitive documentations that would release us from our obligations under
the Kamsarmax Syndicate Facility Agreements. However, there can be no assurance that we will be able to reach an agreement with
the Bank of Scotland under acceptable terms or at all.



First
Business Bank (FBB) Credit Facility



On July 2, 2010,
we assumed a Loan Agreement with First Business Bank, dated July 2, 2010, as supplemented by a First Supplemental Agreement, dated
October 15, 2010 and further supplemented by a Second Supplemental Agreement dated May 9, 2011 (as amended, the "FBB Spartounta
Loan Agreement"), for a loan facility of up to $24.15 million, in relation to the Newlead Spartounta. The loan was payable
in 19 quarterly installments of $0.8 million followed by an $8.95 million payment due in July 2015. Borrowings under this loan
facility bore an effective interest rate, including the margin, of approximately 4.5% (assuming current LIBOR of 0.506%, plus
a 4.0% margin). This loan facility included, among other things, a value to loan ratio that must at all times be at least 100%
from January 1, 2012 up until December 31, 2012 and 120% up until maturity date and a cash sweep for 50% of the vessel's excess
earnings (all as defined in such loan facility) to be applied against the balloon payment. This loan facility also included, among
other things, financial covenants including: (i) the minimum market adjusted equity ratio (as defined in the loan facility) must
be equal to at least 25% for the financial year ending December 31, 2012, although we are not subject to such covenant through
the period ending December 31, 2012, and which increases to 30% annually thereafter; (ii) the minimum liquidity must be equal
to at least 5% of the total debt (as defined in the loan facility) during the period the loan facility remains outstanding, although
the Company is not subject to such covenant through December 31, 2012; (iii) working capital (as defined in the loan facility)
must not be less than zero dollars ($0) during the period the loan facility remains outstanding; and (iv) the minimum interest
coverage ratio (as defined in the loan facility), on a trailing four financial quarter basis must be at least 2:1 as at December
31, 2012, although we are not subject to such covenant through the period ending December 31, 2012, and must be at least 2.5:1
as at December 31, 2013 and annually thereafter.





88









On May 9, 2011,
we entered into a Loan Agreement with First Business Bank for a loan facility of up to $12.0 million, in relation to the Newlead
Prosperity (as amended, the "FBB Prosperity Loan Agreement"), of which $11.9 million has been drawn. The loan was payable
in one balloon payment due in May 2013, unless we proceeded with a successful raising of equity of at least $40.0 million, upon
the completion of which the loan must be prepaid in full. Borrowings under this loan facility bore an effective interest rate,
including the margin, of approximately 7.5% (assuming current LIBOR of 0.506%, plus a 7.0% margin). This loan facility, included,
among other things, a value to loan ratio that must be at least 120% from January 1, 2013 until the maturity date and financial
covenants including: (i) a minimum market adjusted equity ratio (as defined in the loan facility) of 30% only for the financial
year ending December 31, 2013; (ii) a requirement to maintain minimum liquidity equal to at least 5% of total debt (as defined
in the loan facility) during the period the loan facility remains outstanding, although we are not subject to such covenant through
the period ending December 31, 2012; (iii) a requirement to maintain working capital (as defined in the loan facility) of not
less than zero dollars ($0) during the period the loan facility remains outstanding; and (iv) a minimum interest coverage ratio
(as defined in the loan facility), on a financial year basis, of 2.5:1, only for the financial year ending December 31, 2013.



On August 9,
2011, we received a notice of an event of default from First Business Bank relating to the FBB Spartounta Loan Agreement and certain
ancillary agreements relating to the FBB Spartounta Loan Agreement. As of August 9, 2011, $21.7 million of principal was outstanding
under the FBB Spartounta Loan Agreement. The notice alleged events of default under the FBB Spartounta Loan Agreement due to,
among other things, the failure by us to pay the unpaid portion of an installment of approximately $0.7 million due on July 5,
2011, plus default interest on such amounts. The notice further stated that, as a result of such events of default, the FBB Spartounta
Loan Agreement was terminated and that all amounts due under the FBB Spartounta Loan Agreement, in the aggregate amount of $21.8
million, were immediately due and payable. On August 9, 2011, and as a result of the breach above, FBB arrested the other vessel,
the Newlead Prosperity.



On August 12,
2011, in connection with the notices of events of default under the FBB Spartounta Loan Agreement and the FBB Prosperity Loan
Agreement, we entered into a sale agreement for the Newlead Prosperity and the Newlead Spartounta with First Business Bank. The
sale of the Newlead Prosperity and the Newlead Spartounta were completed on September 13, 2011 and September 20, 2011, respectively,
and both loan facilities were terminated.



On April 27,
2012, we were fully discharged and released of any and all of its obligations towards the First Business Bank under the FBB Prosperity
Loan Agreement and the FBB Spartounta Loan Agreement.



EFG
Eurobank Credit Facility



On July 9, 2010,
we assumed a Loan Agreement with EFG, dated October 22, 2007, as supplemented by a Third Supplemental Agreement, dated July 9,
2010, for a loan facility of up to $32.0 million, in relation to the Grand Esmeralda. The Loan Agreement was further supplemented
by a Fourth Supplemental Agreement, dated August 13, 2010, to reflect the renaming of the Grand Esmeralda to the Newlead Esmeralda,
and the change of registry of the vessel from Liberia to the Marshall Islands. The Loan Agreement was further supplemented by
a Fifth Supplemental Agreement, dated October 15, 2010, to reflect the application of $1.13 million to the initial outstanding
amount of $14.79 million. The loan is payable in 15 quarterly installments of $0.525 million followed by a $5.785 million payment
due in April 2014. Borrowings under this loan facility bore an effective interest rate, including the margin, of approximately
4.3% (assuming current LIBOR of 0.506%, plus a 3.75% margin). This loan facility included, among other things, a waiver to the
minimum security clause for a period starting from July 1, 2010 to June 30, 2011. As of December 31, 2011, we were in breach of
the minimum security clause.



The loan facility
included, among other things, financial covenants including: (i) the minimum market adjusted equity ratio (as defined in the loan
facility) must be at least 25% for the period from January 1, 2013 until December 30, 2013, increasing to 30% thereafter; (ii)
the minimum liquidity must be equal to at least 5% of the total debt during the period the loan facility remains outstanding;
(as of December 31, 2011, the Company was in breach of this covenant); and (iii) the minimum interest coverage ratio (as defined
in the loan facility) must be equal to at least 2:1 for the period from January 1, 2013 until December 30, 2013, must be at least
to 2.5:1 thereafter. As of December 31, 2011, we have defaulted on principal and interest payments.



On February 10,
2012, with the consent of EFG, we agreed to the sale of the Newlead Esmeralda for proceeds of approximately $12.0 million with
the net proceeds of the sale being applied towards (a) the full and final satisfaction of all indebtedness owed to EFG under our
loan agreement with EFG and (b) the payment of outstanding trade and vendor payments. The sale of this vessel has been completed
and EFG has released us from all of our liabilities and obligations under this credit facility and related documents. As result
of such sale, our overall indebtedness was decreased by an aggregate amount of $11.0 million. As of May 15, 2012, the outstanding
balance of the loan was $0 million.





89









Handysize
Syndicate Facility Agreement



On July 9, 2010,
we assumed a Loan Agreement with DVB Bank, Nord LB and Emporiki Bank, dated July 9, 2010, as supplemented by a First Supplemental
Agreement, dated July 14, 2010, a Second Supplemental Agreement, dated November 9, 2010, and a Third Supplemental Agreement, dated
December 15, 2010, for a loan facility of up to $48.0 million, in relation to two newbuilding vessels. The loan is payable for
the Navios Serenity, in 12 quarterly installments of $0.3625 million, followed by 12 quarterly installments of $0.3875, million
followed by 15 quarterly installments of $0.4 million, with the last installment payable together with the $9.0 million balloon
payment due in December 2020. The loan is payable for the Hull 4029, in 12 quarterly installments of $0.3625 million, followed
by 12 quarterly installments of $0.3875 million followed by 10 quarterly installments of $0.4 million with the last installment
payable together with the $11.0 million of the balloon payment due in December 2020. Borrowings under this loan facility currently
bear an effective interest rate, including the margin, of approximately 3.5% (assuming current LIBOR of 0.506%, plus a 3.0% margin).
As of the date of assumption, the outstanding balance on such loan facility was $14.1 million. The loan facility includes, among
other things, financial covenants including: (i) the minimum market adjusted equity ratio (as defined in the loan facility) must
be equal to at least 25% from the financial quarter day ending September 30, 2012 until the financial quarter day ending June
30, 2013, increasing to 30% thereafter; (ii) the minimum liquidity must be equal to at least 5% of the total debt during the period
the loan facility remains outstanding (as of December 31, 2011, the Company was in breach of this covenant); (iii) the ratio of
EBITDA to interest payable (as both are defined in the loan facility), on a trailing four financial quarter basis, must be equal
to at least 2:1 from the financial quarter day ending September 30, 2012 until the financial quarter day ending June 30, 2013,
and must be equal to at least 2.5:1 thereafter; (iv) at least $5.0 million of free cash must be maintained at all times; and (v)
working capital (as defined in the loan facility) must be no less than zero dollars ($0) at each quarter end (as of December 31,
2011, the Company was in breach of this covenant). The loan facility also includes, among other things, a value to loan ratio
(as defined in the loan facility) that must at all times be equal to at least 110% over the first five years and 120% thereafter,
a cash sweep on the earnings of the vessels, representing 100% of the excess cash flow (as defined in the loan facility) for the
period commencing on the delivery date of each vessel until the relevant balloon amount is reduced to $3.0 million and 50% of
the excess cash flow of each vessel thereafter and a minimum liquidity reserve for each borrower to be kept with the agent bank
of not less than $0.5 million (applicable after each vessel’s respective deliveries). As of December 31, 2011, we have defaulted
on a number of principal and interest payments.



On June 30, 2011,
we received notification from DVB Bank, as agent of the loan agreement, that we are in breach of certain covenants in the loan
agreement with DVB Bank and others, with regard to a dispute under the shipbuilding contract to which the loan relates. In July
2011, we reached a resolution to the dispute under the shipbuilding contract and obtained delivery of the newbuilding vessel from
the shipyard. On March 21, 2012, we signed a memorandum of agreement with an unrelated party
for the sale of the Navios Serenity. The sale was completed on March 26, 2012 for net proceeds of approximately $26.0 million.The vessel has been delivered to the buyer, thereby reducing the overall indebtedness owed under that facility by $25.0
million. We remain liable under the loan facility to the lenders in respect of the Hull 4029 and are in discussions with the lenders,
the yard and the buyer in respect of the sale of this vessel. The lenders will not release us from all of our obligations under
the loan facility unless and until this vessel is sold. The terms and conditions of any agreement between us and the lenders are
subject to negotiating and executing legally binding documentation. There is no assurance that we will complete such documentation
or the Restructuring in this regard.As of May 15, 2012, the outstanding balance of the
loan was $5.7 million.As of December 31, 2011, we have defaulted on a number of principal and interest payment.



Sale
and leaseback transactions



In November 2010,
we entered into an agreement with Lemissoler for the sale and immediate bareboat leaseback of four dry bulk vessels comprised
of three Capesize vessels, the Brazil, the Australia, and the China, as well as the Panamax vessel Grand Rodosi. Total consideration
for the sale was $86,800 and the bareboat leaseback charter period is eight years. NewLead retains call options to buy the vessels
back during the lease period at pre-determined decreasing prices and is obligated to repurchase the vessels for approximately
$40,000 at the end of the lease term. The repurchase obligation can be paid partially in cash and partially in common shares,
at the Company’s option. The agreement includes, among other things, the following financial covenants: (i) the equity ratio
(as defined in the agreement) shall not be less than 25% from the financial quarter day ending on September 30, 2012 until the
financial quarter day ending on June 30, 2013, increasing to 30% thereafter; (ii) the minimum liquidity (as defined in the agreement)
shall not be less than 5% of the total debt at any time (as of December 31, 2011, we were in breach of this covenant); (iii) the
ratio of EBITDA to Interest Expense (as defined in the agreement) shall not be less than 2:1 from the financial quarter day ending
on September 30, 2012 until the financial quarter day ending on June 30, 2013, increasing to 2.5:1 thereafter; and (iv) on each
financial quarter day the working capital (as defined in the agreement) shall not be less than zero dollars ($0) (as of December
31, 2011, we were in breach of this covenant). As of December 31, 2011, we have defaulted on a number of lease payments. As of
May 14, 2012, the restructuring process on this facility has not been finalized.



In addition,
pursuant to the sale and leaseback transaction, we agreed with Lemissoler (i) to issue 36,480 common shares issuable
upon execution of the agreement; (ii) on each of the first and second anniversaries of the date of the agreement, to deliver,
at our option, either cash of $182,400 or a number of common shares having a value of $182,400, based on a common share value
equal to 120% of the 30-day average immediately preceding such anniversary; and (iii) on each of the third through seventh
anniversaries of the date of the agreement, to deliver, at our option, either cash of $109,440 or a number of common shares having
a value of $109,440, based on a common share value equal to 120% of the 30-day average immediately preceding such anniversary.
The cash or common shares that may be delivered on such anniversary dates are subject to downward adjustment upon the occurrence
of certain events. On January 16, 2012, we issued 199,135 shares, pursuant to the agreement with Lemissoler.





90









On January 31,
2012, February 7, 2012, February 11, 2012, and March 19, 2012, respectively, pursuant to various redelivery addendums to certain
sale and leaseback agreements, we completed the redelivery of four dry bulk vessels, namely the "Australia", the "Grand
Rodosi", the "China" and the "Brazil", to their owners which are affiliates of Lemissoler. Although these
vessels have been redelivered to Lemissoler, we are still liable under the sale and leaseback agreements in respect of settlement
of trade payables, amounts owing to the owners as a result of the termination of those agreements and other liabilities in relation
to the four vessels. We are in discussions with Lemissoler to address these outstanding issues and are seeking to enter into a
settlement agreement in this regard whereby Lemissoler will convert any debt claims they may have against us into equity of the
Company. The terms and conditions of any agreement between us and Lemissoler are subject to negotiating and executing legally
binding documentation. There are no assurances that we will be able to complete such documentation or the Restructuring in this
regard.



In June 2011,
we entered into an agreement with Northern Shipping Fund LLC for the sale and immediate bareboat leaseback of the Post-Panamax
dry bulk vessel, the Newlead Endurance. The net proceeds for the sale were $26.6 million and the bareboat leaseback charter period
is seven years. We retain call options to buy the vessel back during the lease period at pre-determined decreasing prices at the
end of each of the seven years starting from the first year, with the last call option price at $26.5 million at the end of the
lease term. Moreover, a put option existed, which if exercised, would require us to repurchase the vessel for approximately $26.5
million at the end of the lease term. The call or put option price would be paid in cash. The net rate of the bareboat charter
is $9,500 per day throughout the lease period.



The agreement
includes, among other things, financial covenants as follows: (i) the equity ratio (as defined in the agreement) must be at least
30% on each financial quarter day starting from January 1, 2013 and thereafter; (ii) the liquidity (as defined in the agreement)
shall not be less than 5% of the total debt on each financial quarter day starting from January 1, 2013 and thereafter; (iii)
the ratio of EBITDA to Net Interest Expense (as defined in the agreement) shall not be less than 2.5:1 for each 12 month periods
starting January 1, 2013 and thereafter; and (iv) on each financial quarter day the working capital (as defined in the agreement)
shall not be less than zero dollars ($0).



On March 14,
2012, we received enforcement notices from Endurance Shipping LLC, whereby, among other things, Endurance Shipping LLC exercised
its rights to foreclose on the pledge of the shares of Curby Navigation Ltd., which secured the bareboat charter. On March 31,
2012, we entered into a deed of release with Endurance Shipping LLC, the owner of the Newlead Endurance, pursuant to which we
were unconditionally released from our guarantee under the bareboat charter for the Newlead Endurance, which had been chartered-in
by Curby Navigation Ltd., our consolidated subsidiary. In connection with the enforcement notices, we also received a termination
notice in respect of the ship management agreement between Curby Navigation Ltd. and Newlead Bulkers S.A., our subsidiary which
had been the manager of the Newlead Endurance. On March 14, 2012, we redelivered the Newlead Endurance to NSF pursuant to a redelivery
agreement in respect of the capital leasing arrangement. As part of this redelivery agreement, we were released from all its obligations
and liabilities under the relevant finance lease documentation. As of May 14, 2012, the outstanding balance of the lease debt
was $0 million.



EBITDA
and adjusted EBITDA reconciliation to Net Loss



EBITDA
represents net loss from continuing operations before net interest, taxes, depreciation and amortization. Adjusted EBITDA represents
EBITDA before other non-cash items, including straight-line revenue, provisions for doubtful receivables, provisions for claims,
changes in fair value of derivatives, impairment losses, gains and losses on sales of assets, share-based compensation expenses
and operating losses for the non-core vessels. We use EBITDA and Adjusted EBITDA
because we believe that each is a basis upon which our performance can be assessed and each presents useful information to investors
regarding our ability to service and/or incur indebtedness. We also believe that EBITDA and Adjusted EBITDA are useful to investors
because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies
in our industry. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or
as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: (i) EBITDA and Adjusted
EBITDA do not reflect changes in, or cash requirements for, working capital needs; (ii) although depreciation and amortization
are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and (iii) EBITDA
and Adjusted EBITDA do not reflect any cash requirements for such capital expenditures. Because of these limitations, EBITDA and
Adjusted EBITDA should not be considered as a principal indicator of our performance.





91









|                                        |  | Successor    |          |   | Predecessor  |  
|--------------------------------------- |  | ------------ | -------- | - | ------------ | -
|                                        |  | Year Ended   |          |   | Year Ended   |  
|                                        |  | December 31, |          |   | December 31, |  
|                                        |  | 2011         |          |   | 2010         |  
|                                        |  |              |          |   | (Restated)   |  
|ADJUSTED EBITDA RECONCILIATION          |  |              |          |   |              |  
|                                        |  |              |          |   |              |  
|                                        |  |              |          |   |              |  
|Net loss                                |  | $            | (290,395 | ) |              | $
|Plus: Loss from discontinued operations |  |              | 32,180   |   |              |  
|Loss from continuing operations         |  |              | (258,215 | ) |              |  
|                                        |  |              |          |   |              |  
|PLUS:                                   |  |              |          |   |              |  
|Net interest expense                    |  |              | 44,054   |   |              |  
|Depreciation and amortization           |  |              | 31,695   |   |              |  
|EBITDA                                  |  | $            | (182,466 | ) |              | $
|Straight line revenue                   |  |              | 279      |   |              |  
|Provision for doubtful receivables      |  |              | (104     | ) |              |  
|Provision for claims                    |  |              | 1,693    |   |              |  
|Change in fair value of derivatives     |  |              | -        |   |              |  
|Impairment losses                       |  |              | 203,683  |   |              |  
|Loss / (gain) on sale from vessels, net |  |              | 208      |   |              |  
|Share based compensation                |  |              | 1,582    |   |              |  
|Operating loss for non-core vessels     |  |              | -        |   |              |  
|ADJUSTED EBITDA                         |  | $            | 24,875   |   |              | $





EBITDA
loss for the year ended December 31, 2011 was $182.5 million, compared to EBITDA loss for the year ended December 31, 2010
of $26.9 million.Adjusted EBITDA for the year ended December 31, 2011 was $24.9 million,
representing EBITDA before non-cash items such as $203.7 million of impairment losses, $0.2 million of non-cash loss on the
sale of vessels, $1.6 million of share-based compensation expenses, a $0.1 million reversal of provision for doubtful receivables,
a$1.7 million provision for claims, and a $0.3 million gain for the straight lining of revenue.Adjusted EBITDA
for the year ended December 31, 2010 was $21.7 million.This growth in Adjusted EBITDA was attributable primarily
to the increased operational contribution from revenue related to the 13.3% operating fleet growth and the 19.9% reduction in
daily vessel operating expenses to $5,393 in 2011 from $6,733 in 2010.



EBITDA
loss for the year ended December 31, 2010 was $26.9 million, and EBITDA loss for the periods from January 1, 2009 to
October 13, 2009 and October 14, 2009 to December 31, 2009 was $54.1 million and $9.3 million, respectively.Adjusted EBITDA for the year ended December 31, 2010 was $21.7 million, representing
EBITDA before non-cash items such as $39.5 million of impairment losses, $1.6 million of non-cash gains in the fair value
of derivatives, $0.7 million of non-cash gains on the sale of vessels, $2.7 million of share-based compensation expenses,
a $0.4 million provision for doubtful receivables, a$1.2 million provision for claims, a $0.6 million gain for the straight
lining of revenue, as well as operating losses relating to non-core vessels of $6.6 million.Adjusted EBITDA
for the periods from January 1, 2009 to October 13, 2009 and October 14, 2009 to December 31, 2009 were a
loss of $3.5 million and a gain of $0.8 million, respectively.This growth in Adjusted EBITDA was attributable primarily
to the increased operational contribution from revenue related to the 81.5% operating fleet growth.



C.Research and Development, Patents and Licenses



Not
applicable.



D.Trend information



Please refer
to Item 5.A — “Operating and Financial Review and Prospects— Operating Results” and Item 4.B — “Information
on the Company — Business Overview” for a discussion of significant and/or material recent trends.



E.    Off-Balance
Sheet Arrangements



We
do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.





92









F.    Tabular
Disclosure of Contractual Obligations



As
of December 31, 2011, our significant existing contractual obligations and contingencies consisted of our obligations as
a borrower under our loan facility agreements and our capital lease obligations. In addition, we had contractual obligations under
interest rate swap contracts, newbuilding agreements and office rental agreements.



|(in 000's USD)                             |  | Payment Due by Period |        
|------------------------------------------ |  | --------------------- | -------
|Contractual obligations                    |  | Total                 |        
|                                           |  |                       |        
|Long-term debt obligation (1)              |  | $                     | 572,249
|Interest payments (2)                      |  |                       | 173,660
|Rental agreements (3)                      |  |                       | 5,001  
|Newbuildings and vessel future commitments |  |                       | 19,350 
|Total                                      |  | $                     | 770,260





Notes:





| | (1) | Refers to our obligations to repay the indebtedness outstanding
                                                                   as of December 31, 2011, (including long-term debt, capital
                                                                   lease obligations and convertible notes) based on the originally
                                                                   contractual terms of the credit facilities and not taking into
                                                                   account the breach of covenants. The amount does not reflect
                                                                   a debt discount (BCF) of $71.6 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Refers to our expected interest payments over the term
                                                                   of the indebtedness outstanding as of December 31, 2011,
                                                                   assuming a weighted average interest rate of 5.74% per annum.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Refers to our obligations under the rental agreements for
                                                                   office space.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------





Commitments



(i) Rental
agreements



We
have entered into office and warehouse rental agreements with a related party, Terra Stabile A.E., a shareholder of which is Michail
Zolotas, our Vice Chairman, President and Chief Executive Officer, at an aggregate monthly rate of approximately €20,000
as of December 31, 2011, which is expected to be paid in cash or can be negotiated to be paid in newly issued common shares. These
rental agreements vary in duration with the longest agreement expiring in April 2022. Please see the information contained
under “Item. 7B Related Party Transactions" regarding transactions between us and any of our directors.



(ii) Commercial
and Technical Ship Management Agreements



As
of December 31, 2011 and May 15, 2012, the commercial and technical management services of all of our owned and operated vessels
were provided in-house by Newlead Shipping and Newlead Bulkers. Outstanding balances, either due or from managing
agents and related parties as of December 31, 2011, relate to amounts generated prior to the termination of the agreements described
below.



At
December 31, 2009, the vessel-owning companies of the vessels Newlead Avra, Newlead Fortune, High Land, High Rider and Ostria
had technical ship management agreements with ITM based in Dubai, each of which was cancellable by either party upon two months’
notice. The agreed annual management fees were approximately $0.17 million per vessel during each of 2010 and 2009. During
the year ended December 31, 2010, ship management agreements with ITM were terminated. Subsequently, the vessel owning companies
of the vessels signed agreements for the provision of both technical and commercial ship management services with Newlead Shipping,
a company that was controlled by Grandunion and that has been NewLead's subsidiary since April 1, 2010. The agreed annual
management fees were approximately $0.20 million per vessel; however, all payments to Newlead Shipping have been eliminated
since the date on which Newlead Shipping became a subsidiary of NewLead.



The
Chinook had a technical ship management agreement with Ernst Jacob, which was terminated upon the sale of the vessel on April 15,
2010. In January 2010, the vessel owning company of the Nordanvind also signed a technical ship management agreement with Ernst
Jacob which was terminated upon the sale of the vessel on September 7, 2010. The agreed annual management fees per vessel for
2010 and 2009 were approximately €153,000 and €150,000, respectively (equal to approximately $0.2 million).





93









At
December 31, 2009, the Australia had a commercial and technical ship management agreement with Stamford Navigation Inc.,
or Stamford, and the China and the Brazil each had a commercial and technical ship management agreement with Newfront Shipping
S.A., or Newfront. During the first quarter of 2010, these agreements were terminated. Subsequently, the vessel owning companies
signed agreements for the provision of commercial and technical ship management services with Newlead Bulkers S.A., or Newlead
Bulkers, a company which was controlled by Grandunion and currently is NewLead's subsidiary. The annual management fee under each
of the agreements was approximately $0.19 million per vessel; however, all payments to Newlead Bulkers have been eliminated
since the date on which Newlead Bulkers became a subsidiary of NewLead.



Magnus
Carriers Corporation (“Magnus Carriers”), a company owned by two of our former officers and directors, provided the
vessel-owning companies of the Newlead Avra, Newlead Fortune, High Land, High Rider, Ostria and Chinook with non-exclusive commercial
management services through commercial management agreements entered into in October 2007. These agreements were cancelled
by us effective May 1, 2009.



(iii) Commitment
exit



In the third
quarter of 2010, we entered into an agreement for the acquisition of one 2006 built, 37,582 dwt, MR1 Tanker for approximately
$31.8 million, which was to be delivered in the fourth quarter of 2010. On December 1,
2010, we cancelled such agreement and subsequently agreed to the full and final settlement of all the claims under the subject
sale and purchase contract. In compliance with the terms and conditions of this agreement, dated December 21, 2010, we released
to the sellers the deposit of $3.2 million and further incurred a termination fee of $2.0 million, which was paid in January2011.
As a result, the aggregate loss from the commitment exit of $5.2 million was recognized in “Impairment losses” in
the 2010 consolidated statement of operations.



(iv) Newbuildings



The
newbuilding,HandysizeHull 4029, is expected to be delivered in the third quarter
of 2012. As of December 31, 2011, the remaining commitments for delivery of this
vessel amount to approximately $19,350.



However,
on February 20, 2012, the Company received a default letter from the yard in respect of the delay of the installment of $7,400
after the completion of the “steel cutting” in September 2011. The Company is currently under negotiations with the
yard and the DVB Bank for the disposal of the asset.



Recent
Accounting Pronouncements



Fair
Value Disclosures



In
January 2010, the FASB issued amended standards requiring additional fair value disclosures. The amended standards require
disclosures of transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as requiring gross basis disclosures
for purchases, sales, issuances and settlements within the Level 3 reconciliation. Additionally, the update clarifies the requirement
to determine the level of disaggregation for fair value measurement disclosures and to disclose valuation techniques and inputs
used for both recurring and nonrecurring fair value measurements in either Level 2 or Level 3. The Company adopted the new guidance
effective in the first quarter of fiscal 2010, except for the disclosures related to purchases, sales, issuance and settlements,
which were effective for the Company beginning in the first quarter of fiscal 2011. The adoption of the new standard did not have
a significant impact on the Company's consolidated financial statements.



Goodwill Impairment Guidance



In September
2011, the FASB issued an Update to simplify how public entities test goodwill for impairment. The amendments in the Update permit
an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment
test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption
is permitted including for annual and interim impairment tests performed as of a date before September 15, 2011, if an entity’s
financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not
yet been made available for issuance. The amendment will be adopted by the Company in the first quarter of 2012. The adoption
of the new amendments is not expected to have a significant impact on the Company’s consolidated financial statements.





94









Fair Value Measurement



In May 2011, the FASB issued amendments
to achieve common fair value measurement and disclosure requirements. The new guidance (i) prohibits the grouping of financial
instruments for purposes of determining their fair values when the unit of accounting is specified in another guidance, unless
the exception provided for portfolios applies and is used; (ii) prohibits application of a blockage factor in valuing financial
instruments with quoted prices in active markets; and (iii) extends that prohibition to all fair value measurements. Premiums
or discounts related to size as a characteristic of the entity’s holding (that is, a blockage factor), instead of as a characteristic
of the asset or liability (for example, a control premium), are not permitted. A fair value measurement that is not a Level 1
measurement may include premiums or discounts other than blockage factors when market participants would incorporate the premium
or discount into the measurement at the level of the unit of accounting specified in another guidance. The new guidance aligns
the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for
liabilities. As a result, an entity should measure the fair value of its own equity instruments from the perspective of a market
participant that holds the instruments as assets. The disclosure requirements have been enhanced. The most significant change
will require entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable
inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of
the measurements. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded
at fair value but where fair value is disclosed. The new guidance is effective for interim and annual periods beginning on or
after December 15, 2011, with early adoption prohibited. The new guidance will require prospective application. The adoption
of the new standard is not expected to have a significant impact on the Company’s consolidated financial statements.



Presentation of Comprehensive Income



In June 2011,
the FASB issued an update regarding the presentation of comprehensive income. According to the update, an entity has the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. The statement of other
comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income
and a total for other comprehensive income, along with a total for comprehensive income. On December 23, 2011, the FASB issued
an amendment to the new standard on comprehensive income to defer the requirement to measure and present reclassification adjustments
from accumulated other comprehensive income to net income statement line item in net income and also in other comprehensive income.
Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but
consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments
for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net
income and the components of other comprehensive income are presented. The amendments in this update do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require
any transition disclosures. The adoption of the new amendments did not have a significant impact on the Company’s consolidated
financial statements, as there were no items of comprehensive income arising in any of the periods presented.



G.    
Safe Harbor



See
the section "Cautionary Statement Regarding Forward-Looking Statements" at the beginning of this annual report.





95









Item
6.Directors, Senior Management and Employees



A.
Directors and Senior Management



As
of May 15, 2012, set forth below are the names, ages and positions of our directors and executive officers and their respective
terms of service to the Company. Our board of directors is elected on a staggered basis, and each director elected holds office
until his successor has been duly elected, except in the event of his death, resignation, removal or the earlier termination of
his office. The primary business address of each of our executive officers and directors is 83 Akti Miaouli & Flessa
Street, Piraeus Greece, 185 38.







|Name               |  | Age |  | Position                                                                      
|------------------ |  | --- |  | ------------------------------------------------------------------------------
|                   |  |     |  |                                                                               
|Nicholas G. Fistes |  | 53  |  | Class I Director and Chairman since October 13, 2009                          
|Michail S. Zolotas |  | 38  |  | Class I Director and Deputy Chairman, President and CEO since October 13, 2009
|Spyros Gianniotis  |  | 52  |  | Class III Director since October 13, 2009                                     
|Steve J. Oh        |  | 57  |  | Class II Director since December 22, 2011                                     
|Panagiotis Skiadas |  | 41  |  | Class III Director since June 2005                                            
|George Fragos      |  | 47  |  | Chief Operating Officer since October 13, 2009                                
|Antonios Bertsos   |  | 37  |  | Chief Financial Officer since October 1, 2011                                 





Our
board of directors is divided into three classes, as nearly equal in number as possible, with each director serving a three-year
term and one class being elected at each year's annual meeting of shareholders. The term of the Class I Directors expires
at our annual meeting in 2012, the term of the Class III Directors expires at our annual meeting in 2013 and the term of
the Class II Directors expires at our annual meeting in 2014.





Set
forth below is certain biographical information about each of these individuals, who were newly appointed on the date of the recapitalization.





Nicholas
G. Fistes
Director, Executive Chairman



Nicholas
G. Fistes began his career as a Naval Architect and Marine Engineer in charge of worldwide new construction and shipbuilding
with Ceres Hellenic Shipping Enterprises Ltd., or Ceres. He later became the Chief Executive Officer of Ceres (2004-2005), one
of the largest ship management companies in the world, managing various types of ships including crude oil tankers, chemical tankers,
LNG ships and dry bulk carriers. Mr. Fistes also served as Chief Executive Officer of Seachem Tankers Ltd. (1993-1996), a
commercial chemical tanker operating company and as Chief Executive Officer of Coeclerici Ceres Bulk Carriers, a bulk carrier
shipping company (2002-2003). He served on the Executive Committee of Euronav NV from 2006 to 2008. He was also a Board Member
of the shipmanagement companies Ceres LNG Services Ltd. and Ceres Hellas Maritime Company from 2004 to 2006. In 2006, together
with Michail Zolotas, Mr. Fistes founded Grandunion Inc., or “Grandunion”, a shipholding company, where he holds
the position of Chairman. From March 2007 until 2009, he was the Chairman of the International Association of Independent Tanker
Owners (INTERTANKO) and serves on the Board of the Hellenic Marine Environment Protection Association (HELMEPA). He is a member
of a number of industry-related associations including the Executive Committee of the International Association of Dry Cargo Shipowners
(INTERCARGO) and the American Bureau of Shipping (ABS). Mr. Fistes serves on the Hellenic Committees for Det Norske Veritas
(DNV), Registro Italiano Navale (RINA) and the Korean Register of Shipping (KR). Mr. Fistes also serves on the Mediterranean
Committee for the China Classification Society (CCS). Mr. Fistes holds a Bachelor of Science Degree in Naval Architecture
and Shipbuilding from Newcastle Upon-Tyne University and a Master's of Science Degree in Ocean Systems Management from the Massachusetts
Institute of Technology.



Michail
S. Zolotas
Director, President and Chief Executive Officer





Michael
S. Zolotas has long-standing experience in the shipping sector. As a third generation ship-owner, he has over 18 years
of experience in commercial, operational and technical management in the shipping industry. Mr. Zolotas has already managed
over 75 vessels in less than 15 years. Prior to October 2009, Mr. Zolotas was Chief Executive Officer of Grandunion,
a private ship management company with 40 vessels under management. Mr. Zolotas founded Grandunion together with Mr. Nicholas
G. Fistes in 2006. As Chief Executive Officer of Grandunion, Mr. Zolotas bought and sold more than 60 vessels, including
newbuildings. Today, he still serves as Chief Executive Officer of Grandunion. From 1999 until 2006, Mr. Zolotas was General
Manager of Stamford Navigation Inc. In less than seven years, Mr. Zolotas managed to expand the fleet of Stamford Navigation
Inc. from two to 30 vessels, ranging from 17,000 dwt to 170,000 dwt, including newbuildings. Mr. Zolotas joined Stamford
Navigation Inc. as a superintendent engineer in 1997. He commenced his career spending three years in sea service and, after the
completion of his sea service, he was involved in the technical management of Stamford Navigation Inc., especially in newbuildings
supervision and repairs and conversion of the fleet in operation. Mr. Zolotas is a member of the Hellenic and Black Sea Mediterranean
Committee of Bureau Veritas, China Classification Society (CCS) Mediterranean Committee and Registro Italiano Navale (RINA) Committee.
From 2001 to 2007, he served on the board of the CTM Pool. Mr. Zolotas holds a B.E. in Mechanical Engineering from Stevens
Institute of Technology.





96









Spyros
Gianniotis
Director





Spyros
Gianniotis has worked in various positions in major banks throughout Greece and the United States for over 24 years.
From 1989 until 2001, Mr. Gianniotis held positions at Citigroup in Athens, Piraeus and New York. In 2001, Mr. Gianniotis
became the Assistant General Manager, Head of Shipping at Piraeus Bank S.A. In 2008, Mr. Gianniotis became the Chief Financial
Officer of Aegean Marine Petroleum Network Inc., a position he currently holds. Mr. Gianniotis holds a B.A. from Queens College,
CUNY, an MSc from Maritime College, SUNY and an MBA from Wagner College. He joined NewLead's Board of Directors in October 2009.



Panagiotis
Skiadas
Director





Panagiotis
Skiadas has served as a member of our board of directors since the closing of our initial public offering in June 2005. He
is currently the Environmental Manager of VIOHALCO S.A., a holding company of the largest Greek metals processing group that incorporates
approximately 90 companies and accounts for approximately 10% of Greece's total exports. Within that role, Mr. Skiadas
is responsible for all environmental and climate change issues as well as certain energy related matters. Prior to joining VIOHALCO
in April 2006, Mr. Skiadas performed a similar role for a subsidiary of VIOHALCO, ELVAL S.A. He has also served as the Section Manager
of Environmental Operations for the Organizational Committee of Olympic Games in Athens in 2004. Mr. Skiadas holds a Bachelor
of Science from the University of Florida and a Master's degree in Engineering from the Massachusetts Institute of Technology
in Environmental Engineering.





Steve
Oh
Director





Steve
Oh has been the Managing Director of MJLF Athens, a subsidiary of MJLF & Associates USA shipbrokering company, since the
company's establishment in 2007. He is an active shipbroker, involved in various projects related to newbuildings, sales and purchases,
ship repair, chartering and marine equipment, covering both technical and commercial scopes of interest. Prior to joining MJLF
in 2007,Mr. Oh was employed at Hyundai Mipo Dockyard, starting as a Ship Repair Engineer of Machinery Division in the early1980s,
rising to Project Manager for various projects and then becoming the Representative of Hyundai Mipo Dockyard Singapore Branch
in 1993 and the Representative of Hyundai Mipo Dockyard Athens Branch in 1996.Concurrent with his stay in Greece, Mr. Oh has engaged
himself in various responsibilities within the Korean Association, and currently holds the position of Vice Chairman. Mr. Oh,
was born in South Korea in 1954 and graduated from Hanyang University of Seoul with a B.S. in Mechanical and Thermal Engineering.
He has broad international experience in Europe, Asia and the United States.





George
Fragos
Chief Operating Officer



George
Fragos has over 20 years of shipping and shipmanagement experience with various vessel types including crude/product
tankers, chemical carriers, bulk carriers, LNG tankers and passenger ships. Mr. Fragos joined Ceres Hellenic Shipping in
1990 as superintendent engineer and was promoted to senior and top management positions within the group and its affiliated companies.
Mr. Fragos has served in such roles as Technical Manager and Technical Director of the passenger shipping company, Director
of Newbuilding Projects, Marine Division Director, Fleet Director of Euronav Shipmanagement Hellas and Chief Executive Officer
of Gaslog Investments. Mr. Fragos has also served on the Board of Ceres Hellas, Ceres LNG, and Egypt LNG. In 2007, Mr. Fragos
became Director of the Tanker Division of Grandunion, as well as Managing Director of the tanker shipmanagement company within
Grandunion Group. In 2008, he became the Chief Executive Officer of the affiliate tanker shipowning venture, Tankunion Inc. Mr. Fragos
has previously been a member of INTECARGO Safety and Technical Committee and is presently a member of the Business Advisory Committee
of Athens Laboratory of Business Administration's "MBA in Shipping" program. Mr. Fragos graduated with a degree
in Mechanical Engineering from the National Technical University of Athens.





97









Antonis
Bertsos
Chief Financial Officer



Antonis
Bertsoswas appointed to the position of Chief Financial Officer with an effective date of October 1, 2011. Prior to
this, Mr. Bertsos held the position of Deputy Chief Operating Officer of NewLead since April 2010. Prior to joining NewLead, Mr.
Bertsos served as Chief Financial Officer for Aries Energy Corporation from February 2005 to March 2010. Mr. Bertsos commenced
his career as an Auditor at PricewaterhouseCoopers in 1999. Mr. Bertsos holds a B.Sc. in Accounting and Finance from Deree College
in Greece and a Postgraduate Diploma in Business Administration from the University of Leicester in the United Kingdom.



B.
Compensation



We
paid our officers and directors aggregate compensation of approximately $2.13 million for the year ended December 31, 2011, $1.44
million for the year ended December 31, 2010, $2.47 million and $0.41 million for the periods of January 1, 2009 to October 13,
2009 and October 14, 2009 to December 31, 2009, respectively. In addition, share-based compensation costs for the year
ended December 31, 2011 was $1.59 million. In addition, each director will be reimbursed for out-of-pocket expenses incurred while
attending any meeting of the board of directors or any board committee. These reimbursed amounts aggregated to $0.01 million for
the year ended December 31, 2011.



On February 15,
2012, we issued 866,668 shares to two of the Company’s executive officers, Nicholas
G. Fistes, Chairman, and Michail S. Zolotas, Deputy Chairman, Chief Executive Officer and President. On January 2, 2012,
we entered into employment agreements with Nicholas G. Fistes and Michail S. Zolotas,
which entitle each executive to an annual base salary and an annual incentive bonus that is payable in our common stock. The agreements
are retroactive for the years 2010 and 2011 and effective until December 31, 2016, after which they will automatically renew
for additional one-year periods, unless terminated in accordance with the terms of such agreements. Pursuant to the employment
agreements, both executives will be entitled to the following compensation: (1) for the period between October 13, 2009 until
the end of 2010, they will be entitled to an aggregate base salary of $1.3 million and bonus of $0.3 million which will be paid
in shares priced at $24.00 per share, resulting in an aggregate of issuance of 66,667 shares, (2) for 2011, they will be entitled
to an aggregate base salary of $1.3 million and bonus of $0.3 million, which will be paid in shares priced at $2.00 per share,
resulting in an aggregate of issuance of 800,000 shares; and (3) for each year from 2012 until the end of 2016, they will be entitled
to an aggregate base salary of $1.45 million and bonus of $1.45 million, which will be paid in shares priced at $2.00 per share,
resulting in an aggregate of issuance of 1,450,000 shares. Under each employment agreement, upon a change in control of the Company,
any stock based awards to the employee will vest. If prior to the effective date of a change of control or after the second anniversary
of the effective date of a change in control, the employee is terminated without "cause" or resigns for "good reason,"
the employee will be entitled to receive his then current base salary through the end of the expiration period of the agreement,
in addition to any benefits accrued through the date of his termination. If on or after the effective date of a change of control
and prior to the second anniversary of the effective date of the change of control, the employee is terminated without "cause"
or resigns for "good reason," the employee will be entitled to five times his then current base salary and five times
the annual bonus for the prior year within 30 days following the effectiveness of the termination. If an executive's employment
is terminated for "cause" or voluntarily by the employee without "good reason," the employee will not be entitled
to any salary, benefits or reimbursements beyond those accrued through the date of his termination.



C.
Board Practices



Board
Classes



Our
board of directors currently consists of five members. Our directors serve until their successors are appointed or they resign,
unless their office is earlier vacated in accordance with our bye-laws or with the provisions of the BCA. Each of the directors
has served in his respective capacity since his election, which for all directors, except Panagiotis Skiadas and Steve J. Oh,
was October 13, 2009. Mr. Skiadas and Mr. Oh have served as members of the board since June 2005 and December 2011,
respectively. Our board of directors is divided into three classes, as nearly equal in number as possible, with each director
serving a three-year term and one class being elected at each year's annual meeting of shareholders. The term of the Class I
Directors expires at our annual meeting in 2012, the term of the Class III Directors expires at our annual meeting in 2013
and the term of the Class II Directors expires at our annual meeting in 2014. At each succeeding annual general meeting,
successors to the class of directors whose term expires at that annual general meeting shall be elected for a three year term.





98









Committees
of the Board of Directors



We
have established an Audit Committee comprised of our three independent directors responsible for reviewing our accounting controls
and recommending to the board of directors the engagement of our outside auditors. The current members of our audit committee
are Messrs. Spyros Gianniotis (Chairman), Panagiotis Skiadas and Steve Oh. We have also established a Compensation Committee
comprised of three independent directors responsible for reviewing the compensation of our senior management, officers and board
of directors. The current members of our Compensation Committee are Messrs. Steve Oh(Chairman), Spyros Gianniotis and Panagiotis
Skiadas. We have also established a Governance and Nominating Committee comprised of three independent directors responsible foridentifying candidates who are eligible to serve as members of the board of directors and considering matters of corporate
governance generally. The current members of our Governance and Nominating Committee are
Messrs. Panagiotis Skiadas (Chairman), Steve Oh and Spyros Gianniotis.



There
are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
Please see the information contained under “Item. 7B Related Party Transactions" regarding transactions between us
and any of our directors.



D.
Employees



See
"Item 4 — Information on the Company — Business Overview — Crewing and Employees."



On January 2,
2012, we entered into severance agreements with certain of our key employees, not including Nicholas
G. Fistes and Michail S. Zolotas. If on or after the effective date of a change
of control and prior to the second anniversary of the effective date of a change of control, the severance agreements are terminated
without "cause," or the employee resigns for "good reason," the employee will be entitled to (i) five
times his then current base salary, (ii) five times his annual bonus and (iii) the number of shares of our common stock
valued at two times his annual bonus at a price per share equal to the average trading price during the previous 30 trading days,
in each case within 30 days following the effectiveness of the termination. As used in the employment agreements and the severance
agreements, "change of control" means: (i) the sale or disposition, in one or a series of related transactions
within any twelve (12) month period ending on the date of the most recent acquisition by such person or persons, of more
than 50% of our assets to any "person" or "group" (as such terms are defined in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (ii) any person or group is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
in one or a series of related transactions within any twelve (12) month period ending on the date of the most recent acquisition
by such person or persons, of our outstanding equity representing more than 50% of the total voting power of our equity; or (iii) we
undergo a merger, reorganization or other consolidation in which the owners of our outstanding equity ownership immediately prior
to such merger, reorganization or consolidation own less than 50% of the surviving entity's voting power immediately after the
transaction.



E.
Share ownership



The
following table sets forth information with respect to the beneficial ownership of our common shares as of May 15, 2012 for:





| | · | each
                                                                                                                     of our directors
                                                                                                                     and executive
                                                                                                                     officers
                                                                                                                     who beneficially
                                                                                                                     own our shares; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | all
                                                                                                                     directors
                                                                                                                     and executive
                                                                                                                     officers
                                                                                                                     as a group.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







Beneficial
ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable
community property laws, the persons named in the table have or share the voting and investment power with respect to all shares
shown as beneficially owned by them. In computing the number of common shares beneficially owned by a person listed below and
the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such
person that are exercisable or convertible within 60 days of May 15, 2012 are deemed outstanding, but are not deemed outstanding
for computing the percentage ownership of any other person. Percentage of beneficial ownership is based on 19,929,763 shares
outstanding on May 15, 2012. None of the shares set forth in the table below as being beneficially owned by these shareholders
have voting rights that differ from the shares of any other shareholder.Unless otherwise
specified, the business address of each of the individuals set forth below 83 Akti Miaouli & Flessa Street, Piraeus Greece
185 38.





99









Unless
otherwise indicated, NewLead believes that all persons named in the table have sole voting and investment power with respect to
all common shares beneficially owned by them.



|                                                         |  | Shares Beneficially Owned |           
|-------------------------------------------------------- |  | ------------------------- | ----------
|Identity of Person or Group                              |  | Number                    |           
|                                                         |  |                           |           
|Executive Officers and Directors                         |  |                           |           
|Michail S. Zolotas (1)(2)(3)(4)                          |  |                           | 19,079,892
|Nicholas G. Fistes (2)(3)                                |  |                           | 2,059,474 
|Antonios Bertsos                                         |  |                           | 101,418   
|Spyros Gianniotis                                        |  |                           | 147,084   
|Steve J. Oh                                              |  |                           | 70,000    
|Panagiotis Skiadas                                       |  |                           | 157,084   
|George Fragos                                            |  |                           | 140,455   
|Directors and Executive Officers as a Group (1)(2)(3)(4) |  |                           | 21,755,407





| | * | Less than
                                                                                     one percent
| | - | ----------------------------------------------------------------------------------------------------------





| | (1) | Includes 13,877,778 common shares underlying the 7% Notes
                                                                   beneficially owned by Focus Maritime Corp., a Marshall Islands
                                                                   corporation. Focus Maritime Corp. is wholly-owned by Michail
                                                                   S. Zolotas. Focus Maritime's business address is 83 Akti Miaouli &
                                                                   Flessa Street, Piraeus Greece 185 38. The foregoing information
                                                                   was derived from a Schedule 13G/A filed by Grandunion
                                                                   with the SEC on April 30, 2012.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Grandunion is a Marshall Islands corporation, which is
                                                                   wholly owned by Nicholas G. Fistes and Michail S. Zolotas,
                                                                   who each own 50% of the issued and outstanding capital stock
                                                                   of Grandunion. Grandunion's business address is 83 Akti Miaouli &
                                                                   Flessa Street, Piraeus Greece 185 38. The foregoing information
                                                                   was derived from a Schedule 13D/A filed with the SEC on
                                                                   April 30, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The voting agreement between Rocket Marine Inc. and Grandunion,
                                                                   pursuant to which Grandunion had voting power over 1,463,631
                                                                   common shares beneficially owned by Rocket Marine Inc., was
                                                                   terminated effective as of February 29, 2012. As a result,
                                                                   these shares of Rocket Marine Inc. are no longer included in
                                                                   the beneficial ownership of any of Mr. Zolotas, Mr. Fistes
                                                                   or Grandunion.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Includes
                                                                                       an aggregate of 241,273, 499,313 and 5,247
                                                                                       common shares beneficially owned by Terra
                                                                                       Stabile A.E., Terra Norma S.A. and Meltemi
                                                                                       Deck EPE, each of which are affiliated
                                                                                       with Mr. Zolotas. The address of Terra
                                                                                       Stabile A.E. is Krevata 9 Street, Piraeus
                                                                                       185 38, Greece and the address for Meltemi
                                                                                       Deck EPE is Agiou Meletiou 68, Athens 112
                                                                                       51, Greece.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Item
7.Major Shareholders and Related Party Transactions



| | A. | Major
                                                                                                    Shareholders
| | -- | ----------------------------------------------------------------------------------------------------------------------



The
following table sets forth information regarding the owners of more than 5% of our common shares, par value $0.01 per share, with
the exception of those listed in the table above, that we are aware of as of May 15, 2012. On May 15, 2012, there were 19,929,763 common
shares outstanding. None of these shareholders have voting rights that differ from any other shareholder.





|                             |  | Shares Beneficially Owned |           
|---------------------------- |  | ------------------------- | ----------
|Identity of Person or Group  |  | Number                    |           
|                             |  |                           |           
|Principal Shareholders       |  |                           |           
|Focus Maritime Corp.(1)      |  |                           | 16,100,001
|Grandunion Inc. (2) (3)      |  |                           | 2,059,474 
|Rocket Marine Inc.(3) (4)    |  |                           | 1,463,631 
|Nereus Marine Services SA(5) |  |                           | 1,600,000 
|Jelly International Ltd.(6)  |  |                           | 1,700,000 
|Monaco Navigation (7)        |  |                           | 1,550,000 
|Serco Shipping Ltd (8)       |  |                           | 1,700,000 







100











| | (1) | Includes 13,877,778 common shares underlying the 7% Notes.
                                                                   Focus Maritime Corp., a Marshall Islands corporation, is wholly
                                                                   owned by Michail S. Zolotas. Focus Maritime's business address
                                                                   is 83 Akti Miaouli & Flessa Street, Piraeus Greece
                                                                   185 38. The foregoing information was derived from a Schedule 13G/A
                                                                   filed by Grandunion with the SEC on April 30, 2012.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Grandunion is a Marshall Islands corporation, which is
                                                                   wholly owned by Nicholas G. Fistes and Michail S. Zolotas,
                                                                   who each own 50% of the issued and outstanding capital stock
                                                                   of Grandunion. Grandunion's business address is 83 Akti Miaouli &
                                                                   Flessa Street, Piraeus Greece 185 38. The foregoing information
                                                                   was derived from a Schedule 13D/A filed with the SEC on
                                                                   April 30, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The voting agreement between Rocket Marine Inc. and Grandunion,
                                                                   pursuant to which Grandunion had voting power over 1,463,631
                                                                   common shares beneficially owned by Rocket Marine Inc., was
                                                                   terminated effective as of February 29, 2012. As a result,
                                                                   these shares of Rocket Marine Inc. are no longer included in
                                                                   the beneficial ownership of any of Mr. Zolotas, Mr. Fistes
                                                                   or Grandunion.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Rocket Marine Inc., a Marshall Islands corporation, is
                                                                   a wholly owned subsidiary of Aries Energy Corporation, which
                                                                   is also a Marshall Islands corporation. Mons Bolin, our former
                                                                   Chief Executive Officer, President and former member of the
                                                                   board of directors, and Captain Gabriel Petridis, our former
                                                                   Chairman, each own 50% of the issued and outstanding capital
                                                                   stock of Aries Energy Corporation. Each of Aries Energy Corporation,
                                                                   Mons Bolin and Captain Gabriel Petridis disclaims beneficial
                                                                   ownership of such shares, except to the extent of their pecuniary
                                                                   interest therein. The principal business address for each of
                                                                   Aries Energy Corporation, Mr. Bolin and Cpt. Petridis
                                                                   is 18 Zerva Nap. Street, Glyfada, Athens Greece 166 75. The
                                                                   foregoing information was derived from a Schedule 13G/A
                                                                   filed with the SEC on October 16, 2009.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Nereus Marine Services S.A., a Greek company, acquired
                                                                   the shares pursuant to a Settlement Agreement between the Company
                                                                   and Nereus Marine Services S.A., dated February 28, 2012. The
                                                                   principal business address for Nereus Marine Services S.A.
                                                                   is 149 Alkiviadou Street, Piraeus, Greece 18535.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Jelly International Ltd., a Marshall Islands corporation,
                                                                   acquired the shares pursuant to a Settlement Agreement between
                                                                   the Company and Jelly International Ltd., dated February 28,
                                                                   2012. The principal business address for Jelly International
                                                                   Ltd. is Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands
                                                                   MH96960.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Monaco Navigation, a Monaco company, acquired the shares
                                                                   pursuant to a Settlement Agreement between the Company and
                                                                   Monaco Navigation, dated February 28, 2012. The principal business
                                                                   address for Monaco Navigation is 7 rue de Gabian, MC 98000.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Serco Shipping Ltd., a Marshall Islands corporation, acquired
                                                                   the shares pursuant to a Settlement Agreement between the Company
                                                                   and Serco Shipping Ltd., dated February 28, 2012. The principal
                                                                   business address for Serco Shipping Ltd. is Ajeltake Road,
                                                                   Ajeltake Island, Majuro, Marshall Islands MH96960.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







| | B. | Related
                                                                                                    Party Transactions
| | -- | ------------------------------------------------------------------------------------------------------------------------------



Consistent
with Bermuda law requirements, our bye-laws require any director who has a potential conflict of interest to identify and declare
the nature of the conflict to our board of directors. Our bye-laws additionally provide that related party transactions must be
approved by independent and disinterested directors.



Terra
Stabile A.E./ Terra Norma A.E.



We
lease office spaceas well as warehousespace in Piraeus, Greece from Terra Stabile
A.E. (“Terra Stabile”), which is controlled by Michail Zolotas, our President, Chief Executive Officer and Vice Chairman
and member of the Company’s Board of Directors. In November 2009, we entered into a 12-year lease agreement with Terra
Stabile A.E. for the office space, and on April 28, 2010,we entered into a 12-year lease agreement with Terra Stabile for
the warehouse space(see Note 22 of the accompanying consolidated financial statements).
In May 2011, we also entered into two nine month lease agreements with Terra Norma A.E., which is controlled by Michail Zolotas,
our Vice Chairman, President, Chief Executive Officer and member of our Board of Directors, inrelation to office parking
space.Total rent for the years ended December 31, 2011 and 2010 was approximately$0.48
million and $0.34 million, respectively.





101









Grandunion
Inc.



Nicholas
G. Fistes, our Chairman, and Michail S. Zolotas, our Deputy Chairman, Chief Executive Officer and President, are the sole stockholders
and the chairman and chief executive officer, respectively, of Grandunion. On October 13, 2009, Grandunion transferred 100%
ownership in three dry bulk carriers, the China, the Australia and the Brazil (which transaction included assets with a carrying
value of approximately $75.3 million and the assumption of a credit facility of $37.4 million and other liabilities,
for a net value of $35.0 million) to us in exchange for 1,581,483 newly issued common shares of the Company.



As
part of the same transaction, a voting agreement between Grandunion and Rocket Marine was entered into for which Grandunion transferred
222,223 of our common shares to Rocket Marine, a company controlled by two of our former directors and principal shareholders,
in exchange for Grandunion's control over the voting rights relating to the shares owned by Rocket Marine and its affiliates.The voting agreement was terminated effective as of February 29, 2012.



In
connection with the recapitalization, we issued $145.0 million in aggregate principal amount of 7% Notes. The 7% Notes
are convertible into common shares at a conversion price of $9.00 per share, subject to adjustment for certain events, including
certain distributions of our cash, debt and other assets, spin-offs and other events. The issuance of the 7% Notes was pursuant
to an Indenture dated October 13, 2009 between us and Marfin Egnatia Bank S.A., and a Note Purchase Agreement, executed by
each of Investment Bank of Greece and Focus Maritime Corp., as purchasers. In connection with the issuance of the 7% Notes,
we entered into a Registration Rights Agreement providing certain demand and other registration rights for the common shares underlying
the 7% Notes. In November 2009, Focus Maritime Corp., a company controlled by Mr. Zolotas, our Vice Chairman, President
and Chief Executive Officer, converted $20.0 million of the 7% Notes into approximately 2.2 million new common
shares. Accordingly, in the aggregate, $125.0 million of the 7% Notes remain outstanding. As a result of this conversion,
Focus Maritime Corp. as at December 31, 2011 owned approximately 28% of our outstanding common shares. The 7% Notes are convertible
at any time and if fully converted, following the conversion of 2.2 million shares, would result in the issuance of approximately
13.9 million newly issued common shares. Currently, Investment Bank of Greece retains $100,000 outstanding principal amount
of the 7% Notes and has received warrants to purchase up to 416,667 common shares at an exercise price of $24.00 per share,
with an expiration date of October 13, 2015. The remainder ($124.9 million) is owned by Focus Maritime Corp. All of
the outstanding 7% Notes owned by Focus Maritime Corp. were pledged to, and their acquisition was financed by, Marfin Egnatia
Bank S.A. The Note Purchase Agreement and the Indenture with respect to the 7% Notes contain certain covenants, including
limitations on the incurrence of additional indebtedness, except in connection with approved vessel acquisitions, and limitations
on mergers and consolidations.



In
April 2010, we completed the acquisition of six vessels (four dry bulk vessels and two product tankers) and Newlead Shipping and
its subsidiaries, an integrated technical and commercial management company, from Grandunion. For more details please refer to
Note 5 of the accompanying consolidated financial statements. In July 2010, wecompleted the acquisition of five dry bulk
vessels from Grandunion including two newbuildings with long term quality time charters. Total
consideration for the acquisition of the five vessels was approximately $147.0 million, which included approximately $93.0 million
in assumed bank debt and other liabilities. The balance, representing newbuilding commitments, will be financed with committed
bank and shipyard credit facilities, as well as with cash from our balance sheet.



Management
Services and Commissions



Magnus
Carriers, a company owned by two of our former officers and directors, is a company that provided commercial management services
to certain vessel-owning companies at a commission of 1.25% of hires and freights earned by the vessels, or fees of $7,000 per
month per vessel where no 1.25% commission was payable. In addition, Magnus Carriers was entitled commission of 1% on the sale
or purchase price in connection with a vessel sale or purchase. These agreements were cancelled by us on May 1, 2009.For
the years ended December 31, 2011 and 2010, for the period January 1, 2009 to October 13, 2009 and for the period October 14,
2009 to December 31, 2009, these commissions and management fees were $0, $0.13 million, $0.41
million and $0, respectively (figures include continuing and discontinued operations).



Sea
Breeze



As
part of attaining revenue (commissions) for our vessels, we contracted with a related entity, Sea Breeze Ltd., of which one
of our former directors is a shareholder. In addition, we paid 1% of the purchase price brokerage commission on the sale of the
Saronikos Bridge and the MSC Seine, respectively. For the years ended December 31, 2011 and 2010, for the period January 1,
2009 to October 13, 2009 and for the period October 14, 2009 to December 31, 2009, the commissions amounted to
$0, $0.11 million, $0.07 million and $0.05 million, respectively (figures include continuing and discontinued operations).





102









Newfront
— Stamford



At
December 31, 2009, the vessel Australia had technical ship management and commercial management agreements with Stamford and Newfront,
and the vessels China and Brazil had technical ship management and commercial management agreements with Newfront. Stamford and
Newfront are both related parties with common shareholders. The agreed annual management fees were approximately $185,000 per
vessel. During the first quarter of 2010, these agreements were terminated. Subsequently, the vessel owning companies have signed
agreements with Newlead Bulkers for the provision of commercial and technical ship management services (see below). For the years
ended December 31, 2011 and 2010, for the period January 1, 2009 to October 13, 2009 and for the period October 14,
2009 to December 31, 2009, the management fees for Newfront were approximately $0, $0.05 million, $0 and $0.08 million, respectively,
and for Stamford were approximately $0, $0.03 million, $0, and $0.04 million, respectively.



Newlead
Bulkers S.A.



Since
April 1, 2010, Newlead Bulkers has been our subsidiary as a result of its acquisition from Grandunion described in Note 5 of the
accompanying consolidated financial statements and, consequently, any transactions with the rest of the group are fully eliminated
since that date. Until March 31, 2010, when it was a related party due to the existence of common shareholders, Newlead Bulkers
assumed the commercial and technical ship management services for the Australia, the China and the Brazil. The management fees
for the year ended December 31, 2010 were $0.06 million.



As
of December 31, 2011 and May 15, 2012, the commercial and technical management services of all of our owned and operated vessels
were provided in-house by Newlead Shipping and Newlead Bulkers.



Newlead
Shipping S.A.



Since
April 1, 2010, Newlead Shipping has been our subsidiary as a result of its acquisition from Grandunion described in Note 5 of
the accompanying consolidated financial statements and, consequently, any transactions with the rest of the group are fully eliminated
since that date. Until March 31, 2010, when it was a related party due to the existence of common shareholders, Newlead Shipping
assumed the commercial and technical ship management services for the Newlead Avra and the Newlead Fortune. The management fees
for the year ended December 31, 2010 were $0.04 million.



As
of December 31, 2011 and May15, 2012, the commercial and technical management services of all of our owned and operated vessels
were provided in-house by Newlead Shipping and Newlead Bulkers.



Domina
Petridou O.E.



We
leased office space in Glyfada, Greece from Domina Petridou O.E., a company of which one of our former directors is a shareholder.
In November 2005, we entered into a 10-year lease agreement with the landowner. In October 2007, we entered into an
additional nine-year lease agreement with the landowner. These agreements were terminated in 2009 and in the first quarter of
2010 respectively. Total rent for the years ended December 31, 2011 and 2010, for the periods January 1, 2009 to October 13,
2009, and October 14, 2009 to December 31, amounted to approximately $0, $0.02 million, $0.11 million and $0.03 million,
respectively.



Aries
Energy Corporation



On April 15, 2010, we completed the acquisition
of two Kamsarmaxes under construction for an aggregate consideration of approximately $112.7 million (including the assumption
of newbuilding contract commitments and debt related to the two Kamsarmaxes) in exchange for the vessel Chinook as part of the
same transaction. The purchase was completed pursuant to the terms of a Securities Purchase Agreement, dated February 18, 2010,
with Aries Energy Corporation, a company with a common shareholder, and Bhatia International PTE Ltd., an unrelated third party.
Gabriel Petrides, a former Board member and an affiliate of Rocket Marine, one of our principal
stockholders, is one of the principals of Aries Energy Corporation, one of the sellers of these vessels. Accordingly, even though
Rocket Marine was a principal stockholder, neither it nor Mr. Petrides had the ability to influence us. We believe that the
negotiations were conducted at arm’s length and that the sale price was no less favorable than would have been achieved
through arm’s length negotiations with a wholly unaffiliated third party. The voting agreement between Rocket Marine
Inc. and Grandunion, pursuant to which Grandunion controlled the vote, was terminated effective as of February 29, 2012.



Item
8.Financial Information





| | A. | Consolidated Statements and Other Financial
                                                                               Information
| | -- | --------------------------------------------------------------------------------------------------------------------------------------







See
Item 18.





103









Legal
Proceedings Against Us





From
time to time in the future, we may be subject to legal proceedings and claims in the ordinary course of business, principally
personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. Current legal proceedings of which we are aware are as follows:



| | · | The
                                                                                                                    charterers
                                                                                                                    of the vessel
                                                                                                                    Newlead Avra
                                                                                                                    notified us
                                                                                                                    in October
                                                                                                                    2008 of their
                                                                                                                    intention
                                                                                                                    to pursue
                                                                                                                    the following
                                                                                                                    claims and
                                                                                                                    notified the
                                                                                                                    appointment
                                                                                                                    of an arbitrator
                                                                                                                    in relation
                                                                                                                    to them:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Damages
                                                                                                       suffered by sub-charterers
                                                                                                       of the vessel in respect
                                                                                                       of remaining on board cargo
                                                                                                       at New York in September
                                                                                                       2007;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Damages
                                                                                                       suffered by sub-charterers
                                                                                                       of the vessel as a result
                                                                                                       of a change in management
                                                                                                       and the consequent dispute
                                                                                                       regarding oil major approval
                                                                                                       from October 2007; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Damages
                                                                                                       suffered by sub-charterers
                                                                                                       of the vessel resulting
                                                                                                       from a grounding at Houston
                                                                                                       in October 2007.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We do not anticipate
any amount in excess of the amount accrued to be material to the consolidated financial statements.



| | · | The
                                                                                                                    charterers
                                                                                                                    of the Newlead
                                                                                                                    Fortune notified
                                                                                                                    us in October
                                                                                                                    2008 of their
                                                                                                                    intention
                                                                                                                    to pursue
                                                                                                                    the following
                                                                                                                    claims, and
                                                                                                                    notified the
                                                                                                                    appointment
                                                                                                                    of an arbitrator
                                                                                                                    in relation
                                                                                                                    to them:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Damages
                                                                                                       as a result of a change
                                                                                                       in management and the consequent
                                                                                                       dispute regarding oil major
                                                                                                       approval from October 2007; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Damages
                                                                                                       resulting from the creation
                                                                                                       of Hydrogen Sulphide in
                                                                                                       the vessel’s tanks
                                                                                                       at two ports in the United
                                                                                                       States.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
do not anticipate any amount in excess of the amount accrued to be material to the consolidated financial statements.



| | · | The
                                                                                                                                  vessel
                                                                                                                                  Grand
                                                                                                                                  Rodosi
                                                                                                                                  was
                                                                                                                                  involved
                                                                                                                                  in
                                                                                                                                  a
                                                                                                                                  collision
                                                                                                                                  in
                                                                                                                                  October
                                                                                                                                  2010
                                                                                                                                  with
                                                                                                                                  the
                                                                                                                                  fishing
                                                                                                                                  vessel
                                                                                                                                  “Apollo
                                                                                                                                  S”.
                                                                                                                                  As
                                                                                                                                  of
                                                                                                                                  December
                                                                                                                                  31,
                                                                                                                                  2011,
                                                                                                                                  we
                                                                                                                                  estimated
                                                                                                                                  that
                                                                                                                                  the
                                                                                                                                  expected
                                                                                                                                  possible
                                                                                                                                  losses
                                                                                                                                  amount
                                                                                                                                  to
                                                                                                                                  approximately
                                                                                                                                  $500,000
                                                                                                                                  which,
                                                                                                                                  however,
                                                                                                                                  are
                                                                                                                                  100%
                                                                                                                                  covered
                                                                                                                                  by
                                                                                                                                  the
                                                                                                                                  P&I
                                                                                                                                  Club:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Damage to wharf – we have provided guarantee for
                                                                     A$3,387,500; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------

| | b) | Pollution cleanup costs – we have provided guarantee
                                                                     for A$500,000.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                                                                                                    charterers
                                                                                                                    of the Newlead
                                                                                                                    Esmeralda
                                                                                                                    notified us
                                                                                                                    in November
                                                                                                                    2010 of their
                                                                                                                    intention
                                                                                                                    to pursue
                                                                                                                    the following
                                                                                                                    claims. After
                                                                                                                    discussions
                                                                                                                    with charterers,
                                                                                                                    in March 2011,
                                                                                                                    an agreement
                                                                                                                    was reached
                                                                                                                    that neither
                                                                                                                    party would
                                                                                                                    seek any form
                                                                                                                    of security
                                                                                                                    in the future
                                                                                                                    for the claims
                                                                                                                    relating to
                                                                                                                    the grounding
                                                                                                                    that occurred
                                                                                                                    in March 2010.We
                                                                                                                    believe the
                                                                                                                    charterer’s
                                                                                                                    chances of
                                                                                                                    success are
                                                                                                                    remote. Below
                                                                                                                    is a list
                                                                                                                    of the claims:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Damages for lost income as a result of cargo that was
                                                                     not able to be loaded, subsequent to vessel’s grounding
                                                                     in March 2010;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Damages resulting from the prolonged storage costs due
                                                                     to the inability to place cargo on board the vessel; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Anticipated costs.
| | -- | ------------------





Other
than as described above, we have not been involved in any legal proceedings which may have, or have had a significant effect on
our financial statements, nor are we aware of any proceedings that are pending or threatened which may have a significant effect
on our financial statements.





104









Dividend
Policy



On
September 12, 2008, we determined to suspend payment of our quarterly dividend, effective immediately. The decision followed
our management’s strategic review of our business and reflected our focus on improving our long-term strength and operational
results. We will make dividend payments to our shareholders only if our board of directors, acting in its sole discretion, determines
that such payments would be in our best interest and in compliance with relevant legal and contractual requirements. The principal
business factors that our board of directors expects to consider when determining the timing and amount of dividend payments will
be our earnings, financial condition and cash requirements at the time. Currently, the principal contractual and legal restrictions
on our ability to make dividend payments are those contained in our fully revolving credit facility agreement, and those created
by Bermuda law.



Our debt agreements
contain covenants that limit our ability to pay dividends. For example, our credit facility with Marfin Egnatia Bank S.A. prohibits
us from paying dividends without our lender’s consent, and the Facility Agreement only permits the payment of dividends
if we meet certain ratios. Our facility agreements further require us to maintain specified
financial ratios and minimum liquidity and working capital amounts. In March 2008, pursuant to the condition imposed by our lenders
in connection with the relaxation of the interest coverage ratio under our credit facility, our board of directors suspended the
payment of quarterly dividends commencing with the dividend in respect of the fourth quarter of 2007. We resumed the payment of
dividends with a dividend of $1.20 per share in respect of the first quarter of 2008. In September 2008, our board of directors
suspended the payment of quarterly dividends commencing with the dividend in respect of the second quarter of 2008. Our board
of directors may review and amend our dividend policy from time to time in light of our plans for future growth and other factors.



Under
Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing either that the company
is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets
would thereby be less than the sum of its liabilities, its issued share capital (the total par value of all outstanding shares)
and share premium accounts (the aggregate amount paid for the subscription for its shares in excess of the aggregate par value
of such shares). If the realizable value of our assets decreases, in order for us to pay dividends, we may require our shareholders
to approve resolutions reducing our share premium account by transferring an amount from such account to our contributed surplus
account.



| | B. | Significant
                                                                                                    Changes
| | -- | -----------------------------------------------------------------------------------------------------------------------



Not
applicable.



Item
9.The Offer and Listing



| | A. | Offer
                                                                                                    and Listing Details
| | -- | -----------------------------------------------------------------------------------------------------------------------------



Currently,
the principal trading market for our securities, which includes our common shares, is the NASDAQ Global Select Market under the
symbol “NEWL”.





The
following table sets forth, for the periods indicated, the reported high and low market prices of our common shares on the NASDAQ
Global Select Market. The following prices reflect the 1-for-12 reverse split of our common shares on August 3, 2010.





On
May 14, 2012, the closing price of our common shares was $1.81.







|                                            |  | High |        |  | Low |  
|------------------------------------------- |  | ---- | ------ |  | --- | -
|For the Fiscal Year Ended December 31, 2007 |  | $    | 125.40 |  |     | $
|For the Fiscal Year Ended December 31, 2008 |  | $    | 93.24  |  |     | $
|For the Fiscal Year Ended December 31, 2009 |  | $    | 19.68  |  |     | $
|For the Fiscal Year Ended December 31, 2010 |  | $    | 12.60  |  |     | $
|For the Fiscal Year Ended December 31, 2011 |  | $    | 3.88   |  |     | $
|For the Quarter Ended                       |  |      |        |  |     |  
|March 31, 2010                              |  | $    | 11.76  |  |     | $
|June 30, 2010                               |  | $    | 12.60  |  |     | $
|September 30, 2010                          |  | $    | 9.37   |  |     | $
|December 31, 2010                           |  | $    | 4.99   |  |     | $
|March 31, 2011                              |  | $    | 2.88   |  |     | $
|June 30, 2011                               |  | $    | 2.30   |  |     | $
|September 30, 2011                          |  | $    | 3.88   |  |     | $
|December 31, 2011                           |  | $    | 0.98   |  |     | $
|March 31, 2012                              |  | $    | 2.30   |  |     | $
|For the Month Ended                         |  |      |        |  |     |  
|December 31, 2011                           |  | $    | 0.75   |  |     | $
|January 31, 2012                            |  | $    | 1.14   |  |     | $
|February 29, 2012                           |  | $    | 1.72   |  |     | $
|March 31, 2012                              |  | $    | 2.30   |  |     | $
|April 30, 2012                              |  | $    | 5.23   |  |     | $
|May 31, 2012 (through May 14, 2012)         |  | $    | 3.10   |  |     | $







105









|B. | Plan
    of Distribution
|-- | ------------------------





Not
applicable.



|C. | Markets
|-- | -------



See
Item 9.A. above.





|D. | Selling
    Shareholders
|-- | ------------------------





Not
applicable.





|E. | Dilution
|-- | --------



Not
applicable.



|F. | Expenses
    of the issue
|-- | -------------------------



Not
applicable.



Item
10. Additional Information



A.
Share Capital



Not
applicable.



B.Memorandum of Association and Bye-laws



The
following description of our share capital summarizes the material terms of our Memorandum of Association and our bye-laws. Under
our Memorandum of Association, as amended, our authorized capital consists of 500,000,000 preference shares, par value $0.01 per
share, and 1,000,000,000 common shares, par value of $0.01 per share.





Common
Shares





Our
Memorandum of Association was amended on August 26, 2009 to increase our authorized share capital to 1,000,000,000 common
shares and 500,000,000 preference shares.



Holders
of common shares have no pre-emptive, subscription, redemption, conversion or sinking fund rights. Holders of common shares are
entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders. Holders of common shares
have no cumulative voting rights. Holders of common shares are entitled to dividends if and when they are declared by our board
of directors, subject to any preferred dividend right of holders of any preference shares. Directors to be elected by holders
of common shares require a plurality of votes cast at a meeting at which a quorum is present. For all other matters, unless a
different majority is required by law or our bye-laws, resolutions to be approved by holders of common shares require approval
by a majority of votes cast at a meeting at which a quorum is present.





106









Upon
our liquidation, dissolution or winding up, our common shareholders will be entitled to receive, ratably, our net assets available
after the payment of all our debts and liabilities and any preference amount owed to any preference shareholders. The rights of
our common shareholders, including the right to elect directors, are subject to the rights of any series of preference shares
we may issue in the future.



Preference
Shares



Under
the terms of our bye-laws, our board of directors has authority to issue up to 500,000,000 “blank check” preference
shares in one or more series and to fix the rights, preferences, privileges and restrictions of the preference shares, including
voting rights, dividend rights, conversion rights, redemption terms (including sinking fund provisions) and liquidation preferences
and the number of shares constituting a series or the designation of a series.



The
rights of holders of our common shares will be subject to, and could be adversely affected by, the rights of the holders of any
preference shares that we may issue in the future. Our board of directors may designate and fix rights, preferences, privileges
and restrictions of each series of preference shares which are greater than those of our common shares. Our issuance of preference
shares could, among other things:



| | • | restrict dividends on our common shares;                        
| | - | ----------------------------------------------------------------
| |   |                                                                 
| | • | dilute the voting power of our common shares;                   
| |   |                                                                 
| | • | impair the liquidation rights of our common shares; and         
| |   |                                                                 
| | • | discourage, delay or prevent a change of control of our Company.



Our
board of directors does not at present intend to seek shareholder approval prior to any issuance of currently authorized preference
shares, unless otherwise required by applicable law or NASDAQ requirements. Although we currently have no plans to issue preference
shares, we may issue them in the future.



Reverse
share split



On
July 27, 2010, we announced that a 1-for-12 reverse share split of our common shares had been approved by our board of directors
and by written consent of a majority of shareholders, effective upon the opening of the markets on August 3, 2010. The reverse
share split consolidated every 12 common shares into one common share, with par value of $0.01 per share. Our number of authorized
common shares and preference shares were not affected by the reverse split. In respect to the underlying common shares associated
with stock options and any derivative securities, such as warrants and convertible notes, the conversion and exercise prices and
number of common shares issued have been adjusted in accordance with the 1:12 ratio for all periods presented. As a result of
the reverse share split, the number of our issued common shares was reduced from 88,363,265 to 7,327,934 shares, which takes
into account the rounding up of all fractional shares to the nearest whole share. Due to such reverse share split, earnings per
share, convertible notes, warrants and stock options have been adjusted retrospectively as well.



Registration
Rights





Certain
of our shareholders have registration rights as described below.



We
entered into a Registration Rights Agreement, dated September 16, 2009, with Grandunion and Rocket Marine in connection with
a securities purchase agreement, dated the same date, with Grandunion. Subject to the terms of the Registration Rights Agreement,
at any time after December 31, 2011, Grandunion and Rocket Marine may demand that we file a registration statement, request
that we file a registration statement on Form F-3 if we are entitled to use such form, or request that their purchased common
shares be covered by a registration statement that we are otherwise filing (i.e., piggy-back registration).Pursuant to
the Registration Rights Agreement, as of April 30, 2011, we received a notice from Rocket Marine waiving its rights to require
us to file a registration statement prior to June 30, 2011 in respect of the 222,223 common shares that were transferred to Rocket
Marine as part of our 2009 recapitalization.



We
entered into a Registration Rights Agreement, dated April 1, 2010, with Grandunion in connection with a securities purchase
agreement, dated as of March 31, 2010, with Grandunion. Subject to the terms of the agreement, at any time after April 1,
2011, Grandunion may demand that we file a registration statement, request that we file a registration statement on Form F-3
if we are entitled to use such form, or request that their purchased common shares be covered by a registration statement that
we are otherwise filing (i.e., piggy-back registration).





107









We
entered into a Registration Rights Agreement, dated October 13, 2009, with Investment Bank of Greece and Focus Maritime Corp.
in connection with the issuance of our 7% Notes. Subject to the terms of this agreement, upon the request of the majority
of the holders of the transfer restricted securities (as defined therein), we are required to file a shelf registration statement
covering the transfer restricted securities within 30 days. The holders may also request that their transfer restricted securities
be covered by a registration statement that we are otherwise filing for the purpose of a firm-commitment, underwritten public
offering of common shares (i.e., piggy-back registration).



We
entered into a Registration Rights Agreement, dated October 13, 2009, with Investment Bank of Greece in connection with a warrant
purchase agreement and a warrant agreement, each dated October 13, 2009. Subject to the terms of this agreement, upon the request
of the holders of at least 83,334 of the warrant shares (as defined therein), we are required to file a shelf registration statement
covering the transfer restricted securities within 30 days. The holders may also request that their warrant shares be covered
by a registration statement that we are otherwise filing for the purpose of a firm-commitment, underwritten public offering of
common shares (i.e., piggy-back registration).





We
entered into a Registration Rights Agreement, dated January 2, 2010, with S. Goldman Advisors, LLC, in connection with the
registration of 208,334 common shares and 416,667 common stock underlying warrants issued to the advisors. Subject to the terms
of this agreement, upon the request of holders of at least 83,334of the transfer restricted securities (as defined therein), we
are required to file a shelf registration statement covering the transfer restricted securities within 30 days. The holders
may also request that their transfer restricted securities be covered by a registration statement that we are otherwise filing
for the purpose of a firm-commitment, underwritten public offering of common shares (i.e., piggy-back registration). In addition,
we entered into a Subscription Agreement, dated April 17, 2012, with S. Goldman Advisors, LLC, for the issuance of 750,000 common
shares as payment for advice pertaining to the restructuring of our financial indebtedness. Subject to the terms of this agreement,
the holder may request that the common shares be covered by a registration statement that we are otherwise filing (i.e., piggy-back
registration).



Treasury
Shares





Our
bye-laws were amended at our 2008 annual general meeting to allow our board of directors, at its discretion and without the sanction
of a resolution of our shareholders, to authorize the acquisition by us of our shares, to be held as treasury shares. Our board
of directors may, at its discretion and without the sanction of are solution of our shareholders, authorize the acquisition by
us of our own shares, to be held as treasury shares, upon such terms as the board of directors may in its discretion determine,
provided always that such acquisition is effected in accordance with the provisions of the BCA. We will be entered in the register
of members as a shareholder in respect of the shares held as treasury shares and will be its own shareholder but subject always
to the provisions of the BCA. We will not exercise any rights and will not enjoy or participate in any of the rights attaching
to those shares save as expressly provided for in the BCA. Subject as otherwise provided in our bye-laws in relation to our shares
generally, any shares held by us as treasury shares will be at the disposal of the board of directors, which may hold all or any
of such shares, dispose of or transfer all or any of such shares for cash or other consideration, or cancel all or any of such
shares.



Dividends





Under
Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing either that the company
is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets
would thereby be less than its liabilities. There are no restrictions on our ability to transfer funds (other than funds denominated
in Bermuda dollars) in and out of Bermuda or to pay dividends to U.S. residents who are holders of our common shares.



Anti-Takeover
Effects of Provisions of Our Constitutional Documents



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





108









Blank
Check Preference Shares



Under
the terms of our bye-laws, subject to applicable legal or NASDAQ requirements, our board of directors has authority, without any
further vote or action by our shareholders, to issue up to 500,000,000 preference shares with such rights, preferences and privileges
as our board may determine. Our board of directors may issue preference shares on terms calculated to discourage, delay or prevent
a change of control of our company or the removal of our management.



Classified
Board of Directors





Our
bye-laws provide for the division of our board of directors into three classes of directors, with each class as nearly equal in
number as possible, serving staggered, three year terms. One-third (or as near as possible) of our directors will be elected each
year. Our bye-laws also provide that directors may only be removed for cause upon the vote of the holders of no less than 80%
of our outstanding common shares. These provisions could discourage a third party from making a tender offer for our shares or
attempting to obtain control of our company. It could also delay shareholders who do not agree with the policies of the board
of directors from removing a majority of the board of directors for two years.





Business
Combinations



Although
the BCA does not contain specific provisions regarding “business combinations” between companies organized under the
laws of Bermuda and “interested shareholders”, we have included these provisions in our bye-laws. Specifically, our
bye-laws contain provisions which prohibit us from engaging in a business combination with an interested shareholder for a period
of three years after the date of the transaction in which the person became an interested shareholder, unless, in addition to
any other approval that may be required by applicable law:





| | • | prior
                                                                                                            to the date of the
                                                                                                            transaction that resulted
                                                                                                            in the shareholder
                                                                                                            becoming an interested
                                                                                                            shareholder, our board
                                                                                                            of directors approved
                                                                                                            either the business
                                                                                                            combination or the
                                                                                                            transaction that resulted
                                                                                                            in the shareholder
                                                                                                            becoming an interested
                                                                                                            shareholder;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | upon
                                                                                                            consummation of the
                                                                                                            transaction that resulted
                                                                                                            in the shareholder
                                                                                                            becoming an interested
                                                                                                            shareholder, the interested
                                                                                                            shareholder owned
                                                                                                            at least 85% of our
                                                                                                            voting shares outstanding
                                                                                                            at the time the transaction
                                                                                                            commenced; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | after
                                                                                                            the date of the transaction
                                                                                                            that resulted in the
                                                                                                            shareholder becoming
                                                                                                            an interested shareholder,
                                                                                                            the business combination
                                                                                                            is approved by the
                                                                                                            board of directors
                                                                                                            and authorized at
                                                                                                            an annual or special
                                                                                                            meeting of shareholders
                                                                                                            by the affirmative
                                                                                                            vote of at least 80%
                                                                                                            of our outstanding
                                                                                                            voting shares that
                                                                                                            are not owned by the
                                                                                                            interested shareholder.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





For
purposes of these provisions, a “business combination” includes recapitalizations, amalgamations, consolidations,
exchanges, asset sales, leases, certain issues or transfers of shares or other securities and other transactions resulting in
a financial benefit to the interested shareholder. An “interested shareholder” is any person or entity that beneficially
owns 15% or more of our outstanding voting shares and any person or entity affiliated with or controlling or controlled by that
person or entity, except that so long as Rocket Marine owns 15% or more of our outstanding voting shares, Rocket Marine shall
not be an interested shareholder unless it acquires additional voting shares representing 8% or more of our outstanding voting
shares.



Election
and Removal of Directors



Our
bye-laws do not permit cumulative voting in the election of directors. Our bye-laws require shareholders wishing to propose a
person for election as a director (other than persons proposed by our board of directors) to give advance written notice of nominations
for the election of directors. Our bye-laws also provide that our directors may be removed only for cause and only upon the affirmative
vote of the holders of at least 80% of our outstanding common shares, voted at a duly authorized meeting of shareholders called
for that purpose, provided that notice of such meeting is served on such director at least 14 days before the meeting. These
provisions may discourage, delay or prevent the removal of our incumbent directors.





Shareholder
Meetings





Under
our bye-laws, annual general meetings of shareholders will be held at a time and place selected by our board of directors each
calendar year. Special general meetings of shareholders may be called by our board of directors at any time and must be called
at the request of shareholders holding at least 10% of our paid-up share capital carrying the right to vote at general meetings.
Under our bye-laws, at least 15 days, but not more than 60 days notice of an annual general meeting or any special general meeting
must be given to each shareholder entitled to vote at that meeting. Under Bermuda law, accidental failure to give notice will
not invalidate proceedings at a meeting. Our board of directors may set a record date between 15 and 60 days before the date
of any meeting to determine the shareholders who will be eligible to receive notice and vote at the meeting.





109









Limited
Actions by Shareholders



Any
action required or permitted to be taken by our shareholders must be effected at an annual or special general meeting of shareholders
or by majority written consent without a meeting. Our bye-laws provide that, subject to certain exceptions and to the rights granted
to shareholders pursuant to the BCA, only our board of directors may call special general meetings of our shareholders and the
business transacted at a special general meeting is limited to the purposes stated in the notice for that meeting. Accordingly,
a shareholder may be prevented from calling a special general meeting for shareholder consideration of a proposal over the opposition
of our board of directors and shareholder consideration of a proposal may be delayed until the next annual general meeting.



Subject
to certain rights set out in the BCA, our bye-laws provide that shareholders are required to give advance notice to us of any
business to be introduced by a shareholder at any annual general meeting. The advance notice provisions provide that, for business
to be properly introduced by a shareholder when such business is not specified in the notice of meeting or brought by or at the
direction of our board of directors, the shareholder must have given our secretary notice not less than 90 nor more than 120 days
prior to the anniversary date of the immediately preceding annual general meeting of the shareholders. In the event the annual
general meeting is called for a date that is not within 30 days before or after such anniversary date, the shareholder must
give our secretary notice not later than 10 days following the earlier of the date on which notice of the annual general
meeting was mailed to the shareholders or the date on which public disclosure of the annual general meeting was made. The chairman
of the meeting may, if the facts warrant, determine and declare that any business was not properly brought before such meeting
and such business will not be transacted.



Amendments
to Bye-Laws





Our
bye-laws require the affirmative vote of the holders of not less than 80% of our outstanding voting shares to amend, alter, change
or repeal the following provisions in our bye-laws:





| | • | the
                                                                                                            classified board and
                                                                                                            director election
                                                                                                            and removal provisions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the
                                                                                                            percentage of approval
                                                                                                            required for our shareholders
                                                                                                            to amend our bye-laws;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the
                                                                                                            limitations on business
                                                                                                            combinations between
                                                                                                            us and interested
                                                                                                            shareholders;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the
                                                                                                            provisions requiring
                                                                                                            the affirmative vote
                                                                                                            of the holders of
                                                                                                            not less than 80%
                                                                                                            of our outstanding
                                                                                                            voting shares to amend
                                                                                                            the foregoing provisions; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the
                                                                                                            limitations on shareholders’
                                                                                                            ability to call special
                                                                                                            meetings, subject
                                                                                                            to certain rights
                                                                                                            guaranteed to shareholders
                                                                                                            under the BCA.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





These
requirements make it more difficult for our shareholders to make changes to the provisions in our bye-laws that could have anti-takeover
effects.



C.Material contracts



Please refer
to Item 5—“Operating and Financial Review and Prospects” for a discussion of our long-term debt, Item 4—“Information
on the Company” for a discussion of various agreements relating to our recapitalization and certain vessel transactions
and Item 10—“Additional Information” for a discussion of our registration rights agreements.



D.Exchange controls



We
have been designated as a non-resident of Bermuda for exchange control purposes by the Bermuda Monetary Authority.(the “BMA”).



The
BMA must approve all issuances and transfers of securities of a Bermuda exempted company like us. For so long as our common shares
are listed on an appointed stock exchange, such shares may be issued to, and transferred by and among, persons who are residents
and non-residents of Bermuda for exchange control purposes. Any other transfers remain subject to approval by the BMA and such
approval may be denied or delayed.





110









Subject
to the foregoing, there are no limitations on the rights of owners of our common shares to hold or vote their shares. Because
hawse have been designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on our ability to
transfer funds in and out of Bermuda or to pay dividends to United States residents who are holders of our common shares, other
than in respect of local Bermuda currency.



In
accordance with Bermuda law, share certificates may be issued only in the names of corporations or individuals. In the case of
an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant,
record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, we are not bound
to investigate or incur any responsibility in respect of the proper administration of any such estate or trust.



We
will not take notice of any trust applicable to any of our common shares or other securities whether or not we had notice of such
trust.



As
an “exempted company”, we are exempt from Bermuda laws which restrict the percentage of share capital that may be
held by non-Bermudians, but as an exempted company, we may not participate in certain business transactions including: (i) the
acquisition or holding of land in Bermuda (except that required for its business and held by way of lease or tenancy for terms
of not more than 21 years) without the express authorization of the Bermuda legislature; (ii) the taking of mortgages
on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Finance of Bermuda; (iii) the
acquisition of securities created or issued by, or any interest in, any local company or business, other than certain types of
Bermuda government securities or securities of another “exempted company”, exempted partnership or other corporation
or partnership resident in Bermuda but incorporated abroad; or (iv) the carrying on of business of any kind in Bermuda, except
insofar as may be necessary for the carrying on of its business outside Bermuda or under a license granted by the Minister of
Finance of Bermuda.



There
is a statutory remedy under Section 111 of the Companies Act 1981 which provides that a shareholder may seek redress in the
Bermuda courts as long as such shareholder can establish that the company’s affairs are being conducted, or have been conducted,
in a manner oppressive or prejudicial to the interests of some part of the shareholders, including such shareholder.



The
Bermuda government actively encourages foreign investment in “exempted companies” that are based in Bermuda but do
not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, we are
subject neither to taxes on our income or dividends nor to any exchange controls in Bermuda. In addition, there is no capital
gains tax in Bermuda, and profits can be accumulated by us, as required, without limitation. There is no income tax treaty between
the United States and Bermuda pertaining to the taxation of income other than applicable to insurance enterprises.



E.Taxation



The
following is a discussion of the material Bermuda and United States federal income tax considerations with respect to the Company
and the beneficial owners of our common shares (referred to herein as “holders”). This discussion does not purport
to deal with the tax consequences of owning or disposing of common shares to all categories of investors, some of which, such
as dealers or traders in securities, investors whose functional currency is not the United States dollar and investors that own,
actually or under applicable constructive ownership rules, 10% or more of our common shares, may be subject to special rules.
This discussion deals only with holders who hold the common shares as a capital asset. Holders of common shares are encouraged
to consult their own tax advisors concerning the overall tax consequences arising in their own particular situation under United
States federal, state, local or foreign law of the ownership of common shares.



Bermuda
Tax Considerations





As
of the date of this document, there is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital
transfer tax, estate duty or inheritance tax payable by non-residents of Bermuda in respect of capital gains realized on a disposition
of our common shares or in respect of distributions by us with respect to our common shares. This discussion does not, however,
apply to the taxation of persons ordinarily resident in Bermuda. Bermuda holders should consult their own tax advisors regarding
possible Bermuda taxes with respect to dispositions of, and distributions on, our common shares and distributions to us by our
subsidiaries also are not subject to any Bermuda tax. The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection
Act 1966, as amended, has given the Company assurance that if any legislation is enacted in Bermuda that would impose tax computed
on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance
tax, then the imposition of any such tax will not be applicable to the Company or any of the Company’s operations, shares
or other obligations until March 28, 2016.







111









United
States Federal Income Tax Considerations



The
following are the material United States federal income tax consequences to us of our activities and to U.S. Holders and
Non-U.S. Holders, each as defined below, of our common shares. The following discussion of United States federal income tax
matters is based on the United States Internal Revenue Code of 1986, or the Code, judicial decisions, administrative pronouncements,
and existing and proposed regulations issued by the United States Department of the Treasury, all of which are subject to change,
possibly with retroactive effect. In addition, the following discussion does not address any United States estate or gift, state,
local or non-United States tax consequences, or any tax consequences of the newly enacted Medicare tax on investment income. The
discussion below is based, in part, on the description of our business as described in “Business — Information
on the Company” above and assumes that we conduct our business as described in that section. Except as otherwise noted,
this discussion is based on the assumption that we will not maintain an office or other fixed place of business within the United
States. References in the following discussion to “we” and “us” are to NewLead Holdings Ltd. and its subsidiaries
on a consolidated basis.





United
States Federal Income Taxation of Our Company



Taxation
of Operating Income: In General





We
earn substantially all of our income from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage
or bareboat charter basis or from the performance of services directly related to those uses, which we refer to as “shipping
income”.



Fifty
percent of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in
the United States constitutes income from sources within the United States, which we refer to as “U.S.-source shipping income”.



Shipping
income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within
the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100%
from sources within the United States.



Shipping
income attributable to transportation exclusively between non-U.S. ports is not considered to be 100% derived from sources
outside the United States. Shipping income derived from sources outside the United States is not subject to any United States
federal income tax.



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



In April 2012,
our U.S. subsidiary entered into a joint venture arrangement with a third party to purchase thermal coal (used in power plants
for electricity generation) from reserves located in Kentucky, USA.  We currently do
not have any revenues from this business, but anticipate generating our first revenues from this business in fiscal 2012. We anticipate
paying U.S. income tax on income generated from this business.



Exemption
of Operating Income from United States Federal Income Taxation





Under
Section 883 of the Code, a foreign corporation will be exempt from United States federal income taxation on its U.S.-source
shipping income if:





(1) it
is organized in a qualified foreign country, which is one that grants an “equivalent exemption” to corporations organized
in the United States in respect of such category of the shipping income for which exemption is being claimed under Section 883
and which we refer to as the “Country of Organization Test”; and



(2) Either

(A) more
than 50% of the value of its stock is beneficially owned, directly or indirectly, by individuals who are ”residents”
of a qualified foreign country, which we refer to as the “50% Ownership Test”, or

(B) its
stock is “primarily and regularly traded on an established securities market” in its country of organization, in another
qualified foreign country or in the United States, which we refer to as the “Publicly Traded Test”.



The
Country of Organization Test is satisfied since we are incorporated in Bermuda, and each of our subsidiaries is incorporated in
the Bermuda, the Marshall Islands, Liberia, or Panama all of which are qualified foreign countries in respect of each category
of shipping income we currently earn and expect to earn in the future. Therefore, we and our subsidiaries are exempt from United
States federal income taxation with respect to our U.S.-source shipping income as we and each of our subsidiaries meet either
of the 50% Ownership Test or the Publicly Traded Test. Under a special attribution rule of Section 883, each of our Subsidiaries
is deemed to have satisfied the 50% Ownership Test if we satisfy such test or the Publicly Traded Test.





112









We believe we
currently satisfy the 50% Ownership Test. However, we may have difficulty satisfying such test in the future if our common shares
become more widely held.



With
respect to the Publicly Traded Test, the Treasury Regulations provide, in pertinent part, that stock of a foreign corporation
is considered to be “primarily traded” on an established securities market if the number of shares of each class of
stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares
in each such class that are traded during that year on established securities markets in any other single country. Our common
shares, which are our sole class of issued and outstanding stock, are “primarily traded” on the NASDAQ Global Select
Market, which is an established securities market in the United States.



Under
the Treasury Regulations, our common shares are considered to be “regularly traded” on an established securities market
if one or more classes of our shares representing more than 50% of our outstanding shares, by total combined voting power of all
classes of shares entitled to vote and total value, is listed on an established securities market, which we refer to as the listing
threshold. Since our common shares are our sole class of issued and outstanding stock and are listed on the NASDAQ Global Select
Market, we meet the listing threshold.



It
is further required that with respect to each class of stock relied upon to meet the listing threshold (i) such class of
the stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or 1/6 of
the days in a short taxable year; and (ii) the aggregate number of shares of such class of stock traded on such market is
at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted
in the case of a short taxable year. We satisfy these trading frequency and trading volume tests. Even if this were not the case,
the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as is currently
the case with our common shares, such class of stock is traded on an established market in the United States and such stock is
regularly quoted by dealers making a market in such stock.



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



To
determine the persons who own 5% or more of the vote and value of our shares, or “5% Shareholders”, the Treasury Regulations
permit us to rely on those persons that are identified on Form 13G and Form 13D filings with the SEC, as having a 5%
or more beneficial interest in our common shares. The Treasury Regulations further provide that an investment company which is
registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.



In
the event the 5 Percent Override Rule is triggered, the Treasury Regulations provide that the 5 Percent Override Rule
does not apply if we can establish in conformity with the Treasury Regulations that within the group of 5% Shareholders, sufficient
shares are owned by qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group
from owning 50% or more of the value of our shares for more than half the number of days during such year.



In
the event that the 5 Percent Override Rule is triggered, we believe that, within the group of 5% Shareholders, sufficient
shares will be owned by qualified shareholders for purposes of Section 883 to have precluded non-qualified shareholders in
such group from owning 50% or more of the value of our shares for more than half the number of days during the relevant taxable
years. We believe that, either (i) the 5 Percent Override Rule will not be triggered or (ii) if the 5 Percent
Override Rule is triggered, sufficient shares will be owned by qualified shareholders for purposes of Section 883 to preclude
non-qualified 5% Shareholders from owning 50% or more of the value of our shares for more than half the number of days during
the relevant taxable years; however, there can be no assurance in this regard. In order to qualify for the exception to the 5 Percent
Override Rule, sufficient 5% Shareholders that are qualified shareholders would have to comply with certain documentation and
certification requirements designed to substantiate their identity as qualified shareholders. We believe that these requirements
have been satisfied in the past, and we intend to cause these requirements to be satisfied in the future, as required, although
there can be no assurance that we will be successful in this regard.



Even
though we believe that we will be able to qualify for the benefits of Section 883, we can provide no assurance that we will
be able to continue to so qualify in the future.



113









Taxation
in the Absence of Section 883 Exemption



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





To
the extent the benefits of the Section 883 exemption are unavailable and our U.S. source shipping income is considered
to be “effectively connected” with the conduct of a U.S. trade or business, as described below, any such “effectively
connected” U.S. source shipping income, net of applicable deductions, would, in lieu of the 4% gross basis tax described
above, be subject to the U.S. federal corporate income tax currently imposed at rates of up to 35%. In addition, we may be
subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such trade or business,
as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct
of our U.S. trade or business.



Our
U.S. source shipping income would be considered “effectively connected” with the conduct of a U.S. trade
or business only if:







| | • | we
                                                                                                            have, or are considered
                                                                                                            to have, a fixed place
                                                                                                            of business in the
                                                                                                            United States involved
                                                                                                            in the earning of
                                                                                                            shipping income; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | substantially
                                                                                                            all of our U.S. source
                                                                                                            shipping income is
                                                                                                            attributable to regularly
                                                                                                            scheduled transportation,
                                                                                                            such as the operation
                                                                                                            of a vessel that follows
                                                                                                            a published schedule
                                                                                                            with repeated sailings
                                                                                                            at regular intervals
                                                                                                            between the same points
                                                                                                            for voyages that begin
                                                                                                            or end in the United States.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
do not have, or permit circumstances that would result in our having, a fixed place of business in the United States involved
in the earning of shipping income and therefore, we believe that none of our U.S. source shipping income will be “effectively
connected” with the conduct of a U.S. trade or business.



United
States Taxation of Gain on Sale of Vessels





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



United
States Federal Income Taxation of U.S. Holders





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



If
a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds
our common shares, the tax treatment of a partner will generally depend upon the status of the partner, upon the activities of
the partnership and upon certain determinations made at the partner level. If you are a partner in a partnership holding our common
shares, you are encouraged to consult your tax advisor.





Distributions



Subject
to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares
to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend
income” as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined
under United States federal income tax principles. Distributions in excess of our earnings and profits as so determined will be
treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in his common shares on
a dollar-for-dollar basis and thereafter as capital gain. We do not expect to calculate our earnings and profits under U.S. federal
income tax principles. Therefore, a U.S. Holder should expect that any distributions will be treated as a dividend even if
such distributions would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described
above. Because we are not a United States corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common
shares will generally be treated as “passive category income” or, in the case of certain types of U.S. Holders
“general category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit
purposes.





114









Dividends
paid on our common shares to a U.S. Holder who is an individual, trust or estate (a “U.S. Individual Holder”)
will generally be treated as “qualified dividend income” that is taxable to such U.S. Individual Holders at preferential
tax rates (through 2012) provided that (1) the common shares are readily tradable on an established securities market
in the United States (such as the NASDAQ Global Select Market, on which our common shares are traded); (2) we are not a passive
foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which
we do not believe we are, have been or will be); and (3) the U.S. Individual Holder has owned the common shares for
more than 60 days in the 121-day period beginning 60 days before the date on which the common shares becomes ex-dividend.
Legislation has been previously introduced in the U.S. Congress which, if enacted in its present form, would preclude our
dividends from qualifying for such preferential rates prospectively from the date of the enactment. Therefore, there is no assurance
that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Individual
Holder. Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income
to a U.S. Individual Holder.



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





Sale,
Exchange or other Disposition of Common Shares





Assuming
we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally recognizes taxable
gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the
amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s adjusted
tax basis in such stock. Such gain or loss is treated as long-term capital gain or loss if the U.S. Holder’s holding
period is greater than one year at the time of the sale, exchange or other disposition. A U.S. Holder’s adjusted tax
basis in our common shares generally will equal the U.S. Holder’s cost in acquiring our common shares, subject to the
adjustments described above. Such capital gain or loss is generally treated as U.S.-source income or loss, as applicable, for
U.S. foreign tax credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.



Passive
Foreign Investment Company Status and Significant Tax Consequences



Special
United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive
foreign investment company for United States federal income tax purposes. In general, we are treated as a passive foreign investment
company with respect to a U.S. Holder if, for any taxable year in which such holder held our common shares, either







| | • | at
                                                                                                            least 75% of our gross
                                                                                                            income for such taxable
                                                                                                            year consists of passive
                                                                                                            income (e.g., dividends,
                                                                                                            interest, capital
                                                                                                            gains and rents derived
                                                                                                            other than in the
                                                                                                            active conduct of
                                                                                                            a rental business), or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | at
                                                                                                            least 50% of the average
                                                                                                            value of the assets
                                                                                                            held by the corporation
                                                                                                            during such taxable
                                                                                                            year produce, or are
                                                                                                            held for the production
                                                                                                            of, passive income.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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





115









Based
on our current operations and future projections, we do not believe that we have been or are, nor do we expect to become, a passive
foreign investment company with respect to any taxable year. Although there is no legal authority directly on point, and we are
not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining
whether we are a passive foreign investment company, the gross income we derive or are deemed to derive from the time chartering
and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income.
Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own
and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets
for purposes of determining whether we are a passive foreign investment company. We believe there is substantial legal authority
supporting our position consisting of case law and Internal Revenue Service pronouncements concerning the characterization of
income derived from time charters and voyage charters as services income for other tax purposes. However, in the absence of any
legal authority specifically relating to the statutory provisions governing passive foreign investment companies, the Internal
Revenue Service or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner
to avoid being classified as a passive foreign investment company with respect to any taxable year, we cannot assure you that
the nature of our operations will not change in the future.



If
we were to be treated as a passive foreign investment company, special and adverse United States federal income tax rules would
apply to a U.S. Holder of our shares. Among other things, the distributions a U.S. Holder received with respect to our
shares and gains, if any, a U.S. Holder derived from his sale or other disposition of our shares would be taxable as ordinary
income (rather than as qualified dividend income or capital gain, as the case may be), would be treated as realized ratably over
his holding period in our common shares, and would be subject to an additional interest charge. However, a U.S. Holder might
be able to make certain tax elections which ameliorate these consequences. In addition, if we were treated as a passive foreign
investment company, a U.S. Holder of our shares would be subject to special information reporting requirements with respect
to its investment in our shares.



United
States Federal Income Taxation of “Non-U.S. Holders”





A
beneficial owner of common shares that is not a U.S. Holder or a partnership (including an entity or arrangement treated
as a partnership for United States federal income tax purposes) is referred to herein as a “Non-U.S. Holder”.





Dividends
on Common Shares





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





Sale,
Exchange or Other Disposition of Common Shares



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





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



| | • | the
                                                                                                            Non-U.S. Holder
                                                                                                            is an individual who
                                                                                                            is present in the
                                                                                                            United States for
                                                                                                            183 days or more
                                                                                                            during the taxable
                                                                                                            year of disposition
                                                                                                            and other conditions
                                                                                                            are met.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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





Backup
Withholding and Information Reporting





In
general, dividend payments or other taxable distributions and payment of the proceeds from the sale or other disposition of our
common shares made within the United States to a U.S. Holder, other than an exempt U.S. Holder (such as a corporation)
that properly certifies as to its exempt status, will be subject to information reporting requirements. Such payments will be
subject to backup withholding tax if you are a not a non-exempt U.S. Holder and you:





116









| | • | fail
                                                                                                             to provide an accurate
                                                                                                             taxpayer identification
                                                                                                             number;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | are
                                                                                                             notified by the Internal
                                                                                                             Revenue Service that
                                                                                                             you have failed to
                                                                                                             report all interest
                                                                                                             or dividends required
                                                                                                             to be shown on your
                                                                                                             federal income tax
                                                                                                             returns; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | in
                                                                                                             certain circumstances,
                                                                                                             fail to comply with
                                                                                                             applicable certification
                                                                                                             requirements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-U.S. Holders
may be required to establish their exemption from information reporting and backup withholding by certifying their status on IRS
Form W-8BEN, W-8ECI or W-8IMY, as applicable.



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



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



Information
Reporting Regarding Non-U.S. Accounts



Pursuant
to recently enacted legislation, effective for tax years beginning after March 18, 2010, individuals who are U.S. Holders,
and who hold “specified foreign financial assets” (as defined in section 6038D of the Code), including stock
of a non-U.S. corporation that is not held in an account maintained by a U.S. “financial institution” (as
defined in section 6038D of the Code), whose aggregate value exceeds $50,000 during the tax year, will be required to attach
to their tax returns for the year the information described in section 6038D of the Code. An individual who fails to timely
furnish the required information generally will be subject to a penalty, unless the failure is shown to be due to reasonable cause
and not due to willful neglect. Additionally, in the event a U.S. Holder does not file such a report, the statute of limitations
on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may not close
before such report is filed. To the extent provided in U.S. Treasury regulations or other guidance, these reporting obligations
will apply to any U.S. entity which is formed or availed of for purposes of holding, directly or indirectly, specified foreign
financial assets, in the same manner as if such entity were an individual.



|F. | Dividends
    and paying agents
|-- | -------------------------------



Not
applicable.



|G. | Statement
    by experts
|-- | ------------------------



Not
applicable.



|H. | Documents
    on display
|-- | ------------------------



We
file annual reports and other information with the SEC. You may read and copy any document we file with the SEC at its public
reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of this
information by mail from the public reference section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C.
20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference
room. Our SEC filings are also available to the public at the web site maintained by the SEC at http://www.sec.gov, as well as
on our website at http://www.newleadholdings.com.



|I. | Subsidiary
    information
|-- | --------------------------



Not
applicable.



117







Item
11. Quantitative and Qualitative Disclosures About Market Risk



Interest
Rate Exposure



Debt
Instruments:



NewLead’s
exposure to interest rate risk, which could impact our results of operations, relates to our floating rate debt outstanding. The
interest rate related to our total debt outstanding is based on the floating three month U.S. LIBOR plus, a specific margin for
each credit facility. Our objective is to minimize our interest expenses while managing the exposure of our financial condition
to interest rate risk, through our financing activities and, when deemed appropriate, through the use of designated interest rate
swaps.



As
of December 31, 2011, we had $500.6 million of total indebtedness, which is net of the $71.6 million of unamortized BCF treated
as a debt discount to the $125.0 million of the 7% Notes. The interest on the credit facilities are at floating rates and, therefore,
changes in interest rates would have an effect on our interest expense. The interest rate on the 7% Notes is fixed and, therefore,
there is no associated market risk. Excluding the 7% Notes, our total indebtedness as of December 31, 2011 and December 31, 2010
was $447.3 million and $532.8 million, respectively (reflecting $53.4 million and $45.2 million, respectively, in respect of the
$125.0 million of 7% Notes, after netting the impact of the BCF). As of December 31, 2011, we had $339.7 million of floating rate
indebtedness out of our total indebtedness of $447.3 million. Of our floating rate indebtedness, as of December 31, 2011, $100.1
million was fixed with interest rate swaps.



For
the year ended December 31, 2011, a 1% increase and decrease in LIBOR would have resulted in an increase or decrease of approximately
$2.9 million in our interest expense on the unhedged portion of drawings under the terms of our existing credit facilities.



Interest
rate swaps:



As
of December 31, 2011, in order to effectively manage our interest rate risk, we had the following interest rate swaps outstanding:



| | · | In
                                                                                                                       connection
                                                                                                                       with the
                                                                                                                       recapitalization,
                                                                                                                       we entered
                                                                                                                       into a
                                                                                                                       credit
                                                                                                                       facility
                                                                                                                       and an
                                                                                                                       interest
                                                                                                                       rate swap
                                                                                                                       with Marfin
                                                                                                                       Egnatia
                                                                                                                       Bank. On
                                                                                                                       May 6,
                                                                                                                       2010, we
                                                                                                                       refinanced
                                                                                                                       this credit
                                                                                                                       facility
                                                                                                                       (see Note
                                                                                                                       21of our
                                                                                                                       consolidated
                                                                                                                       financial
                                                                                                                       statements).
                                                                                                                       The aforementioned
                                                                                                                       swap was
                                                                                                                       re-attached
                                                                                                                       to the
                                                                                                                       new credit
                                                                                                                       facility
                                                                                                                       and has
                                                                                                                       a termination
                                                                                                                       date of
                                                                                                                       September 2,
                                                                                                                       2014. Under
                                                                                                                       the terms
                                                                                                                       of the
                                                                                                                       swap agreement,
                                                                                                                       we pay
                                                                                                                       a fixed
                                                                                                                       interest
                                                                                                                       rate of
                                                                                                                       4.08% per
                                                                                                                       annum on
                                                                                                                       the notional
                                                                                                                       amount
                                                                                                                       of the
                                                                                                                       swap.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In
                                                                                                                       connection
                                                                                                                       with the
                                                                                                                       acquisition
                                                                                                                       of the
                                                                                                                       two Kamsarmaxes,
                                                                                                                       we assumed
                                                                                                                       two interest
                                                                                                                       rate swaps
                                                                                                                       with the
                                                                                                                       Bank of
                                                                                                                       Scotland
                                                                                                                       both of
                                                                                                                       which had
                                                                                                                       maturity
                                                                                                                       dates of
                                                                                                                       April 4,
                                                                                                                       2013. Under
                                                                                                                       the terms
                                                                                                                       of the
                                                                                                                       swap agreements,
                                                                                                                       we paid
                                                                                                                       a fixed
                                                                                                                       interest
                                                                                                                       rate of
                                                                                                                       3.973%
                                                                                                                       per annum.
                                                                                                                       These swaps
                                                                                                                       were amended
                                                                                                                       and extended
                                                                                                                       to conform
                                                                                                                       to the
                                                                                                                       notional
                                                                                                                       amounts,
                                                                                                                       anticipated
                                                                                                                       drawings
                                                                                                                       and repayment
                                                                                                                       schedule
                                                                                                                       as per
                                                                                                                       the loan
                                                                                                                       facilities.
                                                                                                                       The amended
                                                                                                                       and extended
                                                                                                                       swap agreements
                                                                                                                       began on
                                                                                                                       July 6,
                                                                                                                       2010 and
                                                                                                                       have maturity
                                                                                                                       dates on
                                                                                                                       October 15,
                                                                                                                       2015 and
                                                                                                                       a fixed
                                                                                                                       interest
                                                                                                                       rate of
                                                                                                                       4.01% per
                                                                                                                       annum on
                                                                                                                       the notional
                                                                                                                       amount
                                                                                                                       of the
                                                                                                                       swaps.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of December 31, 2011 and May15, 2012, the notional amount of the abovementioned interest rate swaps was $100.1 million and $21.8
million, respectively. As of December 31, 2011, we have defaulted on a number of payments concerning the interest rate
swap agreements.



Foreign
Exchange Rate Exposure



Our
vessel-owning subsidiaries generate revenues in U.S. dollars but incur certain expenses in other currencies, primarily Euros.
During the year ended December 31, 2011, the value of the U.S. dollar reached highs of $1.48 and lows of $1.29 compared to the
Euro, and as a result, an adverse or positive movement could increase our expenses. During the year ended December 31, 2011, the
effect was minimal.



Credit
Risk Exposure



The
Company believes that no significant credit risk exists with respect to the Company's cash due to the spread of this risk among
various different banks. The Company is also exposed to credit risk in the event of non-performance by counterparties to derivative
instruments. As of December 31, 2011, those derivative instruments are in the counterparties’ favor. Credit risk with respect
to trade accounts receivable is reduced by the Company by chartering its vessels to established international charterers.



One of charterers
that chartered three of the vessels during 2011 was having difficulty performing its obligations, and, since the end of March
2011, the charterer has been late on a number of payments causing the Company to arrest vessels chartered by this particular charterer
and/or by such charterer’s affiliated companies on two occasions in order to collect payment. In connection thereto, and
due to delayed payments by this charterer, the Company withdrew two of the vessels from their employment during 2011 and the third
vessel during 2012 and filed a claim for amounts already due, as well as damages arising from cancelling those employment contracts.
These vessels were chartered out at rates significantly above market, and since the Company was forced to reclaim and re-charter
these vessels, the Company experienced a significant reduction in the cash flow from these vessels, which in turn further impairs
the Company’s liquidity.



Cash
deposits in excess of amounts covered by government – provided insurance are exposed to loss in the event of non-performance
by financial institutions. The Company does maintain cash deposits in excess of government – provided insurance limits.



Item
12.Description of Securities Other than Equity Securities



Not
applicable.



118







PART II



Item 13.    Defaults, Dividend
Arrearages and Delinquencies



Our independent
registered public accounting firm has indicated in their report that there is substantial doubt about our ability to continue
as a going concern. As previously announced, due to the economic conditions
and operational difficulties described elsewhere in this annual report, we
entered into restructuring discussions with each of the lenders under the Financing Documents. As a result of such conditions,
over a period of time, we defaulted under each of our Financing Documents in respect of certain covenants (including, in some
cases, the failure to make amortization and interest payments, the failure to satisfy financial covenants and the triggering of
cross-default provisions). To date, we have not obtained waivers of these defaults from our lenders. During the Restructuring
process, our lenders have continued to reserve their rights in respect of such defaults other than those in respect of the Kamsarmax
Syndicate Facility Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax Syndicate Facility Agreements
and the Northern Shipping Fund arrangement, our lenders have not exercised their remedies; however, our lenders could change their
position at any time. As such, there can be no assurance that a satisfactory final agreement will be reached with our lenders
in the Restructuring Proposal, or at all See “Item 5. Operating and Financial Review and Prospects—Recent Developments”
and “—Liquidity and Capital Resources” above for a discussion of our indebtedness, the defaults under the agreements
governing such indebtedness and the status of our restructuring negotiations.



Item 14.    Material Modifications
to the Rights of Security Holders and Use of Proceeds



Not
applicable.



Item 15.    Controls and Procedures



| | (a) | Disclosure
                                                                                                   Controls and Procedures
| | --- | -------------------------------------------------------------------------------------------------------------------------------------



We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. As described below,
a material weakness was identified in our internal control over financial reporting. Exchange Act Rule 12b-2 (17 CFR 240.12b-2)
and Rule 1-02 of Regulation S-X (17 CFR 210.1-02) define a material weakness as a deficiency, or combination of deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s
annual financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, as such
term is defined in Rule 13a-15(e) promulgated under the Exchange Act of 1934, as amended (as described in (b) below), our Chief
Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2011, the end of the period covered by this
report, our disclosure controls and procedures were not effective at a reasonable assurance level.



| | (b) | Management’s
                                                                                                   Annual Report on Internal Control
                                                                                                   Over Financial Reporting
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Management
is responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules13a-15(f) and 15d-15(f) under the Exchange Act. The Company’sinternal control over financial reporting is a process designed by, or under the supervision of, the Company’s CEO
and CFO, and is effected by the Company’s Board of Directors, management, and other personnel, to
provide reasonable assurance regarding the reliability of Company’sfinancial
reporting and the preparation of Company’s consolidatedfinancial statements
for external reporting purposes in accordance with GAAP. Internal control over financial
reporting includes those policies and procedures that:



| | (1) | pertain
                                                                         to the maintenance of records that, in reasonable detail,
                                                                         accurately and fairly reflect the transactions and dispositions
                                                                         of assets of the Company;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | provide
                                                                                                           reasonable assurance
                                                                                                           that transactions are
                                                                                                           recorded as necessary
                                                                                                           to permit preparation
                                                                                                           of financial statements
                                                                                                           in accordance with
                                                                                                           GAAP, and that receipts
                                                                                                           and expenditures are
                                                                                                           being made only in
                                                                                                           accordance with authorizations
                                                                                                           of management and directors
                                                                                                           of the Company; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | provide
                                                                                                           reasonable assurance
                                                                                                           regarding prevention
                                                                                                           or timely detection
                                                                                                           of unauthorized acquisition,
                                                                                                           use, or disposition
                                                                                                           of the Company’s
                                                                                                           assets that could have
                                                                                                           a material effect on
                                                                                                           interim or annual consolidated
                                                                                                           financial statements.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



119







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



Under the supervision and with the participation
of our CEO and CFO,our management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2011, based on the criteria for effective internal control over financial
reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal
Control-Integrated Framework”. As a result of this assessment, management
has concluded that, as of December 31, 2011, the Company’s internal control over financial reportingwas not effective due to the material weakness described below.



A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.



Our controls to prevent and detect the
misapplication of the effective interest method did not operate effectively. This control deficiency resulted in an overstatement
of Net Loss from Continuing Operations of $8.5 million and $2.1 million for the year ended December 31, 2010 and for the period
from October 14, 2009 to December 31, 2009, respectively, and resulted in the restatement of our consolidated financial statements.
Accordingly, our management has determined that this control deficiencyconstitutes a material weakness.



| | (c) | Attestation
                                                                                                   report of the independent registered
                                                                                                   public accounting firm
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.



(d)
Remediation Activities



To remediate
the material weakness in our internal control over financial reporting as described above, management is enhancing its controls
over the financial statement closing process in this area, specifically by adding additional review procedures over the relevant
computations,including:



| | · | implement
                                                                                                                       a new control
                                                                                                                       over the
                                                                                                                       measurement
                                                                                                                       of discounts
                                                                                                                       on debt,
                                                                                                                       including
                                                                                                                       deployment
                                                                                                                       of resources
                                                                                                                       with accounting
                                                                                                                       knowledge
                                                                                                                       in complex
                                                                                                                       financing
                                                                                                                       transactions,
                                                                                                                       and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | implement
                                                                                                                       a new control
                                                                                                                       to review
                                                                                                                       and ensure
                                                                                                                       the accuracy
                                                                                                                       of the
                                                                                                                       proper
                                                                                                                       application
                                                                                                                       of the
                                                                                                                       effective
                                                                                                                       interest
                                                                                                                       method
                                                                                                                       to debt
                                                                                                                       discounts.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The material weakness will only be considered
remediated when the revised internal controls are operational for a period of time and are tested and management has concluded
that the controls are operating effectively.



| | (e) | Changes
                                                                                                   in internal control over financial
                                                                                                   reporting
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There
were no changes in internal control over financial reporting during the year ended December 31, 2011 that havematerially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.



Item 16A.    Audit Committee Financial
Expert



We
have established an audit committee comprised of three members, which is responsible for reviewing our accounting controls and
recommending to the board of directors the engagement of our outside auditors. Each member is an independent director under the
corporate governance rules of the NASDAQ Global Market that are applicable to us. The members of the audit committee are Messrs. Spyros
Gianniotis, Steve Oh, and Panagiotis Skiadas. Mr. Gianniotis serves as the “audit committee financial expert”
as defined in the instructions to Item 16.A. in the Form 20-F.



120







Item 16B.    Code of Ethics



As
a foreign private issuer, we are exempt from the rules of the NASDAQ Global Market that require the adoption of a code of ethics.
However, we have voluntarily adopted a code of ethics that applies to our principal executive officer, principal financial officer
and persons performing similar functions. We will provide any person a hard copy of our code of ethics free of charge upon written
request. Shareholders may direct their requests to the Company at 83 Akti Miaouli & Flessa Street, 185 38 Piraeus Greece,
Attn: Corporate Secretary.



Item 16C.    Principal Accountant
Fees and Services



Audit
Fees



Our
principal accountants for the fiscal years ended December 31, 2011 and 2010 were PricewaterhouseCoopers S.A. Our audit fees
for 2011 and 2010 were €414,000 and €378,000, respectively.



Audit-Related
Fees



We
did not incur audit-related fees for 2011 and 2010.



Tax
Fees



We
did not incur tax fees for 2011 or 2010.



All
Other Fees



We
did not incur any other fees for 2011 or 2010.



Our
audit committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent
registered public accounting firm and associated fees prior to the engagement of the independent auditor with respect to such
services.



Item 16D.    Exemptions from the
Listing Standards for Audit Committees



Not
applicable.



Item 16E.    Purchases of Equity
Securities by the Issuer and Affiliated Purchases



None.



Item 16F.    Changes in Registrant’s
Certifying Accountant



Not
applicable.



Item 16G.    Corporate Governance



We
have certified to NASDAQ that our corporate governance practices are in compliance with, and are not prohibited by, the laws of
Bermuda. Therefore, we are exempt from many of NASDAQ’s corporate governance practices other than the requirements regarding
the submission of a listing agreement, notification of material non-compliance with NASDAQ corporate governance practices and
the establishment and composition of an audit committee and a formal written audit committee charter. The practices that we follow
in lieu of NASDAQ’s corporate governance rules are described below.



121







| | • | We
                                                                                                             have a board of directors
                                                                                                             with a majority of
                                                                                                             independent directors
                                                                                                             which holds at least
                                                                                                             one annual meeting
                                                                                                             at which only independent
                                                                                                             directors are present,
                                                                                                             consistent with NASDAQ
                                                                                                             corporate governance
                                                                                                             requirements. We
                                                                                                             are not required
                                                                                                             under Bermuda law
                                                                                                             to maintain a board
                                                                                                             of directors with
                                                                                                             a majority of independent
                                                                                                             directors, and we
                                                                                                             cannot guarantee
                                                                                                             that we will always
                                                                                                             in the future maintain
                                                                                                             a board of directors
                                                                                                             with a majority of
                                                                                                             independent directors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | We
                                                                                                             have a Governance
                                                                                                             and Nominating committee
                                                                                                             comprised of independent
                                                                                                             directors that is
                                                                                                             responsible for identifying
                                                                                                             and recommending
                                                                                                             potential candidates
                                                                                                             to become board members
                                                                                                             and recommending
                                                                                                             directors for appointment
                                                                                                             to the board and
                                                                                                             board committees.
                                                                                                             Shareholders may
                                                                                                             also identify and
                                                                                                             recommend potential
                                                                                                             candidates to become
                                                                                                             board members in
                                                                                                             writing. No formal
                                                                                                             written charter has
                                                                                                             been prepared or
                                                                                                             adopted because this
                                                                                                             process is outlined
                                                                                                             in our bye-laws.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | In
                                                                                                             lieu of obtaining
                                                                                                             an independent review
                                                                                                             of related party
                                                                                                             transactions for
                                                                                                             conflicts of interests,
                                                                                                             consistent with Bermuda
                                                                                                             law requirements,
                                                                                                             our bye-laws require
                                                                                                             any director who
                                                                                                             has a potential conflict
                                                                                                             of interest to identify
                                                                                                             and declare the nature
                                                                                                             of the conflict to
                                                                                                             our board of directors
                                                                                                             at the first meeting
                                                                                                             of the board of directors.
                                                                                                             Our bye-laws additionally
                                                                                                             provide that related
                                                                                                             party transactions
                                                                                                             must be approved
                                                                                                             by independent and
                                                                                                             disinterested directors.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | In
                                                                                                             lieu of obtaining
                                                                                                             shareholder approval
                                                                                                             prior to the issuance
                                                                                                             of securities, we
                                                                                                             were required to
                                                                                                             obtain the consent
                                                                                                             of the Bermuda Monetary
                                                                                                             Authority as required
                                                                                                             by Bermuda law before
                                                                                                             we issued securities.
                                                                                                             We have obtained
                                                                                                             a blanket consent
                                                                                                             from the Bermuda
                                                                                                             Monetary Authority.
                                                                                                             If we choose to issue
                                                                                                             additional securities,
                                                                                                             we will not be required
                                                                                                             to obtain any further
                                                                                                             consent so long as
                                                                                                             our common shares
                                                                                                             are listed.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | As
                                                                                                             a foreign private
                                                                                                             issuer, we are not
                                                                                                             required to solicit
                                                                                                             proxies or provide
                                                                                                             proxy statements
                                                                                                             to NASDAQ pursuant
                                                                                                             to NASDAQ corporate
                                                                                                             governance rules
                                                                                                             or Bermuda law. Consistent
                                                                                                             with Bermuda law,
                                                                                                             we will notify our
                                                                                                             shareholders of meetings
                                                                                                             between 15 and 60 days
                                                                                                             before the meeting.
                                                                                                             This notification
                                                                                                             will contain, among
                                                                                                             other things, information
                                                                                                             regarding business
                                                                                                             to be transacted
                                                                                                             at the meeting. In
                                                                                                             addition, our bye-laws
                                                                                                             provide that shareholders
                                                                                                             must give us advance
                                                                                                             notice to properly
                                                                                                             introduce any business
                                                                                                             at a meeting of the
                                                                                                             shareholders. Our
                                                                                                             bye-laws also provide
                                                                                                             that shareholders
                                                                                                             may designate a proxy
                                                                                                             to act on their behalf
                                                                                                             (in writing or by
                                                                                                             telephonic or electronic
                                                                                                             means as approved
                                                                                                             by our board from
                                                                                                             time to time).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other
than as noted above, we are in full compliance with all other applicable NASDAQ corporate governance standards.



Item 16H.    Mine Safety Disclosure



None.



122







PART III



Item 17.    Financial Statements



See
Item 18.



Item 18.    Financial Statements
(Restated)



The
financial information required by this Item, together with the related report of PricewaterhouseCoopers S.A. thereon, is filed
as part of this annual report.



Item 19.    Exhibits



|1.1 |  | Amended and Restated Memorandum
    of Association of NewLead Holdings Ltd. (Previously filed as Exhibit 99.1 to the Company’s Report on Form 6-K,
    filed on September 30, 2009, and hereby incorporated by reference.)                                                                                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.2 |  | Certificate of Incorporation on Change
    of Name (Previously filed as Exhibit 1.1 to the Company’s Report on Form 6-K, filed on January 8, 2010,
    and hereby incorporated by reference.)                                                                                                                                                                                                            
|1.3 |  | Amended and Restated Bye-laws of the Company
    (Previously filed as Exhibit 3.1 to the Company’s Report on Form 6-K, filed on January 27, 2010, and
    hereby incorporated by reference.)                                                                                                                                                                                                             
|2.1 |  | Indenture, dated as of October 13,
    2009, between the Company and Marfin Egnatia Bank S.A. (Previously filed as Exhibit 99.1 to the Company’s Report
    on Form 6-K, filed on October 22, 2009, and hereby incorporated by reference.)                                                                                                                                                               
|2.2 |  | Form of Note Purchase Agreement, dated
    October 13, 2009, among the Company, each of the purchasers listed on the signature thereto, and Marfin Egnatia Bank
    S.A. (Previously filed as Exhibit 99.2 to the Company’s Report on Form 6-K, filed on October 22, 2009,
    and hereby incorporated by reference.)                                                                                    
|2.3 |  | Form of 7% Convertible Senior Note
    Due 2015, dated as of October 13, 2009, made by the Company (Previously filed as Exhibit 99.3 to the Company’s
    Report on Form 6-K, filed on October 22, 2009, and hereby incorporated by reference.)                                                                                                                                                          
|2.4 |  | Warrant Certificate, dated October 13,
    2009 from the Company to Investment Bank of Greece (Previously filed as Exhibit 99.8 to the Company’s Report on
    Form 6-K, filed on October 22, 2009, and hereby incorporated by reference.)                                                                                                                                                               
|4.1 |  | Form of Equity Incentive Plan (Previously
    filed as Exhibit 10.6 to the Company’s 10.6 to the Company’s registration statement on Form F-1/A (Registration
    No. 333-124952) and hereby incorporated by reference.)                                                                                                                                                                                 
|4.2 |  | Amendment to Equity Incentive Plan (Previously
    filed as Exhibit 4.9 to the Company’s Annual Report on Form 20-F, filed on June 26, 2009 and hereby incorporated
    by reference.)                                                                                                                                                                                                                   
|4.3 |  | Amendment to Equity Incentive Plan, dated
    October 14, 2010. (Previously filed as Exhibit 4.3 to the Company’s Annual Report on Form 20-F, filed on June 30, 2011,
    and hereby incorporated by reference.)                                                                                                                                                                                         
|4.4 |  | Amended and Restated 2005 Equity Incentive
    Plan (Previously filed as Exhibit 4.1 to the Company’s Report on Form 6-K, filed on December 22, 2011, and hereby incorporated
    by reference.)                                                                                                                                                                                                         
|4.5 |  | Fifth Supplemental Agreement, dated June 11,
    2008, between the Company and The Bank of Scotland relating to the Credit Agreement, dated April 3, 2006 among the Company
    and The Bank of Scotland and Nordea Bank Finland as joint lead arrangers (Previously filed as Exhibit 4.7 to the Company’s
    Annual Report on Form 20-F, filed on June 30, 2008, and hereby incorporated by reference.)
|4.6 |  | Sixth Supplemental Agreement, dated June 24,
    2009, between the Company and The Bank of Scotland relating to a Credit Agreement, dated April 3, 2006, among the Company
    and The Bank of Scotland and Nordea Bank Finland as joint lead arrangers (Previously filed as Exhibit 4.8 to the Company’s
    Annual Report on Form 20-F, filed on June 26, 2009, and hereby incorporated by reference.) 
|4.7 |  | $145 Million Convertible Bond Commitment
    Letter, dated July 15, 2009, between Investment Bank of Greece and the Company (Previously filed as Exhibit 99.F
    to the Schedule 13D of Grandunion Inc., filed on September 28, 2009, and hereby incorporated by reference.)                                                                                                                            
|4.8 |  | Financial Agreement, dated August 18,
    2009, among Marfin Bank, Australia Holdings Ltd., China Holdings Ltd. and Brazil Holdings Ltd. (Previously filed as Exhibit 10.1
    to the Company’s Report on Form 6-K, filed on January 27, 2010, and hereby incorporated by reference.)                                                                                                                    
|4.9 |  | Registration Rights Agreement, dated September 16,
    2009 among Grandunion Inc., Rocket Marine Inc. and the Company (Previously filed as Exhibit 99.D to the Schedule 13D
    (Amendment No. 1) of Grandunion Inc. and Focus Maritime Corp., filed on October 22, 2009, and hereby incorporated
    by reference.)                                                                                     



123







|4.10 | Voting Agreement, dated
    September 16, 2009 among Grandunion Inc., Rocket Marine Inc. Gabriel Petrides, Mons S. Bolin and Aries Energy Corporation
    and acknowledged by the Company (Previously filed as Exhibit 99.B to the Schedule 13D of Grandunion Inc., filed
    on September 28, 2009, and hereby incorporated by reference.)                                                                                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.11 | Lock-Up
    Agreement, dated September 16, 2009, among Grandunion Inc., Rocket Marine Inc., Gabriel Petrides, Mons S. Bolin and Aries
    Energy Corporation and acknowledged by the Company (Previously filed as Exhibit 99.C to the Schedule 13D of Grandunion
    Inc., filed on September 28, 2009 and hereby incorporated by reference.)                                                                                                                                                                                                                 
|4.12 | Lock-Up Agreement,
    dated September 16, 2009, among Grandunion Inc., Rocket Marine Inc., Gabriel Petrides, Mons S. Bolin and Aries Energy
    Corporation and acknowledged by the Company (Previously filed as Exhibit 99.D to the Schedule 13D of Grandunion
    Inc., filed on September 28, 2009 and hereby incorporated by reference.)                                                                                                                                                                                                                 
|4.13 | Lock-Up Agreement,
    dated September 16, 2009, between Grandunion Inc. and the Company (Previously filed as Exhibit 99.E to the Schedule 13D
    of Grandunion Inc., filed on September 28, 2009 and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                                     
|4.14 | Facility Agreement,
    dated October 13, 2009, among the Company, Bank of Scotland plc, Nordea Bank Finland plc, London Branch, HSH Nordbank
    AG, The Governor and the Company of the Bank of Ireland, Sumitomo Mitsui Banking Corporation, Brussels Branch, Bayerische
    Hypo-und Vereinsbank AG, Commerzbank Aktiengesellschaft, General Electric Capital Corporation, Natixis and Swedbank AB (publ)
    (Previously filed as Exhibit 99.5 to the Company’s Report on Form 6-K, filed on October 22, 2009, and
    hereby incorporated by reference.)
|4.15 | Warrant Purchase
    Agreement, dated October 13, 2009, between the Company and Investment Bank of Greece (Previously filed as Exhibit 99.6
    to the Company’s Report on Form 6-K, filed on October 22, 2009 and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                         
|4.16 | Warrant Agreement,
    dated October 13, 2009, between the Company and Investment Bank of Greece (Previously filed as Exhibit 99.7 to the
    Company’s Report on Form 6-K, filed on October 22, 2009 and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                                  
|4.17 | Registration Rights
    Agreement, dated October 13, 2009, among Investment Bank of Greece, Focus Maritime Corp. and the Company (Previously
    filed as Exhibit 99.4 to the Company’s Report on Form 6-K, filed on October 22, 2009 and hereby incorporated
    by reference.)                                                                                                                                                                                                                                                                              
|4.18 | Registration Rights
    Agreement, dated October, 13, 2009 between the Company and Investment Bank of Greece (Previously filed as Exhibit 99.4 to
    the Company’s Report on Form 6-K, filed on October 22, 2009, and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                     
|4.19 | Registration Rights
    Agreement, dated January 2, 2012, between NewLead Holdings Ltd. And S. Goldman Advisors. LLC (Previously filed as Exhibit 99.2
    to the Schedule 13D of S. Goldman Advisors, LLC filed on December 23, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                 
|4.20 | $80 Million Secured
    Senior and Junior Term Loan Facility Commitment Letter, dated February 19, 2009 between Bank of Scotland and the Company,
    as guarantor (Previously filed as Exhibit 4.16 to the Company’s Annual Report on Form 20-F, filed on March 18,
    2010, and hereby incorporated by reference.)                                                                                                                                                                                                                                         
|4.21 | Escrow Agreement,
    dated April 1, 2010, between the Company and Grandunion Inc. and Computershare Trust Company N.A. (Previously filed as Exhibit 10.1
    to the Company’s Report on Form 6-K, filed on April 26, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                            
|4.22 | Registration Rights
    Agreement, dated April 1, 2010, between the Company and Grandunion Inc. (Previously filed as Exhibit 10.2 to the Company’s
    Report on Form 6-K, filed on April 26, 2010 and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                                     
|4.23 | Second Supplemental
    Agreement, dated April 1, 2010, in relation to the Loan Agreement, dated November 10, 2006, between the Company and Commerzbank,
    for a loan facility of up to $18.0 million. (Previously filed as Exhibit 10.4 to the Company’s Report on Form 6-K,
    filed on April 26, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                           
|4.24 | Loan Agreement,
    dated March 19, 2008, between the Company and Piraeus Bank, for a loan of up to $76.0 million. (Previously filed as Exhibit 10.6
    to the Company’s Report on Form 6-K, filed on April 26, 2010 and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                  
|4.25 | Second Supplemental
    Agreement, dated March 31, 2010, relating to the Loan Agreement dated March 19, 2008, between the Company and Piraeus Bank,
    for a loan of up to $76.0 million.  (Previously filed as Exhibit 10.7 to the Company’s Report on Form 6-K,
    filed on April 26, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                                        
|4.26 | Loan Agreement,
    dated March 31, 2010, between the Company and Piraeus Bank, for a loan of up to $21.0 million. (Previously filed as Exhibit 10.8
    to the Company’s Report on Form 6-K, filed on April 26, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                                                                                                                 
|4.27 | Financial Agreement
    dated March 31, 2010, between the Company and Marfin Egnatia Bank S.A, for a credit facility up to $35.0 million.  (Previously
    filed as Exhibit 10.9 to the Company’s Report on Form 6-K, filed on April 26, 2010, and hereby incorporated
    by reference.)                                                                                                                                                                                                                                                                     
|4.28 | Senior Facility
    Agreement dated April 15, 2010, among the Company, Bank of Scotland, BTMU Capital Corporation and Bank of Ireland, for
    a loan up to $66.7 million. (Previously filed as Exhibit 10.1 to the Company’s Report on Form 6-K, filed
    on July 19, 2010, and hereby incorporated by reference.)                                                                                                                                                                                                                                          



124







|4.29 |  | Junior Facility Agreement dated April 15, 2010,
    among the Company, Bank of Scotland and BTMU Capital Corporation for a loan up to $13.3 million. (Previously filed as
    Exhibit 10.2 to the Company’s Report on Form 6-K, filed on July 19, 2010, and hereby incorporated by reference.)                                                                                                   
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.30 |  | Supplemental Deed dated April 26, 2010, among the Company,
    Bank of Scotland plc and Nordea Bank Finland plc, relating to a $221.4 million term loan facility. (Previously filed
    as Exhibit 10.3 to the Company’s Report on Form 6-K, filed on July 19, 2010, and hereby incorporated by reference.)                                                                                      
|4.31 |  | Financial Agreement dated May 6, 2010, between the Company
    and Marfin Egnatia Bank S.A, for a credit facility up to $65.28 million. (Previously filed as Exhibit 10.4 to the Company’s
    Report on Form 6-K, filed on July 19, 2010, and hereby incorporated by reference.)                                                                                                                
|4.32 |  | Loan Agreement, dated October 16, 2007, as novated, amended
    and restated March 31, 2010, between the Company and West LB, and as further novated, amended and restated on June 4, 2010,
    relating to a term loan facility of up to $27.5 million. (Previously filed as Exhibit 10.5 to the Company’s Report
    on Form 6-K, filed on July 19, 2010 and hereby incorporated by reference.)
|4.33 |  | Loan Agreement dated July 2, 2010, with First Business
    Bank for a loan facility of up to $24.15 million. (Previously filed as Exhibit 10.1 to the Company’s Report
    on Form 6-K, filed on September 21, 2010, and hereby incorporated by reference.)                                                                                                                                      
|4.34 |  | Loan Agreement dated October 22, 2007, with EFG Eurobank for
    a loan facility of up to $32.0 million. (Previously filed as Exhibit 10.5 to the Company’s Report on Form 6-K,
    filed on September 21, 2010 and hereby incorporated by reference.)                                                                                                                                           
|4.35 |  | Third Supplemental Agreement dated July 9, 2010, relating
    to the $32.0 million loan facility with EFG Eurobank. (Previously filed as Exhibit 10.6 to the Company’s Report
    on Form 6-K, filed on September 21, 2010, and hereby incorporated by reference.)                                                                                                                               
|4.36 |  | Fourth Supplemental Agreement dated August 13, 2010 relating
    to the $32.0 million loan facility with EFG Eurobank. (Previously filed as Exhibit 10.7 to the Company’s Report
    on Form 6-K, filed on September 21, 2010, and hereby incorporated by reference.)                                                                                                                            
|4.37 |  | Loan Agreement dated July 9, 2010, with DVB Bank, Nord
    LB and Emporiki Bank for a loan facility of up to $48.0 million. (Previously filed as Exhibit 10.8 to the Company’s
    Report on Form 6-K, filed on September 21, 2010 and hereby incorporated by reference.)                                                                                                                        
|4.38 |  | First Supplemental Agreement dated July 14, 2010, relating
    to the $48.0 million loan facility with DVB Bank, Nord LB and Emporiki Bank. (Previously filed as Exhibit 10.9 to
    the Company’s Report on Form 6-K, filed on September 21, 2010, and hereby incorporated by reference.)                                                                                                       
|4.39 |  | Loan Agreement dated December 10, 2010, with Marfin Egnatia
    Bank for a reducing revolving credit facility of up to $62.0 million. (Previously filed as Exhibit 10.1 to the Company’s
    Report on Form 6-K, filed on January 11, 2011 and hereby incorporated by reference.)                                                                                                                
|4.40 |  | Second Supplemental Agreement dated November 9, 2010, relating
    to the $48.0 million loan facility with DVB Bank, Nord LB and Emporiki Bank. (Previously filed as Exhibit 10.2 to
    the Company’s Report on Form 6-K, filed on January 11, 2011 and hereby incorporated by reference.)                                                                                                      
|4.41 |  | Third Supplemental Agreement dated December 15, 2010, relating
    to the $48.0 million loan facility with DVB Bank, Nord LB and Emporiki Bank. (Previously filed as Exhibit 10.3 to the
    Company’s Report on Form 6-K, filed on January 11, 2011, and hereby incorporated by reference.)                                                                                                     
|4.42 |  | Third Supplemental Agreement, dated November 5, 2010, in relation
    to the Loan Agreement, dated November 10,2006, between the Company and Commerzbank, for a loan facility of up to $18.0 million.
    (Previously filed as Exhibit 4.40 to the Company’s Annual Report on Form 20-F, filed on June 30, 2011, and hereby incorporated
    by reference.)                                      
|4.43 |  | First Supplemental Agreement, dated October 15, 2010, in
    relation to Loan Agreement with First Business Bank dated July 2, 2010, for a loan facility of up to $24.15 million.
    (Previously filed as Exhibit 4.41 to the Company’s Annual Report on Form 20-F, filed on June 30, 2011, and hereby incorporated
    by reference.)                                                          
|4.44 |  | Loan Agreement dated May 9, 2011, with First Business Bank
    for a loan facility of up to $12.0 million. (Previously filed as Exhibit 4.42 to the Company’s Annual Report on
    Form 20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                     
|4.45 |  | Second Supplemental Agreement, dated May 9, 2011, in relation
    to the Loan Agreement dated July 2, 2010, with First Business Bank, for a loan facility of up to $24.15 million.
    (Previously filed as Exhibit 4.43 to the Company’s Annual Report on Form 20-F, filed on June 30, 2011, and hereby incorporated
    by reference.)                                                         
|4.46 |  | Fifth Supplemental Agreement dated October 15, 2010, relating
    to the $32.0 million loan facility with EFG Eurobank. (Previously filed as Exhibit 4.45 to the Company’s Annual
    Report on Form 20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                        
|4.47 |  | Amendment to Escrow Agreement, dated July 2, 2010, between the
    Company and Grandunion Inc. and Computershare Trust Company N.A. (Previously filed as Exhibit 4.46 to the Company’s
    Annual Report on Form 20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                            



125







|4.48  |  | Bareboat Agreement, dated November 23, 2010, between
    Grand Rodosi Inc. and Prime Hill Maritime Ltd. (Previously filed as Exhibit 4.47 to the Company’s Annual Report on Form
    20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.49  |  | Bareboat Agreement, dated November 23, 2010, between Australia
    Holdings Ltd. and Prime Mountain Maritime Ltd. (Previously filed as Exhibit 4.48 to the Company’s Annual Report on Form
    20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                      
|4.50  |  | Bareboat Agreement, dated November 23, 2010, between Brazil
    Holdings Ltd. and Prime Hill Maritime Ltd. (Previously filed as Exhibit 4.49 to the Company’s Annual Report on Form
    20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                             
|4.51  |  | Bareboat Agreement, dated November 23, 2010, between China Holdings
    Ltd. and Prime Time Maritime Ltd. (Previously filed as Exhibit 4.50 to the Company’s Annual Report on Form 20-F, filed
    on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                              
|4.52  |  | Shares Issuance Agreement, dated January 20, 2011, between the
    Company and Lemissoler Corporate Management Ltd. (Previously filed as Exhibit 4.51 to the Company’s Annual Report on
    Form 20-F, filed on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                    
|4.53  |  | Bareboat Agreement, dated June 8, 2011, between Curby Navigation
    Ltd. and Endurance Shipping LLC. (Previously filed as Exhibit 4.52 to the Company’s Annual Report on Form 20-F, filed
    on June 30, 2011, and hereby incorporated by reference.)                                                                                                                                                                                                                  
|8.1   |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|12.1  |  | Rule 13a-14(a)/15d-14(a) Certification of the Company’s
    Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                     
|12.2  |  | Rule 13a-14(a)/15d-14(a) Certification of the Company’s
    Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                     
|13.1  |  | Certification of the Company’s Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                     
|13.2  |  | Certification of the Company’s Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                     
|15.1  |  | Consent of PricewaterhouseCoopers S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|101.1 |  | The following materials from the Company’s Annual Report
    on Form 20-F for the fiscal year ended December 31, 2011, formatted in eXtensible Business Reporting Language (XBRL):
    (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements
    of Changes in Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated
    Financial Statements as blocks of text.†*



| | † | To be filed by amendment.
| | - | -------------------------



*            Pursuant
to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability
under those sections.



126







INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|                                                               | Page       
|-------------------------------------------------------------- | -----------
|                                                               |            
|REPORTS OF INDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM   | F-2 and F-3
|                                                               |            
|CONSOLIDATED BALANCE SHEETS                                    | F-4        
|                                                               |            
|CONSOLIDATED
    STATEMENTS OF OPERATIONS                      | F-5        
|                                                               |            
|CONSOLIDATED STATEMENTS
    OF CHANGES IN SHAREHOLDERS' EQUITY | F-6        
|                                                               |            
|CONSOLIDATED STATEMENTS
    OF CASH FLOWS                      | F-7        
|                                                               |            
|NOTES TO THE CONSOLIDATED
    FINANCIAL STATEMENTS             | F-8        



F-1







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders of NewLead Holdings Ltd.:



In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations, changes in shareholders’ equity and of cash flows present fairly,
in all material respects, the financial position of NewLead Holdings Ltd. and its subsidiaries (the “Company”) (Successor)
at December 31, 2011 and December 31, 2010 and the results of their operations and their cash flows for the two years ended December
31, 2011, and for the period from October 14, 2009 to December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has incurred a net loss, has negative cash flows from operations, negative working capital, an accumulated deficit
and has defaulted under its credit facility agreements resulting in all of its debt being reclassified to current liabilities
all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this
matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



As discussed in Note 3 to the consolidated financial statements,
the Company has restated its 2010 and 2009 financial statements to correct an error.



/s/ PricewaterhouseCoopers S.A.

Athens, Greece.

May 15, 2012



F-2







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders of
NewLead Holdings Ltd.:



In our opinion, the accompanying consolidated
statements of operations, shareholders’ equity and cash flows for the period from January 1, 2009 to October 13, 2009, present
fairly, in all material respects, the results of operations and cash flows for the period from January 1, 2009 to October 13,
2009 of NewLead Holdings Ltd. and its subsidiaries (Predecessor), in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers S.A.

Athens, Greece

March 18, 2010, except with respect
to the effects of the reverse stock split discussed in Note 1, as to which the date is December 29, 2010, and except for the effects
of the discontinued operations discussed in Note 25, as to which the date is May 15, 2012.



F-3







NEWLEAD HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

(All amounts expressed in thousands of U.S. dollars except
share amounts)



|                                                                                                                                                                                       |  |      |    |  | As of  December 31, |   |          | As of  December 31, | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  | ------------------- | - | -------- | ------------------- | 
|                                                                                                                                                                                       |  | Note |    |  | 2011                |   |          | 2010                | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          | (Restated)          | 
|ASSETS                                                                                                                                                                                 |  |      |    |  |                     |   |          |                     | 
|Current assets                                                                                                                                                                         |  |      |    |  |                     |   |          |                     | 
|Cash and cash equivalents                                                                                                                                                              |  |      |    |  |                     | $ | 5,119    |                     | 
|Restricted cash                                                                                                                                                                        |  |      | 7  |  |                     |   | 250      |                     | 
|Trade receivables, net                                                                                                                                                                 |  |      |    |  |                     |   | 12,522   |                     | 
|Other receivables                                                                                                                                                                      |  |      |    |  |                     |   | 3,398    |                     | 
|Due from related parties                                                                                                                                                               |  |      |    |  |                     |   | 82       |                     | 
|Inventories                                                                                                                                                                            |  |      | 8  |  |                     |   | 1,686    |                     | 
|Prepaid expenses                                                                                                                                                                       |  |      |    |  |                     |   | 2,520    |                     | 
|Due from managing agents                                                                                                                                                               |  |      |    |  |                     |   | -        |                     | 
|Backlog asset                                                                                                                                                                          |  |      | 9  |  |                     |   | 2,404    |                     | 
|Deferred charges, net                                                                                                                                                                  |  |      | 12 |  |                     |   | 5,742    |                     | 
|Total current assets                                                                                                                                                                   |  |      |    |  |                     |   | 33,723   |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Restricted cash                                                                                                                                                                        |  |      | 7  |  |                     |   | 31       |                     | 
|Vessels under construction                                                                                                                                                             |  |      | 10 |  |                     |   | 7,055    |                     | 
|Assets held for sale                                                                                                                                                                   |  |      | 11 |  |                     |   | 86,082   |                     | 
|Vessels and other fixed assets, net                                                                                                                                                    |  |      | 11 |  |                     |   | 269,519  |                     | 
|Goodwill                                                                                                                                                                               |  |      | 6  |  |                     |   | -        |                     | 
|Backlog asset                                                                                                                                                                          |  |      | 9  |  |                     |   | 342      |                     | 
|Deferred charges, net                                                                                                                                                                  |  |      | 12 |  |                     |   | -        |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total non-current assets                                                                                                                                                               |  |      |    |  |                     |   | 363,029  |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total assets                                                                                                                                                                           |  |      |    |  |                     | $ | 396,752  |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                   |  |      |    |  |                     |   |          |                     | 
|Current liabilities                                                                                                                                                                    |  |      |    |  |                     |   |          |                     | 
|Current portion of long-term debt                                                                                                                                                      |  |      | 15 |  |                     | $ | 339,722  |                     | 
|Accounts payable, trade                                                                                                                                                                |  |      | 13 |  |                     |   | 38,927   |                     | 
|Senior convertible 7%  notes, net                                                                                                                                                      |  |      | 16 |  |                     |   | 53,391   |                     | 
|Accrued liabilities                                                                                                                                                                    |  |      | 14 |  |                     |   | 32,489   |                     | 
|Capital lease obligations                                                                                                                                                              |  |      | 17 |  |                     |   | 107,527  |                     | 
|Deferred charter revenue                                                                                                                                                               |  |      | 9  |  |                     |   | -        |                     | 
|Deferred income                                                                                                                                                                        |  |      |    |  |                     |   | 2,111    |                     | 
|Derivative financial instruments                                                                                                                                                       |  |      | 21 |  |                     |   | 8,808    |                     | 
|Due to related parties                                                                                                                                                                 |  |      |    |  |                     |   | 445      |                     | 
|Due to managing agent                                                                                                                                                                  |  |      |    |  |                     |   | 184      |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total current liabilities                                                                                                                                                              |  |      |    |  |                     |   | 583,604  |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Non-current liabilities                                                                                                                                                                |  |      |    |  |                     |   |          |                     | 
|Derivative financial instruments                                                                                                                                                       |  |      | 21 |  |                     |   | -        |                     | 
|Senior convertible 7%  notes, net                                                                                                                                                      |  |      | 16 |  |                     |   | -        |                     | 
|Capital lease obligations                                                                                                                                                              |  |      | 17 |  |                     |   | -        |                     | 
|Unearned profit                                                                                                                                                                        |  |      | 17 |  |                     |   | 9,083    |                     | 
|Deferred charter revenue                                                                                                                                                               |  |      | 9  |  |                     |   | -        |                     | 
|Deferred income                                                                                                                                                                        |  |      |    |  |                     |   | 800      |                     | 
|Other non-current liabilities                                                                                                                                                          |  |      |    |  |                     |   | 5,699    |                     | 
|Long-term debt                                                                                                                                                                         |  |      | 15 |  |                     |   | -        |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total non-current liabilities                                                                                                                                                          |  |      |    |  |                     |   | 15,582   |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total liabilities                                                                                                                                                                      |  |      |    |  |                     |   | 599,186  |                     | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Commitments and contingencies                                                                                                                                                          |  |      | 22 |  |                     |   |          |                     | 
|Shareholders' equity                                                                                                                                                                   |  |      |    |  |                     |   |          |                     | 
|Preference Shares, $0.01 par value, 500 million shares authorized, none issued                                                                                                         |  |      |    |  |                     |   | -        |                     | 
|Common Shares, $0.01 par value, 1 billion shares authorized, 7.8 million and 7.3 million
    shares issued and outstanding as of December 31, 2011 and December 31, 2010, respectively |  |      |    |  |                     |   | 79       |                     | 
|Additional paid-in capital                                                                                                                                                             |  |      |    |  |                     |   | 209,956  |                     | 
|Accumulated deficit                                                                                                                                                                    |  |      |    |  |                     |   | (412,469 | )                   | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total shareholders' equity                                                                                                                                                             |  |      |    |  |                     |   | (202,434 | )                   | 
|                                                                                                                                                                                       |  |      |    |  |                     |   |          |                     | 
|Total liabilities and shareholders'
    equity                                                                                                                                         |  |      |    |  |                     | $ | 396,752  |                     | 



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



F-4





NEWLEAD HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts expressed in thousands of U.S. dollars except
share and per share amounts)



|                                          |  |      |                     |  | Successor                    |   |           | Predecessor                  | 
|----------------------------------------- |  | ---- | ------------------- |  | ---------------------------- | - | --------- | ---------------------------- | 
|                                          |  |      |                     |  | Year Ended 
    December 31, |   |           | Year Ended 
    December 31, | 
|                                          |  | Note |                     |  | 2011                         |   |           | 2010                         | 
|                                          |  |      |                     |  |                              |   |           | (Restated)                   | 
|OPERATING REVENUES                        |  |      |                     |  |                              | $ | 68,637    |                              | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|EXPENSES:                                 |  |      |                     |  |                              |   |           |                              | 
|Commissions                               |  |      |                     |  |                              |   | (1,072    | )                            | 
|Voyage expenses                           |  |      |                     |  |                              |   | (2,154    | )                            | 
|Vessel operating expenses                 |  |      |                     |  |                              |   | (23,542   | )                            | 
|General and administrative expenses       |  |      |                     |  |                              |   | (20,541   | )                            | 
|Depreciation and amortization expenses    |  |      |                     |  |                              |   | (31,695   | )                            | 
|Impairment losses                         |  |      | 3, 6, 9, 10, 11, 22 |  |                              |   | (203,683  | )                            | 
|(Loss) / gain on sale of vessels, net     |  |      |                     |  |                              |   | (208      | )                            | 
|Management fees                           |  |      |                     |  |                              |   | -         |                              | 
|                                          |  |      |                     |  |                              |   | (282,895  | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Operating loss from continuing operations |  |      |                     |  |                              |   | (214,258  | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|OTHER (EXPENSES) / INCOME, NET:           |  |      |                     |  |                              |   |           |                              | 
|Interest and finance expense              |  |      | 15                  |  |                              |   | (44,261   | )                            | 
|Interest income                           |  |      |                     |  |                              |   | 207       |                              | 
|Other  income / (expense), net            |  |      |                     |  |                              |   | 97        |                              | 
|Change in fair value of derivatives       |  |      | 21                  |  |                              |   | -         |                              | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Total other expenses, net                 |  |      |                     |  |                              |   | (43,957   | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Loss from continuing operations           |  |      |                     |  |                              |   | (258,215  | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Loss from discontinued operations         |  |      | 25                  |  |                              |   | (32,180   | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Net loss                                  |  |      |                     |  |                              | $ | (290,395  | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Loss per share:                           |  |      |                     |  |                              |   |           |                              | 
|Basic and diluted                         |  |      |                     |  |                              |   |           |                              | 
|Continuing operations                     |  |      |                     |  |                              | $ | (34.84    | )                            | 
|Discontinued operations                   |  |      |                     |  |                              | $ | (4.34     | )                            | 
|Total                                     |  |      |                     |  |                              | $ | (39.18    | )                            | 
|                                          |  |      |                     |  |                              |   |           |                              | 
|Weighted average number of shares:        |  |      |                     |  |                              |   |           |                              | 
|Basic and diluted                         |  |      |                     |  |                              |   | 7,411,600 |                              | 



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



F-5





NEWLEAD HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(All amounts expressed in thousands of U.S. dollars except
share amounts)



|                                                                 |  | Note |                                                                         |  | Common Shares |  |       | Share Capital |  |   | Additional Paid-in
    Capital |  |  | Accumulated Deficit |         |   | Total Shareholders'
    Equity |  
|---------------------------------------------------------------- |  | ---- | ----------------------------------------------------------------------- |  | ------------- |  | ----- | ------------- |  | - | ------------------------------ |  |  | ------------------- | ------- | - | ------------------------------ | -
|                                                                 |  |      |                                                                         |  |               |  |       |               |  |   |                                |  |  |                     |         |   |                                |  
|Balance at January 1, 2009 (Predecessor)                         |  |      |                                                                         |  |               |  | 2,414 |               |  | $ | 24                             |  |  | $                   | 114,053 |   |                                | $
|Net loss                                                         |  |      |                                                                         |  |               |  | -     |               |  |   | -                              |  |  |                     | -       |   |                                |  
|Issuance of common shares                                        |  |      | 18, 19                                                                  |  |               |  | 7     |               |  |   | 1                              |  |  |                     | -       |   |                                |  
|Share-based compensation                                         |  |      | 18                                                                      |  |               |  | -     |               |  |   | -                              |  |  |                     | 793     |   |                                |  
|Balance at October 13, 2009 (Predecessor)                        |  |      |                                                                         |  |               |  | 2,421 |               |  | $ | 25                             |  |  | $                   | 114,846 |   |                                | $
|(Successor)                                                      |  |      |                                                                         |  |               |  |       |               |  |   |                                |  |  |                     |         |   |                                |  
|Change in control — basis adjustment                             |  |      |                                                                         |  |               |  | -     |               |  | $ | -                              |  |  | $                   | (77,978 | ) |                                | $
|Contribution of vessels                                          |  |      | 19                                                                      |  |               |  | 1,582 |               |  |   | 16                             |  |  |                     | 34,981  |   |                                |  
|Beneficial conversion feature on the convertible senior 7% notes |  |      | 16                                                                      |  |               |  | -     |               |  |   | -                              |  |  |                     | 100,536 |   |                                |  
|Conversion of the convertible senior 7% notes ($20m)             |  |      | 16, 19                                                                  |  |               |  | 2,222 |               |  |   | 22                             |  |  |                     | 19,978  |   |                                |  
|Net loss, restated                                               |  |      |                                                                         |  |               |  | -     |               |  |   | -                              |  |  |                     | -       |   |                                |  
|Share-based compensation                                         |  |      | 18,
                                                                 19 |  |               |  | 390   |               |  |   | 4                              |  |  |                     | 3,954   |   |                                |  
|                                                                 |  |      |                                                                         |  |               |  |       |               |  |   |                                |  |  |                     |         |   |                                |  
|Balance at December 31, 2009, restated (Successor)               |  |      |                                                                         |  |               |  | 6,615 |               |  |   | 67                             |  |  |                     | 196,317 |   |                                |  
|Net loss, restated                                               |  |      |                                                                         |  |               |  | -     |               |  |   | -                              |  |  |                     | -       |   |                                |  
|Issuance of common shares                                        |  |      | 18, 19                                                                  |  |               |  | 13    |               |  |   | 0                              |  |  |                     | -       |   |                                |  
|Shares issued for business acquisition                           |  |      | 5, 19                                                                   |  |               |  | 700   |               |  |   | 7                              |  |  |                     | 5,203   |   |                                |  
|Warrants                                                         |  |      | 12, 21                                                                  |  |               |  | -     |               |  |   | -                              |  |  |                     | 4,081   |   |                                |  
|Share-based compensation                                         |  |      | 18                                                                      |  |               |  | -     |               |  |   | -                              |  |  |                     | 2,680   |   |                                |  
|                                                                 |  |      |                                                                         |  |               |  |       |               |  |   |                                |  |  |                     |         |   |                                |  
|Balance at December 31, 2010, restated (Successor)               |  |      |                                                                         |  |               |  | 7,328 |               |  |   | 74                             |  |  |                     | 208,281 |   |                                |  
|Net loss                                                         |  |      |                                                                         |  |               |  | -     |               |  |   | -                              |  |  |                     | -       |   |                                |  
|Issuance of common shares                                        |  |      | 18, 19                                                                  |  |               |  | 37    |               |  |   | 0                              |  |  |                     | 87      |   |                                |  
|Share-based compensation                                         |  |      | 18                                                                      |  |               |  | 473   |               |  |   | 5                              |  |  |                     | 1,588   |   |                                |  
|Balance at December 31, 2011 (Successor)                         |  |      |                                                                         |  |               |  | 7,838 |               |  | $ | 79                             |  |  | $                   | 209,956 |   |                                | $



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



F-6







NEWLEAD HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts expressed in thousands of U.S. dollars)



|                                                                                                |  | Successor               |          |   | Predecessor             |  
|----------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ----------------------- | -
|                                                                                                |  | Year Ended December 31, |          |   | Year Ended December 31, |  
|                                                                                                |  | 2011                    |          |   | 2010                    |  
|                                                                                                |  |                         |          |   | (Restated)              |  
|OPERATING ACTIVITIES:                                                                           |  |                         |          |   |                         |  
|Net loss                                                                                        |  | $                       | (290,395 | ) |                         | $
|Adjustments to reconcile net loss to net cash provided by / (used in) operating
    activities: |  |                         |          |   |                         |  
|Depreciation and amortization                                                                   |  |                         | 36,945   |   |                         |  
|Impairment losses                                                                               |  |                         | 234,109  |   |                         |  
|Provision for doubtful receivables                                                              |  |                         | 243      |   |                         |  
|Amortization and write-off of deferred financing costs                                          |  |                         | 7,930    |   |                         |  
|Amortization of deferred charter revenue                                                        |  |                         | (568     | ) |                         |  
|Amortization of backlog asset                                                                   |  |                         | 8,697    |   |                         |  
|Amortization of the beneficial conversion feature                                               |  |                         | 8,161    |   |                         |  
|Change in fair value of derivative financial instruments                                        |  |                         | (1,153   | ) |                         |  
|Payments for dry-docking / special survey costs                                                 |  |                         | (6,650   | ) |                         |  
|Share-based compensation                                                                        |  |                         | 1,582    |   |                         |  
|Warrants compensation expense                                                                   |  |                         | -        |   |                         |  
|(Gain) / loss on sale from vessels                                                              |  |                         | (13,363  | ) |                         |  
|(Increase) decrease in:                                                                         |  |                         |          |   |                         |  
|Trade receivables                                                                               |  |                         | (6,740   | ) |                         |  
|Other receivables                                                                               |  |                         | (1,211   | ) |                         |  
|Inventories                                                                                     |  |                         | 1,300    |   |                         |  
|Prepaid expenses                                                                                |  |                         | (611     | ) |                         |  
|Due from/to managing agent                                                                      |  |                         | 489      |   |                         |  
|Due from/to related parties                                                                     |  |                         | 330      |   |                         |  
|Increase (decrease) in:                                                                         |  |                         |          |   |                         |  
|Accounts payable, trade                                                                         |  |                         | 5,344    |   |                         |  
|Accrued liabilities                                                                             |  |                         | 11,638   |   |                         |  
|Deferred income                                                                                 |  |                         | 834      |   |                         |  
|                                                                                                |  |                         |          |   |                         |  
|Net cash used in operating activities                                                           |  |                         | (3,089   | ) |                         |  
|                                                                                                |  |                         |          |   |                         |  
|INVESTING ACTIVITIES:                                                                           |  |                         |          |   |                         |  
|Vessel acquisitions                                                                             |  |                         | (23,863  | ) |                         |  
|Vessels under construction                                                                      |  |                         | (89,364  | ) |                         |  
|Advances for vessel acquisitions                                                                |  |                         | -        |   |                         |  
|Restricted cash                                                                                 |  |                         | 11,033   |   |                         |  
|Cash acquired through business acquisition, net of cash paid                                    |  |                         | -        |   |                         |  
|Other fixed asset acquisitions                                                                  |  |                         | (190     | ) |                         |  
|Proceeds from the sale of vessels                                                               |  |                         | 32,772   |   |                         |  
|Net cash (used in) / provided by investing activities                                           |  |                         | (69,612  | ) |                         |  
|                                                                                                |  |                         |          |   |                         |  
|FINANCING ACTIVITIES:                                                                           |  |                         |          |   |                         |  
|Principal repayments of long-term debt                                                          |  |                         | (94,879  | ) |                         |  
|Proceeds from long-term debt                                                                    |  |                         | 51,318   |   |                         |  
|Proceeds from senior convertible 7% notes, net                                                  |  |                         | -        |   |                         |  
|Restricted cash for debt repayment                                                              |  |                         | 31,992   |   |                         |  
|Proceeds from the sale and leaseback of vessels                                                 |  |                         | 26,600   |   |                         |  
|Capital lease payments                                                                          |  |                         | (4,040   | ) |                         |  
|Payments for deferred charges                                                                   |  |                         | (702     | ) |                         |  
|Shareholders contribution                                                                       |  |                         | -        |   |                         |  
|Proceeds from issuance of common shares                                                         |  |                         | -        |   |                         |  
|                                                                                                |  |                         |          |   |                         |  
|Net cash provided by / (used in) financing activities                                           |  |                         | 10,289   |   |                         |  
|                                                                                                |  |                         |          |   |                         |  
|Net (decrease) / increase in cash and cash equivalents                                          |  |                         | (62,412  | ) |                         |  
|Cash and cash equivalents                                                                       |  |                         |          |   |                         |  
|Beginning of year / period                                                                      |  |                         | 67,531   |   |                         |  
|                                                                                                |  |                         |          |   |                         |  
|End of year / period                                                                            |  | $                       | 5,119    |   |                         | $
|                                                                                                |  |                         |          |   |                         |  
|Supplemental Cash Flow information:                                                             |  |                         |          |   |                         |  
|Interest paid, net of capitalised interest                                                      |  | $                       | 30,642   |   |                         | $
|Issuance of common shares for business combination                                              |  | $                       | -        |   |                         | $
|Issuance of warrants for deferred charges                                                       |  | $                       | -        |   |                         | $
|Assets disposed in connection with assumed acquisitions                                         |  | $                       | -        |   |                         | $
|Assets acquired and liabilities assumed under asset acquisitions:                               |  |                         |          |   |                         |  
|- Acquired advances for vessels under construction                                              |  | $                       | -        |   |                         | $
|- Vessels and other fixed assets, net acquired                                                  |  | $                       | -        |   |                         | $
|- Long-term debt assumed                                                                        |  | $                       | -        |   |                         | $
|Acquired other assets / liabilities, net                                                        |  | $                       | -        |   |                         | $
|Assets acquired and liabilities assumed under business acquisitions:                            |  |                         |          |   |                         |  
|- Vessels and other fixed assets, net acquired                                                  |  | $                       | -        |   |                         | $
|- Long-term debt assumed                                                                        |  | $                       | -        |   |                         | $
|- Other assets and liabilities, net acquired                                                    |  | $                       | -        |   |                         | $
|Progress payment payable for vessels under construction                                         |  | $                       | 8,873    |   |                         | $
|Sale of vessels applied to related debt                                                         |  | $                       | 64,532   |   |                         | $



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



F-7







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



1.
DESCRIPTION OF BUSINESS



NewLead
Holdings Ltd. (the "Company" or "NewLead") was incorporated on January 12, 2005 under the name "Aries
Maritime Holdings Limited" and, on December 21, 2009, upon receipt of shareholder approval, the Company changed its
name to NewLead Holdings Ltd.



The
Company's principal business is the acquisition and operation of vessels. NewLead conducts its operations through the vessel-owning
companies whose principal activity is the ownership and operation of product tankers and dry bulk vessels that transport a variety
of refined petroleum products and a wide array of unpackaged cargo world-wide.



The
Company is currently engaged in restructuring discussions with its lenders to finalize the satisfaction and release of the Company’s
obligations under certain of its debt agreements and the amendment of the terms of certain other debt agreements. As part of the
restructuring efforts, the Company has sold, and expects to continue to sell, vessels as part of the arrangements with its lenders
to reduce and discharge the Company’s obligations. During 2011 and up to the date of issuance of these financial statements,
the Company has sold, disposed of or handed control over to its lenders a total of 17 vessels and hulls under construction (or
the ownership of the shipowning subsidiaries) in connection with the restructuring. The Company anticipates that it will sell
or surrender to the lenders approximately three additional vessels and hulls. To the extent that the Company has sold vessels,
the sale proceeds have been used to repay the related debt. However, proceeds from the sale of vessels are expected to be insufficient
to fully repay the related debt and, therefore, it is likely that the Company will continue to have significant debt unless it
enters into satisfactory arrangements with its lenders for the discharge of all such obligations. See Note 26 for a detailed description
of certain recent developments relating to the ongoing restructuring.



On
July 27, 2010, NewLeadannounced that a 1-for-12 reverse share split of its common shareshad
been approved by the Company’s Board of Directors and by written consent of a majority of shareholders, effective upon the
opening of the markets on August 3, 2010. The reverse share split consolidated every 12 common shares
into one common share, with par value of $0.01 per share. The number of authorized common shares and preferred shares of NewLead
were not affected by the reverse split. In respect to the underlying common shares associated with share options and any derivative
securities, such as warrants and convertible notes, the conversion and exercise prices and number of common shares issued have
been adjusted retrospectively in accordance to the 1:12 ratio for all periods presented. Due to such reverse share split,
earnings per share, the number of shares under the convertible notes and the conversion price of the convertible notes and the
number underlying the warrants and share options have been adjusted retrospectively as well. The consolidated financial statements
for the year ended December 31, 2010 (Successor), for the periods October
14 to December 31, 2009 (Successor), January 1 to October 13, 2009 (Predecessor),reflect the reverse share split.



On
October 13, 2009, the Company completed an approximately $400,000 recapitalization, which resulted in Grandunion Inc. ("Grandunion")
acquiring control of the Company. Pursuant to the Stock Purchase Agreement entered into on September 16, 2009, Grandunion,
a company controlled by Michail S. Zolotas and Nicholas G. Fistes, acquired 1,581,483 newly issued common shares of the Company
in exchange for three dry bulk carriers. Of such shares, 222,223 were transferred to Rocket Marine Inc. ("Rocket Marine"),
a company controlled by two former directors and principal shareholders in the Company, in exchange for Rocket Marine and its
affiliates entering into a voting agreement with Grandunion. The voting agreement between Rocket Marine Inc. and Grandunion was
terminated effective as of February 29, 2012. As a result, these shares of Rocket Marine Inc. are no longer included in the beneficial
ownership of any of Mr. Zolotas, Mr. Fistes or Grandunion.



In
connection with the 2009 recapitalization, the Company issued $145,000 in aggregate principal amount of 7% senior unsecured convertible
notes due 2015 (the "7% Notes"). The 7% Notes are convertible into common shares at a conversion price of $9.00 per
share, subject to adjustment for certain events, including certain distributions by the Company of cash, debt and other assets,
spin offs and other events. The issuance of the 7% Notes was pursuant to an Indenture dated October 13, 2009, between the
Company and Marfin Egnatia Bank S.A., and a Note Purchase Agreement, executed by each of Investment Bank of Greece and Focus Maritime
Corp. as purchasers. In connection with the issuance of the 7% Notes, the Company entered into a Registration Rights Agreement
providing certain demand and other registration rights for the common shares underlying the 7% Notes. In November 2009, Focus
Maritime Corp., a company controlled by Mr. Zolotas, the Company's Vice Chairman, President and Chief Executive Officer,
converted $20,000 of the 7% Notes into approximately 2.2 million new common shares. As a result, in the aggregate, $125,000
of the 7% Notes remain outstanding. As a result of this conversion, Focus Maritime Corp. as at December 31, 2011 owned approximately
28% of the Company's outstanding common shares. The 7% Notes are convertible at any time “at the holder’s option”
and if fully converted, following the issuance of 2.2 million shares, would result in the issuance of an additional 13.9 million
newly issued common shares. Currently, Investment Bank of Greece retains $100 outstanding principal amount of the 7% Notes which
were purchased for cash and has received for advisory services warrants to purchase up to 416,667 common shares at an exercise
price of $24.00 per share, with an expiration date of October 13, 2015. As of December 31, 2011, the remainder ($124,900)
is owned by Focus Maritime Corp. All of the outstanding 7% Notes owned by Focus Maritime Corp. were pledged to, and their acquisition
was financed by, Marfin Egnatia Bank S.A. The Note Purchase Agreement and the Indenture with respect to the 7% Notes contain certain
covenants, including limitations on the incurrence of additional indebtedness, except in connection with approved vessel acquisitions
and limitations on mergers and consolidations. At issuance, the 7% Notes were recorded at $43,433 as a result of a discount attributed
to a beneficial conversion feature and such discount is being amortized over the stated value of the debt. (See Note 15.)



F-8







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



On
April 1, 2010, the Company acquired in a business combination Newlead Shipping S.A. (“Newlead Shipping”), an integrated
technical and commercial management company that manages oil tankers as well as dry bulk vessels through its subsidiaries. It
provides a broad spectrum of technical and commercial management to all segments of the maritime shipping industry resulting in
the Company discontinuing the outsourcing of such services. Newlead Shipping holds the following accreditations:



| | · | ISO
                                                                                                                       9001 from
                                                                                                                       American
                                                                                                                       Bureau
                                                                                                                       of Shipping
                                                                                                                       Quality
                                                                                                                       Evaluations
                                                                                                                       for a quality
                                                                                                                       management
                                                                                                                       system
                                                                                                                       that includes
                                                                                                                       consistently
                                                                                                                       providing
                                                                                                                       service
                                                                                                                       that meets
                                                                                                                       customer
                                                                                                                       and applicable
                                                                                                                       statutory
                                                                                                                       and regulatory
                                                                                                                       requirements
                                                                                                                       and enhancing
                                                                                                                       customer
                                                                                                                       satisfaction
                                                                                                                       through,
                                                                                                                       among other
                                                                                                                       things,
                                                                                                                       processes
                                                                                                                       for continual
                                                                                                                       improvement;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | ISO
                                                                                                                       14001 from
                                                                                                                       American
                                                                                                                       Bureau
                                                                                                                       of Shipping
                                                                                                                       for environmental
                                                                                                                       management,
                                                                                                                       including
                                                                                                                       policies
                                                                                                                       and objectives
                                                                                                                       targeting
                                                                                                                       legal and
                                                                                                                       other requirements;
                                                                                                                       and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Certificate
                                                                                                                       of Company
                                                                                                                       Compliance
                                                                                                                       by the
                                                                                                                       American
                                                                                                                       Bureau
                                                                                                                       of Shipping
                                                                                                                       for safety,
                                                                                                                       quality
                                                                                                                       and environmental
                                                                                                                       requirements
                                                                                                                       of the
                                                                                                                       ABS HSQE
                                                                                                                       guide.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Going concern



Over
the past year, the Company has experienced losses, working capital deficiency, negative operating cash flow and shareholder deficiency,
which has affected, and which the Company expects will continue to affect, its ability to satisfy its obligations. Charter rates
for product tankers and bulkers have experienced a high degree of volatility. Currently, charter rates for product tankers are
significantly lower than applicable historical averages and charter hire rates for bulkers, after showing signs of stabilization
for a period, have declined to historical lows.



Furthermore,
recent economic conditions have caused certain of the Company’s charterers to experience financial difficulties as well.
This has resulted in an increase in the time it takes for the Company to realize its receivables. In certain instances, the Company’s
charterers have been unable to fulfill their obligations under their charters. One of the Company’s charterers, who was
chartering three of the Company’s vessels during 2011, was having difficulty performing its obligations and, since the end
of March 2011, has been late on a number of payments causing the Company to arrest vessels which are owned by the particular charterer,
and/or by such charterer’s affiliated companies, on two occasions in order to collect payment. In connection thereto and
due to delayed payments by this charterer, the Company has withdrawn two of the vessels from their employment during 2011 and
the third vessel during 2012 and filed a claim for amounts already due as well as damages arising from cancelling those employment
contracts. These vessels were chartered out at rates significantly above market, and since the Company was forced to reclaim and
re-charter these vessels, the Company experienced significant reduction in the cash flow from these vessels, which in turn further
impaired the Company’s liquidity.



As a result
of the conditions set out above, over a period of time, the Company defaulted under the facility and credit agreements set forth
in Note 15 (Long Term Debt) (a)–(h), the 7% senior unsecured convertible notes due 2015 (“7% Notes”) set forth
in Note 16 (Senior Convertible 7% Notes) and the capital leases set forth in Note 17 (Capital Lease Obligations) (the “Financing
Documents”) in respect of certain covenants (including, in some cases, the failure to make amortization and interest payments,
the failure to satisfy financial covenants and the triggering of cross-default provisions). To date, the Company has not obtained
waivers of these defaults from its lenders and during the restructuring process, the aim of which is to increase liquidity, normalize
trade vendor payments and deleverage the Company on a going forward basis (the “Restructuring”), its lenders have
continued to reserve their rights in respect of such defaults other than those in respect of the Kamsarmax Syndicate Facility
Agreements and the Northern Shipping Fund arrangement. Except for the Kamsarmax Syndicate Facility Agreements and the Northern
Shipping Funds arrangement, the Company’s lenders have not exercised their remedies; however, they could change their position
at any time. As such, there can be no assurance that a satisfactory final agreement will be reached with the Company’s lenders
in the Restructuring, or at all.



F-9







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



Due to the economic
conditions and operational difficulties described elsewhere in this annual report, we entered into restructuring discussions with
the lenders under the Financing Documents. As part of those discussions, the Company appointed Moelis
& Company (“Moelis”)to act as our financial advisors in respect of an overall restructuring proposal.
On November 8, 2011, the Company and Moelis presented to each of the lenders under the Financing Documents a commercial presentation
which set out a comprehensive global restructuring proposal (the “Restructuring Proposal”), and which included, among
other things, proposed amendments to the Financing Documents (including amortization relief and reset of financial covenants).
The Company has been engaged in negotiations with its lenders regarding the terms of the Restructuring Proposal but the Company’s
lenders have not yet approved the Restructuring Proposal and such changes have not been implemented. See Note 26 for a discussion
of the recent developments relating to the Company’s restructuring negotiations.



While the
Company continues to use its best efforts to complete the Restructuring, there can be no assurance that a successful resolution
can be reached with its lenders or that the Restructuring will be successfully completed. Furthermore, there is no assurance that
the Company will obtain the releases from certain of its indebtedness as proposed in the Restructuring and failure to obtain such
releases could materially and adversely affect its business and operations and the impact of the final terms of any Restructuring
is uncertain. Although any Restructuring will reduce the Company’s outstanding debt obligations, the Company will likely
be issuing significant additional equity that will dilute the existing shareholders. The dilution will not be determined until
the final terms of the entire Restructuring have been finalized or, following such completion, if there are any contingent obligations.
Such additional issuances, individually or in the aggregate, will significantly impact the trading price of the Company’s
common shares and may also impact its continued listing on NASDAQ.



Additionally,
the ultimate accounting impact of the Restructuring is unknown and will not be determined until the final terms of the Restructuring
is reached between the various lenders. Ultimately, the Company anticipates that its shareholder equity will be significantly
impacted by the Restructuring, which could negatively impact the trading of its common shares and its ability to remain listed
on NASDAQ.



All
of the above raise substantial doubt regarding the Company’s ability to continue as a going concern.



Long-term
debt and capital lease obligations have been classified as current liabilities due to covenant violations that gives the lenders
the right to call the debt at the balance sheet date, absent waivers. Accordingly, as of December 31, 2011, the Company has reclassified
all of its long term debt and capital lease obligations as current liabilities in its consolidated balance sheet, since it has
not received waivers in respect of the covenants that were breached at such time. The financial statements have been prepared
assuming that the Company will continue as a going concern and do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.



F-10







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



2. SUBSIDIARIES INCLUDED
IN THE CONSOLIDATED FINANCIAL STATEMENTS



NewLead's
subsidiaries included in these consolidated financial statements were as follows:



|                 |  | Country
    of               |  |                          |  | Successor
        Periods
        that |  |                             | Predecessor
        Periods
        that
|---------------- |  | ---------------------------- |  | ------------------------ |  | -------------------------------------- |  | --------------------------- | ----------------------------------------
|Company
    Name |  | Incorporation                |  | Nature
    / Vessel Name |  | vessel
    operated                    |  |                             | vessel
    operated                     
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|1.               |  | Land Marine S.A.             |  | Marshall Islands         |  | Vessel owning company (1)              |  | 10/14/2009
    — 9/15/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|2.               |  | Rider Marine S.A.            |  | Marshall Islands         |  | Vessel owning company (2)              |  | 10/14/2009
    — 4/22/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|3.               |  | Ostria Waves Ltd.            |  | Marshall Islands         |  | Vessel owning company (3)              |  | 10/14/2009
    — 9/07/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|4.               |  | Altius Marine S.A.           |  | Marshall Islands         |  | Newlead Avra (4)                       |  | 10/14/2009
    — 12/22/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|5.               |  | Fortius Marine S.A.          |  | Marshall Islands         |  | Newlead Fortune (4)                    |  | 10/14/2009
    — 12/22/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|6.               |  | Ermina Marine Ltd.           |  | Marshall Islands         |  | Vessel owning company (5)              |  | 10/14/2009
    — 9/07/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|7.               |  | Chinook Waves Corporation    |  | Marshall Islands         |  | Vessel owning company (6)              |  | 10/14/2009
    — 4/15/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|8.               |  | Compass Overseas Ltd.        |  | Bermuda                  |  | M/T Newlead Compass (7)                |  | 10/14/2009
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|9.               |  | Compassion Overseas Ltd.     |  | Bermuda                  |  | M/T Newlead Compassion (7)             |  | 10/14/2009
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|10.              |  | Australia Holdings Ltd.      |  | Liberia                  |  | M/V Australia (8)                      |  | 10/14/2009
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|11.              |  | Brazil Holdings Ltd.         |  | Liberia                  |  | M/V Brazil (9)                         |  | 10/14/2009
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|12.              |  | China Holdings Ltd.          |  | Liberia                  |  | M/V China (9)                          |  | 10/14/2009
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|13.              |  | Curby Navigation Ltd.        |  | Liberia                  |  | M/V Newlead Endurance (10)             |  | 6/13/2011 —
    12/31/2011  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|14.              |  | Newlead Victoria Ltd.        |  | Liberia                  |  | M/V Newlead Victoria                   |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|15.              |  | Grand Venetico Inc.          |  | Marshall Islands         |  | M/V Newlead Venetico (24)              |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|16.              |  | Grand Oceanos Inc.           |  | Liberia                  |  | M/V Grand Ocean (11)                   |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|17.              |  | Grand Rodosi Inc.            |  | Liberia                  |  | M/V Grand Rodosi (9)                   |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|18.              |  | Challenger Enterprises Ltd.  |  | Liberia                  |  | M/V Hiona (25)                         |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|19.              |  | Crusader Enterprises Ltd.    |  | Liberia                  |  | M/V Hiotissa (25)                      |  | 4/01/2010 
    — 12/31/2011 |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|20.              |  | Newlead Shipping S.A.        |  | Panama                   |  | Management company                     |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|21.              |  | Newlead Bulkers S.A.         |  | Liberia                  |  | Management company                     |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|22.              |  | Santa Ana Waves Corporation  |  | Marshall Islands         |  | Vessel owning company (12)             |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|23.              |  | Makassar Marine Ltd.         |  | Marshall Islands         |  | Vessel owning company (13)             |  | 10/14/2009
    — 1/07/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|24.              |  | Seine Marine Ltd.            |  | Marshall Islands         |  | Vessel owning company (14)             |  | 10/14/2009
    — 1/20/2010  |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|25.              |  | Vintage Marine S.A.          |  | Marshall Islands         |  | Vessel owning company (15)             |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|26.              |  | Jubilee Shipholding S.A.     |  | Marshall Islands         |  | Vessel owning company (15)             |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|27.              |  | Olympic Galaxy Shipping Ltd. |  | Marshall Islands         |  | Vessel owning company (16)             |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|28.              |  | Dynamic Maritime Co.         |  | Marshall Islands         |  | Vessel owning company                  |  | —                           |                                         
|                 |  |                              |  |                          |  |                                        |  |                             |                                         
|29.              |  | AMT Management Ltd.          |  | Marshall Islands         |  | Management company                     |  | —                           |                                         



F-11







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



|30. |  | Newlead Holdings (ex
    Aries Maritime) (US) LLC |  | United States of America |  | Operating company           |  | —                           |  |  | —
|--- |  | ------------------------------------------------- |  | ------------------------ |  | --------------------------- |  | --------------------------- |  |  | -
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|31  |  | Abroad Consulting Ltd.                            |  | Marshall Islands         |  | Operating company (17)      |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|32. |  | Leading Marine Consultants Inc.                   |  | Marshall Islands         |  | Operating company           |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|33. |  | Ayasha Trading Corporation                        |  | Liberia                  |  | M/V Newlead Tomi (18)       |  | 12/03/2010
    — 12/31/2011 |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|34. |  | Bethune Properties S.A.                           |  | Liberia                  |  | M/V Newlead Gujarat (18)    |  | 11/10/2011
    — 12/31/2011 |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|35. |  | Grand Esmeralda Inc.                              |  | Liberia                  |  | M/V Newlead Esmeralda (19)  |  | 7/09/2010 —
    12/31/2011  |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|36. |  | Grand Markela Inc.                                |  | Liberia                  |  | M/V Newlead Markela         |  | 7/02/2010 —
    12/31/2011  |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|37. |  | Grand Spartounta Inc.                             |  | Marshall Islands         |  | M/V Grand Spartounta (20)   |  | 7/02/2010 —
    09/20/2011  |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|38. |  | Newlead Progress Inc.                             |  | Marshall Islands         |  | Vessel owning company       |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|39. |  | Newlead Prosperity Inc.                           |  | Marshall Islands         |  | M/V Newlead Prosperity (20) |  | 10/01/2010
    — 09/13/2011 |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|40. |  | Grand Affection S.A.                              |  | Marshall Islands         |  | M/V Navios Serenity (21)    |  | 7/28/2011 —
    12/31/2011  |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|41. |  | Grand Affinity S.A.                               |  | Marshall Islands         |  | Hull 4029                   |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|42. |  | Newlead Stride Inc.                               |  | Marshall Islands         |  | Vessel owning company       |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|43. |  | Grand Victoria Pte Ltd.                           |  | Singapore                |  | Vessel owning company       |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|44. |  | Newlead Bulker Holdings Inc.                      |  | Marshall Islands         |  | Sub-holding company         |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|45. |  | Newlead Tanker Holdings Inc.                      |  | Marshall Islands         |  | Sub-holding company         |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|46. |  | Mote Shipping Ltd.                                |  | Malta                    |  | Vessel owning company (22)  |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|47. |  | Statesman Shipping Ltd.                           |  | Malta                    |  | Vessel owning company (22)  |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|48. |  | Trans Continent Navigation Ltd.                   |  | Malta                    |  | Vessel owning company (22)  |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|49. |  | Trans State Navigation Ltd.                       |  | Malta                    |  | Vessel owning company (22)  |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|50. |  | Bora Limited                                      |  | British Virgin Islands   |  | Vessel owning company (22)  |  | —                           |  |  | —
|    |  |                                                   |  |                          |  |                             |  |                             |  |  |  
|51. |  | Newlead Trading Inc.                              |  | Liberia                  |  | Trading company (23)        |  | —                           |  |  | —



| | 1) | M/T High Land was sold on September 15, 2010. The shipowning
                                                                       company was dissolved on September 21, 2011.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | M/T High Rider was sold and delivered to its new owners
                                                                       on April 22, 2010. The shipowning company was dissolved
                                                                       on September 21, 2011.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | M/T Ostria was sold on September 7, 2010. The shipowning
                                                                       company was dissolved on September 21, 2011.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | Newlead Avra and Newlead Fortune were sold on December
                                                                       22, 2011.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------

| | 5) | M/T Nordanvind was sold on September 7, 2010.
| | -- | ---------------------------------------------

| | 6) | M/T Chinook was sold and delivered to its new owners
                                                                       on April 15, 2010.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | M/T Newlead Compass and M/T Newlead Compassion were
                                                                       sold on January 31, 2012.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 8) | M/V Australia was delivered to Prime Mountain Shipping
                                                                       (an affiliate of Lemissoler Maritime Company W.L.L) on
                                                                       January 31, 2012.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 9) | M/V Rodosi, M/V China and M/V Brazil were sold on February
                                                                       7, 2012, February 11, 2012, and March 19, 2012, respectively.
                                                                       Refer to Note 26 for more details.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10) | On March 30, 2010, NewLead acquired Curby Navigation
                                                                        Ltd., a company which was incorporated on December 30,
                                                                        2009. On March 14, 2012, the lender foreclosed on the
                                                                        asset. Refer to Note 26 for more details.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 11) | M/V
                                                                                                          Grand Ocean was sold
                                                                                                          on January 11, 2012.Refer to Note
                                                                                                          26 for more details.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12) | The company was dissolved on November 9, 2010.
| | --- | ----------------------------------------------

| | 13) | M/V
                                                                                                          Saronikos Bridge was
                                                                                                          sold on January 7,
                                                                                                          2010. The shipowning
                                                                                                          companywas become
                                                                                                          dormanton July 28, 2011
                                                                                                          and is in process of
                                                                                                          being dissolved.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 14) | M/V MSC Seine was sold on January 20, 2010.
| | --- | -------------------------------------------

| | 15) | These shipowning companies were dissolved on September
                                                                        21, 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 16) | The
                                                                                                          shipowning companywas
                                                                                                          become dormanton July 28, 2011
                                                                                                          and is in process of
                                                                                                          being dissolved.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 17) | The shipowning company was dissolved on June 15, 2010.
| | --- | ------------------------------------------------------



F-12







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



| | 18) | By
                                                                                                          its letter dated February
                                                                                                          24, 2012, the Bank of
                                                                                                          Scotland, due to events
                                                                                                          of default that occurred
                                                                                                          under the loan agreements,
                                                                                                          exercised its rights
                                                                                                          to foreclose on the
                                                                                                          shares of Ayasha Trading
                                                                                                          Corporation and Bethune
                                                                                                          Properties S.A. which
                                                                                                          subsequently came under
                                                                                                          the bank’s ownership.Refer to Note
                                                                                                          26 for more details.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 19) | M/V
                                                                                                   Newlead Esmeralda was sold
                                                                                                   on February 16, 2012.
                                                                                                   Refer to Note 26 for more details.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 20) | On August 12, 2011,
                                                                                                          First Business Bank
                                                                                                          ("FBB") and
                                                                                                          NewLead entered into
                                                                                                          a sale agreement for
                                                                                                          two vessels, the Newlead
                                                                                                          Prosperity and the Newlead
                                                                                                          Spartounta, which were
                                                                                                          sold on September 13,
                                                                                                          2011 and September 20,
                                                                                                          2011, respectively.
                                                                                                          Refer to Note 11 for
                                                                                                          more details.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21) | On
                                                                                                          July 28, 2011, Hull
                                                                                                          4023, namedthe
                                                                                                          Navios Serenity, was
                                                                                                          delivered from a Korean
                                                                                                          shipyard. On March 26,
                                                                                                          2012, the vessel was
                                                                                                          sold. Refer to Note
                                                                                                          26 for more details.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 22) | Vessels M/T High Land, M/T High Rider, M/T Altius, M/T
                                                                 Fortius and M/T Ostria were transferred from Trans Continent
                                                                 Navigation Ltd, Mote Shipping Ltd, Statesman Shipping Ltd, Trans
                                                                 State Navigation Ltd and Bora Limited to Altius Marine S.A.,
                                                                 Land Marine S.A., Rider Marine S.A., Fortius Marine S.A. and
                                                                 Ostria Waves Ltd in November, July, August, November 2005 and
                                                                 January 2007, respectively. The original acquisitions for these
                                                                 vessels were made on June 24, 2004, on March 7, 2003, on March
                                                                 18, 2003, on August 2, 2004 and on May 25, 2004, respectively.
                                                                 Statesman Shipping Ltd. was dissolved on January 7, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 23) | Newlead Trading Inc. was established on July 1, 2011
                                                                        as a joint venture between the Company and a third party.
                                                                        The Company owns 50% of Newlead Trading Inc. shares.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 24) | M/V Newlead Venetico was sold on May 8, 2012. Refer
                                                                        to Note 26 for more details.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | 25) | The Company is under negotiations with Piraeus Bank
                                                                        in respect of the sale of the vessels Hiona and Hiotissa.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis
of Presentation:



The
accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP).



The
financial statements for periods prior to October 14, 2009, as labeled "Predecessor", reflect the consolidated
financial position, results of operations and cash flows of the 12 vessel-owning subsidiaries of NewLead. Refer to Note 1 about
the recapitalization transaction that gave rise to the “Predecessor” transaction.



The
financial statements for the period from October 14, 2009 to December 31, 2009, as labeled "Successor", reflect
the consolidated financial position, results of operations and cash flows of the Predecessor 11 vessel-owning subsidiaries and
the three vessel-owning subsidiaries contributed by Grandunion.



The
financial statements for the year ended December 31, 2010, as labeled "Successor", reflect the consolidated financial
position, results of operations and cash flows of the Predecessor 11 vessel-owning subsidiaries and the 14 vessel-owning subsidiaries,
three of which were contributed by Grandunion, six of which were acquired through a business combination (see Note 5), three of
which were acquired in July 2010 (see Note 11) and one newbuilding vessel and one leased vessel which both started their operations
in the fourth quarter 2010.



The
financial statements for the year ended December 31, 2011 reflect the consolidated financial position, results of operations and
cash flows of the 22 vessel-owning subsidiaries, including one vessel under construction and three newbuilding vessels which started
their operations during the year. See Note 2 and Note 26 for a discussion of the changes to the Company as a result of the ongoing
restructuring efforts, including the sale and other dispositions of vessels.



Furthermore,
certain other subsidiaries are included in the consolidated financial statements, as described in Note 2.



Restatement of Previously Issued Financial Statements



Subsequent
to the issuance of the Company’s 2010 and 2009 (Successor) consolidated financial statements, the Company determined that
the method used to amortize the beneficial conversion feature (“BCF”) on its 7% senior unsecured convertible notes
was erroneous because the Company had previously amortized the BCF on a straight line basis, rather than using the effective interest
rate method. This resulted in a material error and the restatement of the Company’s 2010 and 2009 (Successor) Financial
Statements. The impacts of the restatement are summarized in the following table:



F-13







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



|                                                         |  | As
    of and for the Year Ended December 31, 2010 |          |   | As
    of December 31, 2009 and for the Period From October 
    14, 2009 to December 31, 2009 |  
|-------------------------------------------------------- |  | -------------------------------------------------- | -------- | - | ---------------------------------------------------------------------------------------------- | -
|                                                         |  | As Previously
    Reported                         |          |   | As Restated                                                                                    |  
|                                                         |  |                                                    |          |   |                                                                                                |  
|Senior convertible 7% notes                              |  | $                                                  | 55,877   |   |                                                                                                | $
|Total non-current liabilities                            |  | $                                                  | 591,360  |   |                                                                                                | $
|Total liabilities                                        |  | $                                                  | 686,099  |   |                                                                                                | $
|Accumulated deficit                                      |  | $                                                  | (132,721 | ) |                                                                                                | $
|Total shareholders' equity                               |  | $                                                  | 75,634   |   |                                                                                                | $
|Interest and finance expense                             |  | $                                                  | (44,899  | ) |                                                                                                | $
|Loss from continuing operations                          |  | $                                                  | (97,618  | ) |                                                                                                | $
|Net loss                                                 |  | $                                                  | (94,849  | ) |                                                                                                | $
|Loss per share basic and diluted - continuing operations |  | $                                                  | (14.03   | ) |                                                                                                | $
|Loss per share basic and diluted – total                 |  | $                                                  | (13.63   | ) |                                                                                                | $



| | * | In addition, and unconnected to the correction of the error,
                                                                the amounts presented reflect the retrospective application of
                                                                discontinued operations for all periods presented. Refer to Note
                                                                25 (Discontinued Operations) in the accompanying consolidated
                                                                financial statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Principles
of Consolidation:



The
accompanying consolidated financial statements represent the consolidation of the accounts of the Company and its wholly-owned
subsidiaries. The subsidiaries are fully consolidated from the date on which control is transferred to the Company.



The
Company also consolidates entities that are determined to be variable interest entities as defined in the accounting guidance,
if it determines that it is the primary beneficiary. A variable interest entity is defined as a legal entity where either (a) equity
interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and
an interest in the entity's residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment
to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both and substantially all of the entity's activities either involve or are conducted
on behalf of an investor that has disproportionately few voting rights.



All
inter-company balances and transactions have been eliminated upon consolidation.



Use
of Estimates:



The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates
of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis,
management evaluates the estimates and judgments, including those related to future dry-dock dates, the selection of useful lives
for tangible and intangible assets, expected future cash flows from long-lived assets to support impairment tests, expected future
cash flows from reporting units to support goodwill impairment tests, provisions necessary for accounts receivables, provisions
for legal disputes, and contingencies. Management bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from
those estimates under different assumptions and/or conditions.



F-14







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



Foreign
Currency Transactions:



The
functional currency of the Company is the U.S. dollar because the Company's vessels operate in international shipping markets,
and therefore primarily transact business in U.S. dollars. The accounting records of the Company's subsidiaries are maintained
in U.S. dollars. Transactions involving other currencies during a year are converted into U.S. dollars using the exchange
rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated
in other currencies, are translated to reflect the period-end exchange rates. Resulting gains or losses are reflected in the accompanying
consolidated statements of operations.



Cash
and Cash Equivalents:



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



Restricted
Cash:



Restricted
cash includes additional minimum cash deposits required to be maintained with certain banks under the Company’s borrowing
arrangements. In addition, it includes cash collateralized as well as retention
accounts which contain the proceeds from the sale of the vessels and letters of guarantee for the acquisition of vessels. The
funds can only be used for the purposes of interest payments and loan repayments, and the letters of guarantee can only be used
for the acquisition of vessels.



Trade
Receivables, Net and Other Receivables:



The
amount shown as trade receivables, net at each balance sheet date includes estimated recoveries from charterers for hire, freight
and demurrage billings, net of allowance for doubtful accounts. An estimate is made of the allowance for doubtful accounts based
on a review of all outstanding amounts at each period, and an allowance is made for any accounts which management believes are
not recoverable. Bad debts are written off in the year in which they are identified. The allowance for doubtful accounts at December 31,
2011 and 2010 amounted to$1,624 and $1,410, respectively, and relates to continuing and discontinued operations. Other receivables
relates to claims for hull and machinery and loss of hire insurers.



Inventories:



Inventories,
which comprise bunkers and lubricants remaining on board the vessels at year end, are valued at the lower of cost and market value
as determined using the first in-first out method.



Vessels
and Other Fixed Assets, net:



Vessels
are stated at cost less accumulated depreciation and impairment losses. Cost consists of the contract price, delivery and acquisition
expenses, interest cost while under construction, and, where applicable, initial improvements. Vessels acquired through an asset
acquisition or through a business combination are stated at fair value. Subsequent expenditures for conversions and major improvements
are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety
of a vessel; otherwise, these amounts are charged to expenses as incurred.



Depreciation
of a vessel is computed using the straight-line method over the estimated useful life of the vessel, after considering the estimated
salvage value of the vessel. Each vessel's salvage value is equal to the product of its lightweight tonnage and estimated scrap
value per lightweight ton. Management estimates the useful life of the Company's vessels to be at a range of 25 to 30 years
from the date of its initial delivery from the shipyard.



However,
when regulations place limitations over the ability of a vessel to trade, its useful life is adjusted to end at the date such
regulations become effective.



Fixed
assets are stated at cost. The cost and related accumulated depreciation of fixed assets sold or retired are removed from the
accounts at the time of sale or retirement and any gain or loss is included in the accompanying statement of operations.



F-15







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands
of U.S. dollars except share and per share data and where otherwise specified)



Depreciation
of fixed assets is computed using the straight-line method. Annual depreciation rates, which approximate the useful life of the
assets, are:



|Furniture, fixtures and equipment: |  | 3 years
|---------------------------------- |  | -------
|Computer equipment and software:   |  | 3 years



Assets
held for sale/Discontinued operations:



Long-lived
assets are classified as "Assets held for sale" when the following criteria are met: management has committed to a plan
to sell the asset; the asset is available for immediate sale in its present condition; an active program to locate a buyer and
other actions required to complete the plan to sell the asset have been initiated; the sale of the asset is probable, and transfer
of the asset is expected to qualify for recognition as a completed sale within one year; the asset is being actively marketed
for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate
that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Assets classified as
held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These assets are not depreciated
once they meet the criteria to be held for sale.



The
Company reports discontinued operations when the operations and cash flows of a component, usually a vessel, have been (or will
be) eliminated from the ongoing operations of the Company, and the operations and cash flows will not be replaced or the Company
does not have the ability to replace the vessels or segments, and the Company will not have any significant continuing involvement
in the operations of the component after its disposal. All assets held for sale are considered discontinued operations for all
periods presented.



For
the year ended December 31, 2011, a total of eight vessels, from both the wet and dry segments, have been reported as
discontinued operations. The Container Market (as defined in Note 25) was fully discontinued as of December 31,
2009.



Accounting
for Special Survey and Dry-docking Costs:



The
Company's vessels are subject to regularly scheduled dry-docking and special surveys, which are carried out every 30 or 60 months
to coincide with the renewal of the related certificates issued by the Classification Societies, unless a further extension is
obtained in rare cases and under certain conditions. The costs of dry-docking and special surveys are deferred and amortized over
the above periods or to the next dry-docking or special survey date if such date has been determined.



Costs
incurred during the dry-docking period relating to routine repairs and maintenance are expensed. The unamortized portion of special
survey and dry-docking costs for vessels sold is included as part of the carrying amount of the vessel in determining the gain/(loss)
on sale of the vessel.



Impairment
of Long-lived Assets:



Long-lived
assets and certain identifiable intangibles held and used by an entity are required to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the future net undiscounted
cash flows from the assets are less than the carrying values of the asset, an impairment loss is recorded equal to the difference
between the asset's carrying value and its fair value.



Undiscounted
projected net operating cash flows are determined for each asset group and compared to the carrying value of the vessel and related
carrying value of the intangible (backlog asset and deferred charter revenue) with respect to the time charter agreement attached
to that vessel or the carrying value of deposits for newbuildings. Within the shipping industry, vessels are customarily bought
and sold with a charter attached. The value of the charter may be favorable (backlog asset) or unfavorable (deferred charter revenue)
when comparing the charter rate to then current market rates. The loss recognized either on impairment (or on disposition) will
reflect the excess of carrying value over fair value (selling price) for the vessel asset group. For vessels under construction,
the net estimated cash flows also include the future cash outflows to make vessels ready for use, all remaining progress payments
to shipyards and other pre-delivery expenses (e.g. capitalized interest).



The significant factors and assumptions
the Company used in the undiscounted projected net operating cash flow analysis included, among others, operating revenues, off-hire
revenues, dry-docking costs, operating expenses and management fee estimates. Revenue assumptions were based on a number factors
for the remaining life of the vessel: (a) contracted time charter rates up to the end of life of the current contract of each
vessel, (b) the most recent ten-year average historical one-year time charter rates (adjusted for market conditions), (c) the
respective vessel's age as well as considerations such as scheduled and unscheduled off-hire days based on historical experience
and (d) the likelihood of the sale of the asset group. Operating expense assumptions included an annual escalation factor. All
estimates used and assumptions made were in accordance with the Company's historical experience. Fair value is determined using
the valuation derived from market data.



F-16









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



The current
assumptions used and the estimates made are highly subjective, and could be negatively impacted by further significant deterioration
in charter rates or vessel utilization over the remaining life of the vessels, which could require the Company to record a material
impairment charge in future periods. The Company performed an impairment assessment of the long-lived assets groups (i) as of
September 30, 2009, (ii) as of December 31, 2009, (iii) during the years ended December 31, 2011, and 2010, when certain vessels
were disposed of, (iv) as of December 31, 2010 and (v) as of December 31, 2011. For certain asset groups as of December 31, 2011,
the future net undiscounted cash flows from the assets were less than the carrying values of the assets and, therefore, were adjusted
to fair value. For the year ended December 31, 2011, the Company recorded an impairment charge totaling $73,349 in continuing
operations on eleven of the thirteen vessels that were held and used as of December 31, 2011. In addition, an impairment charge
in continuing operations of $43,214 was recorded on back log assets, and an impairment charge in continuing operations of $5,530
was recorded on vessels under construction. For two of the four vessels that qualified as assets held for sale as of December
31, 2011, the vessels were adjusted to their fair value as of December 31, 2011, and a total impairment charge of $30,426 was
recorded within Loss from discontinued operations for the vessels that are held for sale or were disposed of in the year ended
December 31, 2011 (see Note 11). Two of the four vessels that were sold during the year ended December 31, 2011 were adjusted
to their fair value prior to their disposal. For the year ended December 31, 2010, the Company recorded an impairment charge on
vessels in the amount of $15,662, all of which was recorded within continuing operations. The Company's impairment analysis as
of December 31, 2009 did not result in an impairment loss. The impairment analysis as of September 30, 2009 resulted in an impairment
loss of $40,859 from continuing operations and $50,742 from discontinued operations for the period from January 1, 2009 to October
13, 2009.



Goodwill:



The Company evaluates goodwill for impairment
using a two-step process. First, the aggregate fair value of the reporting unit is compared to its carrying amount, including
goodwill. The Company determines the fair value based on a discounted cash flow analysis.



If the fair
value of the reporting unit exceeds its carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds
its air value, then the Company must perform the second step in order to determine the implied fair value of the reporting unit's
goodwill and compare it with its carrying amount. The implied fair value is determined by allocating the fair value of the reporting
unit to all the assets and liabilities of that reporting unit, as if the reporting unit had been acquired in a business combination
and the fair value of the reporting unit was the purchase price. If the carrying amount of the goodwill exceeds its implied fair
value, then a goodwill impairment is recognized by writing the goodwill down to the implied fair value (see Note 6).



Backlog asset/Deferred charter revenue:



Where
the Company identifies any assets or liabilities associated with the acquisition of a vessel, the Company typically records all
such identified assets or liabilities at fair value. Fair value is determined by reference to market data. The Company values
any asset or liability arising from the time or bareboat charters assumed based on the market value at the time a vessel is acquired.
The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current
fair value of a charter with similar characteristics as the time charter assumed and the net present value of future contractual
cash flows from the time charter contract assumed. When the present value of the time charter assumed is greater than the current
fair value of a charter with similar characteristics, the difference is recorded as a backlog asset. When the net present value
of the time or bareboat charter assumed is lower than the current fair value of a charter with similar characteristics, the difference
is recorded as deferred charter revenue. Such assets and liabilities, respectively, are amortized as an increase in, or a reduction
of, “Depreciation and Amortization Expense” over the remaining period of the time or bareboat charters acquired.For the impairment recognized on these assets, refer to “Vessels and Other Fixed Assets, net” in this Note.



Provisions:



The
Company, in the ordinary course of business, is subject to various claims, suits and complaints. Management provides for a contingent
loss in the financial statements if the contingency has been incurred at the date of the financial statements and the amount of
the loss can be reasonably estimated. In accordance with the guidance issued by the Financial Accounting Standards Board ("FASB"),
in accounting for contingencies, if the Company has determined that the reasonable estimate of the loss is a range, and there
is no best estimate amount within the range, the Company will provide the lower amount of the range. See Note 22 "Commitments
and Contingent Liabilities" for further discussion.



F-17







NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



The
Company participates in Protection and Indemnity (P&I) insurance plans provided by mutual insurance associations known as
P&I clubs. Under the terms of these plans, participants may be required to pay additional premiums (supplementary calls) to
fund operating deficits incurred by the clubs ("back calls"). Obligations for back calls are accrued annually based
on information provided by the clubs and when the obligations are probable and estimable.



Leases:



Leases are classified
as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases. The Company records vessels under capital leases as fixed assets at the lower
of the present value of the minimum lease payments at inception of the lease or the fair value of the vessel. Vessels under capital
leases are amortized over the estimated remaining useful life of the vessel for capital leases which provide for transfer of title
of the vessel, similar to that used for other vessels of the Company. The current portion of capitalized lease obligations are
reflected in the balance sheet in "Capital lease obligations, current" and remaining long-term capitalized lease obligations
are presented as “Capital lease obligations, non-current". (Refer to Note 17 for current classification as of December
31, 2011). Payments made for operating leases are expensed on a straight-line basis over the term of the lease. Office and warehouse
rental expense is recorded in “General and administrative expenses” in the consolidated statements of operations.



Financing
Costs:



Fees
incurred for obtaining new debt are deferred and amortized over the life of the related debt, using the effective interest rate
method.



Fees
incurred in a refinancing of existing debt continue to be amortized over the remaining term (or expected remaining term) of the
new debt where there is a modification of the debt. Fees incurred in a refinancing of existing loans where there is an extinguishment
of the old debt are written off and included in the debt extinguishment gain or loss.



Interest
Expense:



Interest
costs are generally expensed as incurred and include interest on loans, financing costs, amortization and write-offs and a deemed
interest from BCF. Interest costs incurred while a vessel is being constructed are capitalized.



Accounting
for Revenue and Expenses:



The
Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered using either time and
bareboat charters, where a contract is entered into for the use of a vessel for a specific period of time and a specified daily
charter hire rate, or voyage charters, where a contract is made in the spot market for the use of a vessel for a specific voyage
for a specified charter rate. If a charter agreement exists, price is fixed, service is provided and collection of the related
revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the
period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade
work depending on the condition and specification of the vessel and address commissions. A voyage is deemed to commence upon the
completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of the discharge of the current
cargo.



Profit
sharing represents the Company's portion of the excess of the actual net daily charter rate earned by the Company's charterers
from the employment of the Company's vessels over a predetermined base charter rate, as agreed between the Company and its charterers.
Such profit sharing is recognized in revenue when mutually settled.



Demurrage
income represents payments by the charterer to the vessel owner when loading or discharging time exceeded the stipulated time
in the voyage charter and is recognized as incurred.



Deferred
income represents cash received on charter agreement prior to the balance sheet date and is related to revenue not meeting the
criteria for recognition.



F-18









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



Voyage
Expenses:



Voyage
expenses comprise all expenses related to each particular voyage, including time charter hire paid and voyage freight paid bunkers,
port charges, canal tolls, cargo handling, agency fees and brokerage commissions.



Vessel
Operating Expenses:



Vessel
operating expenses consist of all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance,
stores and lubricants and miscellaneous expenses such as communications. Vessel operating expenses exclude fuel cost, port expenses,
agents' fees, canal dues and extra war risk insurance, which are included in "voyage expenses".



Insurance
Claims:



Insurance
claims represent the claimable expenses, net of deductibles, which are probable to be recovered from insurance companies. Any
costs to complete the claims are included in accrued liabilities. The Company accounts for the cost of possible additional call
amounts under its insurance arrangements in accordance with the accounting guidance for contingencies based on the Company's historical
experience and the shipping industry practices. These claims are included in the consolidated balance sheet line item "Other
receivables".



Pension
and Retirement Benefit Obligations-Crew:



The
crew on board the companies’ vessels serves in such capacity under short-term contracts (usually up to seven months) and
accordingly, the vessel-owning companies are not liable for any pension or post retirement benefits.



Repairs
and Maintenance:



Expenditure
for routine repairs and maintenance of the vessels is charged against income in the period in which it is incurred. Major vessel
improvements and upgrades are capitalized to the cost of vessel.



Derivative
Financial Instruments:



Derivative
financial instruments are recognized in the balance sheets at their fair values as either assets or liabilities. Changes in the
fair value of derivatives that are designated and qualify as cash flow hedges, and that are highly effective, are recognized in
other comprehensive income. If derivative transactions do not meet the criteria to qualify for hedge accounting, any unrealized
changes in fair value are recognized immediately in the statement of operations.



Gain/loss
arising on the termination of interest rate swap agreements qualifying as hedging instruments are deferred and amortized over
the shorter of the life of the hedged debt or the hedge instrument.



The
Company has entered into various interest rate swap agreements (see Note 21) that did not qualify for hedge accounting.
As such, the fair value of these agreements and changes therein are recognized in the balance sheets and statements of operations,
respectively.



Share-based
Compensation:



The
standard requires the Company to measure the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited exceptions). The grant-date fair value of employee share options
and similar instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.
The cost is recognized over the period during which an employee is required to provide service in exchange for the award —
the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost
if certain conditions are met. If an equity award is modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately
before the modification.



F-19









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



Warrants:



The
Company initially measures warrants at fair value. If warrants meet accounting criteria for equity classification then there is
no other measurement subsequent to their issue. If based on their contractual terms warrants need to be recorded as derivative
liabilities, then they are remeasured to fair value at each reporting period with changes recognized in the statements of operations.



Segment
Reporting:



Operating
segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Based on the
Company's methods of internal reporting and management structure, the Company has two reportable segments: Wet Operations (consisting
of tankers transporting several different refined petroleum products simultaneously in segregated, coated cargo tanks) and Dry
Operations (consisting of transportation and handling of bulk cargoes through ownership, operation and trading of vessels). See
Note 20.



Loss
per Share:



The
Company has presented loss per share for all periods presented based on the weighted average number of its outstanding common
shares at the reported periods. The effect of dilutive or potentially dilutive securities is anti-dilutive, accordingly there
is no difference between basic and diluted net loss per share.



4.
RECENT ACCOUNTING PRONOUNCEMENTS



Fair
Value Disclosures



In
January 2010, the FASB issued amended standards requiring additional fair value disclosures. The amended standards require
disclosures of transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as requiring gross basis disclosures
for purchases, sales, issuances and settlements within the Level 3 reconciliation. Additionally, the update clarifies the requirement
to determine the level of disaggregation for fair value measurement disclosures and to disclose valuation techniques and inputs
used for both recurring and nonrecurring fair value measurements in either Level 2 or Level 3. The Company adopted the new guidance
effective in the first quarter of fiscal 2010, except for the disclosures related to purchases, sales, issuance and settlements,
which were effective for the Company beginning in the first quarter of fiscal 2011. The adoption of the new standard did not have
a significant impact on the Company's consolidated financial statements.



Goodwill Impairment Guidance



In September
2011, the FASB issued an Update to simplify how public entities test goodwill for impairment. The amendments
in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The
amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
2011. Early adoption is permitted including for annual and interim impairment tests performed as of a date before September 15,
2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for
nonpublic entities, have not yet been made available for issuance. The amendment will be adopted by the Company in the first quarter
of 2012. The adoption of the new amendments is not expected to have a significant impact on the Company’s consolidated financial
statements.



F-20









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



Fair Value Measurement



In May 2011,
the FASB issued amendments to achieve common fair value measurement and disclosure requirements. The new guidance (i) prohibits
the grouping of financial instruments for purposes of determining their fair values when the unit of accounting is specified in
another guidance, unless the exception provided for portfolios applies and is used; (ii) prohibits application of a blockage
factor in valuing financial instruments with quoted prices in active markets; and (iii) extends
that prohibition to all fair value measurements. Premiums or discounts related to size as a characteristic of the entity’s
holding (that is, a blockage factor), instead of as a characteristic of the asset or liability (for example, a control premium),
are not permitted. A fair value measurement that is not a Level 1 measurement may include premiums or discounts other than blockage
factors when market participants would incorporate the premium or discount into the measurement at the level of the unit of accounting
specified in another guidance. The new guidance aligns the fair value measurement of instruments classified within an entity’s
shareholders’ equity with the guidance for liabilities. As a result, an entity should measure the fair value of its own
equity instruments from the perspective of a market participant that holds the instruments as assets. The disclosure requirements
have been enhanced. The most significant change will require entities, for their recurring Level 3 fair value measurements, to
disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity,
and a qualitative discussion about the sensitivity of the measurements. In addition, entities must report the level in the fair
value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The new guidance is effective
for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance
will require prospective application. The adoption of the new standard is not expected to have a significant impact onthe
Company’s consolidated financial statements.



Presentation of Comprehensive Income



In June 2011,
the FASB issued an Update regarding the presentation of comprehensive income. According to the update, an entity has the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. The statement of other
comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income
and a total for other comprehensive income, along with a total for comprehensive income. On December 23, 2011 the FASB issued
an amendment to the new standard on comprehensive income to defer the requirement to measure and present reclassification adjustments
from accumulated other comprehensive income to net income by income statement line item in net income and also in other comprehensive
income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate
but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments
for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net
income and the components of other comprehensive income are presented. The amendments in this update do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require
any transition disclosures. The adoption of the new amendments did not have a significant impact on NewLead Holdings’ consolidated
financial statements. There were no items of comprehensive income arising in any of the periods presented.



5.
BUSINESS COMBINATION



On
April 1, 2010, NewLead completed the 100% acquisition of six vessels (four dry bulk vessels and two product tankers) and
Newlead Shipping and its subsidiaries, an integrated technical and commercial management company, pursuant to the terms of a Securities
Purchase Agreement, dated March 31, 2010 (the "Purchase Agreement"), between NewLead and Grandunion. Newlead Bulkers
S.A., or Newlead Bulkers, is a subsidiary of Newlead Shipping that was acquired as part of this transaction, and provides technical
and commercial management services to our dry bulk vessels. In exchange for shares of the subsidiaries acquired,
NewLead assumed approximately $161,000 of bank debt, accounts payable and accrued liabilities, net of cash acquired, and paid
Grandunion an additional consideration of $5,310 which consisted of $100 in cash, as well as 700,214 common shares (the “Shares”)
to Grandunion, reflecting the 737,037 Shares initially issued to complete the acquisition and the subsequent cancellation of 36,823
of these Shares to maintain the aggregate consideration in accordance with the terms of the Purchase Agreement as a result of
assuming a higher amount of liabilities. The Company valued the Shares issued
at $7.44 per common share, which represented the market price less a discount for the Lock-Up Agreement. The Shares were
subject to a Lock-Up Agreement, dated April 1, 2010, pursuant to which the Shares were restricted from disposition or any other
transfer for the one year period which ended April 1, 2011.



F-21













NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



The acquisition was accounted for under
the acquisition method of accounting and, accordingly, the assets acquired and liabilities assumed were recorded at their fair
values. The Company estimated the fair values of the assets acquired and liabilities assumed at the date of acquisition as follows:



|                                       |  | Fair value on
acquisition date |        
|-------------------------------------- |  | ------------------------------ | -------
|Cash and cash equivalents              |  | $                              | 1,661  
|Trade and other receivables, net       |  |                                | 1,342  
|Inventories                            |  |                                | 349    
|Prepaid expenses                       |  |                                | 950    
|Backlog asset                          |  |                                | 9,833  
|Vessels                                |  |                                | 143,808
|Restricted cash                        |  |                                | 34     
|Total assets                           |  |                                | 157,977
|                                       |  |                                |        
|Accounts payable                       |  |                                | 7,417  
|Accrued liabilities                    |  |                                | 1,105  
|Deferred income                        |  |                                | 352    
|Due to related parties, net            |  |                                | 547    
|Deferred charter revenue               |  |                                | 3,051  
|Bank debt                              |  |                                | 154,475
|Total liabilities                      |  |                                | 166,947
|                                       |  |                                |        
|Fair value of net liabilities          |  |                                | 8,970  
|Fair value of additional consideration |  |                                | 5,310  
|Goodwill                               |  | $                              | 14,280 



The excess of the fair value of total liabilities
assumed over total assets acquired and other consideration resulted in a premium (goodwill) recorded in the line “Goodwill”
in the Company’s consolidated balance sheet. Goodwill has been allocated to the dry and wet segments, based on the fair values
of the respective vessels, at approximately 52% and 48%, respectively (see Note 6). The goodwill balance arose primarily as a result
of the synergies existing within the acquired business and also the synergies expected to be achieved as a result of combining
the six vessels and Newlead Shipping and its subsidiaries with the rest of the Company.



Direct acquisition
costs of approximately $1,300 were fully expensed.



The following
paragraph includes pro forma consolidated financial information and reflects the results of operations for the years ended December
31, 2010 and 2009, as if the acquisition had been consummated as of January 1, 2009 and after giving effect to acquisition accounting
adjustments. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what
operating results would have been had the acquisition actually taken place as of January 1, 2009. In addition, these results are
not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations.
The actual results of the operations of the six vessels and the two management
companies are included in the consolidated financial statements of the Company only from the date of the acquisition.



F-22









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



If the business
combination had taken place on January 1, 2009, the Company’s operating revenues would have been approximately $60,300 for
the period January 1, 2009 to October 13, 2009 and approximately $21,500 for the period October 14, 2009 to December 31, 2009,
and net loss would have been approximately $133,400 for the period January 1, 2009 to October 13, 2009 and approximately $40,000
for the period October 14, 2009 to December 31, 2009, including $58,684 and $4,409, respectively, loss from discontinued operations.
Furthermore, operating revenues would have been approximately $112,400 for the year ended December 31, 2010 and net loss (including
approximately $9,063 of gain from discontinued operations) would have been approximately $107,200 for the year ended December
31, 2010. The contribution of this business combination in the year ended December 31, 2010 since the acquisition date was as
follows: (a) approximately $31,200 in operating revenues and (b) approximately $2,100 in net loss.



6. GOODWILL



The 2009 recapitalization, described in
Note 1, was recorded as follows:



| | 1. | The transfer of the three vessels—the Australia, the Brazil and the China—to NewLead from Grandunion was accounted
for as an asset acquisition and at historical book value, since control over the vessels did not change.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The acquisition of the predecessor entity was accounted for under the acquisition method of accounting and, accordingly, these
assets and liabilities assumed were recorded at their fair values.The Company utilized a combination
of valuation methods, such as the market approach and the income approach, in order to determine the fair values of the predecessor
vessels’ time charters attached, the charter free values of the vessels and the calculation of the equity consideration.
The fair value of the entity as a business was determined based on its capitalization on October 13, 2009. The excess of
the purchase price over the fair value of the assets acquired and liabilities assumed resulted in a premium (goodwill) of $86,036
and was recorded in the line “Goodwill” in the Company’s consolidated balance sheet. Goodwill has been allocated
to the wet and dry reporting units based on the fair values of the respective vessels, at approximately 76% and 24%, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The basis adjustments, presented in the
following table, result from the Company’s assessment of the estimated fair values for each vessel (obtained by third-party
valuations for which management assumes responsibility for all assumptions and judgments) compared to the carrying value. The significant
factors the Company used in deriving the carrying value included: net book value of the vessels, unamortized special survey and
dry-docking cost and deferred revenue. The Company believes that the resulting balance sheet reflects the fair value of the assets
and liabilities at the change of control date of October 13, 2009.



The following table shows the roll forward
of the balance sheet of NewLead (Predecessor) as of October 13, 2009 to NewLead (Successor) on October 13, 2009 and is being presented
solely to reflect the change of control and contribution from Grandunion:



F-23











NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)





|                                               |  | October 13, 2009     |          |     | October 13, 2009         |  
|---------------------------------------------- |  | -------------------- | -------- | --- | ------------------------ | -
|                                               |  | Predecessor          |          |     | Successor                |  
|                                               |  | Carrying
    Value A |          |     | Basis  Adjustments
    B |  
|Cash and cash equivalents                      |  | $                    | -        |     |                          | $
|Restricted cash                                |  |                      | 1,898    |     |                          |  
|Trade receivables, net                         |  |                      | 3,721    |     |                          |  
|Other receivables                              |  |                      | 584      |     |                          |  
|Inventories                                    |  |                      | 2,713    |     |                          |  
|Prepaid expenses                               |  |                      | 1,102    |     |                          |  
|Backlog asset                                  |  |                      | -        |     |                          |  
|Total current assets                           |  |                      | 10,018   |     |                          |  
|Vessels and other fixed assets, net            |  |                      | 185,813  |     |                          |  
|Restricted cash                                |  |                      | -        |     |                          |  
|Deferred charges, net                          |  |                      | 1,018    |     |                          |  
|Goodwill                                       |  |                      |          |     |                          |  
|Total non-current assets                       |  |                      | 186,831  |     |                          |  
|Total assets                                   |  | $                    | 196,849  |     |                          | $
|Current portion of long-term debt              |  | $                    | (221,430 | )   |                          | $
|Accounts payable, trade                        |  |                      | (10,146  | )   |                          |  
|Accrued liabilities                            |  |                      | (11,794  | )   |                          |  
|Deferred income                                |  |                      | (673     | )   |                          |  
|Derivative financial instruments               |  |                      | (9,439   | )   |                          |  
|Deferred charter revenue                       |  |                      | (1,222   | )   |                          |  
|Due to managing agent                          |  |                      | (1,599   | )   |                          |  
|Total current liabilities                      |  |                      | (256,303 | )   |                          |  
|Deferred income                                |  |                      | -        |     |                          |  
|Derivative financial instruments               |  |                      | -        |     |                          |  
|7% Convertible senior notes, net               |  |                      | -        |     |                          |  
|Long-term debt                                 |  |                      | -        |     |                          |  
|Total non-current liabilities                  |  |                      | -        |     |                          |  
|Total liabilities                              |  |                      | (256,303 | )   |                          |  
|Share capital                                  |  |                      | (24      | )   |                          |  
|Additional paid-in capital                     |  |                      | (114,847 | )   |                          |  
|Accumulated deficit                            |  |                      | 174,325  | (6) |                          |  
|Total shareholders' equity                     |  |                      | 59,454   |     |                          |  
|Total liabilities and
    shareholders' equity |  | $                    | (196,849 | )   |                          | $





| | (1) | Vessels and other fixed assets, net were adjusted to fair value.
| | --- | ----------------------------------------------------------------



| | (2) | Backlog asset which related to charter-out contracts were determined to have a fair value.
| | --- | ------------------------------------------------------------------------------------------



| | (3) | Deferred charges were valued at $0.
| | --- | -----------------------------------



| | (4) | Deferred charter revenue was valued at $0.
| | --- | ------------------------------------------



| | (5) | The assets and liabilities of the three vessel owning companies brought into the Company from Grandunion were recorded at their
historical cost.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Accumulated deficit was transferred to additional paid-in capital.
| | --- | ------------------------------------------------------------------



| | (7) | The Company's existing syndicate of lenders entered into the Facility Agreement, dated October 13, 2009, which resulted
in the classification of the debt according to the contractual terms. As a result of the Facility Agreement, the Company complied
with its covenants, described in Note 15, and on the recapitalization date, the Company's debt was reclassified between its
long and short term components based on its contractual terms, while the agreement requires restricted cash of 5%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-24









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



| | (8) | Represents the issuance of the 7% Notes, described in Note 1, net of discounts. For more details on the 7% Notes,
see the discussion in Note 16.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



The reconciliation of the carrying amount
of Goodwill as of December 31, 2011 and 2010 was as follows:



|                                           |  | Goodwill |        
|------------------------------------------ |  | -------- | -------
|                                           |  |          |        
|Balance at January 1, 2010                 |  | $        | 86,036 
|                                           |  |          |        
|Goodwill acquired during the year (Note 5) |  |          | 14,280 
|Impairment loss                            |  |          | (18,726
|Balance at December 31, 2010               |  |          | 81,590 
|                                           |  |          |        
|Impairment loss                            |  |          | (81,590
|Balance at December 31, 2011               |  | $        | -      



Goodwill Impairment



The Company evaluated goodwill for impairment
using a two-step process. First, the aggregate fair value of the reporting unit was compared to its carrying amount, including
goodwill. The Company determines the fair value based on discounted cash flow analysis. The fair value for goodwill impairment
testing was estimated using the expected present value of future cash flows, and using judgments and assumptions that management
believes were appropriate in the circumstances. The future cash flows from operations were determined by considering the charter
revenues based on a number of factors relating to the remaining life of the vessels, including: (a) the contracted time charter
rates up to the end of life of the current contract of each vessel, (b) the most recent ten-year average historical one-year time
charter rates (adjusted for market conditions) and (c) the respective vessel's age, as well as considerations such as scheduled
and unscheduled off-hire days based on historical experience or, if the most likely use of the vessel would result in flows only
through its disposal, the fair value of the vessel at the end of the reporting period. Expenses were forecasted with reference
to the historic absolute and relative levels of expenses the Company has incurred in generating revenue in each reporting unit,
and operating strategies and specific forecasted operating expenses to be incurred are forecasted by applying an inflation rate
of 2% considering the economies of scale due to the Company’s growth. The weighted average cost of capital (WACC) used was
between 9% and 12%.



Prior to the impairment test as of December
31, 2011, goodwill allocated to the wet and dry reporting units amounted to $53,966 and $27,624, respectively. Prior to the impairment
test as of December 31, 2010, goodwill allocated to the wet and dry reporting units amounted to $72,692 and $27,624, respectively.
The Company’s annual impairment test as of December 31, 2011 resulted in an impairment charge of $53,966 related to the wet
segment and of $27,624 related to the dry segment, which we rerecorded in “Impairment Losses” in the consolidated statement
of operations. The Company also performed a goodwill impairment test at an interim date of June 30, 2011, which did not result
in any impairment. The Company’s annual impairment test as of December 31, 2010 resulted in an impairment charge of $18,726
related to the wet segment, which was recorded in “Impairment Losses” in the consolidated statement of operations.
The Company’s impairment testing as of December 31, 2009 did not result in any impairment charge.



F-25









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



7.
RESTRICTED CASH



Restricted
cash, as of December 31, 2011 and 2010, was as follows:



|                                           |  | As of  December 31, |     |  | As of  December 31, |  
|------------------------------------------ |  | ------------------- | --- |  | ------------------- | -
|                                           |  | 2011                |     |  | 2010                |  
|                                           |  |                     |     |  |                     |  
|Minimum Liquidity                          |  | $                   | 250 |  |                     | $
|Retention of proceeds from sale of vessels |  |                     | -   |  |                     |  
|Letters of guarantee for hull and vessels  |  |                     | -   |  |                     |  
|Short term restricted cash accounts        |  |                     | 250 |  |                     |  
|                                           |  |                     |     |  |                     |  
|Retention of proceeds from sale of vessels |  |                     | -   |  |                     |  
|Letters of guarantee                       |  |                     | 31  |  |                     |  
|Long term restricted cash accounts         |  |                     | 31  |  |                     |  
|                                           |  |                     |     |  |                     |  
|                                           |  | $                   | 281 |  |                     | $



The
decrease in restricted cash is mainly attributable to the fact that in January 2011, the Company used $31,992 of the retained
proceeds received from the sale of the five non-core vessels, the High Rider, the High Land, the Chinook, the Ostria and the Nordanvind,
to partially repay the Facility Agreement. Moreover, during January 2011, the Company used a letter of guarantee amounting to
approximately $6,000 for the acquisition of the Newlead Prosperity and a letter of guarantee amounting to approximately $5,033
for the construction of Newlead Gujarat.



8.
INVENTORIES



Inventories,
as of December 31, 2011 and 2010, were as follows:



|           |  |  | As of  December 31, |       |  | As of  December 31, |  
|---------- |  |  | ------------------- | ----- |  | ------------------- | -
|           |  |  | 2011                |       |  | 2010                |  
|           |  |  |                     |       |  |                     |  
|Bunkers    |  |  | $                   | 769   |  |                     | $
|Lubricants |  |  |                     | 917   |  |                     |  
|           |  |  | $                   | 1,686 |  |                     | $
|           |  |  |                     |       |  |                     |  



F-26









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



9.
BACKLOG ASSET / DEFERRED CHARTER REVENUE



The
movement of the backlog asset and the deferred charter revenue as of December 31, 2011 was as follows:



|                                     |  | Backlog Asset |         |   | Deferred Charter Revenue |  
|------------------------------------ |  | ------------- | ------- | - | ------------------------ | -
|                                     |  |               |         |   |                          |  
|PREDECESSOR                          |  |               |         |   |                          |  
|Balance at January 1, 2009           |  | $             | -       |   |                          | $
|Additions                            |  |               | -       |   |                          |  
|Amortization                         |  |               | -       |   |                          |  
|Balance at October 13, 2009          |  | $             | -       |   |                          | $
|                                     |  |               |         |   |                          |  
|SUCCESSOR                            |  |               |         |   |                          |  
|Additions                            |  |               | -       |   |                          |  
|Change in control — basis adjustment |  | $             | 7,520   |   |                          | $
|Amortization                         |  |               | (1,992  | ) |                          |  
|                                     |  |               |         |   |                          |  
|Balance at December 31, 2009         |  |               | 5,528   |   |                          |  
|                                     |  |               |         |   |                          |  
|Business combination (Note 5)        |  |               | 9,833   |   |                          |  
|Additions                            |  |               | 53,186  |   |                          |  
|Amortization                         |  |               | (13,890 | ) |                          |  
|Balance at December 31, 2010         |  |               | 54,657  |   |                          |  
|                                     |  |               |         |   |                          |  
|Amortization                         |  |               | (8,697  | ) |                          |  
|Impairment loss                      |  |               | (43,214 | ) |                          |  
|Balance at December 31, 2011         |  | $             | 2,746   |   |                          | $
|                                     |  |               |         |   |                          |  
|December 31, 2011                    |  |               |         |   |                          |  
|Current                              |  | $             | 2,404   |   |                          | $
|Non-current                          |  | $             | 342     |   |                          | $
|                                     |  |               |         |   |                          |  
|December 31, 2010                    |  |               |         |   |                          |  
|Current                              |  | $             | 8,492   |   |                          | $
|Non-current                          |  | $             | 46,165  |   |                          | $



As
a result of the business combination disclosed in Note 5, the transaction related to the Kamsarmax vessels described in Note 10,
and the July 2010 acquisition of five dry bulk vessels described in Note 11, the Company acquired backlog assets of $9,833, $27,677
and $25,509, respectively.



Future
amortization expense of the backlog asset, related to the Newlead Markela, in aggregate will be $2,404 and $342 over the next two
years, respectively.



Impairment of backlog assets



As
a result of the impairment testing of the vessel asset groups, certain backlog assets related to the vessels Newlead Tomi, Navios
Serenity, Newlead Gujarat and Hull 4029 were considered impaired as of December 31, 2011 and an impairment charge totaling $43,214
was recognized. See Note 3 for the details related to the impairment tests of the vessel asset groups.



F-27









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



10.
VESSELS UNDER CONSTRUCTION



The
movement of the vessels under construction as of December 31, 2011 was as follows:



|                                                        |  | Kamsarmax Vessels |         |   | Post- Panamax Vessel |   |         | Handysize Vessels |  |   | Total   |  
|------------------------------------------------------- |  | ----------------- | ------- | - | -------------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                        |  |                   |         |   |                      |   |         |                   |  |   |         |  
|Balance January 1, 2010                                 |  | $                 | -       |   |                      | $ | -       |                   |  | $ | -       |  
|Advance payments in cash                                |  |                   | 27,500  |   |                      |   | 7,400   |                   |  |   | 7,900   |  
|Acquired advances for vessels under construction        |  |                   | 19,727  |   |                      |   | -       |                   |  |   | 9,588   |  
|Capitalized expenses                                    |  |                   | 3,027   |   |                      |   | 398     |                   |  |   | 738     |  
|Transfer to vessels' cost                               |  |                   | (44,025 | ) |                      |   | -       |                   |  |   | -       |  
|                                                        |  |                   |         |   |                      |   |         |                   |  |   |         |  
|Balance December 31, 2010                               |  | $                 | 6,229   |   |                      | $ | 7,798   |                   |  | $ | 18,226  |  
|                                                        |  |                   |         |   |                      |   |         |                   |  |   |         |  
|Advance payments in cash                                |  |                   | 35,000  |   |                      |   | 28,600  |                   |  |   | 19,350  |  
|Progress payment payable for vessels under construction |  |                   | -       |   |                      |   | -       |                   |  |   | 7,400   |  
|Capitalized expenses                                    |  |                   | 3,609   |   |                      |   | 2,310   |                   |  |   | 1,968   |  
|Impairment loss                                         |  |                   | -       |   |                      |   | -       |                   |  |   | (5,530  | )
|Transfer to vessels' cost                               |  |                   | (44,838 | ) |                      |   | (38,708 | )                 |  |   | (34,359 | )
|                                                        |  |                   |         |   |                      |   |         |                   |  |   |         |  
|Balance December 31, 2011                               |  | $                 | -       |   |                      | $ | -       |                   |  | $ | 7,055   |  



On
March 30, 2010, the Company entered into a Stock Purchase Agreement for the purchase of a 92,000 deadweight ton (“dwt”)
newbuild Post-Panamax vessel from a shipyard in South Korea for $37,000. The vessel, named the Newlead Endurance, was delivered
in June 2011 and the total cost (including capitalized interest) of $38,708 was transferred to vessels.



On April 15, 2010,
the Company completed the acquisition of two Kamsarmaxes under construction for an aggregate consideration of approximately $112,700
(including the assumption of newbuilding contract commitments and debt related to the two Kamsarmaxes) in exchange for the vessel
Chinook as part of the same transaction. The purchase was completed pursuant to the terms of a Securities Purchase Agreement (“SPA”),
dated February 18, 2010, with Aries Energy Corporation, a company with which NewLead has a significant shareholder in common and
Bhatia International PTE Ltd., an unrelated third party. Aries Energy Corporation and Bhatia International PTE Ltd. jointly owned
all of the share capital of Ayasha Trading Corp. and Bethune Properties S.A. Each of these companies had a shipbuilding contract
for the construction of a Kamsarmax vessel. As part of the SPA, the Company received the two Hulls, assumed the related debt in
exchange and transferred the vessel Chinook to Aries Energy Corporation and Bhatia International PTE Ltd. The Company also reimbursed
the sellers for certain expenses incurred on its behalf. This transaction was
accounted for as a non-monetary exchange and NewLead recognized assets of $49,905, which consisted of vessels under construction
of $19,727, backlog assets of $27,677 and certain advance payments of $2,501. In exchange for these assets, the Company surrendered
the Chinook with a fair value of $8,500 and assumed liabilities which consisted of the existing bank debt of $32,500 (refer to
Note 15), interest rate swap liabilities of $4,385 and other liabilities of $4,520.



The Newlead
Tomi and the Newlead Gujarat were delivered in December 2010 and November 2011, respectively.The total cost of $44,025 and $44,838 were transferred to the vessels Newlead Tomi and the Newlead Gujarat, respectively.



As
further explained in Note 11 “Vessels and Other Fixed Assets, Net”, in July 2010,the Company acquired
two newbuildings and recognized purchase option liabilities of $3,973, with respect to the charterers’ 50% purchase option
on these two hulls. The fair value as of the acquisition date of these two newbuildings was $9,588. In July 2011, the Navios Serenity,
one of the two Handysize newbuilding vessels of 35,000 dwt, was delivered from a Korean shipyard and the total cost transferred
to vessels was $34,359.



The
other newbuilding,HandysizeHull 4029, is expected to be delivered
in the third quarter of 2012. As of December 31, 2011, the newbuilding was tested for impairment and an impairment charge
of $5,530 was recorded. As a result, total fair value of deposits for this Hull is $7,055 and the remaining
commitments for delivery of this vessel amount to approximately $19,350. However, on February 20, 2012, the Company received a
default letter from the yard in respect of the delay of the payment of an installment of $7,400 after the completion of the “steel
cutting” in September 2011. The Company is currently under negotiations with the yard and the DVB Bank for the disposal
of the asset.



See
Note 26 for a discussion of recent developments relating to these vessels and hulls.



F-28









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



11.VESSELS
AND OTHER FIXED ASSETS, NET



Acquisition
of vessels



OnApril 15, 2010, the Company completed the acquisition of two Kamsarmaxes under construction for an aggregate consideration
of approximately $112,700 (including the assumption of newbuilding contract commitments and debt related to the two Kamsarmaxes)
in exchange for the vessel Chinook as part of the same transaction.



In July 2010,
the Company completed the acquisition of five dry bulk vessels, including two newbuildings, from Grandunion. Pursuant to the purchase
agreement, the entire transaction, which was an asset acquisition, aggregated to approximately $147,000, which included assumption
of bank debt, other liabilities, net and the newbuildings’ commitments. The fair values acquired consisted of vessels of
$58,110, vessels under construction of $9,588, backlog assets of $25,509, a deferred charter revenue liability of $710, bank debt
of $86,368, purchase option liabilities of $3,973 and net other liabilities of $2,156.



In
October 2010, the Company acquired the vessel Newlead Prosperity for a total consideration of $24,500.



On
October 13, 2009, Grandunion (an affiliate of the Company) transferred three dry bulk carriers to the Company with a net historical
basis of $75,289.



Transfer
from vessels under construction



In June 2011, the Newlead Endurance was
delivered from a South Korean shipyard for a contracted price of $37,000. A total cost of $38,708 was transferred from vessels
under construction.



In July 2011, the Navios Serenity was delivered
from a Korean shipyard for a contracted price of $34,000. A total cost of $34,359 was transferred from vessels under construction.



In November 2011, the Newlead Gujarat was
delivered from a Korean shipyard for a contracted price of $34,000. A total cost of $44,838 was transferred from vessels under
construction.



Sale
of vessels



On
December 20, 2011,the Company entered into a memorandum of agreement with an unrelated party for the sale offour LR1 product
tanker vessels. The sale of two vessels, the Newlead Fortune and the Newlead Avra, was completed on December 22, 2011 for
a net aggregate selling price of $63,758. The carrying value of the vessels was $55,171 and the
gain on the sale of these two vessels amounted to $8,640 and is included in Loss from discontinued operations in the accompanying
statements of operations and cash flows (see Note 25).See “Assets Held for Sale” below for information on the
other two LR1 vessels.



On
August 12, 2011, First Business Bank (“FBB”) and the Company entered into an agreement for the sale of two vessels,
the Newlead Spartounta and Newlead Prosperity, which were sold on September 13, 2011 and September 20, 2011, respectively, for
a net aggregate selling price of $33,548 (for more details see Note 15). The carrying value of the vessels was $28,005
and the gain on the sale of these two vessels amounted to $4,931 and is included in Loss
from discontinued operations in the accompanying statements of operations and cash flows (see Note 25).



On
April 22, 2010, the Company sold the High Rider to an unrelated third party for gross proceeds to the Company of approximately
$6,700. The gain on the sale of the High Rider amounted to $49 and is included in (Loss)/gain on the sale of vessels, net.



In
September 2010, the Company sold to unrelated third parties the Ostria and the Nordanvind, for a total gross consideration of
approximately $16,300 resulting in an aggregate gain on the sale of the vessels of $1,045. Also, in September 2010, the Company
sold the High Land for a gross consideration of approximately $4,500. The gain on the sale of the vessel amounted to $74 and is
included in “(Loss)/gain on the sale of vessels, net”.



On
June 10, 2009, the Company sold the Ocean Hope to an unrelated party for net proceeds of approximately $2,300. The loss on
the sale of the vessel amounted to approximately $5,600. The Company paid 4% of the purchase price as sales commissions to Braemar
Seascope Limited, an unrelated company. The Company also paid a 1% commission to a brokerage firm, of which one of the Company's
former directors is a shareholder.  The results of the Ocean Hope during 2009, until the date of its delivery to its new owners,
have been reported as discontinued operations in the accompanying statements of operations and cash flows (see Note 25).



F-29









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



Assets Held
for Sale (Discontinued Operations)



On
December 20, 2011, the Company entered into a memorandum of agreement with an unrelated party for the salefour
LR1 product tanker vessels. Two vessels were sold in 2011 as noted above and the sale of the other two vessels, the Newlead Compass
and the Newlead Compassion, was completed on January 31, 2012 for a net aggregate selling price of $79,197. As of December 31,
2011, the Newlead Compass and Newlead Compassion met the criteria for “Assets Held for Sale” and were recorded at
their carrying value of $64,712, since this was below fair value (less costs to sell).



On December 29, 2011, the Company entered
into a memorandum of agreement with an unrelated party for the sale of the Grand Ocean, which was completed on January 11, 2012,
for a net aggregate selling price of approximately $8,150. On October 21, 2011, the Company entered into an agreement with Prime
Mountain Shipping Ltd, in order to return the vessel Australia in settlement of part of the vessel’s outstanding debt. The
delivery was completed on January 31, 2012. As of December 31, 2011, the Grand Ocean and the Australia met the criteria for “Assets
Held for Sale” and were recorded at fair value (less costs to sell) of $21,370. For the year ended December 31, 2011, an
impairment charge of $17,944 was recorded and is included in Loss from discontinued operations in the accompanying statements of
operations and cash flows (see Note 25).



As
of December 31, 2011 and 2010, assets held for sale, net totaled $86,082 and $0, respectively.



Impairment of vessels



For the year
ended December 31, 2011, the Company recorded an aggregate of $73,349 of impairment charges in continuing operations on eleven
of the thirteen vessels that were held and used as of December 31, 2011. For two of the four vessels that qualified as assets
held for sale as of December 31, 2011, these vessels were adjusted to their fair value as of December 31, 2011 (see above). A
total impairment charge of $30,426 was recorded within Loss from discontinued operations. For the year ended December 31, 2010,
the Company recorded an impairment charge on vessels in the amount of $15,662, which were all recorded within continuing operations.
The Company's impairment analysis as of December 31, 2009 did not result in an impairment loss. The impairment analysis as of
September 30, 2009 resulted in an impairment loss of $40,859 from continuing operations and $50,742 from discontinued operations
for the period from January 1, 2009 to October 13, 2009. Refer to Note 3 for the details related to the vessel impairment tests.



See
Note 26 for a discussion of recent developments relating to certain of these vessels.



The
table below presents the movement of “Vessels and Other Fixed Assets, Net” as of December 31, 2011:



F-30









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



|Cost                                               |  | Vessels |          |   | Leased
    Vessels |   |         | Dry
    docking |  |   | Special
    survey |   |  | Other
    fixed assets |        |   | Total |  
|-------------------------------------------------- |  | ------- | -------- | - | ------------------ | - | ------- | --------------- |  | - | ------------------ | - |  | ---------------------- | ------ | - | ----- | -
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|PREDECESSOR                                        |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Balance at January 1,
    2009                     |  | $       | 410,169  |   |                    | $ | -       |                 |  | $ | 12,011             |   |  | $                      | 8,053  |   |       | $
|Additions                                          |  |         | -        |   |                    |   | -       |                 |  |   | 4,761              |   |  |                        | 1,358  |   |       |  
|Disposals
    — Discontinued operations            |  |         | (17,224  | ) |                    |   | -       |                 |  |   | (484               | ) |  |                        | (421   | ) |       |  
|Balance at October 13,
    2009                    |  | $       | 392,945  |   |                    | $ | -       |                 |  | $ | 16,288             |   |  | $                      | 8,990  |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|SUCCESSOR                                          |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Additions                                          |  | $       | -        |   |                    | $ | -       |                 |  | $ | 1,333              |   |  | $                      | -      |   |       | $
|Additions — Contribution
    from Grandunion       |  |         | 98,985   |   |                    |   | -       |                 |  |   | 5,767              |   |  |                        | -      |   |       |  
|Change in control —
    basis adjustment           |  |         | (82,870  | ) |                    |   | -       |                 |  |   | (16,288            | ) |  |                        | (8,990 | ) |       |  
|Transfer
    to assets held for sale               |  |         | (8,400   | ) |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Balance at December 31,
    2009                   |  |         | 400,660  |   |                    |   | -       |                 |  |   | 7,100              |   |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Business combination                               |  |         | 143,050  |   |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Additions                                          |  |         | 82,711   |   |                    |   | -       |                 |  |   | 3,548              |   |  |                        | -      |   |       |  
|Transfer from Vessels
    Under Construction       |  |         | 44,025   |   |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Disposals                                          |  |         | (34,338  | ) |                    |   | -       |                 |  |   | (1,332             | ) |  |                        | -      |   |       |  
|Transfers
    from Vessels to Leased Vessels       |  |         | (87,291  | ) |                    |   | 87,000  |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Balance at December
    31, 2010                   |  |         | 548,817  |   |                    |   | 87,000  |                 |  |   | 9,316              |   |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Additions                                          |  |         | 863      |   |                    |   | -       |                 |  |   | 6,650              |   |  |                        | -      |   |       |  
|Transfer from Vessels
    Under Construction       |  |         | 79,197   |   |                    |   | 38,708  |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Transfer to assets held
    for sale               |  |         | (92,600  | ) |                    |   | (24,000 | )               |  |   | (4,038             | ) |  |                        | -      |   |       |  
|Disposals — Discontinued
    operations            |  |         | (102,794 | ) |                    |   | -       |                 |  |   | (2,959             | ) |  |                        | -      |   |       |  
|Loss
    on sale and leaseback                     |  |         | -        |   |                    |   | (208    | )               |  |   | -                  |   |  |                        | -      |   |       |  
|Balance at December
    31, 2011                   |  | $       | 433,483  |   |                    | $ | 101,500 |                 |  | $ | 8,969              |   |  | $                      | -      |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Accumulated
    Depreciation and Amortization      |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|PREDECESSOR                                        |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Balance at January 1, 2009                         |  | $       | (119,547 | ) |                    | $ | -       |                 |  | $ | (9,413             | ) |  | $                      | (4,921 | ) |       | $
|Depreciation and Amortization
    for the period   |  |         | (14,073  | ) |                    |   | -       |                 |  |   | (2,050             | ) |  |                        | (1,071 | ) |       |  
|Impairment loss                                    |  |         | (91,601  | ) |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Disposals                                          |  |         | 9,361    |   |                    |   | -       |                 |  |   | 484                |   |  |                        | 421    |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Balance at October 13,
    2009                    |  | $       | (215,860 | ) |                    | $ | -       |                 |  | $ | (10,979            | ) |  | $                      | (5,571 | ) |       | $
|SUCCESSOR                                          |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Additions — Contribution
    from Grandunion       |  | $       | (27,894  | ) |                    | $ | -       |                 |  | $ | (1,569             | ) |  | $                      | -      |   |       | $
|Change in control —
    basis adjustment           |  |         | 94,184   |   |                    |   | -       |                 |  |   | 10,979             |   |  |                        | 5,571  |   |       |  
|Depreciation and Amortization
    for the period   |  |         | (3,187   | ) |                    |   | -       |                 |  |   | (469               | ) |  |                        | -      |   |       |  
|Transfer
    to assets held for sale               |  |         | 150      |   |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Balance at December 31,
    2009                   |  |         | (152,607 | ) |                    |   | -       |                 |  |   | (2,038             | ) |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Depreciation and Amortization
    for the year     |  |         | (26,139  | ) |                    |   | (841    | )               |  |   | (2,781             | ) |  |                        | -      |   |       |  
|Impairment loss (note
    3)                       |  |         | (15,662  | ) |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Accumulated Depreciation
    of Leasedback Vessels |  |         | 8,104    |   |                    |   | -       |                 |  |   | -                  |   |  |                        | -      |   |       |  
|Disposals
    — Discontinued operations            |  |         | 1,664    |   |                    |   | -       |                 |  |   | 157                |   |  |                        | -      |   |       |  
|Balance at December
    31, 2010                   |  |         | (184,640 | ) |                    |   | (841    | )               |  |   | (4,662             | ) |  |                        | -      |   |       |  
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Depreciation and Amortization
    for the year     |  |         | (26,497  | ) |                    |   | (8,068  | )               |  |   | (3,384             | ) |  |                        | -      |   |       |  
|Impairment loss (Note
    3)                       |  |         | (68,185  | ) |                    |   | (30,497 | )               |  |   | (5,093             | ) |  |                        | -      |   |       |  
|Transfer to assets held
    for sale               |  |         | 20,672   |   |                    |   | 10,932  |                 |  |   | 2,952              |   |  |                        | -      |   |       |  
|Disposals                                          |  |         | 20,148   |   |                    |   | -       |                 |  |   | 2,426              |   |  |                        | -      |   |       |  
|Balance at December
    31, 2011                   |  | $       | (238,502 | ) |                    | $ | (28,474 | )               |  | $ | (7,761             | ) |  | $                      | -      |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|PREDECESSOR                                        |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Net book value
    — January 1, 2009               |  | $       | 290,622  |   |                    | $ | -       |                 |  | $ | 2,598              |   |  | $                      | 3,132  |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Net book value
    — October 13, 2009              |  | $       | 177,085  |   |                    | $ | -       |                 |  | $ | 5,309              |   |  | $                      | 3,419  |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|SUCCESSOR                                          |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Net book value
    — December 31, 2009             |  | $       | 248,053  |   |                    | $ | -       |                 |  | $ | 5,062              |   |  | $                      | -      |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Net book value
    —December 31, 2010              |  | $       | 364,177  |   |                    | $ | 86,159  |                 |  | $ | 4,654              |   |  | $                      | -      |   |       | $
|                                                   |  |         |          |   |                    |   |         |                 |  |   |                    |   |  |                        |        |   |       |  
|Net book value
    —December 31, 2011              |  | $       | 194,981  |   |                    | $ | 73,026  |                 |  | $ | 1,208              |   |  | $                      | -      |   |       | $



F-31









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



12.
DEFERRED CHARGES, NET



The
movement of the deferred charges, net, as of December 31, 2011 is as follows:



|                                       |  | Financing Costs |        |   | Other Costs |   |      | Total | 
|-------------------------------------- |  | --------------- | ------ | - | ----------- | - | ---- | ----- | 
|                                       |  |                 |        |   |             |   |      |       | 
|PREDECESSOR                            |  |                 |        |   |             |   |      |       | 
|Net Book Value at January 1, 2009      |  | $               | 1,573  |   |             | $ | -    |       | 
|Amortization                           |  |                 | (555   | ) |             |   | -    |       | 
|Net Book Value at October 13, 2009     |  | $               | 1,018  |   |             | $ | -    |       | 
|                                       |  |                 |        |   |             |   |      |       | 
|SUCCESSOR                              |  |                 |        |   |             |   |      |       | 
|Change in control — basis adjustment   |  | $               | (1,018 | ) |             | $ | -    |       | 
|Additions (Note 6)                     |  |                 | 8,222  |   |             |   | -    |       | 
|Amortization                           |  |                 | (1,391 | ) |             |   | -    |       | 
|                                       |  |                 |        |   |             |   |      |       | 
|Net Book Value at December 31, 2009    |  |                 | 6,831  |   |             |   | -    |       | 
|                                       |  |                 |        |   |             |   |      |       | 
|Additions                              |  |                 | 9,778  |   |             |   | 255  |       | 
|Amortization                           |  |                 | (2,368 | ) |             |   | -    |       | 
|Write-offs                             |  |                 | (1,360 | ) |             |   | -    |       | 
|Transfer to Vessels Under Construction |  |                 | (96    | ) |             |   | -    |       | 
|Net Book Value at December 31, 2010    |  |                 | 12,785 |   |             |   | 255  |       | 
|                                       |  |                 |        |   |             |   |      |       | 
|Additions                              |  |                 | 622    |   |             |   | 80   |       | 
|Amortization                           |  |                 | (2,948 | ) |             |   | -    |       | 
|Write-offs                             |  |                 | (4,647 | ) |             |   | (335 | )     | 
|Transfer to Vessels Under Construction |  |                 | (70    | ) |             |   | -    |       | 
|Net Book Value at December 31, 2011    |  | $               | 5,742  |   |             | $ | -    |       | 
|                                       |  |                 |        |   |             |   |      |       | 
|Current                                |  | $               | 5,742  |   |             | $ | -    |       | 



Total fees of
$479 for the year ended December 31, 2011 related to the financing costs of the Newlead Endurance.



Total fees for
the loans the Company entered during the year ended December 31, 2010 related to the business combination. Such fees amounted to
$4,169 and have been recorded as deferred charges and amortized over the life of their related facility. Of such fees, $3,213 was
paid in cash and an amount of $956 represents the fair value of 112,500 warrants with a strike price of $3.00 and a contractual
term of 10 years.



Total fees
paid for the new or modified loans related to the acquisition of five dry bulk vessels completed
in July 2010, amounted to $2,180 and they have been recorded as deferred charges and amortized over the life of the related
facility. Of such fees, $2,148 was paid in cash.



Total
fees of $8,222 for the yearended December 31, 2009 related to the issuance
of the 7% Notes, net of discounts (refer to Notes 6 and 16).



As
of December 31, 2011, the Company was in active negotiations with its lenders. For the indebtedness in relation to which the Company
expects that the lender will call the debt and neither waiver nor restructuring of the debt will be available, the Company concluded
that certain deferred finance fees and other costs should be written off and as such accelerated the amortization. As a result,
the Company recorded a charge of $4,647, of which $3,491 is included within “Interest & Finance Expense” from continuing
operations and the remaining amount of $1,156 is included in Loss from discontinued operations.



F-32









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



The
remaining unamortized amount of loan related financing costs of $5,742 may be required to be written-off in the event that a waiver
or restructuring of terms cannot be negotiated and the related loans are either redeemed or otherwise extinguished.



Other
costs relate to deferred costs incurred related to attempted equity offerings. These costs of $335 were fully written-off as of
December 31, 2011.



13.
ACCOUNTS PAYABLE, TRADE



Accounts
payable, trade, as of December 31, 2011 and 2010 were as follows:



|                           |  | As of  December 31, |        |  | As of  December 31, |  
|-------------------------- |  | ------------------- | ------ |  | ------------------- | -
|                           |  | 2011                |        |  | 2010                |  
|                           |  |                     |        |  |                     |  
|Suppliers                  |  | $                   | 7,891  |  |                     | $
|Vessel purchase obligation |  |                     | -      |  |                     |  
|Shipyards                  |  |                     | 10,523 |  |                     |  
|Insurers                   |  |                     | 2,885  |  |                     |  
|Agents                     |  |                     | 1,342  |  |                     |  
|Other creditors            |  |                     | 16,286 |  |                     |  
|                           |  | $                   | 38,927 |  |                     | $



14.
ACCRUED LIABILITIES



Accrued
liabilities as of December 31, 2011 and 2010 were as follows:



|                       |  | As of  December 31, |        |  | As of  December 31, |  
|---------------------- |  | ------------------- | ------ |  | ------------------- | -
|                       |  | 2011                |        |  | 2010                |  
|                       |  |                     |        |  |                     |  
|Accrued interest       |  | $                   | 16,411 |  |                     | $
|Accrued claims         |  |                     | 5,889  |  |                     |  
|Other accrued expenses |  |                     | 10,189 |  |                     |  
|                       |  | $                   | 32,489 |  |                     | $



In
accrued interest as of December 31, 2011, an amount of $10,806 represents interest due and payable as of such date.



F-33









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



15.
LONG-TERM DEBT



Below
is a summary of the long-term portion and current portion of long-term debt as at December 31, 2011 and 2010:



|                                          |  | December 31, 2011 |   |  | December 31, 2010 |  
|----------------------------------------- |  | ----------------- | - |  | ----------------- | -
|Description                               |  | Long-term         |   |  | Current portion   |  
|                                          |  |                   |   |  |                   |  
|Syndicate Facility Agreement              |  | $                 | - |  |                   | $
|Marfin Credit Facilities                  |  |                   | - |  |                   |  
|West LB Bank Credit Facility              |  |                   | - |  |                   |  
|Piraeus Bank Credit Facilities            |  |                   | - |  |                   |  
|Kamsarmax syndicate facilities agreements |  |                   | - |  |                   |  
|FBB Credit Facility                       |  |                   | - |  |                   |  
|EFG Eurobank Credit Facility              |  |                   | - |  |                   |  
|Handysize Syndicate Facility Agreement    |  |                   | - |  |                   |  
|Ending Balance                            |  | $                 | - |  |                   | $



As
of December 31, 2011, the Company has defaulted on payments of principal and interest on certain facilities and was not in compliance
with certain of its covenants for the debt agreements outlined below.Since the Company’s lenders have the right,
absent receipt of waivers, to demand the repayment of its debt at any given time, the Company reclassified its long term debt as
of December 31, 2011 as current liabilities in its consolidated balance
sheet.



See Note 26 for
recent developments relating to the loans described below.



(a)    Syndicate Facility Agreement



Prior
to the recapitalization on October 13, 2009, the Company was in default of its $360,000 fully revolving credit facility with
Bank of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland as agent which had an outstanding balance of $221,400.
As part of the recapitalization, the Company's existing syndicate of lenders entered into a new $221,400 facility agreement, referred
to herein as the "Facility Agreement", by and among the Company and the banks identified therein in order to refinance
the Company's existing revolving credit facility.



There
have been significant subsequent events related to the outstanding debt. Refer to Note 26, for developments that have occurred
subsequent to December 31, 2011.



The
Facility Agreement was originally payable in 19 quarterly installments of approximately $2,000 each, and a sum of $163,430 (comprised
of a repayment installment of $2,000 and a balloon repayment of $161,430) due in October 2014. In January 2010, the Company
paid to the bank an aggregate amount of $9,000 from the proceeds of the sale of the two container vessels, the Saronikos Bridge
and the MSC Seine. In January 2011, the Company paid an aggregate amount of $31,992 after receiving the proceeds from the
sale of the five non-core vessels, the High Rider, the High Land, the Chinook, the Ostria and the Nordanvind. After giving effect
to the application of these sale proceeds, the quarterly installments have been reduced to approximately $1,593 each, and a sum
of $128,814 (comprised of a repayment installment of $1,593 and a balloon repayment of $127,221) will be due in October 2014.



On
April 26, 2010, the Company entered into a Supplemental Deed (the “Deed”) relating to this term Facility Agreement.
The Deed is supplemental to the Loan Agreement dated October 13, 2009, as supplemented and amended from time to time, and
was entered into among the Company and the banks (Bank of Scotland and Nordea Bank Finland as lead arrangers and Bank of Scotland
as agent) signatory thereto. Pursuant to the terms of the Deed, the minimum liquidity amount that must be maintained under the
original Deed may be applied to prepay sums outstanding under the original loan without triggering an event of default. All amounts
so applied will be made available by banks for re-borrowing without restriction and will be deemed to constitute part of the minimum
liquidity amount and be deemed to constitute cash for purposes of determining the minimum liquidity amount. The Company's obligations
under the new Facility Agreement are secured by a first priority security interest, subject to permitted liens, on all vessels
in the Company's fleet and any other vessels the Company subsequently acquires to be financed under this Facility Agreement. In
addition, the lenders will have a first priority security interest on all earnings and insurance proceeds from the Company's vessels,
all existing and future charters relating to the Company's vessels, the Company's ship management agreements and all equity interests
in the Company's subsidiaries. The Company's obligations under the new Facility Agreement are also guaranteed by all subsidiaries
that have an ownership interest in any of the Company's vessels, excluding the three vessels transferred to the Company as part
of the recapitalization.



F-34









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



Under
the terms of the Facility Agreement, amounts drawn bear interest at an annual rate equal to LIBOR plus a margin equal to:



| | · | 1.75% if the Company's total shareholders' equity divided
by the Company's total assets, adjusting the book value of the Company's fleet to its market value, is equal to or greater than
50%;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 2.75% if the Company's total shareholders' equity divided
by the Company's total assets, adjusting the book value of the Company's fleet to its market value, is equal to or greater than
27.5% but less than 50%; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 3.25% if the Company's total shareholders' equity divided
by the Company's total assets, adjusting the book value of the Company's fleet to its market value, is less than 27.5%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
a result of the recapitalization, new financial covenants were put in place. Except for the working capital (as defined in the
loan facility) and the minimum liquidity covenants, all other covenants will become effective in a period ranging from 30 to 36 months
from the effective date of the Facility Agreement to allow a sufficient period of time for new management to implement its business
strategy.



The
following are the financial covenants to which the Company must adhere as of the end of each fiscal quarter, under the new Facility
Agreement:



| | · | the Company's shareholders' equity as a percentage of
the Company's total assets, adjusting the book value of the Company's fleet to its market value, must be no less than:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | 25% from the financial quarter ending September 30, 2012 until June 30, 2013; and
| | --- | ---------------------------------------------------------------------------------



| | (b) | 30% from the financial quarter ending September 30, 2013 onwards.
| | --- | -----------------------------------------------------------------



| | · | the Company must maintain, on a consolidated basis on
each financial quarter, working capital (as defined in the loan facility) of not less
than zero dollars ($0) (as of December 31, 2011, the Company was in breach of this covenant);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the Company must meet a minimum liquidity requirement
equal to at least 5% of the outstanding loan (as of December 31, 2011, the Company was in breach of this covenant);and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the Company’s ratio of EBITDA (earnings before
interest, taxes, depreciation and amortization) to interest payable must be no less than;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | (a) | 2.00 to 1.00 from the financial quarter day ending September 30, 2012 until June 30, 2013;
and
| | --- | ----------------------------------------------------------------------------------------------



| | (b) | 2.50 to 1.00 from the financial quarter day ending September 30, 2013 onwards.
| | --- | ------------------------------------------------------------------------------



The
Company is also subject to a covenant that requires the maintenance of a security value of (a) at least 100% of the loan during
the period that is between the 30 month and the 36 month anniversary of the effective date of the Facility Agreement and (b) at
least 120% of the loan after the 36 month anniversary of the effective date of the Facility Agreement.



Following
the agreement for the sale of the four LR1 vessels related to this facility (see Note 11), Bank of Scotland has agreed with NewLead
to accept the gross sale proceeds in full satisfaction of all liabilities owed to the syndicate under the governing loan agreement.
Following this agreement, $64,532, which constitute the proceeds of the Newlead Avra and the Newlead Fortune (sold in 2011), have
been applied against the loan. As of December 31, 2011, the outstanding balance was $80,159 (which was reduced as proceeds from
the sale of the two LR1 Newlead Compass and Newlead Compassion on January 31, 2012 were used to repay the debt) and the effective
interest rate was 0.29% (see Note 26).



F-35









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



(b)    Marfin Credit Facilities



On
December 10, 2010, the Company entered into a Loan Agreement with Marfin Egnatia Bank for a new reducing revolving credit facility
of up to $62,000, in order to refinance the loans of the Newlead Venetico and the Newlead Markela, which were previously financed
by Commerzbank and Emporiki Bank, respectively, and to finance the working and investment capital needs. The facility limit is
being reduced by 10 quarterly installments of $100 during the course of the term. On October 31, 2011, the Company applied $9,709
towards partial repayment of the facility. Moreover, the provisions of the agreement include a cash sweep of all surplus of quarterly
earnings of the Newlead Venetico, the Newlead Markela, the Australia, the Brazil, the China and the Grand Rodosi. Borrowings under
this loan facility currently bear an approximate effective interest rate, including the margin, of 6.15%. The floating portion
of the approximately $39,261 drawn to date is approximately $15,901 and bears an interest rate of approximately 4.0% (assuming
current LIBOR of 0.506%, plus a 3.5% margin), while the fixed portion drawn is $23,360 and bears an interest rate of 7.6% (assuming
a current fixed swap rate of 4.1% plus a 3.5% margin). The loan facility includes financial covenants, all as described in the
loan facility including: (i) the Company’s shareholders' equity as a percentage of its total assets, adjusting the book
value of its fleet to its market value, must be no less than: (a) 25% from the financial quarter day ending September 30,
2012 until the financial quarter day ending June 30, 2013; and (b) 30% from the financial quarter day ending September 30,
2013 onwards; (ii) the maintenance, on a consolidated basis on each financial quarter, of working capital (as defined in the loan
facility) of not less than zero dollars ($0) (as of December 31, 2011, the Company was in breach of this covenant); (iii) the
maintenance of minimum liquidity equal to at least five percent of the outstanding loan (as of December 31, 2011, the Company
was in breach of this covenant); and (iv) the maintenance of the ratio of EBITDA (as defined in the loan facility) to interest
payable on a trailing four financial quarter basis to be no less than: (a) 2.00 to 1.00 from the financial quarter day ending
September 30, 2012 until the financial quarter day ending June 30, 2013; and (b) 2.50 to 1.00 from the financial
quarter day ending June 30, 2013 onwards. The Company is also subject to a covenant that requires the maintenance of a security
value of at least 130% of the facility and the maximum swap exposure as specified in the agreement. As of December 31, 2011, the
outstanding balance on such loan facility was $39,261.As of December 31, 2011, the Company has defaulted on interest
payments under the Loan agreement.



(c)    West LB Bank Credit Facility



On
April 1, 2010, the Company assumed a Loan Agreement with West LB, dated October 16, 2007, as novated, amended and restated
on March 31, 2010, relating to a term loan facility of up to $27,500 in relation to the Grand Victoria. The loan is payable
in 20 quarterly installments of $375, followed by 15 quarterly installments of $475 and a balloon payment of $12,875
due on the last payment date. Borrowings under this loan facility currently bear an effective interest rate, including the margin,
of approximately 3.8% (assuming current LIBOR of 0.506%, plus a 3.25% margin).The applicable margin is calculated as follows: (a)
3.25% per annum at any time when the vessel is not subject to an approved charter and the security cover ratio is less than 125%;
(b) 3% per annum at any time when the vessel is subject to an approved charter and the security cover ratio is less than 125%;
(c) 2.75% per annum at any time when the vessel is not subject to an approved charter and the security cover ratio is equal
to or greater than 125%; and (d) 2.50% per annum at any time when the vessel is subject to an approved charter and the security
cover ratio is equal to or greater than 125%.



The
vessel's excess cash must be applied towards the prepayment of the balloon installment until such time as the balloon installment
has been reduced to $6,000, in accordance with the following, all as described in the loan facility: (i) if the Company is in
compliance with the value to loan ratio, 50% of the excess cash must be applied towards prepayment of the loan facility; and (ii)
if the Company is not in compliance with the value to loan ratio, 100% of the excess cash must be applied towards the prepayment
of the loan facility. The value to loan ratio is set at 100% until December 31, 2012 and 125% thereafter. As
of December 31, 2011, the Company was not in compliance with this ratio.The loan facility
includes, among other things, financial covenants including: (i) a minimum market adjusted equity ratio of 25% for the period
from September 30, 2012 until June 30, 2013, increasing to 30% thereafter; (ii) a minimum liquidity equal to at least
5% of the total debt during the period the loan facility remains outstanding (as of December 31, 2011, the Company was
in breach of this covenant); (iii) working capital (as defined in the loan facility) must
not be less than zero dollars ($0) during the period the loan facility remains outstanding (as of December 31, 2011, the
Company was in breach of this covenant) and (iv) a minimum interest coverage ratio of 2:1
for the period from September 30, 2012 until June 30, 2013, increasing to 2.5:1 thereafter.As of December 31,
2011, the Company has defaulted on a principal payment.As of December 31, 2011, the outstanding
balance was $25,250.



F-36









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



(d)    Piraeus Bank Credit Facilities



On
April 1, 2010, the Company assumed a Loan Agreement with Piraeus Bank, dated March 19, 2008, as supplemented by a First
Supplemental Agreement, dated February 26, 2009, and a Second Supplemental Agreement, dated March 31, 2010,
for a loan of up to $76,000 in relation to the Hiona and the Hiotissa. The
loan is payable in one quarterly installment of $1,500, followed by four quarterly installments of $1,250, followed by 19 quarterly
installments of $1,125 and a balloon payment of $37,225 due in April 2016. Borrowings under this loan facility currently bear
an effective interest rate, including the margin, of approximately 4.0% (assuming current LIBOR of 0.506%, plus a 3.5% margin).
The loan facility includes, among other things, financial covenants, all as described in such loan facility, including: (i) the
minimum net worth of the corporate guarantor’s group, adjusted to the market value of the vessels, during the period the
loan facility remains outstanding, must not be less than $60,000, although the Company was not subject to such covenant through
the period ended December 31, 2011; (ii) the maximum leverage of the corporate guarantor, during the period the loan facility
remains outstanding, must not be more than 75%, although the Company was not subject to such covenant through the period ended
December 31, 2011; (iii) the minimum liquidity of the corporate guarantor, during the period the loan facility remains outstanding,
must be equal to at least 5% of the total outstanding debt obligations of the corporate guarantor (as of December 31, 2011,
the Company was in breach of this covenant); (iv) the value to loan ratio must be at least
130% during the period the loan facility remains outstanding, although the Company was not subject to such covenant through the
period ended February 28, 2012; and v) Borrower’s (each) total amounts payable (except loans) should not exceed a)
$400 on each calendar quarter, b) $800 any other time (as of December 31, 2011, the Company was in breach of this covenant).
As of December 31, 2011, the outstanding balance was $58,600.As of December 31,
2011, the Company has defaulted on a number of principal and interest payments.



On
April 1, 2010, the Company also assumed a Loan Agreement with Piraeus Bank, dated March 31, 2010, for a loan of up to
$21,000 relating to the Grand Ocean. The loan facility is payable in one quarterly installment of $850, followed by six quarterly
installments of $800, followed by seven quarterly installments of $750, and a balloon payment of $10,100 due in November 2013.
Borrowings under this loan facility currently bear an effective interest rate, including the margin, ofapproximately4.0% (assuming
current LIBOR of 0.506%, plus a 3.5% margin). The loan facility includes financial covenants, all as described in the loan facility,
including: (i) the minimum net worth of the corporate guarantor, adjusted to the market value of the vessels, during the period
the loan facility remains outstanding, must not be less than $60,000, although the Company was not subject to this covenant through
the period ended December 31, 2011; (ii) the maximum leverage of the corporate guarantor, during the period the loan facility
remains outstanding, must not be more than 75%, although the Company was not subject to this covenant through the period ended
December 31, 2011; (iii) the minimum liquidity of the corporate guarantor, during the period the loan facility remains outstanding,
must be equal to at least 5% of the total outstanding debt obligations of the corporate guarantor(as of December
31, 2011, the Company was in breach of this covenant); (iv) the value to loan ratio must
be at least 130% during the period the loan facility remains outstanding, although the Company was not subject to this covenant
through the period ending February 28, 2012; and (v) Borrower’s (each) total amounts payable (except loans) should
not exceed a) $600 in each calendar quarter, b) $1,000 any other time (as of December 31, 2011, the Company was in breach
of this covenant).As of December 31, 2011, the Company has defaulted on a number of principal and interest payments.
As of December 31, 2011, the outstanding balance was $17,750. On December 29, 2011, the Company signed a memorandum of agreement
with an unrelated party for the sale of the Grand Ocean. The sale was completed on January 11, 2012 for proceeds of approximately
$8,150. (See Note 26).



F-37









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



(e)    Kamsarmax Syndicate Facility Agreements



On
April 15, 2010, the Company assumed two facility agreements in relation to the two acquired Kamsarmaxes (“Kamsarmax
Syndicate”). The senior facility agreement which was entered into with Bank of Scotland, BTMU Capital Corporation and Bank
of Ireland, was for $66,667 and was payable in 20 quarterly installments of $1,514 and a final payment of $36,387 due no
later than October 26, 2017. Borrowings under this facility agreement bore an effective interest rate, including margin,
prior to the initial delivery date (with respect to the newbuilding vessel referred to as Newlead Tomi) and the final delivery
date (with respect to the newbuilding vessel referred to as Newlead Gujarat), of 7.5% (assuming a fixed swap rate of 4.0%, plus
a 3.5% margin). Thereafter, the applicable margin was to be calculated based on the security coverage. For a security coverage
of less than 115%, between 115% and 129.9% and greater than or equal to130%, the applicable margin was 3.4%, 3.2% and 2.75%, respectively.
This senior facility agreement included an interest rate swap that had a maturity date of April 4, 2013. This swap was amended
and extended to conform to the notional amounts, anticipated drawings and repayment schedule as per the loan facility. This amended
and extended swap agreement began July 6, 2010 and had a maturity date of October 15, 2015. The notional amount was
$63,636 while the fixed rate of 4.0% was linked to the three-month U.S. dollar LIBOR reference rate. As of December
31, 2011, the Company has defaulted on a number of payments concerning the interest rate swap agreement.



The
junior facility agreement which was entered into with Bank of Scotland and BTMU Capital Corporation was for $13,333 and was payable
in 20 quarterly installments of $133 and a final payment of $10,670 due no later than April 15, 2015. Borrowings under this facility
agreement bore an approximate effective interest rate, including margin, prior to the initial delivery date (with respect to the
newbuilding vessel referred to as Newlead Tomi) and the final delivery date (with respect to the newbuilding vessel referred to
as Newlead Gujarat), of 9.5% (assuming a fixed swap rate of 4.0%, plus a 5.5% margin). Thereafter, the applicable margin was to
be calculated based on the security coverage. For a security coverage of less than 115%, between 115% and 129.9% and greater than
or equal to 130%, the applicable margin was 5.2%, 4.9% and 4.5%, respectively. As of December 31, 2011, we have defaulted on a
number of principal and interest payments. This junior facility agreement included an interest rate swap that had a maturity date
of April 4, 2013. This swap was amended and extended to conform to the notional amounts, anticipated drawings and repayment schedule
as per the loan facility. This amended and extended swap agreement began July 6, 2010 and had a maturity date of October 15,
2015. The notional amount was $13,066 while the fixed rate of 4.0% was linked to the three-month U.S. dollar LIBOR reference rate.
As of December 31, 2011, the Company has defaulted on a number of payments concerning the interest rate in the swap agreement.



Both
facility agreements include financial covenants, all as described in the loan facilities including: (i) the security coverage
must be at least 115% up to and including the second anniversary of final delivery date, 120% up to the third anniversary
date, 125% up to the fourth anniversary date and 130% thereafter (as of December 31, 2011, the Company was in breach
of this covenant); (ii) the minimum liquidity of the corporate guarantor, during the period
the loan facility remains outstanding, must be equal to at least 5% of the total outstanding debt obligations of the corporate
guarantor (as of December 31, 2011, the Company was in breach of this covenant);(iii) the ratio of EBITDA (as defined in the loan facility) to interest expense must be no less than: (a) 1.10 to 1.00 from
the period from July 1, 2012 until June 30, 2013; and (b) 1.20 to 1.00 from July 1, 2013 going forward;(iv) working
capital(as defined in the loan facility)must not be less than zero
dollars ($0) during the period the loan facility remains outstanding (as
of December 31, 2011, the Company was in breach of this covenant);and (v) the equity ratio
must not be less than: (a) 25% from the financial quarter day ending September 30, 2012; and (b) 30% from the financial
quarter day ending September 30, 2013 onwards. As of December 31, 2011, the Company was not in compliance with the
minimum liquidity requirement under these loan agreements.As of December
31, 2011, the outstanding balance of both loans was $76,836.



(f) First
Business Bank (FBB) Credit Facility



On
July 2, 2010, the Company assumed a Loan Agreement with FBB, dated July 2, 2010,as supplemented by a First Supplemental Agreement,
dated October15, 2010, and further supplemented by a Second Supplemental Agreement dated May 9, 2011 (as amended, the "FBB
Spartounta Loan Agreement"), for a loan facility of up to $24,150, in relation to the Newlead Spartounta. The loan was payable
in 19 quarterly installments of $800 followed by a $8,950 payment due in July 2015. Borrowings under this loan facility bore an
effective interest rate, including the margin, of approximately4.5% (assuming current LIBOR of 0.506%, plus a 4.0% margin). This
loan facility included, among other things, a value to loan ratio that must at all times be at least 100% from January 1, 2012
up until December 31, 2012 and 120% up until maturity date and a cash sweep for 50% of the vessel's excess earnings (all as defined
in such loan facility) to be applied against the balloon payment. This loan facility also included, among other things, financial
covenants including: (i) the minimum market adjusted equity ratio (as defined in the loan facility) must be equal to at least
25% for the financial year ending December 31, 2012, although the Company is not subject to such covenant through the period ending
December 31, 2012, and which increases to 30% annually thereafter; (ii) the minimum liquidity must be equal to at least 5% of
the total debt (as defined in the loan facility) during the period the loan facility remains outstanding, although the Company
is not subject to such covenant through December 31, 2012; (iii) working capital (as defined in the loan facility) must not be
less than zero dollars ($0) during the period the loan facility remains outstanding; and (iv) the minimum interest coverage ratio
(as defined in the loan facility) on a trailing four financial quarter basis must be at least 2:1 as at December 31, 2012, although
the Company is not subject to such covenant through December 31, 2012, and must be at least 2.5:1 as at December 31, 2013 and
annually thereafter.



F-38









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



On
May 9, 2011, the Company entered into a Loan Agreement with FBB for a loan facility of up to $12,000, in relation to the Newlead
Prosperity (as amended, the "FBB Prosperity Loan Agreement"), of which $11,921 has been drawn. The loan was payable
in one balloon payment due in May 2013, unless the Company proceeds with a successful raising of equity of at least $40,000 upon
the completion of which the loan must be prepaid in full. Borrowings under this loan facility bore an effective interest rate,
including the margin, of approximately 7.5% (assuming current LIBOR of 0.506%, plus a 7.0% margin). This loan facility, included,
among other things, a value to loan ratio that must be at least 120% from January 1, 2013 until maturity date and financial covenants
including: (i) a minimum market adjusted equity ratio (as defined in the loan facility) of 30% only for the financial year ending
December 31, 2013; (ii) a requirement to maintain minimum liquidity equal to at least5% of the total debt (as defined in the loan
facility) during the period the loan facility remains outstanding, although the Company is not subject to such covenant through
the period ending December 31, 2012; (iii) a requirement to maintain working capital (as defined in the loan facility) of not
less than zero dollars ($0) during the period the loan facility remains outstanding; and (iv) a minimum interest coverage ratio
(as defined in the loan facility), on a financial year basis of 2.5:1,only for the financial year ending December 31, 2013.



On
August 9, 2011, the Company received a notice of an event of default from FBB relating to the FBB Spartounta Loan Agreement and
certain ancillary agreements relating to the FBB Spartounta Loan Agreement. As of August 9, 2011, $21,683 of principal was outstanding
under the FBB Spartounta Loan Agreement. The notice alleged events of default under the FBB Spartounta Loan Agreement due to, among
other things, the failure by the Company to pay the unpaid portion of an installment of approximately $733 due on July 5, 2011,
plus default interest on such amounts. The notice further stated that, as a result of such events of default, the FBB Spartounta
Loan Agreement was terminated and that all amounts due under the FBB Spartounta Loan Agreement, in the aggregate amount of $21,724,
were immediately due and payable. On August 9, 2011, and as a result of the breach above, FBB arrested the other vessel, the Newlead
Prosperity.



On
August 12, 2011, the Company received a notice of an event of default from FBB relating to the FBB Prosperity Loan Agreement and
certain ancillary agreements to the FBB Prosperity Loan Agreement. As of August 12, 2011, $11,921 of principal was outstanding
under the FBB Prosperity Loan Agreement. The notice alleged events of default under the FBB Prosperity Loan Agreement due to, among
other things, the arrest of the Newlead Prosperity, which occurred on August 9, 2011. The notice further provided that, as a result
of such events of default, the FBB Prosperity Loan Agreement was terminated and that all amounts due under the FBB Prosperity Loan
Agreement, including interest and default interest, in the aggregate amount of $11,921, were immediately due and payable.



OnAugust 12, 2011, in connection with the notices of events of default
under the FBB Spartounta Loan Agreement and the FBB Prosperity Loan Agreement, the Company entered into a sale agreement for two
vessels, the Newlead Prosperity and the Newlead Spartounta, with FBB. The sale of the Newlead Prosperity and the Newlead Spartounta
was completed on September 13, 2011 and September 20, 2011, respectively, and both loan facilities were terminated.



On
April 27, 2012, the Company was fully discharged and released of any and all of its obligations towards the FBB under the FBB Prosperity
Loan Agreement and the FBB Spartounta Loan Agreement.



(g) EFG
Eurobank Credit Facility



On
July 9, 2010,the Company assumed a Loan Agreement with EFG Eurobank, dated October 22, 2007, as supplemented by
a Third Supplemental Agreement, dated July 9, 2010, for a loan facility of up to $32,000 in relation to the Grand Esmeralda.The Loan Agreement was further supplemented by a Fourth Supplemental Agreement, dated August 13, 2010, to reflect the renaming
of the Grand Esmeralda to the Newlead Esmeralda, and the change of registry of the vessel from Liberia to the Marshall Islands.
The Loan Agreement was further supplemented by a Fifth Supplemental Agreement, dated October 15, 2010, to reflect the application
of $1,130 to the initial outstanding amount of $14,790.The loan is payable in 15 quarterly installments of $525 followed
by a $5,785 payment due in April 2014. Borrowings under this loan facility bore an effective interest rate, including the margin,
of approximately 4.3% (assuming current LIBOR of 0.506%, plus a 3.75%
margin). This loan facility included, among other things, a waiver to the minimum security clause for a period starting from July
1, 2010 to June 30, 2011. As of December 31, 2011, the Company was in breach of the minimum security
clause. The loan facility included, among other things, financial covenants including: (i) the minimum market adjusted
equity ratio (as defined in the loan facility) must be at least 25% for the period from January 1, 2013 until December 30, 2013,
increasing to 30% thereafter; (ii) the minimum liquidity must be equal to at least 5% of the total debt during the period the
loan facility remains outstanding (as of December 31, 2011 the Company was in breach of this covenant);
and (iii) the minimum interest coverage ratio (as defined in the loan facility)must be equal to at least 2:1 for the period from January 1, 2013 until December 30, 2013, and must be at least 2.5:1 thereafter.
As of December 31, 2011, the Company has defaulted on principal and interest payments. As
of December 31, 2011, the outstanding balance of the loan was $11,035.



F-39









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



(h) HandysizeSyndicate Facility
Agreement



On
July 9, 2010,the Company assumed a Loan Agreement with DVB Bank, Nord LB and Emporiki Bank, dated July 9,
2010, as supplemented by a First Supplemental Agreement, dated July 14,
2010, a Second Supplemental Agreement, dated November 9, 2010, and a Third Supplemental Agreement, dated December 15,
2010, for a loan facility of up to $48,000 in relation to two newbuilding vessels. The loan is payable for the Navios
Serenity in 12 quarterly installments of $362.5, followed by 12 quarterly installments of $387.5, followed by 15 quarterly
installments of $400, with the last installment payable together with the $9,000 balloon payment due in December 2020. The
loan is payable for the Hull 4029 in 12 quarterly installments of $362.5, followed by 12 quarterly installments of $387.5,
followed by 10 quarterly installments of $400, with the last installment payable together with the $11,000 of the balloon
payment due in December 2020. Borrowings under this loan facility currently bear an effective interest rate, including the
margin, of approximately 3.5% (assuming current LIBOR of 0.506%,
plus a 3.0% margin). As of the date of assumption, the outstanding balance on such loan facility was $14,100. The loan
facility includes, among other things, financial covenants including: (i) the minimum market adjusted equity ratio (as
defined in the loan facility) must be equal to at least25% from the financial quarter day ending September 30, 2012 until the
financial quarter day ending June 30, 2013, increasing to 30% thereafter; (ii) the minimum liquidity must be equal to at
least5% of the total debt during the period the loan facility remains outstanding (as of December
31, 2011, the Company was in breach of this covenant); (iii) the ratio of EBITDA to interest payable (as
both are defined in the loan facility),on a trailing four financial quarter basis, must be equal to at least2:1 from
the financial quarter day ending September 30, 2012 until the financial quarter day ending June 30, 2013, and must be equal
to at least 2.5:1 thereafter;(iv) at least $5,000 of free cash must be maintained at all times; and (v) working capital (as
defined in the loan facility)must be no less than zero dollars ($0)at each quarter end (as
of December 31, 2011, the Company was in breach of this covenant). The loan facility also includes, among other
things, a value to loan ratio(as defined in the loan facility)
that must at all times be equal to at least 110% over the first five years and 120% thereafter, a cash sweep on the earnings
of the vessels, representing 100% of the excess cash flow (as defined in
the loan facility)for the period commencing on the delivery date of each vessel until the relevant balloon amount is
reduced to $3,000 and 50% of the excess cash flow of each vessel thereafter and a minimum liquidity reserve for each borrower
to be kept with the agent bank of not less than $500 (applicable after each vessel’s respective deliveries). On June
30, 2011, the Company received notification from DVB Bank, as agent of the loan agreement, that it is in breach of certain
covenants in the loan agreement with DVB Bank and others, with regard to a dispute under the shipbuilding contract to which
the loan relates. In July 2011, the Company reached a resolution to the dispute under the shipbuilding contract and obtained
delivery of the newbuilding vessel from the shipyard. As of December 31,
2011, the outstanding balance of the loan was $30,831. As of December 31, 2011, we have defaulted on a number of principal
and interest payments.



The
Company is in default on its debt including principal and interest payments due in the amounts of $9,119 and $10,806, respectively,
as of December 31, 2011.



Amounts
drawn under the facility agreements and credit facilities are secured by first priority mortgages on the Company’s vessels,
guaranteed by each vessel-owning subsidiary and guaranteed by NewLead Holdings.



The
amounts shown as interest and finance expense in the statements of operations are analyzed as follows:



F-40









NEWLEAD HOLDINGS LTD.



Notes
to the Consolidated Financial Statements

(All amounts expressed
in thousands of U.S. dollars except share and per share data and where otherwise specified)



|                                                                      |  | Successor    |        |  | Predecessor  |  
|--------------------------------------------------------------------- |  | ------------ | ------ |  | ------------ | -
|                                                                      |  |              |        |  |              |  
|                                                                      |  | Year Ended   |        |  | Year Ended   |  
|                                                                      |  | December 31, |        |  | December 31, |  
|                                                                      |  | 2011         |        |  | 2010         |  
|                                                                      |  |              |        |  | (Restated)   |  
|Interest expense                                                      |  | $            | 28,192 |  |              | $
|Amortization of deferred charges                                      |  |              | 6,420  |  |              |  
|Amortization of the beneficial conversion feature, restated (Note 16) |  |              | 8,161  |  |              |  
|Other expenses                                                        |  |              | 1,488  |  |              |  
|                                                                      |  |              |        |  |              |  
|                                                                      |  | $            | 44,261 |  |              | $



The
effective interest rate at December 31, 2011 was approximately 4.88% per annum (December 31, 2010: 6.08%, December 31, 2009: 5.81%).
Capitalized interest for the year ended December 31, 2011 amounted to $2,549 ($902 for the year ended December 31, 2010 and $0
for the periods from January 1, 2009 to October 13, 2009 and October 14, 2009 to December 31, 2009, respectively).



16.
SENIOR CONVERTIBLE 7% NOTES



In
connection with the recapitalization on October 13, 2009, the Company issued $145,000 in aggregate principal amount of 7%
senior unsecured convertible notes ("7% Notes") due 2015. The 7% Notes are convertible into common shares at a conversion
price of $9.00 per share ("Any time" conversion option), subject to adjustment for certain events, including certain
distributions by the Company of cash, debt and other assets, spin offs and other events. The issuance of the 7% Notes was pursuant
to the Indenture dated October 13, 2009 between the Company and Marfin Egnatia Bank S.A., and the Note Purchase Agreement,
executed by each of Investment Bank of Greece and Focus Maritime Corp. as purchasers. Currently, Investment Bank of Greece retains
$100 outstanding principal amount of the 7% Notes and has received warrants for advisory services (for more details see Note 21).
The remainder of the 7% Notes is owned by Focus Maritime Corp., a company controlled by Michail S. Zolotas, the Company's Vice
Chairman, President and Chief Executive Officer and a member of its board of directors. All of the outstanding 7% Notes owned by
Focus Maritime Corp. were pledged to, and their acquisition was financed by, Marfin Egnatia Bank S.A. $20,000 of the proceeds of
the 7% Notes were used to partially repay a portion of existing indebtedness and the remaining proceeds were used for general corporate
purposes and to fund vessel acquisitions. The Note Purchase Agreement and the Indenture with respect to the 7% Notes contain certain
covenants, including, among others, limitations on the incurrence of additional indebtedness, except for approved vessel acquisitions,
and limitations on mergers and consolidations. In connection with the issuance of the 7% Notes, the Company entered into a Registration
Rights Agreement providing the holders of the 7% Notes with certain demand and other registration rights for the common shares
underlying the 7% Notes.



As of December
31, 2011, the Company was in default of an interest payment that was initially due on October 1, 2011.



In
November 2009, Focus Maritime Corp. converted $20,000 of the 7% Notes into approximately 2.22 million new common shares.
Accordingly, in the aggregate, $125,000 of the 7% Notes remain outstanding as at December 31, 2011 and December 31, 2010.



The
7% Notes had two embedded conversion options — (1) An "Any time" conversion option and (2) A "Make
Whole Fundamental Change" conversion option, which gives the holder 10% more shares upon conversion, in certain circumstances.



F-41











NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



(1) The
"Any time" conversion option meets the definition of a derivative under the FASB’s ASC 815. However, this embedded
conversion option meets the ASC 815-10-15 scope exception, as it is both (1) indexed to its own stock and (2) would
be classified in shareholders’ equity, if freestanding. As a result, this conversion option is not bifurcated and separately
accounted for and is not recorded as a derivative financial instrument liability.



(2) The
"Make Whole Fundamental Change" conversion option meets the definition of a derivative under ASC 815. This embedded
conversion option does not meet the ASC 815-10-15 scope exception, since this conversion option cannot be considered indexed to
its own stock. As a result, the conversion option has been bifurcated from the host contract, the 7% Notes, and separately accounted
for and is recorded as a derivative financial instrument liability.



The Company's
market price on the date of issuance was $15.24 and the stated conversion price is $9.00 per share. The Company recorded a BCF
totaling $100,536 as a contra liability (discount) that will be amortized into the income statement (via interest charge)
over the life of the 7% Notes. For the year ended December 31, 2011, $8,161 of the BCF was amortized and reflected as interest
expense in the statement of operations ($5,942 for the year ended December 31, 2010, and $14,853 for the period from October 14,
2009 to December 31, 2009).



The amount
regarding the 7% Notes presented in the consolidated balance sheets is as follows:



|                                                  |  | 7% Notes   |       
|------------------------------------------------- |  | ---------- | ------
|                                                  |  | (Restated) |       
|                                                  |  |            |       
|Balance at December 31, 2009                      |  | $          | 39,283
|                                                  |  |            |       
|Amortization of the Beneficial Conversion Feature |  |            | 5,942 
|Make whole fundamental change                     |  |            | 5     
|                                                  |  |            |       
|Balance at December 31, 2010                      |  |            | 45,230
|                                                  |  |            |       
|Amortization of the Beneficial Conversion Feature |  |            | 8,161 
|Make whole fundamental change                     |  |            | 0     
|                                                  |  |            |       
|Balance at December 31, 2011                      |  | $          | 53,391





The Company is not in compliance with
its financial covenants on this indebtedness. As of December 31, 2011, the Company has defaulted on a coupon payment. As such,
the full amount outstanding has been reclassified to current liabilities.



As of December 31, 2011, the unamortized
BCF totals $71,609 and will continue to be amortized according to the original schedule or will be accelerated upon the settlement
of the Notes.



F-42







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



17. CAPITAL LEASE OBLIGATIONS



In June 2011,the Company entered into an agreement with Northern Shipping Fund LLC for the sale and immediate bareboat leaseback of
the Post-Panamax dry bulk vessel, the Newlead Endurance. The net proceeds for the sale were $26,600 and the bareboat leaseback
charter period is seven years. NewLead retained call options to buy the vessel back during the
lease period at pre-determined decreasing prices at the end of each of the seven years starting from the first year, with the
last call option price at $26,500 at the end of the lease term. Moreover, a put option exists, which if exercised, will require
the Company to repurchase the vessel for approximately $26,500 at the end of the lease term. The call or put option price will
be paid in cash. The net rate of the bareboat charter is $9.5 per day throughout the lease period.NewLead will continue to earn charter hire on the current time charter on the vessel. As of December 31, 2011, the outstanding
balance on the lease debt was $26,312.



The Company
concluded that it has retained substantially all of the benefits and risks associated with such vessel and has treated the transaction
as a financing, resulting in an immediate loss of $208.The agreement includes, among other things, the following financial
covenants: (i) the equity ratio (as defined in the agreement) must be at least 30% on each financial quarter day starting from
January 1, 2013 and thereafter; (ii) the liquidity (as defined in the agreement) shall not be less than 5% of the total debt on
each financial quarter day starting from January 1, 2013 and thereafter; (iii) the ratio of EBITDA to Net Interest Expense (as
defined in the agreement) shall not be less than 2.5:1 for each 12 month period starting January 1, 2013 and thereafter; and (iv)
on each financial quarter day, the working capital (as defined in the agreement) shall not be less than zero dollars ($0) (as
of December 31, 2011, the Company was in breach of this covenant). On February 14, 2012, an amendment agreement was signed, eliminating
the existing put option. On March 14, 2012, the vessel was delivered back to Northern Shipping Fund LLC (for more details, refer
to Note 26).



InNovember
2010, the Company entered intoan agreement with Lemissoler Maritime Company W.L.L. for the
sale and immediate bareboat leaseback of four dry bulk vessels comprised of three Capesize vessels, the Brazil, the Australia,
and the China, as well as the Panamax vessel Grand Rodosi. Total consideration for the sale was $86,800 and the bareboat leaseback
charter period is eight years. NewLead retains call options to buy the vessels back during the
lease period at pre-determined decreasing prices and is obligated to repurchase the vessels for approximately $40,000 at the end
of the lease term. The repurchase obligation can be paid partially in cash and partially in common shares, at the Company’s
option. The agreement includes, among other things, the following financial covenants: (i) the equity
ratio (as defined in the agreement) shall not be less than 25% from the financial quarter day ending on September 30, 2012 until
the financial quarter day ending on June 30, 2013, increasing to 30% thereafter; (ii) the minimum liquidity (as defined in the
agreement) shall not be less than 5% of the total debt at any time (as of December 31, 2011,
the Company was in breach of this covenant); (iii) the ratio of EBITDA to Interest Expense (as defined in the agreement) shall
not be less than 2:1 from the financial quarter day ending on September 30, 2012 until the financial quarter day ending on June
30, 2013, increasing to 2.5:1 thereafter; and (iv) on each financial quarter day, the working capital (as defined in the agreement)
shall not be less than zero dollars ($0)(as of December 31, 2011, the Company was in breach
of this covenant). As of December 31, 2011, the outstanding balance on the lease debt was $81,214. As of December 31, 2011, the
Company has defaulted on a number of lease payments.



The Company
concluded that it has retained substantially all of the benefits and risks associated with such vessels and has treated the transaction
as a financing, resulting in an immediate loss of $2,728 (for those vessels where their fair value was below their carrying amount)
and deferred gain of $10,540 (for those vessels where their fair values was above their carrying amount) which is being amortized
over the life of each vessel. Such amortization for the year ended December 31, 2011 amounted to$1,316 ($141 for the year ended
December 31, 2010), recorded in "Depreciation and Amortization expenses" in the consolidated statements of operations.
The unamortized portion as of December 31, 2011amounted to $9,083 (December 31, 2010amounted to $10,399).



The Company, pursuant to the sale and
leaseback transaction, entered into an agreement with Lemissoler Maritime Company W.L.L.: (i) to issue 36,480 common
shares issuable upon execution of the agreement; (ii) on each of the first and second anniversaries of the date of the agreement,
to deliver, at the Company’s option, either cash of $182 or a number of common shares having a value of $182 based on a
common share value equal to 120% of the 30-day average immediately preceding such anniversary; and (iii) on each of the third
through seventh anniversaries of the date of the agreement, to deliver, at the Company’s option, either cash of $109 or
a number of common shares having a value of $109, based on a common share value equal to 120% of the 30-day average immediately
preceding such anniversary. The cash or common shares that may be delivered on such anniversary dates are subject to downward
adjustment upon the occurrence of certain events.



Due to
the breach of the financial covenants of the Company’s capital lease agreements and the fact thatthe lessors have
the right, absent the receipt of waivers, to demand the termination of the capital leases at any given time,the present value of minimum lease payments of $107,527as of December 31, 2011 is shown as current liabilities in the
consolidated balance sheet. See Note 26 for a discussion of the recent developments relating to these capital lease agreements.



F-43







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



The annual future minimum lease payments
under the capital leases, as described in the capital lease agreements, for the vessels described above, together with the present
value of the net minimum lease payments required to be made after December 31, 2011, are as follows:



|Description                                      |  | Amount |        
|------------------------------------------------ |  | ------ | -------
|                                                 |  |        |        
|December 31, 2012                                |  | $      | 24,865 
|December 31, 2013                                |  |        | 17,087 
|December 31, 2014                                |  |        | 12,223 
|December 31, 2015                                |  |        | 12,223 
|December 31, 2016                                |  |        | 12,232 
|Thereafter                                       |  |        | 87,453 
|Total minimum lease payments                     |  |        | 166,083
|Less: imputed interest                           |  |        | (58,556
|Present value of minimum lease payments          |  |        | 107,527
|Current portion of capitalized lease obligations |  |        | 107,527
|Long term capitalized lease obligations          |  | $      | -      



18. SHARE BASED COMPENSATION



Equity Incentive Plan



The Company's
2005 Equity Incentive Plan (the "Plan") is designed to provide certain key persons, on whose initiative and efforts
the successful conduct of the Company depends, with incentives to: (a) enter into and remain in the service of the Company,
(b) acquire a proprietary interest in the success of the Company, (c) maximize their performance, and (d) enhance the
long-term performance of the Company.



On May 29,
2009, the Company amended the Plan to: (a) increase the number of common shares reserved for issuance to 83,334 in order
to better enable the Company to offer equity incentives to its officers, directors and employees, and (b) ensure that no
incentive share options shall be granted under the Plan from and following May 29, 2009.



On December 22,
2009, the Company's new management further amended the Plan to increase the number of common shares reserved for issuance to 583,334
to better enable the Company to offer equity incentives to its officers, directors and other employees.



On December
20, 2011, the Board of Directors further amended the Plan to increase the number of common shares reserved for issuance from 583,334
shares to 2,083,334 shares to better enable the Company to offer equity incentives to its officers, directors, employees and consultants.



In addition,
the Company may grant restricted common shares and share options to third parties and to employees outside of the Plan. On December
21, 2011, the Company granted 866,668 shares to two executive officers and 74,581 shares to two third parties (these shares were
issued on February 15, 2012). For shares granted/ issued after the December 31, 2011, refer to Note 26.



Restricted Common Shares



The Company measures
share-based compensation cost at grant date, based on the estimated fair value of the restricted common share awards, which is
determined by the closing price of the Company's common shares as quoted on the Nasdaq Stock Market on the grant date and recognizes
the cost as expense on a straight-line basis over the requisite service period.



During the
years ended December 31, 2011 and 2010 (Successor), the Company recognized compensation cost related to the Company's restricted
shares of $1,884 and$1,838. During the periods from October 14 to December 31, 2009 (Successor) and from January 1 to October 13,
2009 (Predecessor), the Company recognized compensation cost related to the Company's restricted shares of $3,552 and $680, respectively.



F-44







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



A summary of
the activity for restricted share awards during the years ended December 31, 2011 and 2010 and the periods October 14 to
December 31, 2009 and January 1 to October 13, 2009 is as follows:





|                                                                        |  | Number of Shares |           |   | Weighted Average
    Fair Values |   |       | Weighted Average
    Vesting Period (Years) | 
|----------------------------------------------------------------------- |  | ---------------- | --------- | - | -------------------------------- | - | ----- | ------------------------------------------- | 
|                                                                        |  |                  |           |   |                                  |   |       |                                             | 
|Outstanding and non-vested shares, as of January 1, 2009 (Predecessor)  |  |                  | 20,000    |   |                                  | $ | 39.36 |                                             | 
|Granted(1)                                                              |  |                  | 7,293     |   |                                  |   | 15.24 |                                             | 
|Vested                                                                  |  |                  | (27,293   | ) |                                  |   | 32.87 |                                             | 
|Outstanding and non-vested shares, as of October 13, 2009 (Predecessor) |  |                  | -         |   |                                  |   | -     |                                             | 
|Granted(2)                                                              |  |                  | 390,001   |   |                                  |   | 15.13 |                                             | 
|Vested (2)                                                              |  |                  | (208,334  | ) |                                  |   | 15.24 |                                             | 
|Outstanding and non-vested shares, as of December 31, 2009 (Successor)  |  |                  | 181,667   |   |                                  |   | 15.01 |                                             | 
|Granted(3)                                                              |  |                  | 12,085    |   |                                  |   | 11.04 |                                             | 
|Outstanding and non-vested shares, as of December 31, 2010 (Successor)  |  |                  | 193,752   |   |                                  |   | 14.76 |                                             | 
|Granted(4), (5)                                                         |  |                  | 1,984,751 |   |                                  |   | 0.93  |                                             | 
|Forfeited(4)                                                            |  |                  | (65,651   | ) |                                  |   | 3.38  |                                             | 
|Vested (2), (3), (4)                                                    |  |                  | (181,252  | ) |                                  |   | 14.94 |                                             | 
|Outstanding and non-vested shares, as of December 31, 2011 (Successor)  |  |                  | 1,931,600 |   |                                  | $ | 0.92  |                                             | 



| | (1) | Vested on the date of the recapitalization.
| | --- | -------------------------------------------



| | (2) | 390,001shares were granted on the date of the recapitalization,
                                                                 of which 208,334 shares had immediate vesting; 166,667 shares
                                                                 had a two-year vesting schedule (at January 1, 2011 and 2012),
                                                                 of which 83,334 shares, with an original vesting date January
                                                                 1, 2012, were vested in July 15, 2011, upon the resignation of
                                                                 the former Chief Financial Officer; and 15,000 shares had a three-year
                                                                 vesting schedule (at January 1, 2011, 2012 and 2013), of
                                                                 which 5,000 shares, with an original vesting date of January
                                                                 1, 2012 and January 1, 2013, were forfeited on December 31, 2011
                                                                 due to the resignation of two board members.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | 6,668 shares were granted on January 1, 2010 and
                                                                 vested over a one year period (January 1, 2011). 5,417 shares
                                                                 were granted on April 15, 2010, of which: (a) 1,667 vested over
                                                                 a one year period (January 1, 2011) and (b) 3,750 with an
                                                                 original three-year vesting period (at January 1, 2011, 2012
                                                                 and 2013) were treated as follows: (i) 1,250 vested on January
                                                                 1, 2011 and (ii) the remaining 2,500 were forfeited on December
                                                                 31, 2011 due to the resignation of one board member.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | 8,335 shares were granted to members of the board of directors
                                                                 on February 1, 2011 and vest over a one year period (February 1,
                                                                 2012), of which 5,001 shares were forfeited on December 31, 2011
                                                                 due to the resignation of three board members. 365,250 shares
                                                                 were granted on April 1, 2011 to employees, officers and
                                                                 directors and vest over a two-year period (April 1, 2013),
                                                                 except for 53,150 shares which were forfeited subsequent to April
                                                                 1, 2011 and before December 31, 2011.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | 560,000 shares were granted to members of the board of directors
                                                                 on December 21, 2011, of which 350,000 shares vested upon
                                                                 issuance (February 15, 2012) and the remaining 210,000 shares
                                                                 vest on December 31, 2012. 1,261,166 shares were granted on December 21,
                                                                 2011 to employees, officers and directors which vest as follows:
                                                                 (i) 314,930 shares vest over four years with 25% of the grants
                                                                 being vested on each of the first, second, third and fourth anniversary
                                                                 of the issuance date (February 15, 2013, February 15, 2014, February
                                                                 15, 2015 and February 15, 2016, respectively); and (ii) 946,236
                                                                 shares vest on the third anniversary of the issuance date (February
                                                                 15, 2015).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation
cost of $1,343 related to non-vested shares will be primarily recognized up to February 15, 2016.



F-45







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Share options



The summary of
share option awards is summarized as follows (in thousands except per share data):



|                                                    |  | Number of Options |          |   | Weighted Average
    Exercise Price |   |        | Weighted Average
    Fair Value |  |   | Weighted Average
    Vesting Period (Years) | 
|--------------------------------------------------- |  | ----------------- | -------- | - | ----------------------------------- | - | ------ | ------------------------------- |  | - | ------------------------------------------- | 
|                                                    |  |                   |          |   |                                     |   |        |                                 |  |   |                                             | 
|Outstanding, as of January 1, 2009 (Predecessor)(1) |  |                   | 25,000   |   |                                     | $ | 104.00 |                                 |  | $ | 6.20                                        | 
|Outstanding, as of October 13, 2009 (Predecessor)   |  |                   | 25,000   |   |                                     |   | 104.00 |                                 |  |   | 6.20                                        | 
|Granted(2)                                          |  |                   | 250,000  |   |                                     |   | 19.80  |                                 |  |   | 6.25                                        | 
|Outstanding, as of December 31, 2009 (Successor)    |  |                   | 275,000  |   |                                     |   | 27.45  |                                 |  |   | 6.24                                        | 
|Outstanding, as of December 31, 2010 (Successor)    |  |                   | 275,000  |   |                                     |   | 27.45  |                                 |  |   | 6.99                                        | 
|Forfeited                                           |  |                   | (104,167 | ) |                                     |   | 19.80  |                                 |  |   | 9.33                                        | 
|Outstanding, as of December 31, 2011 (Successor)    |  |                   | 170,833  |   |                                     | $ | 32.12  |                                 |  | $ | 6.96                                        | 
|Exercisable at December 31, 2011                    |  |                   | 170,833  |   |                                     | $ | 32.12  |                                 |  | $ | 6.96                                        | 



|(1) |  | In 2008, the Company granted 25,000 share options
    to purchase common shares subject to a vesting period of three annual equal installments. The fair value of these share option
    awards has been calculated based on the Binomial lattice model method. The Company used this model given that the options
    granted are exercisable at a specified time after vesting period (up to 10 years). The assumptions utilized in the Binomial
    lattice valuation model for the share option included a dividend yield of 5% and an expected volatility of 43%. For the first
    two vesting dates, the risk-free interest rate was 3.8% and the fair value per share option amounted to $6.60 with an expected
    life of six years. For the third vesting date, the risk-free interest rate was 4.6% with an expected life of 10 years,
    while the fair value per share option amounted to $5.40. On October 13, 2009, all these shares were vested due to the
    recapitalization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(2) |  | In 2009, the Company granted 250,000 share options
        to purchase common shares, which vest equally over 36 months and are subject to accelerated vesting or forfeiture
        upon certain circumstances. The fair value of these share option awards has been calculated based on the Binomial lattice
        model method. The Company used this model given that the options granted are exercisable at a specified time after vesting
        period (through five years from October 13, 2009). Pursuant to the Board of Directors resolution dated October 14,
        2010, the exercisable period of these share options extended for additional five years, i.e. until October 13, 2019. The
        assumptions utilized in the Binomial lattice valuation model for the share option included a dividend yield of 0% and
        an expected volatility of 90%. The risk-free interest rate was 2.3% and the weighted average fair value per share option
        amounted to $6.25. In July 2011, upon the resignation of the former Chief Financial Officer, the remaining 104,167 shares
        (i.e. 250,000 shares granted less 145,833 shares exercisable as of June 30, 2011) were forfeited. As a result, no unrecognized
        compensation existed as of December 31, 2011.
        
        During the year ended December
        31, 2011 (Successor), the Company recognized share-based compensation cost of $194 and a reduction of compensation expense
        of $496 due to the forfeited shares upon the resignation of the former Chief Financial Officer. During the year ended
        December 31, 2010 (Successor), and the periods October 14 to December 31, 2009 (Successor) and January 1 to October 13,
        2009 (Predecessor), the Company recognized share-based compensation cost of $842, $406 and $113, respectively.



The weighted
average contractual life of the share options outstanding as of December 31, 2011 was 7.6 years.



As of December
31, 2011, the intrinsic value of the Company's share options was $0, since the share price of the Company's common shares was
less than the exercise price.



F-46







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



19. COMMON SHARES AND DIVIDENDS



Common Shares



As a result
of the issuance of restricted shares during the years ended December 31, 2011, December 31, 2010, and the periods from October
14, 2009 to December 31, 2009, and from January 1, 2009 to October 13, 2009, the Company's share capital was increased
by approximately 473,000 shares, 13,000 shares, 390,000 shares and 7,000 shares, respectively.



As a result of
the agreement that NewLead entered into with Lemissoler Maritime Company W.L.L (refer to Note 17), the Company's share capital
was increased by approximately 37,000 shares, which were issued in January 2011 as part of the consideration upon the execution
of the agreement.



As a result of
the business combination that occurred on April 1, 2010 (refer to Note 5 “Business Combination”), the Company's share
capital was increased by approximately 700,000 shares, which reflected the consideration transferred to Grandunion to complete
the business combination.



As a result of
the 2009 recapitalization and the partial conversion of the 7% Notes, during the period October 14 to December 31, 2009,
the Company's share capital was also increased by 1,582,000 and 2,222,000 shares, respectively.



Dividends



During the years
ended December 31, 2011, 2010 and 2009, the Company did not pay dividends as a result of the decision in September 2008 by
the board of directors to suspend the payment of cash dividends.



20. SEGMENT INFORMATION



The Company has
two reportable segments from which it derives its revenues: Wet Operations and Dry Operations. The reportable segments reflect
the internal organization of the Company and are strategic businesses that offer different products and services. The Wet Operations
typically consists of tankers transporting several different refined petroleum products simultaneously in segregated, coated cargo
tanks, while the Dry Operations consist of transportation and handling of bulk cargoes through ownership, operation, and trading
of vessels.



The Company measures
segment performance based on loss from continuing operations. Inter-segment sales and transfers are not significant and have been
eliminated and are not included in the following tables. Summarized financial information concerning each of the Company's reportable
segments is as follows:



F-47







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



|                                                                                         |  | Wet                     |         |   | Dry                     |   |         | Total                   | 
|---------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ----------------------- | - | ------- | ----------------------- | 
|                                                                                         |  |                         |         |   |                         |   |         |                         | 
|                                                                                         |  | Year Ended December 31, |         |   | Year Ended December 31, |   |         | Year Ended December 31, | 
|                                                                                         |  | 2011                    |         |   | 2010                    |   |         | 2011                    | 
|                                                                                         |  |                         |         |   | (Restated)              |   |         |                         | 
|Operating revenue                                                                        |  | $                       | 9,336   |   |                         | $ | 18,905  |                         | 
|                                                                                         |  |                         |         |   |                         |   |         |                         | 
|Commissions                                                                              |  |                         | (126    | ) |                         |   | (408    | )                       | 
|Voyage expenses                                                                          |  |                         | (1,258  | ) |                         |   | (4,660  | )                       | 
|Vessel operating expenses                                                                |  |                         | (4,291  | ) |                         |   | (10,657 | )                       | 
|General and administrative expenses                                                      |  |                         | (2,635  | ) |                         |   | (4,902  | )                       | 
|Management fees                                                                          |  |                         | -       |   |                         |   | (675    | )                       | 
|Other income / (expense), net                                                            |  |                         | 14      |   |                         |   | 2       |                         | 
|Operating income / (loss) before depreciation
    and amortization and impairment losses |  |                         | 1,040   |   |                         |   | (2,395  | )                       | 
|                                                                                         |  |                         |         |   |                         |   |         |                         | 
|Depreciation and amortization expense                                                    |  |                         | (4,306  | ) |                         |   | (9,144  | )                       | 
|Impairment losses                                                                        |  |                         | (60,368 | ) |                         |   | (39,515 | )                       | 
|Segment operating (loss) / income                                                        |  |                         | (63,634 | ) |                         |   | (51,054 | )                       | 
|                                                                                         |  |                         |         |   |                         |   |         |                         | 
|Transaction costs                                                                        |  |                         | -       |   |                         |   | (874    | )                       | 
|Restructuring costs                                                                      |  |                         | (247    | ) |                         |   | -       |                         | 
|Straight line revenue                                                                    |  |                         | -       |   |                         |   | -       |                         | 
|Compensation costs                                                                       |  |                         | (279    | ) |                         |   | (1,251  | )                       | 
|Provision for doubtful receivables                                                       |  |                         | 36      |   |                         |   | (204    | )                       | 
|Gain / (loss) on sale from vessels, net                                                  |  |                         | -       |   |                         |   | 1,168   |                         | 
|Interest and finance expense, net                                                        |  |                         | (7,275  | ) |                         |   | (10,149 | )                       | 
|Interest income                                                                          |  |                         | 13      |   |                         |   | 309     |                         | 
|Change in fair value of derivatives                                                      |  |                         | -       |   |                         |   | 1,122   |                         | 
|Loss from continuing operations                                                          |  | $                       | (71,386 | ) |                         | $ | (60,933 | )                       | 
|                                                                                         |  |                         |         |   |                         |   |         |                         | 
|Total assets                                                                             |  | $                       | 108,683 |   |                         | $ | 262,967 |                         | 
|Goodwill                                                                                 |  | $                       | -       |   |                         | $ | 53,966  |                         | 
|Long lived assets                                                                        |  | $                       | 103,279 |   |                         | $ | 171,948 |                         | 



F-48







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)





|                                                                                         |  | Wet                         |         |   | Dry                       |   |         | Total                       | 
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | --------------------------- | 
|                                                                                         |  | Successor                   |         |   | Predecessor               |   |         | Successor                   | 
|                                                                                         |  |                             |         |   |                           |   |         |                             | 
|                                                                                         |  | October 14, to December 31, |         |   | January 1, to October 13, |   |         | October 14, to December 31, | 
|                                                                                         |  | 2009                        |         |   | 2009                      |   |         | 2009                        | 
|                                                                                         |  | (Restated)                  |         |   |                           |   |         | (Restated)                  | 
|Operating revenue                                                                        |  | $                           | 3,261   |   |                           | $ | 14,509  |                             | 
|                                                                                         |  |                             |         |   |                           |   |         |                             | 
|Commissions                                                                              |  |                             | (108    | ) |                           |   | (442    | )                           | 
|Voyage expenses                                                                          |  |                             | (2,238  | ) |                           |   | (6,088  | )                           | 
|Vessel operating expenses                                                                |  |                             | (3,605  | ) |                           |   | (15,321 | )                           | 
|General and administrative expenses                                                      |  |                             | (1,614  | ) |                           |   | (4,362  | )                           | 
|Management fees                                                                          |  |                             | (132    | ) |                           |   | (584    | )                           | 
|Other income, net                                                                        |  |                             | -       |   |                           |   | 31      |                             | 
|Operating income / (loss) before depreciation
    and amortization and impairment losses |  |                             | (4,436  | ) |                           |   | (12,257 | )                           | 
|                                                                                         |  |                             |         |   |                           |   |         |                             | 
|Depreciation and amortization expense                                                    |  |                             | (644    | ) |                           |   | (6,331  | )                           | 
|Impairment losses                                                                        |  |                             | -       |   |                           |   | (40,859 | )                           | 
|Segment operating (loss) / income                                                        |  |                             | (5,080  | ) |                           |   | (59,447 | )                           | 
|                                                                                         |  |                             |         |   |                           |   |         |                             | 
|Transaction costs                                                                        |  |                             | (6,383  | ) |                           |   | (3,442  | )                           | 
|Straight line revenue                                                                    |  |                             | -       |   |                           |   | -       |                             | 
|Compensation costs                                                                       |  |                             | (559    | ) |                           |   | (371    | )                           | 
|Provision for doubtful receivables                                                       |  |                             | -       |   |                           |   | (217    | )                           | 
|Interest and finance expense, net                                                        |  |                             | (15,072 | ) |                           |   | (6,624  | )                           | 
|Interest income                                                                          |  |                             | 177     |   |                           |   | 9       |                             | 
|Change in fair value of derivatives                                                      |  |                             | 1,537   |   |                           |   | 3,012   |                             | 
|Loss from continuing operations                                                          |  | $                           | (25,380 | ) |                           | $ | (67,080 | )                           | 
|                                                                                         |  |                             |         |   |                           |   |         |                             | 
|Total assets                                                                             |  | $                           | 388,832 |   |                           | $ | -       |                             | 
|Goodwill                                                                                 |  | $                           | 65,768  |   |                           | $ | -       |                             | 
|Long lived assets                                                                        |  | $                           | 179,516 |   |                           | $ | -       |                             | 



Segment Operating Revenue by Charterers



The Company reports
financial information and evaluates its revenues by total charter revenues. Although revenue can be identified for different types
of charters, management does not identify expenses, profitability or other financial information for different charters.



F-49







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



During
the year ended December 31, 2011, the Company derived 48% of its revenue from continuing operations from three charterers
(each of which comprised 22%, 16% and 10% of revenues, respectively). During the year ended December 31, 2010, the Company
derived 64% of its revenue from continuing operations from three charterers (each of which comprised 33%, 18% and 13% of revenues,
respectively). During the period January 1 to October 13, 2009, the Company derived 67% of its revenue from continuing operations
from three charterers (each of which comprised 37%, 21%, and 9% of revenues, respectively). During the period October 14 to December 31,
2009, the Company derived 79% of its revenue from continuing operations from three charterers (each of which comprised 42%, 23%,
and 14% of revenues, respectively).





F-50







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



21. FINANCIAL INSTRUMENTS



The principal
financial assets of the Company consist of cash and cash equivalents, trade receivables and other assets. The principal financial
liabilities of the Company consist of long-term bank loans, the 7% Notes, capital lease obligations, accounts payable and accrued
liabilities.



Fair Values



Derivative financial
instruments are stated at their fair values. The carrying amounts of the following financial instruments approximate their fair
values: cash and cash equivalents and restricted cash accounts, trade and other receivables, due to / from managing agent, trade
and other payables and derivative financial instruments. The fair values of long-term loans and capital lease obligations are
estimated by taking into consideration the Company’s creditworthiness and the market value of the underlying mortgage assets.
The 7% Notes had a fair value of $94,289 as of December 31, 2011 ($125,488 as of December 31, 2010) determined based on quoted
market prices of debt with similar characteristics available for companies with comparable creditworthiness.



|                                  |  | Carrying amount   |         |  | Fair Value        |   |         | Carrying amount |  |   | Fair Value | 
|--------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | --------------- |  | - | ---------- | 
|                                  |  | December 31, 2011 |         |  | December 31, 2010 |  
|                                  |  |                   |         |  |                   |   |         | (Restated)      | 
|Assets                            |  |                   |         |  |                   |   |         |                 |  |   |            | 
|Cash and cash equivalents         |  | $                 | 5,119   |  |                   | $ | 5,119   |                 |  | $ | 67,531     | 
|Restricted Cash                   |  | $                 | 281     |  |                   | $ | 281     |                 |  | $ | 43,306     | 
|Trade receivables, net            |  | $                 | 12,522  |  |                   | $ | 12,522  |                 |  | $ | 6,025      | 
|Other receivables                 |  | $                 | 3,398   |  |                   | $ | 3,398   |                 |  | $ | 2,333      | 
|Due from managing agents          |  | $                 | -       |  |                   | $ | -       |                 |  | $ | 587        | 
|Liabilities                       |  |                   |         |  |                   |   |         |                 |  |   |            | 
|Loans                             |  | $                 | 339,722 |  |                   | $ | 207,281 |                 |  | $ | 447,815    | 
|Senior convertible 7%  notes, net |  | $                 | 53,391  |  |                   | $ | 94,289  |                 |  | $ | 45,230     | 
|Derivative financial instruments  |  | $                 | 8,808   |  |                   | $ | 8,808   |                 |  | $ | 9,961      | 
|Capital lease obligations         |  | $                 | 107,527 |  |                   | $ | 69,812  |                 |  | $ | 84,967     | 
|Due to managing agents            |  | $                 | 184     |  |                   | $ | 184     |                 |  | $ | 282        | 





Warrant Derivative Liability



The Company recorded
the warrant derivative liability at fair value in the consolidated balance sheet for the year ended December 31, 2009 under "Derivative
financial instruments", with changes in fair value recorded in "Change in fair value of derivatives" in the consolidated
statements of income.



During the fourth
quarter of 2009, the Company authorized the issuance to a third party of a six-year warrant to purchase 416,667 common shares
for advisory services provided in connection with the recapitalization.



In connection
with the issuance of the 7% Notes, the Company issued to the Investment Bank of Greece warrants to purchase up to 416,667 common
shares at an exercise price of $24.00 per share, with an expiration date of October 13, 2015, which resulted in $3,940 of
debt issuance cost that was recorded as deferred issuance cost. These warrants were fair valued as of October 13, 2009 and
are amortized over a period of six years. The warrants are marked to market at every reporting date.



For the period
from October 14, 2009 to December 31, 2009, the total fair value change on warrants amounted to approximately $2,636
($0 for the period ended January 1, 2009 to October 13, 2009). For the period from January 1, 2010 to September
29, 2010, the total fair value change on warrants was a gain of $1,855. On September 30, 2010, the Company and the warrant holders
amended certain terms of the warrants and the amended warrants now qualify for equity classification. Upon the amendment, the
amended warrants were remeasured at fair value, which included the cash paid to certain warrant holders. The amendment resulted
in the warrant liability of $3,124 being reclassified to Additional Paid-in Capital in Shareholders Equity. An additional consulting
expense of $600 was recognized in the statement of operations for the year ended December 31, 2010 to amend the warrants.



Interest Rate Risk



Interest rate
risk arises on bank borrowings. The Company monitors the interest rate on borrowings closely to ensure that the borrowings are
maintained at favorable rates. The interest rates relating to the long-term loans are disclosed in Note15, "Long-term Debt".



F-51







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Concentration of Credit Risk



The Company believes
that no significant credit risk exists with respect to the Company's cash due to the spread of this risk among various different
banks. The Company is also exposed to credit risk in the event of non-performance by counterparties to derivative instruments.
As of December 31, 2011, those derivative instruments are in the counterparties’ favor. Credit risk with respect to trade
accounts receivable is reduced by the Company by chartering its vessels to established international charterers.



One of the charterers
that chartered three of vessels during 2011 was having difficulty performing its obligations and, since the end of March 2011,
has been late on a number of payments causing the Company to arrest vessels owned by the particular charterer and/or by such charterer’s
affiliated companies on two occasions in order to collect payment. In connection thereto and due to delayed payments by this charterer
the Company withdrew two of the vessels from their employment during 2011 and the third vessel during 2012 and filed a claim for
amounts already due as well as damages arising from cancelling those employment contracts. These vessels were chartered out at
rates significantly above market, and since the Company was forced to reclaim and re-charter these vessels, the Company experienced
a significant reduction in the cash flow from these vessels, which in turn further impaired the Company’s liquidity.



Cash deposits in excess of amounts
covered by government – provided insurance are exposed to loss in the event of non-performance by financial institutions.
The Company does maintain cash deposits in excess of government – provided insurance limits.



Interest Rate Swaps



Outstanding swap
agreements involve both the risk of a counterparty not performing under the terms of the contract and the risk associated with
changes in market value. The Company monitors its positions, the credit ratings of counterparties and the level of contracts it
enters into with any one party. The counterparties to these contracts are major financial institutions. The Company has a policy
of entering into contracts with counterparties that meet stringent qualifications.



The Company has
entered into various interest rate swap agreements in order to hedge the interest expense arising from the Company's long-term
borrowings detailed in Note15. The interest rate swaps allow the Company to raise long-term borrowings at floating rates and swap
them into effectively fixed rates. Under the interest rate swaps, the Company agrees with the counter-party to exchange, at specified
intervals, the difference between a fixed rate and floating rate interest amount calculated by reference to the agreed notional
amount.



The details of
the Company's swap agreements are as follows:



F-52







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Counterparty



|                       |  |          |  |             |  |          |        |  |       |  |      |          |  | Fair
    Value | 
|---------------------- |  | -------- |  | ----------- |  | -------- | ------ |  | ----- |  | ---- | -------- |  | -------------- | 
|                       |  |          |  |             |  | Contract |        |  |       |  |      |          |  | As of          | 
|                       |  | Value    |  | Termination |  | Notional |        |  | Fixed |  |      | Floating |  | December 31,   | 
|Interest rate swaps    |  | Date     |  | Date        |  | Amount   |        |  | Rate  |  |      | Rate     |  | 2011           | 
|SMBC Bank              |  | 7/3/2006 |  | 4/4/2011    |  | $        | 20,000 |  |       |  | 5.63 | %        |  | 3-month LIBOR  | 
|Bank of Ireland        |  | 7/3/2006 |  | 4/4/2011    |  | $        | 20,000 |  |       |  | 5.63 | %        |  | 3-month LIBOR  | 
|HSH Nordbank           |  | 7/3/2006 |  | 4/4/2011    |  | $        | 20,000 |  |       |  | 5.63 | %        |  | 3-month LIBOR  | 
|Nordea Bank            |  | 7/3/2006 |  | 4/4/2011    |  | $        | 20,000 |  |       |  | 5.63 | %        |  | 3-month LIBOR  | 
|Bank of Scotland       |  | 7/3/2006 |  | 4/4/2011    |  | $        | 20,000 |  |       |  | 5.63 | %        |  | 3-month LIBOR  | 
|Nordea Bank*           |  | 4/3/2008 |  | 4/4/2011    |  | $        | 23,333 |  |       |  | 4.14 | %        |  | 3-month LIBOR  | 
|Bank of Scotland**     |  | 4/3/2008 |  | 4/3/2011    |  | $        | 46,667 |  |       |  | 4.28 | %        |  | 3-month LIBOR  | 
|Marfin Egnatia Bank*** |  | 9/2/2009 |  | 9/2/2014    |  | $        | 37,400 |  |       |  | 4.08 | %        |  | 3-month LIBOR  | 
|Bank of Scotland       |  | 7/6/2010 |  | 10/15/2015  |  | $        | 63,636 |  |       |  | 4.01 | %        |  | 3-month LIBOR  | 
|Bank of Scotland       |  | 7/6/2010 |  | 10/15/2015  |  | $        | 13,333 |  |       |  | 4.01 | %        |  | 3-month LIBOR  | 
|                       |  |          |  |             |  |          |        |  |       |  |      |          |  |                | 
|                       |  |          |  |             |  |          |        |  |       |  |      |          |  |                | 



|           |  | Fair Value   |      
|---------- |  | ------------ | -----
|           |  | As of        |      
|           |  | December 31, |      
|           |  | 2011         |      
|Short-term |  | $            | 8,808
|Long-term  |  |              |      
|           |  |              |      
|           |  | $            | 8,808



As of December
31, 2011, the Company has defaulted on payments of interests on its swap agreements. As a result, the long term portion was reclassified
as current in the consolidated balance sheet.





|* |  | Synthetic swap including interest rate cap detailed
    as follows:
|- |  | -------------------------------------------------------------------



|Counterparty |  | Value Date |  | Termination Date |  | Notional Amount |        |  | Cap | 
|------------ |  | ---------- |  | ---------------- |  | --------------- | ------ |  | --- | 
|             |  |            |  |                  |  |                 |        |  |     | 
|Nordea       |  | 4/3/08     |  | 4/4/11           |  | $               | 23,333 |  |     | 



|** |  | Synthetic swap including interest rate floor detailed as follows:
|-- |  | -----------------------------------------------------------------





|Counterparty     |  | Value Date |  | Termination Date |  | Notional Amount |        |  | Floor | 
|---------------- |  | ---------- |  | ---------------- |  | --------------- | ------ |  | ----- | 
|                 |  |            |  |                  |  |                 |        |  |       | 
|Bank of Scotland |  | 4/3/08     |  | 4/3/11           |  | $               | 23,333 |  |       | 



|*** |  | As part of the contribution from Grandunion on October 13,
    2009, the Company assumed a $37,400 interest rate swap by Marfin Egnatia Bank.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



The total
fair value change of the interest rate swaps indicated above is reflected in interest expense within the consolidated statements
of operations. These amounts were a gain of $1,153 and $367 for the years ended December 31, 2011 and 2010, respectively, and
a gain of $3,012 and $2,554 for the periods from January 1, 2009 to October 13, 2009 and October 14, 2009 to December 31,
2009, respectively. The related asset or liability is shown under derivative financial instruments in the balance sheet.



F-53







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Fair Value Hierarchy



The guidance
on fair value prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure
fair value and expands disclosures about the use of fair value measurements.



The following
tables present the Company's assets and liabilities that are measured at fair value on a recurring and a non recurring basis and
are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.



|                              |  |       |         |  | Quoted Prices    |   |   | Significant |  |   |              | 
|----------------------------- |  | ----- | ------- |  | ---------------- | - | - | ----------- |  | - | ------------ | 
|                              |  |       |         |  | in Active        |   |   | Other       |  |   | Significant  | 
|                              |  |       |         |  | Markets for      |   |   | Observable  |  |   | Unobservable | 
|                              |  |       |         |  | Identical Assets |   |   | Inputs      |  |   | Inputs       | 
|                              |  | Total |         |  | (Level 1)        |   |   | (Level 2)   |  |   | (Level 3)    | 
|December 31, 2010             |  |       |         |  |                  |   |   |             |  |   |              | 
|Liabilities                   |  |       |         |  |                  |   |   |             |  |   |              | 
|Interest rate swaps           |  | $     | 9,961   |  |                  | $ | - |             |  | $ | 9,961        | 
|Make Whole Fundamental Change |  | $     | 0       |  |                  | $ | - |             |  | $ | 0            | 
|December 31, 2011             |  |       |         |  |                  |   |   |             |  |   |              | 
|Assets                        |  |       |         |  |                  |   |   |             |  |   |              | 
|Vessels under construction    |  | $     | 7,055   |  |                  | $ | - |             |  | $ | 7,055        | 
|Assets held for sale          |  | $     | 21,370  |  |                  | $ | - |             |  | $ | 21,370       | 
|Vessels                       |  | $     | 210,850 |  |                  | $ | - |             |  | $ | 210,850      | 
|Liabilities                   |  |       |         |  |                  |   |   |             |  |   |              | 
|Interest rate swaps           |  | $     | 8,808   |  |                  | $ | - |             |  | $ | 8,808        | 



The Company's
derivative instruments are valued using pricing models and the Company generally uses similar models to value similar instruments.
Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety
of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations
of such inputs. The Company's derivatives trade in liquid markets, and as such, model inputs can generally be verified and do
not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.



The Company's
assessment included its evaluation of the estimated fair market values for each vessel based on market transactions for which
management assumes responsibility for all assumptions and judgments used, compared to the carrying value. Where possible, the
Company’s valuations consider a number of factors that include a combination of last completed sales, present market candidates,
buyers’ and sellers’ ideas of similar vessels and other information they may possess. Based on this, the Company makes
an assessment of what the vessel is worth at a given time, assuming that the vessels are in good working order and its hull and
machinery are in a condition to be expected of vessels of their age, size and type, that the vessel's class is fully maintained
and free from all conditions and the vessel is in sound seagoing condition, and that the vessel is undamaged, fully equipped,
freely transferable and charter free. Such instruments are typically classified within Level 2 of the fair value hierarchy.



22.COMMITMENTS AND CONTINGENT LIABILITIES



(1)  Commitments







Rental Agreements



The Company
has entered into office and warehouse rental agreements with a related party, Terra Stabile A.E., a shareholder of which is Michail
Zolotas, the Company's Vice Chairman, President and Chief Executive Officer (see Note 24), at a monthly rate of approximately
€20,000. These rental agreements vary in duration—the longest agreement will expire in April 2022.



The committed
rent payments for Terra Stabile A.E. as of December 31, 2011 were:



F-54







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



|December 31, 2012 |  | $ | 315   | 
|----------------- |  | - | ----- | 
|December 31, 2013 |  |   | 320   | 
|December 31, 2014 |  |   | 325   | 
|December 31, 2015 |  |   | 330   | 
|December 31, 2016 |  |   | 335   | 
|Thereafter        |  |   | 1,740 | 
|                  |  | $ | 3,365 | 



Commercial and Technical Ship Management
Agreements



At December 31,
2009, the vessel-owning companies of the Newlead Avra, the Newlead Fortune, the High Land, the High Rider and the Ostria had technical
ship management agreements with International Tanker Management Limited ("ITM") based in Dubai which were cancellable
by either party with two-month notice. The agreed annual management fees were approximately $165 per vessel for both 2010 and
2009. During the year ended December 31, 2010, all ship management agreements with ITM were terminated. The vessel owning companies
of the vessels signed agreements for the provision of both technical and commercial ship management services with Newlead Shipping
S.A., a company that was controlled by Grandunion and that has been NewLead's subsidiary since April 1, 2010. The agreed
annual management fees were approximately $197 per vessel; however, all payments to Newlead Shipping have been eliminated since
the date on which Newlead Shipping became a subsidiary of Newlead.



The Chinook
had a technical ship management agreement with Ernst Jacob Ship Management GmbH ("Ernst Jacob") which was terminated
upon the sale of the vessel on April 15, 2010. In January 2010, the vessel owning company of the Nordanvind also signed
a technical ship management agreement with Ernst Jacob which was terminated upon the sale of the vessel on September 7, 2010.
The agreed annual management fees per vessel for 2010 and 2009 were approximately €153,000 and €150,000, respectively
(equal to approximately $200).



At December 31,
2009, the Australia had a commercial and technical ship management agreement with Stamford Navigation Inc., or Stamford, and the
China and the Brazil each had a commercial and technical ship management agreement with Newfront Shipping S.A., or Newfront. During
the first quarter of 2010, these agreements were terminated. Subsequently, the vessel owning companies signed agreements for the
provision of commercial and technical ship management services with Newlead Bulkers S.A., or Newlead Bulkers, a company which
was controlled by Grandunion and currently is NewLead's subsidiary. The annual management fee under each of these agreements was
approximately $19 per vessel; however, all payments to Newlead Shipping have been eliminated since the date on which Newlead Bulkers
became a subsidiary of NewLead.



Magnus Carriers
Corporation (“Magnus Carriers”), a company owned by two of the Company's former officers and directors, provided the
ship-owning companies of the Newlead Avra, the Newlead Fortune, the High Land, the High Rider, the Ostria and the Chinook with
non-exclusive commercial management services through commercial management agreements entered into in October 2007. These
agreements were cancelled by the Company effective May 1, 2009.



As of December
31, 2011 and 2010, the commercial and technical management services of all the Company’s owned and operated vessels were
provided in-house by Newlead Shipping and Newlead Bulkers. Outstanding balances, either due or from managing agents and related
parties as at December 31, 2011 and 2010, relate to amounts generated prior to the termination of the agreements described above
(See Note 24).



Commitment exit



In the third
quarter of 2010, the Company entered into an agreement for the acquisition of one 2006 built, 37,582 dwt, MR1 Tanker for approximately
$31,800, which was to be delivered in the fourth quarter of 2010. On December 1, 2010, the Company cancelled such agreement
and subsequently agreed to a final, mutual settlement in full of all the claims under the subject sale and purchase contract.
In compliance with the terms and conditions of this settlement agreement, dated December 21, 2010, the Company released to
the sellers the deposit of $3,177 and further incurred a termination fee of $1,950, which was paid in January 2011. The total
of $5,127 was included in Impairment losses in 2010.



F-55









NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Newbuildings



As of December
31, 2011, the remaining commitments for one newbuilding upon its final delivery, which is expected to be in the third quarter
of 2012, amounted to $19,350, all of which is payable within fiscal year 2012. On February 20, 2012, the Company received a default
letter from the yard in respect of the delay of the installment of $7,400 after the completion of the “steel cutting”
in September 2011. The Company is currently under negotiations with the yard and the DVB Bank for the disposal of the asset.



(2) Contingencies



The Company is
involved in various disputes and arbitration proceedings arising in the ordinary course of business. Provisions have been recognized
in the financial statements for all such proceedings in which the Company believes that a liability may be probable, and for which
the amounts are reasonably estimable, based upon facts known at the date the financial statements were issued. As of December
31, 2011, the Company has provided in respect of all claims an amount equal to $7,615 ($5,380 as of December 31, 2010). Other
than those listed below, there are no material legal proceedings to which the Company is a party other than routine litigation
incidental to the Company's business:



| | · |  | The charterers of the Newlead Avra notified the
    Company in October 2008 of their intention to pursue the following claims and notified the appointment of an arbitrator
    in relation to them:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | a) | Damages suffered by sub-charterers of the vessel relating
to remaining on board cargo in New York in September 2007;
| | -- | --------------------------------------------------------------------------------------------------------------------



| | b) | Damages suffered by sub-charterers of the vessel as a
result of a change in management and the consequent dispute regarding oil major approval from October 2007; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Damages suffered by sub-charterers of the vessel resulting
from grounding in Houston in October 2007.
| | -- | -----------------------------------------------------------------------------------------------------







| | The | Company does not anticipate any amount in excess of the
amount accrued to be material to the consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------





| | · |  | The charterers of the Newlead Fortune notified the
    Company in October 2008 of their intention to pursue the following claims, and notified the appointment of an arbitrator
    in relation to them:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | a) | Damages as a result of a change in management and the
consequent dispute regarding oil major approval from October 2007; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------



| | b) | Damages resulting from the creation of hydrogen sulphide
in the vessel's tanks at two ports in the United States.
| | -- | -----------------------------------------------------------------------------------------------------------------



| | The | Company does not anticipate any amount in excess of the
amount accrued to be material to the consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------





| | · | The
                                                                                                                              vessel
                                                                                                                              Grand
                                                                                                                              Rodosi
                                                                                                                              was
                                                                                                                              involved
                                                                                                                              in
                                                                                                                              a
                                                                                                                              collision
                                                                                                                              in
                                                                                                                              October
                                                                                                                              2010
                                                                                                                              with
                                                                                                                              the
                                                                                                                              fishing
                                                                                                                              vessel
                                                                                                                              “Apollo
                                                                                                                              S”.
                                                                                                                              As
                                                                                                                              of
                                                                                                                              December
                                                                                                                              31,
                                                                                                                              2011,
                                                                                                                              the
                                                                                                                              Company
                                                                                                                              estimated
                                                                                                                              that
                                                                                                                              the
                                                                                                                              expected
                                                                                                                              possible
                                                                                                                              losses
                                                                                                                              amount
                                                                                                                              to
                                                                                                                              approximately
                                                                                                                              $500,
                                                                                                                              which,
                                                                                                                              however,
                                                                                                                              are
                                                                                                                              100%
                                                                                                                              covered
                                                                                                                              by
                                                                                                                              the
                                                                                                                              P&I
                                                                                                                              Club:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Damage to wharf – the Company has a provided guarantee
                                                                 for A$3,387,500; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Pollution cleanup costs – the Company has a provided
                                                                 guarantee for A$500,000.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                                                                                                charterers of
                                                                                                                the Newlead Esmeralda
                                                                                                                notified the Company
                                                                                                                in November 2010
                                                                                                                of their intention
                                                                                                                to pursue the
                                                                                                                following claims.
                                                                                                                After discussions
                                                                                                                with the charterers
                                                                                                                in March 2011,
                                                                                                                an agreement was
                                                                                                                reached that neither
                                                                                                                party would seek
                                                                                                                any form of security
                                                                                                                in the future
                                                                                                                for the claims
                                                                                                                relating to the
                                                                                                                grounding that
                                                                                                                occurred in March
                                                                                                                2010. The Company
                                                                                                                believes the charterer’s
                                                                                                                chances of success
                                                                                                                are remote. Below
                                                                                                                is a list of the
                                                                                                                claims:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-56







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



| | a) | Damages for lost income as a result of cargo that was not
                                                                 able to be loaded, subsequent to vessel’s grounding in
                                                                 March 2010;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Damages resulting from the prolonged storage costs due to
                                                                 the inability to place cargo on board the vessel; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Anticipated costs.
| | -- | ------------------



The Company accrues
for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably
estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should
be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Company's
protection and indemnity (P&I) insurance coverage for pollution is $1,000,000 per vessel per incident.



23. TAXATION



The Company is
not subject to tax on international shipping income in its respective jurisdictions of incorporation or in the jurisdictions in
which their respective vessels are registered. However, the vessel-owning companies' vessels are subject to tonnage taxes, which
have been included in the vessel operating expenses in the accompanying statements of operations.



Pursuant to the
U.S. Internal Revenue Code (the "Code"), U.S.-source income from the international operation of vessels is generally
exempt from U.S. tax if the company operating the vessels meets certain requirements. Among other things, in order to qualify
for this exemption, the company operating the vessels must be incorporated in a country which grants an equivalent exemption from
income taxes to U.S. corporations.



All of the Company's
ship-operating subsidiaries satisfy these initial criteria. In addition, these companies must be more than 50% owned by individuals
who are residents, as defined, in the countries of incorporation or another foreign country that grants an equivalent exemption
to U.S. corporations. These companies also currently satisfy the more than 50% beneficial ownership requirement. In addition,
should the beneficial ownership requirement not be met, the management of the Company believes that by virtue of a special rule
applicable to situations where the ship operating companies are beneficially owned by a publicly traded company like the Company,
the more than 50% beneficial ownership requirement can also be satisfied based on the trading volume and the anticipated widely-held
ownership of the Company's shares, but no assurance can be given that this will remain so in the future, since continued compliance
with this rule is subject to factors outside of the Company's control.



24. TRANSACTIONS INVOLVING RELATED
PARTIES



Terra Stabile A.E./ Terra Norma
A.E.



The Company
leases office space as well as warehouse space in Piraeus, Greece from Terra Stabile A.E. (“Terra Stabile”), which
is controlled by Michail Zolotas, the Company's Vice Chairman, President, Chief Executive Officer and member of the Company's
Board of Directors. In November 2009, the Company and Terra Stabile entered into a 12-year lease agreement in relation to
the office space and on April 28, 2010, the Company and Terra Stabile entered into a 12-year lease agreement for the warehouse
space (see Note 22). In May 2011, the Company also entered into two nine-month lease agreements with Terra Norma A.E., which is
controlled by Mr. Zolotas, in relation to office parking space. Total rent for the years ended December 31, 2011 and 2010 was
approximately $484 and $340, respectively.



Management Services and Commissions



Magnus
Carriers,a company owned by two of our former officers and directors, is a company that
provided commercial management services to certain Company’s vessel-owning companies at a commission of 1.25% of hires and
freights earned by the vessels, or fees of $7 per month per vessel where no 1.25% commission was payable. In addition, Magnus
Carriers was entitled to a commission of 1% on the sale or purchase price in connection with a vessel sale or purchase. These
agreements were cancelled by the Company on May 1, 2009. For the years ended December 31, 2011 and 2010, for the period January 1,
2009 to October 13, 2009, and for the period October 14, 2009 to December 31, 2009, these commissions and management
fees were $0, $135, $413, and $0, respectively (figures include continuing and discontinued operations).



F-57









NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Sea Breeze



As part of
attaining revenue (commissions) for the Company's vessels, the Company contracted with a related entity, Sea Breeze Ltd.,
of which one of the Company's former directors is a shareholder. In addition, the Company paid 1% of the purchase price brokerage
commission on the sale of the Saronikos Bridge and the MSC Seine, respectively. For the years ended December 31, 2011 and 2010,
for the period January 1, 2009 to October 13, 2009, and for the period October 14, 2009 to December 31, 2009,
the commissions amounted to $0, $111, $74, and $53, respectively (figures include continuing and discontinued operations).



Newfront — Stamford



At December
31, 2009, the vessel Australia had technical ship management and commercial management agreements with Stamford and Newfront,
and the vessels China and Brazil had technical ship management and commercial management agreements with Newfront. Stamford and
Newfront are both related parties with shareholders in common. The agreed annual management fees were approximately $185 per vessel.
During the first quarter of 2010, these agreements were terminated. Accordingly, the vessel owning companies signed agreements
with Newlead Bulkers S.A. for the provision of commercial and technical ship management services (see below). For the years ended
December 31, 2011 and 2010, for the period January 1, 2009 to October 13, 2009 and for the period October 14, 2009
to December 31, 2009, the management fees for Newfront were approximately$0, $50, $0 and $81, respectively, and for Stamford
were approximately $0, $28, $0, and $40, respectively.



Newlead Bulkers S.A.



Since April 1,
2010, Newlead Bulkers S.A. has been a subsidiary of the Company as a result of its acquisition from Grandunion described in Note
5 above and, consequently, any transactions with the rest of the group have been fully eliminated since that date. Until March
31, 2010, when it was a related party due to the existence of shareholders in common, Newlead Bulkers S.A. assumed the commercial
and technical ship management services for the Australia, the China and the Brazil. The management fees for the year ended December
31, 2010 were $59.



As of December 31, 2011, the commercial
and technical management services of all of the Company’s owned and operated vessels were provided in-house by Newlead Shipping
and Newlead Bulkers.



Newlead Shipping S.A.



Since April 1,
2010, Newlead Shipping S.A. has been a subsidiary of the Company as a result of its acquisition from Grandunion described in Note
5 above and, consequently, any transactions with the rest of the group have been fully eliminated since that date. Until March
31, 2010, when it was a related party due to the existence of shareholders in common, Newlead Shipping S.A. assumed the commercial
and technical ship management services for the Newlead Avra and the Newlead Fortune. The management fees for the year ended December
31, 2010 were $36.



As of December
31, 2011, the commercial and technical management services of all of the Company’s owned and operated vessels were provided
in-house by Newlead Shipping and Newlead Bulkers.



Grandunion Inc.



In April 2010,
the Company completed the acquisition of six vessels (four dry bulk vessels and two product tankers) and Newlead Shipping and
its subsidiaries, an integrated technical and commercial management company, from Grandunion. For more details, refer to Note
5. In July 2010, the Company completed the acquisition of five dry bulk vessels from Grandunion including two newbuildings with
long term time charters. See Note 11 for more details.



Domina Petridou O.E.



The Company leased
office space in Glyfada, Greece from Domina Petridou O.E., a company in which one of the Company's former directors is a shareholder.
In November 2005, the Company entered into a 10-year lease agreement with the landowner. In October 2007, the Company
entered into an additional nine-year lease agreement with the landowner. These agreements were terminated in 2009 and in the first
quarter of 2010, respectively (see Note 22). Total rent for the years ended December 31, 2011 and 2010, and for the periods January 1,
2009 to October 13, 2009, and October 14, 2009 to December 31, 2009 amounted to approximately $0, $17, $113, and
$25, respectively.



F-58







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



Aries Energy Corporation



On April 15,
2010, the Company completed the acquisition of two Kamsarmaxes under construction for an aggregate consideration of approximately
$112,700 (including the assumption of newbuilding contract commitments and debt related to the two Kamsarmaxes) in exchange for
the vessel Chinook as part of the same transaction. The purchase was completed pursuant to the terms of a Securities Purchase
Agreement, dated February 18, 2010, with Aries Energy Corporation, a company with which NewLead has a significant shareholder
in common and Bhatia International PTE Ltd., an unrelated third party.Gabriel Petrides, a former Board
member and an affiliate of Rocket Marine, is one of the Company’s principal stockholders and is one of the principals of
Aries Energy Corporation. The vote on Rocket Marine's shares was controlled by Grandunion pursuant to a voting agreement, and
Mr. Petrides left the Company’s board in October 2009. Accordingly, even though Rocket Marine was a principal stockholder,
neither it nor Mr. Petrides had the ability to influence the Company. The voting agreement between Rocket Marine Inc. and
Grandunion was terminated effective as of February 29, 2012. Management believes that the negotiations were conducted at arm's
length and that the sale price is no less favorable than would have been achieved through arm's length negotiations with a wholly
unaffiliated third party.



25. DISCONTINUED OPERATIONS



During the year ended December 31,
2011, the Company sold four vessels and determined that the sale of these vessels met the requirements as discontinued operations,
which are reflected in the Company's consolidated statements of operations for all periods presented. In addition, as of December
31, 2011, the Company classified four vessels as “Assets held for sale”, which were also determined to have met the
requirements as discontinued operations, which are reflected in the Company's consolidated statements of operations for all periods
presented.



| | · | On August 12, 2011,
                                                                                                          in connection with the
                                                                                                          notices of events of
                                                                                                          default under the FBB
                                                                                                          Spartounta Loan Agreement
                                                                                                          and the FBB Prosperity
                                                                                                          Loan Agreement, the
                                                                                                          Company entered into
                                                                                                          a sale agreement for
                                                                                                          two vessels, the Newlead
                                                                                                          Prosperity and the Newlead
                                                                                                          Spartounta, with FBB.
                                                                                                          The sale of the Newlead
                                                                                                          Prosperity and the Newlead
                                                                                                          Spartounta was completed
                                                                                                          on September 13, 2011
                                                                                                          and September 20, 2011,
                                                                                                          respectively, and the
                                                                                                          gain on the sale of
                                                                                                          these two vessels amounted
                                                                                                          to $4,931 and is included
                                                                                                          in Loss from discontinued
                                                                                                          operations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On December 20,
                                                                                                          2011, the Company entered
                                                                                                          into a memorandum of
                                                                                                          agreement with an unrelated
                                                                                                          party for the sale four
                                                                                                          LR1 product tanker vessels.
                                                                                                          The sale of two vessels,
                                                                                                          the Newlead Fortune
                                                                                                          and the Newlead Avra,
                                                                                                          was completed on December 22,
                                                                                                          2011 for a net aggregate
                                                                                                          selling price of $63,758
                                                                                                          and the gain on the
                                                                                                          sale of these two vessels
                                                                                                          amounted to $8,640 and
                                                                                                          is included in Loss
                                                                                                          from discontinued operations.
                                                                                                          As of December 31, 2011,
                                                                                                          the Newlead Compass
                                                                                                          and the Newlead Compassion
                                                                                                          were classified as assets
                                                                                                          held for sale and the
                                                                                                          sale was completed on
                                                                                                          January 31, 2012 for
                                                                                                          net aggregate selling
                                                                                                          price of $79,197.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On December 29,
                                                                                                          2011, the Company signed
                                                                                                          a memorandum of agreement
                                                                                                          and on January 11, 2012
                                                                                                          sold the Grand Ocean
                                                                                                          to an unrelated party
                                                                                                          for proceeds of approximately
                                                                                                          $8,150. As of December
                                                                                                          31, 2011, Grand Ocean
                                                                                                          was classified as an
                                                                                                          asset held for sale,
                                                                                                          and was written down
                                                                                                          to its recoverable amount.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On
                                                                                                        October 21, 2011, the
                                                                                                        Company entered into an
                                                                                                        agreement with Prime Mountain
                                                                                                        Shipping Ltd in order
                                                                                                        to return the vessel Australia,
                                                                                                        in settlement of part
                                                                                                        of the vessel’s
                                                                                                        outstanding debt. As of
                                                                                                        December 31, 2011, the
                                                                                                        Australia was classified
                                                                                                        as an asset held for sale,
                                                                                                        and was written down to
                                                                                                        its recoverable amount.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



From 2005 until 2010, the Company owned
a number of container vessels, chartering them to its customers (the "Container Market"). The Container Market was fully
discontinued as of December 31, 2010.



| | · | During 2008 and
                                                                                                          the first half of 2009,
                                                                                                          the Company sold three
                                                                                                          container vessels and
                                                                                                          a product tanker to
                                                                                                          unaffiliated purchasers
                                                                                                          for approximately $61,900.
                                                                                                          The gain on sale of
                                                                                                          these vessels was $7,985.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On January 7,
                                                                                                          2010, the Company sold
                                                                                                          the Saronikos Bridge
                                                                                                          to an unrelated party
                                                                                                          for net proceeds of
                                                                                                          $5,348. The gain on
                                                                                                          the sale of the vessel
                                                                                                          amounted to $1,226.
                                                                                                          The Company paid 1%
                                                                                                          of the purchase price
                                                                                                          as sales commission
                                                                                                          to a brokerage firm,
                                                                                                          of which one of the
                                                                                                          former Company's directors
                                                                                                          is a shareholder (refer
                                                                                                          to Note 24). The Company
                                                                                                          also paid a 1% commission
                                                                                                          to two unrelated brokerage
                                                                                                          firms, respectively,
                                                                                                          as well as, a 1% address
                                                                                                          commission.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On January 20,
                                                                                                          2010, the Company sold
                                                                                                          the MSC Seine to an
                                                                                                          unrelated party for
                                                                                                          net proceeds of $5,399.
                                                                                                          The gain on the sale
                                                                                                          of the vessel amounted
                                                                                                          to $1,271. The Company
                                                                                                          paid 1% of the purchase
                                                                                                          price as sales commission
                                                                                                          to a brokerage firm,
                                                                                                          of which one of the
                                                                                                          former Company's directors
                                                                                                          is a shareholder (refer
                                                                                                          to Note 24). The Company
                                                                                                          also paid a 1% commission
                                                                                                          to two unrelated brokerage
                                                                                                          firms, respectively,
                                                                                                          as well as, a 1% address
                                                                                                          commission.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-59







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



The following
table represents the revenues and net loss from discontinued operations:





|                   |  | Successor    |         |   | Predecessor  |  
|------------------ |  | ------------ | ------- | - | ------------ | -
|                   |  |              |         |   |              |  
|                   |  | Year Ended   |         |   | Year Ended   |  
|                   |  | December 31, |         |   | December 31, |  
|                   |  | 2011         |         |   | 2010         |  
|                   |  |              |         |   |              |  
|Operating Revenues |  | $            | 39,355  |   |              | $
|Net loss           |  | $            | (32,180 | ) |              | $



The reclassification
to discontinued operations had no effect on the Company's previously reported consolidated net loss. In addition to the financial
statements themselves, certain disclosures have been modified to reflect the effects of these reclassifications on those disclosures.
The Company recorded an impairment charge on vessels in the amount of $30,426 for the year ended December 31, 2011 and an amount
of $23,559 for the period from January 1, 2009 to October 13, 2009. No impairment loss was recognized for the year ended December
31, 2010 and for the period from October 13, 2009 to December 31, 2009.



26. SUBSEQUENT EVENTS



Due to the economic conditions and operational
difficulties described elsewhere in these financial statements, the Company entered into restructuring discussions with each of
the lenders under Company’s facility and credit agreements, the holders of Company’s 7% senior unsecured convertible
notes (the "7% Notes") and the counterparties to Company’s capital leases (collectively, the agreements governing
such debt, the “Financing Documents”). As part of those discussions, the Company appointed Moelis to act as our financial
advisors in respect of the restructuring proposal described below. The aim of the Restructuring is to increase liquidity, normalize
trade vendor payments and deleverage the Company on a going forward basis.



Since June 2011, the Company has defaulted
under each of its Financing Documents in respect of certain covenants (including, in some cases, the failure to make amortization
and interest payments, the failure to satisfy financial covenants and the triggering of cross-default provisions). To date, the
Company has not obtained waivers of these defaults from its lenders and during the Restructuring process, the Company’s
lenders have continued to reserve their rights in respect of such defaults. Based on various informal discussions with the lenders,
the Company believes that the lenders do not intend to exercise their remedies at this time (other than as detailed below in respect
of the Kamsarmax Syndicate Facility Agreements); however, the lenders could change their position at any time. As such, there
can be no assurance that a satisfactory final agreement will be reached with the lenders in the Restructuring, or at all.



On November 8, 2011, the Company and
Moelis presented to each of the lenders under the Financing Documents a commercial presentation which set out a comprehensive
global restructuring proposal (the “Restructuring Proposal”). The Restructuring Proposal included, among other things,
proposed amendments to the Financing Documents (including amortization relief and reset of financial covenants). The Company has
been engaged in negotiations with its lenders regarding the terms of the Restructuring Proposal but the lenders have not yet approved
the Restructuring Proposal and such changes have not been implemented as of the filing of this annual report.



Notwithstanding the above, the Company
has made progress in completing various parts of the Restructuring Proposal and continues to remain in discussions with the remaining
lenders. During 2011 and through May 15, 2012, the Company has sold, disposed of or handed control over to the lenders 17 of its
vessels and hulls under construction (or under ownership of the Company’s shipowning subsidiaries) in connection with the
restructuring.



As of May 15, 2012, the Company remained
in advanced negotiations with the remaining lenders of its secured debt. The Company has not resolved various issues in respect
of the remaining lenders and therefore the completion of the Restructuring is still subject to the negotiation and execution of
definitive agreements. As such, there is no assurance that such agreements will be reached on the contemplated terms as highlighted
herein or at all.



F-60







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



The following sets forth the terms of
the completed steps to the Restructuring to date and a description of the status of those elements which have yet to be completed.



(i) Syndicate Facility Agreement



As
discussed in Notes 11 and 15, on January 31, 2012, with the consent of the lenders under the Facility Agreement, the Company successfully
completed the sale of the Newlead Compass and the Newlead Compassion with net proceeds of approximately $79,197. Such net proceeds
were applied towards the full and final satisfaction of all liabilities owed to the lenders under the Facility Agreement (other
than fees owing to the lenders of approximately $585 pursuant to a letter of undertaking dated February 3, 2012 (the “Fees”)).
The Company has agreed in principle with the Bank of Scotland that these Fees may be paid at some point after the closing of the
Restructuring,but in any event before 24 months from the date of signing the applicable
agreed document. The definitive documentation in this regard is being negotiated. However, there can be no assurance that we will
be able to reach an agreement with Bank of Scotland.



(ii) Kamsarmax Syndicate Facility
Agreements



On February 24,
2012, the Bank of Scotland plc issued notices of enforcement and notices of default and acceleration in relation to the senior
loan agreement and the junior loan agreement, each dated April 15, 2010 (collectively, the “Kamsarmax Syndicate Facility
Agreements"), between Ayasha Trading Corporation (“Ayasha”) and Bethune Properties S.A. (“Bethune”),
as borrowers, and the Bank of Scotland, BMTU Capital Corporation, and the Bank of Ireland, as lenders. In addition, the Bank of
Scotland filed claim forms in the High Court of England and Wales against the borrowers representing claims for approximately
$62,684 and $13,938 under the Kamsarmax Syndicate Facility Agreements and sought a declaration, that, among other things, the
Bank of Scotland is entitled to make a demand against the Company in respect of sums owing under the Kamsarmax Syndicate Facility
Agreements. Ayasha and Bethune were the shipowning companies of the motor vessels “Newlead Tomi” and “Newlead
Gujarat,” respectively. Pursuant to such notices, the Bank of Scotland, as the agent and security trustee under each of
the Kamsarmax Syndicate Facility Agreements, exercised its rights to foreclose on the shares of Ayasha and Bethune, which secured
the loans under the Kamsarmax facilities and the vessels were handed over to the lenders control.



The Company has
agreed in principle with the Bank of Scotland in respect of releasing it from all of its obligations and liabilities under the
Kamsarmax Syndicate Facility Agreements in return for a waiver from the Company to any claims, actions or remedies that it may
have against the Bank of Scotland and a definitive release documentation on this point is being negotiated. The vessels have already
been delivered to the new managers. The Company is currently working towards definitive documentations that would release it from
its obligations under the Kamsarmax Syndicate Facility Agreements. However, there can be no assurance that the Company will be
able to reach an agreement with the Bank of Scotland under acceptable terms or at all.



(iii) EFG Eurobank Credit Facility



On
February 10, 2012, with the consent of EFGEurobank (“EFG”), the Company agreed
to the sale of the Newlead Esmeralda for proceeds of approximately $11,400 with the proceeds of the sale being applied towards
(a) the full and final satisfaction of all indebtedness owed to EFG under the loan agreement with EFG and (b) the payment of outstanding
trade and vendor payments. The sale of this vessel has been completed and EFG has released NewLead from all of its liabilities
and obligations under this credit facility and related documents.





F-61







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



(iv) Marfin Credit Facilities &
7% Notes



On
April 5, 2012, with the consent of Marfin Egnatia Bank Bank Societe Anonyme (“Marfin”), we entered into an agreement
for the sale of the Newlead Venetico and that vessel was delivered to the buyer on May 8, 2012. The Company is currently in discussions
with Marfin regarding certain amendments to the Company’scredit facilities with them (the “Marfin Credit
Facilities”) whereby this facility would be amended and restated to reduce the overall committed amount there under to the
existing outstanding amount of approximately $31,187 and to enable the Company to comply with certain covenants under the facility
on an ongoing basis after the closing of the Restructuring. The Company is also in discussions with Marfin Bank regarding a conversion
agreement in respect of the 7% Notes (for which Marfin is the indenture trustee), whereby Marfin would convert all debt claims
Marfin may have against the Company arising under 7 Notes into equity of the Company. The terms of any such amendment and restatement
agreement, debt conversion and share issuance and is still under negotiation and subject to the execution of legally binding agreements.



(v) Piraeus Bank (Piraeus) Credit
Facilities



On December 29,
2011, the Company, with the consent of Piraeus Bank, entered into an agreement for the sale of the Grand Ocean and that vessel
was delivered to the buyer on January 11, 2012 for net proceeds of approximately $8,150. Piraeus applied the net proceeds of such
sale received by it towards (a) the prepayment of the total outstanding amounts due under the loan agreement for the Grand Ocean
in a total aggregate amount of $6,510 and (b) the payment of outstanding trade and vendor payments. The Company continues to negotiate
with Piraeus Bank in respect of the sale of the vessels Hiona and Hiotissa and (b) an agreement by which Piraeus will release
the Company from all debt obligations arising under the related credit facilities in exchange for equity in the Company.



The
terms and conditions of any agreement between the Company and Piraeus Bank regarding the sale of Hiona and Hiotissa, andany
agreements relating to the release of obligationsunder the related agreements is
subject to negotiating and executing legally binding documentation. There are no assurances that the Company will be able to complete
such documentation or the Restructuring in this regard.



(vi) WestLB Bank Credit Facility



The Company is
currently in negotiations with WestLB to amend the terms of the loan agreement, whereby the agreement will be amended and restated
to enable the Company to comply with certain of its covenants on an ongoing basis after the closing of the Restructuring and enable
the Newlead Victoria vessel to stay within the Company. The terms and conditions of any agreement between the Company and WestLB
are subject to negotiating and executing legally binding documentation. There are no assurances that the Company will be able
to complete such documentation or the Restructuring in this regard.



(vii) Handysize Syndicate Facility
Agreement



On
March 21, 2012, with the consent of the lenders, the Company entered into a memorandum of agreement with an unrelated party for
the sale of the Navios Serenity by which the vessel would be sold and the proceeds of the sale would be applied towards the outstanding
balance owed underthe credit facility with DVB Bank, Nord LB and Emporiki Bank (“the
Handysize Syndicate Facility Agreement”). The vessel was sold and delivered to the buyer.
The Company remains liable under the Handysize Facility Agreement to the lenders in respect of the Hull 4029 and are in discussions
with the lenders, the yard and the buyer in respect of the sale of this vessel. The lenders will not release the Company from
all of its obligations under the Handysize Syndicate Facility Agreement and related documents unless and until this vessel is
sold. The terms and conditions of any agreement between the Company and the lenders are subject to negotiating and executing legally
binding documentation. There is no assurance that the Company will complete such documentation or the Restructuring in this regard.



On March 21,
2012, the Company signed a memorandum of agreement with an unrelated party for the sale of the Navios Serenity. The sale was completed
on March 26, 2012 for proceeds of approximately $26,000.



(viii) Northern Shipping Fund (NSF)



On March 14,
2012, the Companyreceived enforcement notices from Endurance Shipping LLC whereby, among other things,
Endurance Shipping LLC exercised its rights to foreclose on the pledge of the shares of Curby Navigation Ltd., which secured the
bareboat charter. On March 31, 2012, the Company entered into a deed of release with Endurance Shipping LLC, the owner of
the Newlead Endurance, pursuant to which the Company was unconditionally released from its guarantee under the bareboat charter
for the Newlead Endurance, which had been chartered-in by Curby Navigation Ltd. In connection with the enforcement notices, the
Company also received a termination notice in respect of the ship management agreement between Curby Navigation Ltd. and NewLead
Bulkers S.A., which had been the manager of the Newlead Endurance.



F-62







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



On March 14,
2012, the Company redelivered the Newlead Endurance to NSF pursuant to a redelivery agreement in respect of the capital leasing
arrangement. As part of this redelivery agreement, the Company was released from all its obligations and liabilities under the
relevant finance lease documentation.



(ix) Lemissoler Sale and Leaseback
Agreements



On January 31,
2012, February 7, 2012, February 11, 2012, and March 19, 2012, respectively, pursuant to various redelivery addendums to certain
sale and leaseback agreements, the Company completed the redelivery of four dry bulk vessels, namely the "Australia",
the "Grand Rodosi", the "China" and the "Brazil", to their owners which are affiliates of Lemissoler
Maritime Company W.L.L. ("Lemissoler"). Although these vessels have been redelivered to Lemissoler, the Company is still
liable under the sale and leaseback agreements in respect of settlement of trade payables, amounts owing to the owners as a result
of termination of those agreements and other liabilities in relation to the four vessels. We are in discussions with Lemissoler
to address these outstanding issues and are seeking to enter into a settlement agreement in this regard whereby Lemissoler will
convert any debt claims they may have against us into equity of the Company.



The terms and
conditions of any agreement between us and Lemissoler are subject to negotiating and executing legally binding documentation.
There are no assurances that the Company will be able to complete such documentation or the Restructuring in this regard.



b)	On February
15, 2012, the Company issued the following common shares: (i) 1,261,166 shares to employees, officers and consultants under the
Plan (for more details, refer to Note 18); (ii) 560,000 shares to board of directors members under the Plan (for more details,
refer to Note 18); (iii) 69,334 shares to Terra Stabile A.E. and 5,247 shares to Meltemi Deck E.P.E., which vested upon issuance,
and the related settlement agreements for amounts due to them; (iv) 50,057 shares to former employees, officers and consultants,
which vested immediately, in accordance with the resolutions of the Compensation Committee, dated December 21, 2011; and (v) 866,668
shares to two of the Company’s executive officers, Nicholas G. Fistes, Chairman, and Michail S. Zolotas, Vice Chairman,
Chief Executive Officer and President. On January 2, 2012, the Company entered into employment agreements with these two executive
officers, which entitle each executive to an annual base salary and an annual incentive bonus that is payable in the Company's
common shares.



The agreements
are retroactive for the years 2010 and 2011 and effective until December 31, 2016, after which they will automatically renew
for additional one-year periods, unless terminated in accordance with the terms of such agreements. Pursuant to the employment
agreements, both executives will be entitled to the following compensation: (1) for the period between October 13, 2009 until
the end of 2010, they will be entitled to an aggregate base salary of $1,300 and bonus of $300, which will be paid in shares priced
at $24.00 per share, resulting in an aggregate of issuance of 66,667shares, (2) for 2011, they will be entitled to an aggregate
base salary of $1,300 and bonus of $300, which will be paid in shares priced at $2.00 per share, resulting in an aggregate of
issuance of 800,000shares; and (3) for each year from 2012 until the end of 2016, they will be entitled to an aggregate base salary
of $1,450 and bonus of $1,450, which will be paid in shares priced at $2.00 per share, resulting in an aggregate of issuance of
1,450,000 shares. Under each employment agreement, upon a change in control of the Company, any stock based awards to the employee
will vest. If prior to the effective date of a change of control or after the second anniversary of the effective date of a change
in control, the employee is terminated without "cause" or resigns for "good reason," the employee will be
entitled to receive his then current base salary through the end of the expiration period of the agreement, in addition to any
benefits accrued through the date of his termination. If on or after the effective date of a change of control and prior to the
second anniversary of the effective date of the change of control, the employee is terminated without "cause" or resigns
for "good reason," the employee will be entitled to five times his then current base salary and five times the annual
bonus for the prior year within 30 days following the effectiveness of the termination. If an executive's employment is terminated
for "cause" or voluntarily by the employee without "good reason," the employee will not be entitled to any
salary, benefits or reimbursements beyond those accrued through the date of his termination.



F-63







NEWLEAD HOLDINGS LTD.



Notes to the Consolidated Financial
Statements

(All amounts expressed in thousands of U.S. dollars except
share and per share data and where otherwise specified)



c)	On January
2, 2012, the Company entered into severance agreements with certain of its key employees, not including Nicholas G. Fistes and
Michail S. Zolotas. If on or after the effective date of a change of control and prior to the second anniversary of the effective
date of a change of control, the severance agreements are terminated without "cause," or the employee resigns for "good
reason," the employee will be entitled to (i) five times his then current base salary, (ii) five times his annual
bonus and (iii) the number of shares of the Company's common shares valued at two times his annual bonus at a price per share
equal to the average trading price during the previous 30 trading days, in each case within 30 days following the effectiveness
of the termination. As used in the employment agreements and the severance agreements, "change of control" means: (i) the
sale or disposition, in one or a series of related transactions within any twelve (12) month period ending on the date of
the most recent acquisition by such person or persons, of more than 50% of the assets of the Company to any "person"
or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")); (ii) any person or group is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in one or a series of related transactions within any
twelve (12) month period ending on the date of the most recent acquisition by such person or persons, of the Company's outstanding
equity representing more than 50% of the total voting power of the Company's equity; or (iii) the Company undergoes a merger,
reorganization or other consolidation in which the owners of the Company's outstanding equity ownership immediately prior to such
merger, reorganization or consolidation own less than 50% of the surviving entity's voting power immediately after the transaction.



d)	On January 16, 2012, the Company,
pursuant to the shares issuance agreement with Lemissoler Maritime Company W.L.L., issued 199,135 shares to Lemissoler Maritime
Company W.L.L. (For more details refer to Note 17.)



e)	On February 28, 2012, the Company
issued 6,550,000 common shares, which vested upon issuance, to various vendors to settle outstanding invoices.



f)	On
April 24, 2012, the Company issued the following common shares: (i) 507,000 additional shares to former employees, officers and
consultants, which vested immediately;(ii)
227,273 shares to Terra Stabile A.E. and 11,229 shares to Terra Norma SA; (iii) 731,140 shares to J Mining and Energy Group, Inc;
(iv) 303,864 common shares to two vendors to settle outstanding balances, and (v) 750,000 common shares to one vendor to settle
an outstanding balance.



g)	On March
15, 2012, the Company received notification from the NASDAQ Listing Qualifications department that
it had regained compliance with the minimum Market Value of Publicly Held Shares (MVPHS) of $5,000 for continued listing set forth
in Listing Rule 5450(b)(1)(C) as the Company's MVPHS was $5,000 or more for 10 consecutive business days. Furthermore, on March
29, 2012, the Company received notification from the NASDAQ Listing Qualifications department that it had regained compliance
with the bid price requirement pursuant to NASDAQ Listing Rule 5810 (c)(3)(A) as the closing bid price of the Company's common
shares exceeded $1.00 for 10 consecutive business days.



h)	In April
2012, a U.S. subsidiary of the Company entered into a joint venture arrangement with a third party to purchase thermal coal (used
in power plants for electricity generation) from reserves located in Kentucky, USA.  The joint venture has entered into agreements
to purchase certain quantities of thermal coal with specified minimum qualities (after processing at the mine by the mine operator)
over a five-year period.  The Company expects to market and distribute the thermal coal to end users or distributors, located
primarily in Asia, and transport it using the Company’s vessels.  In connection with entering into the joint venture
arrangement, the Company’s U.S. subsidiary was converted from a Delaware limited liability company into a Delaware corporation
and its name was changed from NewLead Holdings (US) LLC to NewLead Holdings (US) Corp.



F-64







SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.



NEWLEAD HOLDINGS LTD.



|By: | /s/ Michail Zolotas     | 
|--- | ----------------------- | 
|    | Michail Zolotas         | 
|    | Chief Executive Officer | 
|    | Dated: May 15, 2012     |