|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  
|FORM 20-F                         

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|           |                                                                                                                                   
|---------- | ----------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|o          | Registration statement pursuant to Section
 12(b) or (g) of the Securities Exchange Act of 1934                                   
|           |                                                                                                                                   
|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
|           |                                                                                                                                   
|o          | Transition Report pursuant to Section 13 or
 15(d) of the Securities Exchange Act of 1934                                         
|           |                                                                                                                                   
|o          | Shell Company Report pursuant to Section 13
 or 15(d) of the Securities Exchange Act of 1934                                      

Commission File Number 001-34077

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|                                                                                 
|---------------------------------------------------------------------------------
|SAFE BULKERS, INC.                                                               
|(Exact
 name of Registrant as specified in its charter)                          
|                                                                                 
|Not Applicable                                                                   
|(Translation of Registrants name into English)                                  
|                                                                                 
|Republic of The Marshall Islands                                                 
|(Jurisdiction of incorporation or organization)                                  
|                                                                                 
|30-32 Avenue Karamanli                                                           
|P.O. Box 70837                                                                   
|16605 Voula                                                                      
|Athens, Greece                                                                   
|(Address of principal executive offices)                                         
|                                                                                 
|Dr. Loukas Barmparis                                                             
|President                                                                        
|30-32 Avenue Karamanli                                                           
|P.O. Box 70837                                                                   
|16605 Voula                                                                      
|Athens, Greece                                                                   
|Telephone : +30 210 899 4980                                                     
|Facsimile : +30 210 895 4159                                                     
|(Name, Address, Telephone Number and Facsimile Number of Company
 contact person)

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

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|                                                                          |  |                                                 
|------------------------------------------------------------------------- |  | ------------------------------------------------
|Title of
 Each Class                                                      |  | Name of
 Each Exchange on Which Registered      
|                                                                          |  |                                                 
|                                                                          |  |                                                 
|Common Stock, $0.001 par value per share Preferred
 stock purchase rights |  | New York Stock Exchange
 New York Stock Exchange

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

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

Indicate the number
of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report. As of
December 31, 2011, there were 70,891,916 shares of the registrants common
stock outstanding.

Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes o No x

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

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

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 filer o               Accelerated
filer x               Non-accelerated
filer o

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

U.S. GAAP x International Financial Reporting Standards
as issued by the International Accounting Standards Board o Other o

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

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

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TABLE OF CONTENTS

|          |                                                                               |  |     
|--------- | ----------------------------------------------------------------------------- |  | ----
|          |                                                                               |  | Page
|ITEM 1.   | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         |  | 1   
|          |                                                                               |  |     
|ITEM 2.   | OFFER STATISTICS AND EXPECTED TIMETABLE                                       |  | 1   
|          |                                                                               |  |     
|ITEM 3.   | KEY INFORMATION                                                               |  | 1   
|          |                                                                               |  |     
|ITEM 4.   | INFORMATION ON THE COMPANY                                                    |  | 21  
|          |                                                                               |  |     
|ITEM 4A.  | UNRESOLVED STAFF COMMENTS                                                     |  | 35  
|          |                                                                               |  |     
|ITEM 5.   | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  | 35  
|          |                                                                               |  |     
|ITEM 6.   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |  | 52  
|          |                                                                               |  |     
|ITEM 7.   | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |  | 57  
|          |                                                                               |  |     
|ITEM 8.   | FINANCIAL INFORMATION                                                         |  | 62  
|          |                                                                               |  |     
|ITEM 9.   | THE OFFER AND LISTING                                                         |  | 64  
|          |                                                                               |  |     
|ITEM 10.  | ADDITIONAL INFORMATION                                                        |  | 64  
|          |                                                                               |  |     
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                    |  | 77  
|          |                                                                               |  |     
|ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                        |  | 78  
|          |                                                                               |  |     
|ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                               |  | 79  
|          |                                                                               |  |     
|ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
 PROCEEDS |  | 79  
|          |                                                                               |  |     
|ITEM 15.  | CONTROLS AND PROCEDURES                                                       |  | 79  
|          |                                                                               |  |     
|ITEM 16.  | [RESERVED]                                                                    |  | 81  
|          |                                                                               |  |     
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                              |  | 81  
|          |                                                                               |  |     
|ITEM 16B. | CODE OF ETHICS                                                                |  | 81  
|          |                                                                               |  |     
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                        |  | 81  
|          |                                                                               |  |     
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                    |  | 82  
|          |                                                                               |  |     
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
 PURCHASERS       |  | 82  
|          |                                                                               |  |     
|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                  |  | 83  
|          |                                                                               |  |     
|ITEM 16G. | CORPORATE GOVERNANCE                                                          |  | 83  
|          |                                                                               |  |     
|ITEM 17.  | FINANCIAL STATEMENTS                                                          |  | 84  
|          |                                                                               |  |     
|ITEM 18.  | FINANCIAL STATEMENTS                                                          |  | 84  
|          |                                                                               |  |     
|ITEM 19.  | EXHIBITS                                                                      |  | 84  

i

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ABOUT THIS REPORT

In
this annual report, Safe Bulkers, the Company, we, us and our are
sometimes used for convenience where references are made to Safe Bulkers, Inc.
and its subsidiaries (as well as the predecessors of the foregoing). These
expressions are also used where no useful purpose is served by identifying the
particular company or companies. Our affiliated management company, Safety
Management Overseas S.A., a company incorporated under the laws of the Republic
of Panama, is sometimes referred to in this annual report as Safety
Management or our Manager.

FORWARD-LOOKING STATEMENTS

All
statements in this annual report that are not statements of historical fact are
forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995. The disclosure and analysis set forth
in this annual report includes assumptions, expectations, projections,
intentions and beliefs about future events in a number of places, particularly
in relation to our operations, cash flows, financial position, plans,
strategies, business prospects, changes and trends in our business and the
markets in which we operate. These statements are intended as forward-looking
statements. In some cases, predictive, future-tense or forward-looking words
such as believe, intend, anticipate, estimate, project, forecast,
plan, potential, may, should, and expect and similar expressions are
intended to identify forward-looking statements, but are not the exclusive
means of identifying such statements. In addition, we and our representatives
may from time to time make other oral or written statements which are
forward-looking statements, including in our periodic reports that we file with
the Securities and Exchange Commission (SEC), other information sent to our
security holders, and other written materials.

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

| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | future
 operating or financial results and future revenues and expenses;                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                
| |  | future,
 pending or recent acquisitions, business strategy, areas of possible
 expansion and expected capital spending or operating expenses;                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                
| |  | availability
 of key employees, crew, length and number of off-hire days, drydocking
 requirements and fuel and insurance costs;                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                
| |  | general
 market conditions and shipping industry trends, including charter rates,
 vessel values and factors affecting supply and demand;                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                
| |  | our
 financial condition and liquidity, including our ability to make required payments
 under our credit facilities, comply with our loan covenants and obtain
 additional financing in the future to fund capital expenditures, acquisitions
 and other corporate activities;
| |   |                                                                                                                                                                                                                                                                                
| |  | the overall
 health and condition of the U.S. and global financial markets, including the
 value of the U.S. dollar relative to other currencies;                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                
| |  | our
 expectations about availability of vessels to purchase, the time that it may
 take to construct and deliver new vessels or the useful lives of our vessels;                                                                                                               
| |   |                                                                                                                                                                                                                                                                                
| |  | our
 continued ability to enter into period time charters with our customers and
 secure profitable employment for our vessels in the spot market;                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                
| |  | our
 expectations relating to dividend payments and ability to make such payments;                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                
| |  | our ability
 to leverage our Managers relationships and reputation within the drybulk
 shipping industry to our advantage;                                                                                                                                                    

ii

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| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | our
 anticipated general and administrative expenses;                                                                           
| |   |                                                                                                                                 
| |  | environmental
 and regulatory conditions, including changes in laws and regulations or
 actions taken by regulatory authorities;
| |   |                                                                                                                                 
| |  | risks
 inherent in vessel operation, including terrorism, piracy and discharge of
 pollutants;                                  
| |   |                                                                                                                                 
| |  | potential
 liability from future litigation; and                                                                                
| |   |                                                                                                                                 
| |  | other
 factors discussed in Item 3. Key Information  D. Risk Factors of this
 annual report.                                 

We
caution that the forward-looking statements included in this annual report
represent our estimates and assumptions only as of the date of this annual
report and are not intended to give any assurance as to future results.
Assumptions, expectations, projections, intentions and beliefs about future
events may, and often do, vary from actual results and these differences can be
material. The reasons for this include the risks, uncertainties and factors
described under Item 3. Key Information  D. Risk Factors. As a result, the
forward-looking events discussed in this annual report might not occur and our
actual results may differ materially from those anticipated in the
forward-looking statements. Accordingly, you should not unduly rely on any
forward-looking statements.

We
undertake no obligation to update or revise any forward-looking statements
contained in this annual report, whether as a result of new information, future
events, a change in our views or expectations or otherwise. New factors emerge
from time to time, and it is not possible for us to predict all of these
factors. Further, we cannot assess the impact of each such factor on our
business or the extent to which any factor, or combination of factors, may
cause actual results to be materially different from those contained in any
forward-looking statement.

iii

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PART I

|                |                                                       | 
|--------------- | ----------------------------------------------------- | 
|ITEM 1.         | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|                |                                                      
|Not applicable.
|               
|ITEM 2.         | OFFER STATISTICS AND EXPECTED TIMETABLE              
|                |                                                      
|Not applicable.
|               
|ITEM 3.         | KEY INFORMATION                                      
|                |                                                      
|A.              | Selected
 Financial Data                             

The
following table presents selected combined and consolidated financial and other
data of Safe Bulkers, Inc. for each of the five years in the five year period
ended December 31, 2011. The table should be read together with Item 5.
Operating and Financial Review and Prospects. The selected combined and
consolidated financial data of Safe Bulkers, Inc. is a summary of, is derived
from, and is qualified by reference to, our audited combined and consolidated
financial statements and notes thereto, which have been prepared in accordance
with U.S. generally accepted accounting principles, or U.S. GAAP.

Our
audited consolidated statements of income, stockholders equity and cash flows
for the years ended December 31, 2009, 2010 and 2011 and the consolidated
balance sheets at December 31, 2010 and 2011, together with the notes thereto,
are included in Item 18. Financial Statements and should be read in their
entirety.

|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|---------------------------------------------------------------- |  | ------------------------------------------------- | ---------- | ---- | - | ---------- | - | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                 |  | Year Ended December 31,                           |           
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                 |  | 2007                                              |            | 2008 |   | 2009       |   | 2010 |            | 2011 |  
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                 |  | (In
 thousands of U.S. dollars except share data) |           
|STATEMENT
 OF INCOME                                             |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Revenues                                                         |  | $                                                 | 172,057    |      | $ | 208,411    |   | $    | 168,400    |      | $ | 159,698    |   | $ | 172,036    |  
|Commissions                                                      |  |                                                   | (6,209     | )    |   | (7,639     | ) |      | (3,794     | )    |   | (2,678     | ) |   | (3,128     | )
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Net revenues                                                     |  |                                                   | 165,848    |      |   | 200,772    |   |      | 164,606    |      |   | 157,020    |   |   | 168,908    |  
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Voyage expenses                                                  |  |                                                   | (179       | )    |   | (273       | ) |      | (577       | )    |   | (610       | ) |   | (1,987     | )
|Vessel operating expenses                                        |  |                                                   | (12,429    | )    |   | (17,615    | ) |      | (19,628    | )    |   | (23,128    | ) |   | (26,066    | )
|Depreciation                                                     |  |                                                   | (9,583     | )    |   | (10,614    | ) |      | (13,893    | )    |   | (19,673    | ) |   | (23,637    | )
|General and administrative expenses                              |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Management fee to related party                                  |  |                                                   | (1,177     | )    |   | (4,419     | ) |      | (4,436     | )    |   | (4,880     | ) |   | (6,026     | )
|Third party expenses                                             |  |                                                   | (2,477     | )    |   | (3,626     | ) |      | (2,610     | )    |   | (2,138     | ) |   | (2,463     | )
|Early redelivery (cost)/income                                   |  |                                                   | (21,438    | )    |   | (565       | ) |      | 74,951     |      |   | 132        |   |   | 207        |  
|Loss on asset purchase cancellations                             |  |                                                   |           |      |   |           |   |      | (20,699    | )    |   |           |   |   |           |  
|Gain on sale of assets                                           |  |                                                   | 112,360    |      |   |           |   |      |           |      |   | 15,199     |   |   |           |  
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Operating income                                                 |  |                                                   | 230,925    |      |   | 163,660    |   |      | 177,714    |      |   | 121,922    |   |   | 108,936    |  
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Interest expense                                                 |  |                                                   | (8,225     | )    |   | (16,392    | ) |      | (10,342    | )    |   | (6,423     | ) |   | (5,250     | )
|Other finance costs                                              |  |                                                   | (161       | )    |   | (409       | ) |      | (442       | )    |   | (330       | ) |   | (1,055     | )
|Interest income                                                  |  |                                                   | 1,290      |      |   | 1,492      |   |      | 2,164      |      |   | 2,627      |   |   | 1,046      |  
|Loss on derivatives                                              |  |                                                   | (704       | )    |   | (19,509    | ) |      | (4,416     | )    |   | (8,164     | ) |   | (12,491    | )
|Foreign currency (loss)/gain                                     |  |                                                   | (13,759    | )    |   | (9,500     | ) |      | 838        |      |   | 281        |   |   | (799       | )
|Amortization and write-off of deferred finance charges           |  |                                                   | (166       | )    |   | (131       | ) |      | (106       | )    |   | (266       | ) |   | (653       | )
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Net income                                                       |  | $                                                 | 209,200    |      | $ | 119,211    |   | $    | 165,410    |      | $ | 109,647    |   | $ | 89,734     |  
|                                                                 |  |                                                   |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Earnings per share, basic and diluted                            |  | $                                                 | 3.84       |      | $ | 2.19       |   | $    | 3.03       |      | $ | 1.73       |   | $ | 1.29       |  
|Cash dividends declared per share                                |  | $                                                 | 7.04       |      | $ | 3.83       |   | $    | 0.60       |      | $ | 0.60       |   | $ | 0.60       |  
|Weighted average number of shares outstanding, basic and diluted |  |                                                   | 54,500,000 |      |   | 54,500,889 |   |      | 54,510,587 |      |   | 63,300,466 |   |   | 69,463,093 |  

1

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|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|----------------------------------------------------- |  | ------------------------------------------------- | -------- | ---- | - | -------- | - | ---- | -------- | ---- | - | -------- | - | - | -------- | -
|                                                      |  | Year Ended December 31,                           |         
|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|                                                      |  | 2007                                              |          | 2008 |   | 2009     |   | 2010 |          | 2011 |  
|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|                                                      |  | (In
 thousands of U.S. dollars except share data) |         
|OTHER FINANCIAL DATA                                  |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|Net cash provided by
 operating activities            |  | $                                                 | 278,506  |      | $ | 259,597  |   | $    | 211,338  |      | $ | 118,147  |   | $ | 107,189  |  
|Net cash provided by/(used
 in) investing activities  |  |                                                   | 88,416   |      |   | (148,223 | ) |      | (191,863 | )    |   | (131,709 | ) |   | (125,889 | )
|Net cash (used in)/provided
 by financing activities  |  |                                                   | (366,922 | )    |   | (83,672  | ) |      | (28,742  | )    |   | 60,136   |   |   | (18,514  | )
|Net increase/(decrease) in
 cash and cash equivalents |  |                                                   |         |      |   | 27,702   |   |      | (9,267   | )    |   | 46,574   |   |   | (37,214  | )
|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|                                                      |  | Year Ended December 31,                           |         
|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|                                                      |  | 2007                                              |          | 2008 |   | 2009     |   | 2010 |          | 2011 |  
|                                                      |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|                                                      |  | (In
 thousands of U.S. dollars except share data) |         
|BALANCE SHEET DATA                                    |  |                                                   |          |      |   |          |   |      |          |      |   |          |   |   |          |  
|Total current assets                                  |  | $                                                 | 98,883   |      | $ | 88,086   |   | $    | 105,648  |      | $ | 104,276  |   | $ | 37,959   |  
|Total fixed assets                                    |  |                                                   | 308,340  |      |   | 387,296  |   |      | 467,513  |      |   | 640,258  |   |   | 777,663  |  
|Other non-current assets                              |  |                                                   | 434      |      |   | 6,900    |   |      | 55,563   |      |   | 60,838   |   |   | 61,649   |  
|Total assets                                          |  |                                                   | 407,657  |      |   | 482,282  |   |      | 628,724  |      |   | 805,372  |   |   | 877,271  |  
|Total current liabilities                             |  |                                                   | 43,984   |      |   | 70,863   |   |      | 65,551   |      |   | 52,983   |   |   | 51,673   |  
|Derivative liabilities                                |  |                                                   | 242      |      |   | 21,716   |   |      | 15,510   |      |   | 9,787    |   |   | 10,130   |  
|Long-term debt, net of
 current portion               |  |                                                   | 306,267  |      |   | 413,483  |   |      | 420,994  |      |   | 467,070  |   |   | 465,805  |  
|Unearned revenueLong-term                            |  |                                                   | 2,766    |      |   | 11,765   |   |      | 29,450   |      |   | 31,399   |   |   | 17,821   |  
|Total owners/shareholders
 equity/(deficit)         |  |                                                   | 54,398   |      |   | (35,545  | ) |      | 97,219   |      |   | 244,133  |   |   | 331,842  |  
|Total liabilities and owners/shareholders equity    |  |                                                   | 407,657  |      |   | 482,282  |   |      | 628,724  |      |   | 805,372  |   |   | 877,271  |  

|                 |                                          
|---------------- | -----------------------------------------
|B.               | Capitalization and Indebtedness          
|                 |                                          
|Not
 applicable.
|                
|C.               | Reasons for the Offer and Use of Proceeds
|                 |                                          
|Not
 applicable.
|                
|D.               | Risk Factors                             

SOME OF THE
FOLLOWING RISKS RELATE PRINCIPALLY TO THE INDUSTRY IN WHICH WE OPERATE AND OUR
BUSINESS IN GENERAL. OTHER RISKS RELATE PRINCIPALLY TO THE SECURITIES MARKET
AND OWNERSHIP OF OUR COMMON STOCK. THE OCCURRENCE OF ANY OF THE EVENTS
DESCRIBED IN THIS SECTION COULD SIGNIFICANTLY AND NEGATIVELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS OR THE TRADING PRICE OF OUR
COMMON STOCK.

Risks Inherent in Our Industry and Our
Business

The international
drybulk shipping industry is cyclical and volatile, and charter rates have
decreased substantially since their highs in the middle of 2008; these factors
may lead to further reductions and volatility in our charter rates, vessel
values and results of operations.

The drybulk
shipping industry is cyclical with attendant volatility in charter rates,
vessel values and profitability. Because we charter some of our vessels
pursuant to short-term time charters, we may be exposed to changes in spot

2

---



market and
short-term time charter rates for drybulk carriers and such changes may affect
our earnings and the value of our drybulk carriers at any given time. At
February 25, 2012, 15 of our 20 drybulk vessels were deployed or scheduled to
be deployed on period time charters of more than three months term. If low
charter rates in the drybulk market prevail during periods when we must replace
our existing charters, it will have an adverse effect on our revenues,
profitability, cash flows and our ability to comply with the financial
covenants in our loan and credit facilities. In addition, we have contracted to
acquire nine newbuilds scheduled to be delivered through 2014, six of which do
not currently have contracted charters. We may be unable to successfully
charter our vessels in the future or renew existing charters at rates
sufficient to allow us to meet our obligations or pay any dividends.

The factors
affecting the supply and demand for drybulk vessels are outside of our control
and are difficult to predict with confidence. As a result, the nature, timing,
direction and degree of changes in industry conditions are also unpredictable.

Factors that
influence demand for vessel capacity include:

| |   |                                                          
| | - | ---------------------------------------------------------
| |  | demand for
 and production of drybulk products;          
| |   |                                                          
| |  | global and
 regional economic and political conditions;  
| |   |                                                          
| |  | environmental
 and other regulatory developments;        
| |   |                                                          
| |  | the distance
 drybulk cargoes are to be moved by sea; and
| |   |                                                          
| |  | changes in
 seaborne and other transportation patterns.  

Factors that
influence the supply of vessel capacity include:

| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the size of
 the newbuilding orderbook;                                                                                                                                                                       
| |   |                                                                                                                                                                                                               
| |  | the number
 of newbuild deliveries, which among other factors relates to the ability of
 shipyards to deliver newbuilds by contracted delivery dates and the ability
 of purchasers to finance such newbuilds;
| |   |                                                                                                                                                                                                               
| |  | the
 scrapping rate of older vessels;                                                                                                                                                                         
| |   |                                                                                                                                                                                                               
| |  | port and
 canal congestion;                                                                                                                                                                                   
| |   |                                                                                                                                                                                                               
| |  | the number
 of vessels that are in or out of service, including due to vessel casualties;
 and                                                                                                                
| |   |                                                                                                                                                                                                               
| |  | changes in
 environmental and other regulations that may limit the useful lives of
 vessels.                                                                                                                  

We anticipate
that the future demand for our drybulk vessels and, in turn, drybulk charter
rates, will be dependent, among other things, upon economic growth in the
worlds developing economies, including China, India, Brazil and Russia,
seasonal and regional changes in demand, changes in the capacity of the global
drybulk vessel fleet and the sources and supply of drybulk cargo to be
transported by sea. A decline in demand for commodities transported in drybulk
vessels or an increase in supply of drybulk vessels could cause a significant
decline in charter rates, which could materially adversely affect our business,
financial condition and results of operations.

The drybulk carrier
charter market is very volatile, remains significantly below its historical
high in 2008, and in the recent past has reached near historical lows, which
has and may continue to adversely affect our revenues, earnings and
profitability and our ability to comply with our loan covenants.

The revenues,
earnings and profitability of companies in our industry are affected by the
charter rates that can be obtained in the market, which is volatile and has
experienced significant declines since its highs in the middle of

3

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2008. For
example, the Baltic Drybulk Index, or BDI, declined from a high of 11,793 in
May 2008 to a low of 663 in December 2008, which represents a decline of 94%
within a single calendar year. During 2011, the BDI remained volatile, reaching
a low of 1,043 on February 4, 2011 and a high of 2,173 on October 14, 2011. On
February 3, 2012, BDI dropped to a 26-year low of 647, owing to a combination
of both weak vessel demand and further increases in supply. The decline and
volatility in charter rates in the drybulk market also affects the value of our
drybulk vessels, which follows the trends of drybulk charter rates, and
earnings on our charters, and similarly affects our cash flows, liquidity and
compliance with the covenants contained in our loan agreements.

A negative change in
global economic conditions especially in the United States, the European Union
or the Asian region, which includes countries like China, Japan or India, could
reduce drybulk trade and demand, which could reduce charter rates and have a
material adverse effect on our business, financial condition and results of
operations.

We expect that
a significant number of the port calls made by our vessels will involve the loading
or discharging of raw materials in ports in the Asian region, particularly
China, Japan and India. As a result, a negative change in economic conditions
in any Asian country, particularly China, Japan or, to some extent, India, can
have a material adverse effect on our business, financial position and results
of operations, as well as our future prospects, by reducing demand and, as a
result, charter rates and affecting our ability to charter our vessels. In past
years, China and India have had two of the worlds fastest growing economies in
terms of gross domestic product and have been the main driving force behind
increases in marine drybulk trade and the demand for drybulk vessels. If
economic growth declines in China, Japan, India and other countries in the
Asian region, we may face decreases in such drybulk trade and demand. Moreover,
a slowdown in the United States and Japanese economies or the economies of the
European Union or certain Asian countries will likely adversely affect economic
growth in China, India and elsewhere. Such an economic downturn in any of these
countries could have a material adverse effect on our business, financial
condition and results of operations.

An oversupply of
drybulk vessel capacity may lead to reductions in charter rates and
profitability.

The market
supply of drybulk vessels has been increasing, and the number of drybulk
vessels on order as of January 31, 2012, was approximately 21.0% for Panamax
class vessels, 80.7% for Post-Panamax class vessels and 21.8% for Capesize class
vessels of the then-existing global drybulk fleet in terms of deadweight tons
(dwt), with the majority of new deliveries expected mainly during 2012. As a
result, the drybulk fleet continues to grow. An oversupply of drybulk vessel
capacity will likely result in a reduction of charter hire rates. We will be
exposed to changes in charter rates with respect to our existing fleet and our
remaining newbuilds depending on the ultimate growth of the global drybulk
fleet. If we cannot enter into period time charters on acceptable terms, we may
have to secure charters in the spot market, where charter rates are more
volatile and revenues are, therefore, less predictable, or we may not be able
to charter our vessels at all. Seven vessels in our current fleet will be
available for employment in the first half of 2012, and we have not yet
arranged charters for one of our newbuild vessels scheduled to be delivered to
us during 2012. In addition, a material increase in the net supply of drybulk
vessel capacity without corresponding growth in drybulk vessel demand could
have a material adverse effect on our fleet utilization and our charter rates
generally, and could, accordingly, materially adversely affect our business,
financial condition and results of operations.

The market values of
our vessels may decrease, which could cause us to breach covenants in our
credit and loan facilities, and could have a material adverse effect on our
business, financial condition and results of operations.

Our credit and
loan facilities, which are secured by mortgages on our vessels, require us to
comply with collateral coverage ratios and satisfy certain financial and other
covenants, including those that are affected by the market value of our
vessels. The market value of drybulk vessels has generally experienced high
volatility. The market prices for secondhand and newbuild drybulk vessels in
the recent past have declined from higher to lower levels within a short period
of time. The market value of our vessels fluctuates depending on a number of
factors, including:

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

4

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| |   |                                            
| | - | -------------------------------------------
| |  | prevailing
 level of charter rates;        
| |   |                                            
| |  | competition
 from other shipping companies;
| |   |                                            
| |  | configurations,
 sizes and ages of vessels;
| |   |                                            
| |  | cost of
 newbuilds;                        
| |   |                                            
| |  | governmental
 or other regulations; and    
| |   |                                            
| |  | technological
 advances.                   

We were in
compliance with our covenants as of December 31, 2010 and December 31, 2011. If
the market value of our vessels or newbuilds declines, we may breach some of
the covenants contained in our credit and loan facilities. If we do breach such
covenants and we are unable to remedy or our lenders refuse to waive the
relevant breach, our lenders could accelerate our indebtedness and foreclose on
the vessels in our fleet securing those credit facilities. As a result of
cross-default provisions contained in our loan agreements, this could in turn
lead to additional defaults under our loan agreements and the consequent
acceleration of the indebtedness thereunder and the commencement of similar
foreclosure proceedings by other lenders. If our indebtedness were accelerated
in full or in part, it would be difficult for us to refinance our debt or
obtain additional financing and we could lose our vessels if our lenders
foreclose their liens, which would adversely affect our ability to continue our
business.

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

We employ our
vessels in a highly competitive market that is capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of
which have substantially greater resources than we do. Competition for the
transportation of drybulk cargo by sea is intense and depends on price,
customer relationships, operating expertise, professional reputation and size,
age, location and condition of the vessel. Due in part to the highly fragmented
market, additional competitors with greater resources could enter the drybulk
shipping industry and operate larger fleets through consolidations or
acquisitions and may be able to offer lower charter rates than we are able to
offer, which could have a material adverse effect on our fleet utilization and,
accordingly, our profitability.

Rising crew costs
may adversely affect our profits.

Crew costs are
a significant expense for us under our charters. Recently, the limited supply
of and increased demand for well-qualified crew, due to the increase in the
size of the global shipping fleet, has created upward pressure on crewing
costs, which we generally bear under our period time and spot charters.
Increases in crew costs may adversely affect our profitability.

We are subject to
regulation and liability under environmental laws that could require
significant expenditures and affect our cash flow and net income.

Our business
and the operation of our vessels are regulated under international conventions,
national, state and local laws and regulations in force in the jurisdictions in
which our vessels operate, as well as in the country or countries of their
registration, in order to protect against potential environmental impacts.
Government regulation of vessels, particularly in the area of environmental
requirements, can be expected to become more stringent in the future and could
require us to incur significant capital expenditures on our vessels to keep
them in compliance, or even to scrap or sell certain vessels altogether. For
example, various jurisdictions that do not already regulate management of
ballast waters are considering regulating the management of ballast waters to
prevent the introduction of non-indigenous species that are considered
invasive. Such regulations could, if implemented, require us to make changes to
the ballast water management plans we currently have in place and to install
new equipment on board. Various jurisdictions are also regulating or
considering the regulation of emissions of sulfur oxides, nitrogen oxides and
greenhouse gases from vessels. Additional conventions, laws and regulations may
be adopted which could limit our

5

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ability to do
business or increase the cost of our doing business and which may materially
adversely affect our business, financial condition and results of operations.
Because such conventions, laws and regulations are often revised, or the
required additional measures for compliance are still under development, we
cannot predict the ultimate cost of complying with such conventions, laws and
regulations or the impact thereof on the resale prices or useful lives of our
vessels. We are also required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses, certificates and financial
assurances with respect to our operations.

These
requirements can also affect the resale prices or useful lives of our vessels
or require reductions in cargo capacity, ship modifications or operational
changes or restrictions. Failure to comply with these requirements could lead
to decreased availability of or more costly insurance coverage for
environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in certain ports. Under local,
national and foreign laws, as well as international treaties and conventions,
we could incur material liabilities, including cleanup obligations and claims
for natural resource, personal injury and property damages in the event that
there is a release of petroleum or other hazardous materials from our vessels
or otherwise in connection with our operations. Violations of, or liabilities
under, environmental regulations can result in substantial penalties, fines and
other sanctions, including, in certain instances, seizure or detention of our
vessels. Events of this nature would have a material adverse effect on our
business, financial condition and results of operations.

The operation
of our vessels is affected by the requirements set forth in the United Nations
International Maritime Organizations International Management Code for the
Safe Operation of Ships and for Pollution Prevention, or ISM Code. Under the
ISM Code we are required to develop and maintain an extensive Safety Management
System (SMS) that includes the adoption of a safety and environmental
protection policy. Failure to comply with the ISM Code may subject us to
increased liability, invalidate existing insurance or decrease available
insurance coverage for the affected vessels and result in a denial of access
to, or detention in, certain ports. Currently, each of the vessels in our
current fleet is ISM Code-certified. If we fail to maintain ISM Code
certification for our vessels, we may also breach covenants in certain of our credit
and loan facilities that require that our vessels be ISM Code-certified. If we
breach such covenants due to failure to maintain ISM Code certification and are
unable to remedy the relevant breach, our lenders could accelerate our
indebtedness and foreclose on the vessels in our fleet securing those credit
facilities.

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

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

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

The hull and
machinery of every commercial vessel must be certified as safe and seaworthy in
accordance with applicable rules and regulations, and accordingly vessels must
undergo regular surveys. If any vessel does not maintain its class and/or fails
any annual survey, intermediate survey or special survey, the vessel will be
unable to trade between ports and will be unemployable and we would be in
violation of certain covenants in our credit and loan facilities. This would
also negatively impact our revenues.

Our vessels are exposed
to operational risks, including terrorism and piracy, that may not be
adequately covered by our insurance.

The operation
of any vessel includes risks such as weather conditions, mechanical failure,
collision, fire, contact with floating objects, cargo or property loss or
damage and business interruption due to political circumstances in foreign
countries, piracy, terrorist attacks, armed hostilities and labor strikes. Such
occurrences could result in death or injury to persons, loss, damage or destruction
of property or environmental damage, delays in the delivery of cargo, loss of
revenues from or termination of charter contracts, governmental fines,
penalties or restrictions on

6

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conducting
business, higher insurance rates and damage to our reputation and customer
relationships generally. 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 and parts of Indian Ocean. If these
attacks and other disruptions result in areas where our vessels are deployed
being characterized by insurers as war risk zones or Joint War Committee
war, strikes, terrorism and related perils listed areas, as parts of Indian
Ocean currently is, premiums payable for such coverage could increase
significantly and such insurance coverage may be more difficult or impossible
to obtain. In addition, there is always the possibility of a marine disaster,
including oil spills and other environmental damage. Although our vessels carry
a relatively small amount of the oil used for fuel (bunkers), a spill of oil
from one of our vessels or losses as a result of fire or explosion could be
catastrophic under certain circumstances.

We may not be
adequately insured against all risks, and our insurers may not pay particular
claims. With respect to war risks insurance, which we usually obtain for
certain of our vessels making port calls in designated war zone areas, such
insurance may not be obtained prior to one of our vessels entering into an
actual war zone, which could result in that vessel not being insured. Even if
our insurance coverage is adequate to cover our losses, we may not be able to
timely obtain a replacement vessel in the event of a loss. Under the terms of
our credit facilities, we will be subject to restrictions on the use of any
proceeds we may receive from claims under our insurance policies. Furthermore,
in the future, we may not be able to maintain or obtain adequate insurance
coverage at reasonable rates for our fleet. We may also be subject to calls, or
premiums, in amounts based not only on our own claim records but also the claim
records of all other members of the protection and indemnity associations
through which we receive indemnity insurance coverage for tort liability. Our
insurance policies also contain deductibles, limitations and exclusions which,
although we believe are standard in the shipping industry, may nevertheless
increase our costs in the event of a claim or decrease any recovery in the
event of a loss. If the damages from a catastrophic oil spill or other marine
disaster exceeded our insurance coverage, the payment of those damages could
have a material adverse effect on our business and could possibly result in our
insolvency.

In addition,
we do not carry loss of hire insurance except in certain occasions in which our
vessels are trading in areas where a history of piracy has been reported. Loss
of hire insurance covers the loss of revenue during extended vessel off-hire
periods, such as those that occur during an unscheduled drydocking or
unscheduled repairs due to damage to the vessel. Accordingly, any loss of a
vessel or any extended period of vessel off-hire, due to an accident or
otherwise, could have a material adverse effect on our business, financial
condition and results of operations.

The operation of
drybulk vessels has certain unique operational risks; failure to adequately
maintain our vessels could have a material adverse effect on our business,
financial condition and results of operations.

With a drybulk
vessel, the cargo itself and its interaction with the vessel may create operational
risks. By their nature, drybulk cargoes are often heavy, dense and easily
shifted, and they may react badly to water exposure. In addition, drybulk
vessels are often subjected to battering treatment during unloading operations
with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small
bulldozers. This treatment may cause damage to the vessel. Vessels damaged due
to treatment during unloading procedures may be more susceptible to breach
while at sea. Breaches of a drybulk vessels hull may lead to the flooding of
the vessels holds. If a drybulk vessel suffers flooding in its forward holds,
the bulk cargo may become so dense and waterlogged that its pressure may buckle
the vessels bulkheads, leading to the loss of a vessel. If we do not
adequately maintain our vessels, we may be unable to prevent these events. The
occurrence of any of these events could have a material adverse effect on our
business, financial condition and results of operations.

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

Crew members,
suppliers of goods and services to a vessel, shippers of cargo and other
parties may be entitled to a maritime lien against a vessel, or other assets of
the relevant vessel-owning company, for unsatisfied debts, claims or damages.
In many jurisdictions, a claimant may seek to obtain security for its claim by
arresting a vessel through foreclosure proceedings. The arrest or attachment of
one or more of our vessels, or other assets of the relevant vessel-owning
company or companies, could cause us to default on a charter, breach covenants
in certain of our credit facilities, interrupt our cash flow and require us to
pay large sums of money to have the arrest or attachment lifted. In addition,
in some jurisdictions, such as South Africa, under the sister ship theory of
liability, a claimant

7

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may arrest
both the vessel which is subject to the claimants maritime lien and any
associated vessel, which is any vessel owned or controlled by the same owner.
Claimants could attempt to assert sister ship liability against one vessel in
our fleet for claims relating to another of our vessels.

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

The Chinese
economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development in respects such 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 use 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 have been 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 on the outcome of such experiments. The Chinese
government may cease pursuing 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 have a material adverse effect on our
business, financial condition and results of operations.

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

A government
could requisition one or more of our vessels for title or for hire. Requisition
for title occurs when a government takes control of a vessel and becomes its
owner, while requisition for hire occurs when 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
governments may elect to requisition vessels in other circumstances. Even if we
would be entitled to compensation in the event of a requisition of one or more
of our vessels, the amount and timing of payment would be uncertain. Government
requisition of one or more of our vessels may cause us to breach covenants in
certain of our credit facilities, and could have a material adverse effect on
our business, financial condition and results of operations.

Changes in fuel
prices may adversely affect our profits.

Upon
redelivery of vessels at the end of a period time or trip time charter, we may
be obligated to repurchase bunkers on board at prevailing market prices, which
could be materially higher than fuel prices at the inception of the charter
period. In addition, although we rarely deploy our vessels on voyage charters,
fuel is a significant, if not the largest, expense that we would incur with
respect to vessels operating on voyage charter. As a result, an increase in the
price of fuel may adversely affect our profitability. The price and supply of
fuel is volatile 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 and
regulations.

Seasonal
fluctuations in industry demand could have a material adverse effect on our
business, financial condition and results of operations and the amount of
available cash with which we can pay dividends.

We operate our
vessels in markets that have historically exhibited seasonal variations in
demand and, as a result, in charter rates. This seasonality may result in
quarter-to-quarter volatility in our results of operations, which could affect
the amount of dividends, if any, that we pay to our stockholders from quarter
to quarter. The market for marine drybulk transportation services is typically
stronger in the fall and winter months in anticipation of increased consumption
of coal and other raw materials in the northern hemisphere during the winter
months. In addition, unpredictable weather patterns in these months tend to
disrupt vessel scheduling and supplies of certain

8

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commodities.
This seasonality could have a material adverse effect on our business,
financial condition and results of operations.

Charterers may
renegotiate or default on period time charters, which could reduce our revenues
and have a material adverse effect on our business, financial condition and
results of operations.

The ability
and willingness of each of our counterparties to perform its obligations under
a period time charter agreement with us will depend on a number of factors that
are beyond our control and may include, among other things, general economic
conditions, the condition of the drybulk shipping industry and the overall
financial condition of the counterparties.
If we enter into period time charters with charterers when charter rates
are high and charter rates subsequently fall significantly, charterers may seek
to renegotiate financial terms. Additionally, charterers may attempt to bring
claims against us based on vessel performance or cargo loading or unloading
operations, seeking to renegotiate financial terms or avoid payments. Also, our
charterers may experience financial difficulties due to prevailing economic
conditions or for other reasons, and as a result may default under our period
time charters. During depressed drybulk market conditions, there have been
numerous reports of charterers renegotiating their charters or defaulting on
their obligations thereunder. While we have not experienced a default by a
charterer during the past three years, we have agreed to certain early
redeliveries at the request of charterers. See Operating and Financial Review
and Prospects. If a charterer defaults on a charter, we will seek the remedies
available to us, which may include arbitration or litigation to enforce the
contract, although such efforts may not be successful. Should a charterer default
on a period time charter, we may have to enter into a charter at a lower
charter rate, which would reduce our revenues. If we cannot enter into a new
period time charter, we may have to secure a charter in the spot market, where
charter rates are volatile and revenues are less predictable. It is also
possible that we would be unable to secure a charter at all, which would also
reduce our revenues, and could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

We depend upon a
limited number of customers for a large part of our revenues and the loss of
one or more of these customers could have a material adverse effect on our
business, financial condition and results of operations.

We expect to
derive a significant part of our revenues from a limited number of customers.
During the year ended December 31, 2011, approximately 66.1 % of our revenues
were derived from two charterers, namely Daiichi Chuo Kisen Kaisha and Kawasaki
Kisen Kaisha, with each one accounting for more than 10% of total revenues. We
could lose a customer for many different reasons, including:

| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | failures of
 the customer to make charter payments because of its financial inability,
 disagreements with us or otherwise;                                                                                                        
| |   |                                                                                                                                                                                                                                    
| |  | the
 customers termination of its charters because of our non-performance,
 including serious deficiencies with the vessels we provide to that customer
 or prolonged periods of off-hire; or                                     
| |   |                                                                                                                                                                                                                                    
| |  | in certain
 cases, a prolonged force majeure event affecting the customer, including
 damage to or destruction of relevant production facilities, war or political
 unrest, prevents us from performing services for that customer.

If we lose a
key customer, we may be unable to obtain period time charters on comparable terms
with charterers of comparable standing or may have increased exposure to the
volatile spot market, which is highly competitive and subject to significant
price fluctuations. We would not receive any revenues from such a vessel while
it remained unchartered, but we may be required to pay expenses necessary to
maintain the vessel in proper operating condition, insure it and service any
indebtedness secured by such vessel. The loss of any of our key customers, a
decline in payments under our charters or the failure of a key customer to
perform under its charters with us could have a material adverse effect on our
business, financial condition and results of operations.

9

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We may have
difficulty properly managing our planned growth through acquisitions of our
newbuilds and additional vessels.

We intend to
grow our business through the acquisition of our contracted newbuilds and we
may make selective acquisitions of additional vessels. Our future growth will
primarily depend on our ability to locate and acquire suitable additional
vessels, enlarge our customer base, operate and supervise any newbuilds we may
order and obtain required debt or equity financing on acceptable terms. We have
contracted to acquire nine newbuilds scheduled to be delivered through 2014.

A delay in the
delivery to us of any such vessel, or the failure of the shipyard to deliver a
vessel at all, could cause us to breach our obligations under a related charter
and could adversely affect our earnings. In addition, the delivery of any of
these vessels with substantial defects could have similar consequences.

A shipyard
could fail to deliver a newbuild on time or at all because of:

| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | work
 stoppages or other hostilities, political or economic disturbances that
 disrupt the operations of the shipyard;                                                
| |   |                                                                                                                                                                       
| |  | quality or
 engineering problems;                                                                                                                                     
| |   |                                                                                                                                                                       
| |  | bankruptcy
 or other financial crisis of the shipyard;                                                                                                                
| |   |                                                                                                                                                                       
| |  | a backlog of
 orders at the shipyard;                                                                                                                                 
| |   |                                                                                                                                                                       
| |  | disputes
 between the Company and the shipyard regarding contractual obligations;                                                                                     
| |   |                                                                                                                                                                       
| |  | weather
 interference or catastrophic events, such as major earthquakes or fires;                                                                                     
| |   |                                                                                                                                                                       
| |  | our requests
 for changes to the original vessel specifications or disputes with the
 shipyard; or                                                                    
| |   |                                                                                                                                                                       
| |  | shortages of
 or delays in the receipt of necessary construction materials, such as steel,
 or equipment, such as main engines, electricity generators and propellers.

In addition,
we may seek to terminate a newbuild contract due to market conditions,
financing limitations or other reasons. The outcome of contract termination
negotiations may require us to forego deposits on construction and pay
additional cancellation fees. In addition, where we have already arranged a
future charter with respect to the terminated newbuild contract, we may incur
liabilities to such charter counterparty depending on the terms of such
charter.

During periods
in which charter rates are high, vessel values generally are high as well, and
it may be difficult to consummate vessel acquisitions or enter into newbuild
contracts at favorable prices. During periods when charter rates are low, we
may be unable to fund the acquisition of newbuild vessels, whether through
lending or cash on hand. For these reasons, we may be unable to execute our
growth plans or avoid significant expenses and losses in connection with our
future growth efforts.

As we expand our
business, we will need to improve or expand our operations and financial
systems, staff and crew; if we cannot improve these systems or recruit suitable
employees, our performance may be adversely affected.

Our current
operating and financial systems may not be adequate as we implement our plan to
expand the size of our fleet, and our Managers attempts to improve those
systems may be ineffective. In addition, as we expand our fleet, we will have
to rely on our Manager to recruit additional seafarers and shoreside
administrative and management personnel. Our Manager may not be able to
continue to hire suitable employees or a sufficient number of employees as we
expand our fleet. If our Managers unaffiliated crewing agents encounter
business or financial difficulties, we may not be able to adequately staff our
vessels. We may also have to increase our customer base to provide

10

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continued
employment for most of our new vessels. If we are unable to operate our
financial system, our Manager is unable to operate our operations systems
effectively or to recruit suitable employees in sufficient numbers or we are
unable to increase our customer base as we expand our fleet, our performance
may be adversely affected.

Unless we set aside
reserves for vessel replacement, at the end of a vessels useful life, our
revenue will decline, which would adversely affect our cash flows and income.

As of February
25, 2012, the vessels in our current fleet had an average age of 4.0 years.
Unless we maintain cash reserves for vessel replacement, we may be unable to
replace the vessels in our fleet upon the expiration of their useful lives. We
estimate the useful life of our vessels to be 25 years from the date of initial
delivery from the shipyard. Our cash flows and income are dependent on the
revenues we earn by chartering our vessels to customers. If we are unable to
replace the vessels in our fleet upon the expiration of their useful lives, our
business, financial condition and results of operations will be materially
adversely affected. Any reserves set aside for vessel replacement would not be
available for other cash needs or dividends.

If we are unable to
obtain additional secured indebtedness, we may default on our commitments
relating to our contracted newbuilds, and we may not be able to finance our
future fleet expansion program, which would have a material adverse effect on
our business, financial condition and results of operations.

The net
remaining unpaid balance of the contract prices for our nine newbuilds was
$245.4 million as of February 25, 2012. We anticipate that our primary sources
of funds to satisfy these commitments will be from existing cash and time
deposits, operating cash surplus and existing undrawn loan commitments. As of
February 25, 2012, the company has seven newbuild vessels unencumbered and a $50
million long-term floating rate note facility against which additional loan and
credit facilities can be drawn. Our ability to obtain bank financing or to
access the capital markets for future offerings may be limited by our financial
condition at the time of any such financing or offering, including the actual
or perceived credit quality of our charterers and the market value of our
fleet, as well as by adverse market conditions resulting from, among other
things, general economic conditions, weakness in the financial markets and
contingencies and uncertainties that are beyond our control. Significant
contraction, de-leveraging and reduced liquidity in credit markets worldwide is
reducing the availability and increasing the cost of credit. To the extent that
we are unable to enter into new credit facilities and obtain such additional
secured indebtedness on terms acceptable to us, we will need to find
alternative financing. If we are unable to find alternative financing, we will
not be capable of funding all of our commitments for capital expenditures
relating to our contracted newbuilds. A failure to fulfill our commitments generally
results in a forfeiture of the advance we paid to the shipyard with respect to
the contracted newbuild and a write-off of expenses capitalized, which together
amounted to $122.3 million as of December 31, 2011. In addition, we may also be
liable for other damages for breach of contract. Examples of such liabilities
could include payments to the shipyard for the difference between the forfeited
advance and the amount that remains to be paid by us if the shipyard cannot
locate a third-party buyer that is willing to pay an amount equal to the
difference or compensatory payments by us to charter parties with whom we have
entered into charters with respect to the contracted newbuilds. Such events, if
they occurred, would adversely affect our business, financial condition and
results of operation.

The aging of our
fleet may result in increased operating costs in the future, which could
adversely affect our ability to operate our vessels profitably.

In general,
the costs to maintain a vessel in good operating condition increase with the
age of the vessel. As of February 25, 2012, the average age of the vessels in
our current fleet was 4.0 years. As our vessels age, they may become less fuel
efficient and more costly to maintain and will not be as advanced as more
recently constructed vessels due to improvements in design and engine
technology. Rates for cargo insurance, paid by charterers, also increase with
the age of a vessel, making older vessels less desirable to charterers.

Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which our vessels may
engage. As our vessels age, market conditions may not justify those
expenditures or enable us to operate our vessels profitably during the
remainder of their useful lives.

11

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Because we generate
substantially all of our revenues in U.S. dollars but incur a material portion
of our expenses in other currencies, and may, in the future, also incur a
material portion of our indebtedness and our capital expenditure requirements
in other currencies, exchange rate fluctuations could have a material adverse
effect on our business, financial condition and results of operations.

We generate
substantially all of our revenues in U.S. dollars, but in 2011 we incurred
approximately 22.88% of our vessel operating expenses in currencies other than
the U.S. dollar, of which 57.92% was denominated in euro amounts. Although as
of December 31, 2011, all of our indebtedness and the vast majority of the
amounts due under our newbuild contracts were denominated in U.S Dollars, we
have also entered into shipbuilding contracts whereby part of the contract
price is payable in Japanese yen. In addition, certain of our existing credit
facilities allow us to convert the outstanding loan amount or any part thereof
into currencies other than the U.S. dollar. Also, in the future, we may enter
into new credit facilities or newbuild contracts that are denominated in or
permit conversion into currencies other than the U.S. dollar. The use of
different currencies could lead to fluctuations in our net income due to
changes in the value of the U.S. dollar relative to other currencies, in
particular the euro and the Japanese yen. We have not hedged our currency
exposure, and, as a result, our results of operations and financial condition,
denominated in U.S. dollars, and our ability to pay dividends could suffer.

Restrictive covenants
in our existing credit facilities impose, and any future credit facilities will
impose, financial and other restrictions on us, and any breach of these
covenants could result in the acceleration of our indebtedness and foreclosure
on our vessels.

Our existing
credit facilities impose, and any future credit facility will impose, operating
and financial restrictions on us. These restrictions in our existing credit
facilities generally limit our ability to, among other things, and subject to
exceptions set forth in such credit facility:

| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay
 dividends if an event of default has occurred and is continuing or would
 occur as a result of the payment of such dividend;                                     
| |   |                                                                                                                                                                       
| |  | enter into
 certain long-term charters;                                                                                                                               
| |   |                                                                                                                                                                       
| |  | incur
 additional indebtedness, including through the issuance of guarantees;                                                                                         
| |   |                                                                                                                                                                       
| |  | change the
 flag, class or management of the vessel mortgaged under such facility or
 terminate or materially amend the management agreement relating to such
 vessel;
| |   |                                                                                                                                                                       
| |  | create liens
 on their assets;                                                                                                                                        
| |   |                                                                                                                                                                       
| |  | make loans;                                                                                                                                                           
| |   |                                                                                                                                                                       
| |  | make
 investments;                                                                                                                                                    
| |   |                                                                                                                                                                       
| |  | make capital
 expenditures;                                                                                                                                           
| |   |                                                                                                                                                                       
| |  | undergo a
 change in ownership or control or permit a change in ownership and control of
 our Manager;                                                                
| |   |                                                                                                                                                                       
| |  | sell the
 vessel mortgaged under such facility; and                                                                                                                   
| |   |                                                                                                                                                                       
| |  | permit our
 chief executive officer to change.                                                                                                                        

Therefore, we
may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders interests may be different from ours, and we
cannot guarantee that we will be able to obtain our lenders permission when
needed. This may limit our ability to pay dividends to our stockholders,
finance our future operations or pursue business opportunities.

12

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Certain of our
existing credit facilities require our subsidiaries to maintain financial
ratios and satisfy financial covenants. Depending on the credit facility,
certain of our subsidiaries are subject to financial ratios and covenants
requiring that these subsidiaries:

| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ensure that
 the market value of the vessel mortgaged under the applicable credit
 facility, determined in accordance with the terms of that facility, does not
 fall below 110% to 120%, as applicable, of the outstanding amount of the
 loan;                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                   
| |  | ensure that
 outstanding amounts in currencies other than the U.S. dollar do not exceed
 100% or 110%, as applicable, of the U.S. dollar equivalent amount specified
 in the relevant credit agreement for the applicable period by, if necessary,
 providing cash collateral security in an amount necessary for the outstanding
 amounts to meet this threshold;
| |   |                                                                                                                                                                                                                                                                                                                                                                   
| |  | maintain a
 cash collateral deposit or minimum cash balance per vessel with the
 respective lender; and                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                   
| |  | ensure that
 we comply with certain financial covenants under the guarantees described
 below.                                                                                                                                                                                                                                                                    

In addition,
under guarantees we have entered into with respect to certain of our
subsidiaries existing credit facilities, we are subject to financial
covenants. Depending on the guarantee, these financial covenants include the
following:

| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our total
 liabilities (on a consolidated basis, including those of our subsidiaries)
 divided by our total consolidated assets (based on the market value of all
 vessels owned by our subsidiaries, and the book value of all other assets, on
 an adjusted basis as set out in the relevant guarantee) must not exceed 70%
 or 80% (depending on the relevant guarantee);
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| |  | the ratio of
 our aggregate debt to EBITDA must not at any time exceed 5.5:1 on a trailing
 12 months basis;                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| |  | our
 consolidated net worth (consolidated total assets less consolidated total
 liabilities) must not at any time be less than $150.0 million, $175.0 million
 or $200.0 million (depending on the relevant guarantee), as adjusted to
 reflect, among other things, the market value of our vessels as set out in
 the relevant guarantee;                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| |  | maintenance
 of minimum free liquidity of $500,000 on deposit with the relevant lender on
 a per vessel basis; and                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| |  | payment of
 dividends is subject to no event of default having occurred.                                                                                                                                                                                                                                                                                                    

In connection
with these guarantees, we have also undertaken to ensure that a minimum of 51%
of our shares shall remain directly or indirectly beneficially owned by the
Hajioannou family for the duration of the relevant credit facilities.

A failure to
meet our payment and other obligations or to maintain compliance with the
applicable financial covenants could lead to defaults under our secured credit
facilities. Our lenders could then accelerate our indebtedness and foreclose on
the vessels in our fleet securing those credit facilities. The loss of these
vessels would have a material adverse effect on our business, financial
condition, and results of operations.

The declaration and
payment of dividends will always be subject to the discretion of our board of
directors and will depend on a number of factors. Our board of directors may
not always declare dividends in the future.

The
declaration and payment of dividends, if any, will always be subject to the
discretion of our board of directors. The timing and amount of any dividends
declared will depend on, among other things: (i) our earnings, financial
condition and cash requirements and available sources of liquidity, (ii)
decisions in relation to our growth strategies,

13

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(iii)
provisions of Marshall Islands and Liberian law governing the payment of
dividends, (iv) restrictive covenants in our existing and future debt
instruments, and (v) global financial conditions. Dividends might not be paid
in the future.

There may be a
high degree of variability from period to period in the amount of cash, if any,
that is available for the payment of dividends based upon, among other things:

| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | the rates we
 obtain from our charters as well as the rates obtained upon the expiration of
 our existing charters;             
| |   |                                                                                                                                 
| |  | the level of
 our operating costs;                                                                                              
| |   |                                                                                                                                 
| |  | the level of
 our general and administrative costs;                                                                             
| |   |                                                                                                                                 
| |  | the number
 of unscheduled off-hire days and the timing of, and number of days required
 for, scheduled drydocking of our ships;
| |   |                                                                                                                                 
| |  | vessel
 acquisitions and related financings;                                                                                    
| |   |                                                                                                                                 
| |  | restrictions
 in our loan and credit facilities and in any future debt facilities;                                              
| |   |                                                                                                                                 
| |  | prevailing
 global and regional economic and political conditions;                                                              
| |   |                                                                                                                                 
| |  | the effect
 of governmental regulations and maritime self-regulatory organization
 standards on the conduct of our business;    
| |   |                                                                                                                                 
| |  | the amount
 of cash reserves established by our board of directors; and                                                         
| |   |                                                                                                                                 
| |  | restrictions
 under Marshall Islands and Liberian law.                                                                          

We may incur
expenses or liabilities or be subject to other circumstances in the future that
reduce or eliminate the amount of cash that we have available for distribution
as dividends, if any. Our growth strategy contemplates that we will finance the
acquisition of our newbuilds or selective acquisitions of additional vessels in
addition to our contracted newbuilds through a combination of our operating
cash flow and debt financing or equity financing. If financing is not available
to us on acceptable terms, our board of directors may decide to finance or
refinance such acquisitions with a greater percentage of cash from operations
to the extent available, which would reduce or even eliminate the amount of
cash available for the payment of dividends. We may also enter into other
agreements that will restrict our ability to pay dividends.

Under the
terms of certain of our existing credit facilities, we are not permitted to pay
dividends if an event of default has occurred and is continuing or would occur
as a result of the payment of such dividend. We expect that any future credit
facilities will also have restrictions on the payment of dividends.

The laws of
the Republic of Liberia and of the Republic of The Marshall Islands, where our
vessel-owning subsidiaries are incorporated, generally prohibit the payment of
dividends other than from surplus or net profits, or while a company is
insolvent or would be rendered insolvent by the payment of such a dividend. Our
subsidiaries may not have sufficient funds, surplus or net profits to make
distributions to us. In addition, under guarantees we have entered into with
respect to certain of our subsidiaries existing credit facilities, we are
subject to financial and other covenants, which may limit our ability to pay
dividends. We also may not have sufficient surplus or net profits in the future
to pay dividends.

The amount of
cash we generate from our operations may differ materially from our net income
or loss for the period, which will be affected by non-cash items. We may incur
other expenses or liabilities that could reduce or eliminate the cash available
for distribution as dividends. As a result of these and the other factors
mentioned above,

14

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we may pay
dividends during periods when we record losses and may not pay dividends during
periods when we record net income.

We are a holding
company, and we depend on the ability of our subsidiaries to distribute funds
to us in order to make dividend payments.

We are a
holding company and our subsidiaries, which are all wholly-owned by us, conduct
all of our operations and own all of our operating assets. We have no
significant assets other than the equity interests in our wholly-owned
subsidiaries. As a result, our ability to make dividend payments depends on our
subsidiaries and their ability to distribute funds to us. The ability of a
subsidiary to make these distributions could be affected by a claim or other
action by a third party, including a creditor, and the laws of the Republic of
Liberia and of the Republic of The Marshall Islands, where our vessel-owning
subsidiaries are incorporated, which regulate the payment of dividends by
companies. If we are unable to obtain funds from our subsidiaries, our board of
directors may exercise its discretion not to declare or pay dividends.

We depend on our
Manager to operate our business and our business could be harmed if our Manager
failed to perform its services satisfactorily.

Pursuant to
our management agreement, as amended, (the Management Agreement) our Manager
provides us with our executive officers and with technical, administrative and
commercial services (including vessel maintenance, crewing, purchasing,
shipyard supervision, insurance, assistance with regulatory compliance,
financial services and office space). Our operational success depends
significantly upon our Managers satisfactory performance of these services.
Our business would be harmed if our Manager failed to perform these services
satisfactorily. In addition, if the Management Agreement were to be terminated
or if its terms were to be altered, our business could be adversely affected,
as we may not be able to immediately replace such services, and even if
replacement services were immediately available, the terms offered could be
less favorable than those under our Management Agreement.

Our ability to
compete for and enter into new period time and spot charters and to expand our
relationships with our existing charterers will depend largely on our
relationship with our Manager and its reputation and relationships in the
shipping industry. If our Manager suffers material damage to its reputation or
relationships, it may harm our ability to:

| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | renew
 existing charters upon their expiration;                                           
| |   |                                                                                           
| |  | obtain new
 charters;                                                                     
| |   |                                                                                           
| |  | successfully
 interact with shipyards during periods of shipyard construction constraints;
| |   |                                                                                           
| |  | obtain
 financing on commercially acceptable terms;                                       
| |   |                                                                                           
| |  | maintain
 satisfactory relationships with our charterers and suppliers; and               
| |   |                                                                                           
| |  | successfully
 execute our business strategies.                                            

If our ability
to do any of the things described above is impaired, it could have a material
adverse effect on our business, financial condition and results of operations. 
Although we may have rights against our Manager if it defaults on its
obligations to us, investors in us will have no recourse against our Manager.

Our Manager
has provided in the past certain management services to an affiliated and to an
unaffiliated company under the specific restrictions of our Management
Agreement. Although our Manager is required to provide preferential treatment
to our vessels with respect to chartering arrangements under the Management
Agreement, our Managers time and attention may be diverted from the management
of our vessels in such circumstances.

Currently, our
Manager does not provide any services to any company other than us.

15

---



Further, we
will need to seek approval from our lenders to change our Manager.

Management fees are
payable to our Manager regardless of our profitability, which could have a
material adverse effect on our business, financial condition and results of
operations.

Pursuant to
our Management Agreement, we pay our Manager a fee of $700 per day per vessel
for providing commercial, technical and administrative services and a fee of
1.25% on gross freight, charter hire, ballast bonus and demurrage. In addition,
we pay our manager certain commissions and fees with respect to vessel
purchases, sales and newbuilds. The management fees do not cover expenses such
as voyage expenses, vessel operating expenses, maintenance expenses, crewing
costs, insurance premiums, commissions and certain public company expenses such
as directors and officers liability insurance, legal and accounting fees and
other similar third party expenses, which are reimbursed by us. The management
fees can be adjusted annually on May 29 of each year, the anniversary of our
entry into the Management Agreement. The management fees are payable whether or
not our vessels are employed, and regardless of our profitability, and we have
no ability to require our Manager to reduce the management fees if our
profitability decreases, which could have a material adverse effect on our
business, financial condition and results of operations.

Our Manager is a
privately held company, and there is little or no publicly available
information about it; an investor could have little advance warning of problems
affecting our Manager that could have a material adverse effect on us.

The ability of
our Manager to continue providing services for our benefit will depend in part
on its own financial strength. Circumstances beyond our control could impair
our Managers financial strength. Because our Manager is privately held, it is
unlikely that information about its financial strength would become public or
available to us prior to any default by our Manager under the Management
Agreement. As a result, our investors might have little advance warning of
problems that affect our Manager, even though those problems could have a
material adverse effect on us.

Our chief executive
officer also controls our Manager, which could create conflicts of interest
between us and our Manager.

Our chief
executive officer, Polys Hajioannou, controls our Manager. Polys Hajioannou,
together with his family, also controls Vorini Holdings Inc., which owns
approximately 64.64% of our outstanding common stock. These relationships could
create conflicts of interest between us, on the one hand, and our Manager, on
the other hand. These conflicts may arise in connection with the chartering,
purchase, sale and operation of the vessels in our fleet versus vessels owned
or chartered-in by other companies affiliated with our Manager or our chief
executive officer. To the extent we elect not to exercise our right of first
refusal with respect to any drybulk vessel that may be acquired by companies
affiliated with our chief executive officer, such companies could acquire and
operate such drybulk vessels under the management of our Manager in competition
with us. Although under our Management Agreement our Manager will be required
to first provide us any chartering opportunities in the drybulk sector, our
Manager is not prohibited from giving preferential treatment in other areas of
its management to vessels that are beneficially owned by related parties. These
conflicts of interest may have an adverse effect on our business, financial
condition and results of operations.

Our business depends
upon certain employees who may not necessarily continue to work for us; if such
employees were no longer to be affiliated with us, our business, financial
condition and results of operation could suffer.

Our future
success depends, to a significant extent, upon our chief executive officer,
Polys Hajioannou, and certain other members of our senior management and of our
Manager. Polys Hajioannou has substantial experience in the drybulk shipping
industry and for 25 years has worked with us, our Manager and its predecessor.
He and other members of our senior management and of our Manager manage our
business and their performance is crucial to the execution of our business
strategies and to the growth and development of our business. If these
individuals were no longer to be affiliated with us or our Manager, or if we
were to otherwise cease to receive advisory services from them, we may be
unable to recruit other employees with equivalent talent and experience, and
our business and

16

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financial
condition could suffer. We do not intend to maintain key man life insurance
on any of our executive officers.

The provisions in
our restrictive covenant arrangement with our chief executive officer
restricting his ability to compete with us, like restrictive covenants
generally, may not be enforceable.

Our chief
executive officer, Polys Hajioannou, has entered into a restrictive covenant
agreement with us under which he is precluded during the term of his service
with us as executive and director and for one year thereafter (and for the term
of our Management Agreement with our Manager and one year thereafter, if
longer) from owning and operating drybulk vessels and from acquiring, investing
in or controlling any business that owns or operates such vessels. Courts
generally do not favor the enforcement of such restrictions, particularly when
they involve individuals and could be construed as infringing on such
individuals ability to be employed or to earn a livelihood. Our ability to
enforce these restrictions, should it ever become necessary, will depend upon
the circumstances that exist at the time enforcement is sought. A court may not
enforce the restrictions as written by way of an injunction and we may not
necessarily be able to establish a case for damages as a result of a violation
of the restrictive covenants.

Our vessels call on
ports located in Iran and Syria which are identified by the United States
government as state sponsors of terrorism and are subject to United States
export controls, which could be viewed negatively by investors and adversely
affect the trading price of our common stock.

From time to
time, vessels in our fleet have called and/or may call on ports located in
countries identified by the United States government as state sponsors of
terrorism and subject to United States export controls. From January 1, 2005
through December 31, 2011, vessels in our fleet have made 20 calls to ports in
Iran and three calls to ports in Syria out of a total of 1,880 calls on
worldwide ports. Iran and Syria are identified by the United States government
as state sponsors of terrorism. Although these designations and controls do not
prevent our vessels from making calls to ports in these countries, potential
investors could view such port calls negatively, which could adversely affect
our reputation and the market for our common stock. Investor perception of the
value of our common stock may be adversely affected by the consequences of war,
the effects of terrorism, civil unrest and governmental actions in these and
surrounding countries.

Additionally,
the United States government imposes economic sanctions that may be applied in
certain circumstances to non-United States entities conducting transactions
involving targeted countries and their governments. United States sanctions have been imposed on Iran and Syria,
among other countries in which our vessels may make port calls. Although we believe that currently existing
United States sanctions laws do not apply to our activities, these laws and
related regulations are subject to frequent change and evolving interpretation
by United States governmental authorities.
It is possible that these sanctions may change in the future or United
States governmental authorities may take an interpretation that is adverse to
us. If we become subject to such
sanctions, a violation of these laws and related regulations could subject us
to fines, penalties and other sanctions.

We are incorporated
in the Republic of The Marshall Islands, which does not have a well-developed
body of corporate law; therefore, you may have more difficulty protecting your
interests than stockholders of a U.S. corporation.

Our corporate
affairs are governed by our articles of incorporation, our bylaws and by The
Marshall Islands Business Corporations Act, or the BCA. The provisions of the
BCA resemble provisions of the corporation laws of a number of states in the
United States. However, there have been few judicial cases in the Republic of
The Marshall Islands interpreting the BCA. The rights and fiduciary
responsibilities of directors under the laws of the Republic of The Marshall
Islands are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence
in certain United States jurisdictions. The rights of stockholders of companies
incorporated in the Republic of The Marshall Islands may differ from the rights
of stockholders of companies incorporated in the United States. While the BCA
provides that it is to be interpreted according to the laws of the State of
Delaware and other states with substantially similar legislative provisions,
there have been few, if any, court cases interpreting the BCA in the Republic
of The Marshall Islands and we cannot predict whether Marshall Islands courts
would reach the same conclusions as United States courts. Thus, you may have
more difficulty in protecting your interests in the face of actions by our
management, directors or controlling

17

---



stockholders
than would stockholders of a corporation incorporated in a United States
jurisdiction which has developed a more substantial body of case law in the
corporate law area.

It may be difficult
to serve us with legal process or enforce judgments against us, our directors
or our management.

We are
incorporated under the laws of the Republic of The Marshall Islands, and our
business is operated primarily from our offices in Athens, Greece. In addition,
a majority of our directors and officers are or will be non-residents of the
United States, and all of our assets and a substantial portion of the assets of
these non-residents are located outside the United States. As a result, it may
be difficult or impossible for you to bring an action against us or against
these individuals in the United States if you believe that your rights have
been infringed under the securities laws or otherwise. You may also have
difficulty enforcing, both within and outside of the United States, judgments
you may obtain in the United States courts against us or these persons in any
action, including actions based upon the civil liability provisions of United
States federal or state securities laws. There is also substantial doubt that
the courts of the Republic of The Marshall Islands or Greece would enter
judgments in original actions brought in those courts predicated on United
States federal or state securities laws.

Risks Relating to Our Common Stock

Vorini Holdings
Inc., our principal stockholder, controls the outcome of matters on which our
stockholders are entitled to vote and its interests may be different from
yours.

Vorini
Holdings Inc., which is controlled by our chief executive officer, Polys
Hajioannou and his family, owns approximately 64.64% of our outstanding common
stock. This stockholder is able to control the outcome of matters on which our
stockholders are entitled to vote, including the election of our entire board
of directors and other significant corporate actions. The interests of this
stockholder may be different from yours.

We are a controlled
company under the New York Stock Exchange rules, and as such we are entitled
to exemption from certain New York Stock Exchange corporate governance
standards, and you may not have the same protections afforded to stockholders
of companies that are subject to all of the New York Stock Exchange corporate
governance requirements.

We are a
controlled company within the meaning of the New York Stock Exchange
corporate governance standards. Under the New York Stock Exchange rules, a
company of which more than 50% of the voting power is held by another company
or group is a controlled company and may elect not to comply with certain New
York Stock Exchange corporate governance requirements, including: (a) the
requirement that a majority of the board of directors consist of independent
directors, (b) the requirement that the nominating committee be composed
entirely of independent directors and have a written charter addressing the
committees purpose and responsibilities, (c) the requirement that the
compensation committee be composed entirely of independent directors and have a
written charter addressing the committees purpose and responsibilities and (d)
the requirement of an annual performance evaluation of the corporate
governance, nominating and compensation committees. We may utilize these
exemptions. As a result, non-independent directors, including members of our
management who also serve on our board of directors, will comprise the majority
of our board of directors and may serve on the corporate governance, nominating
and compensation committee of our board of directors which, among other things,
reviews the compensation of certain members of our management and resolves
governance issues regarding our company. Accordingly, you may not have the same
protections afforded to stockholders of companies that are subject to all of
the New York Stock Exchange corporate governance requirements.

Future sales of our
common stock could cause the market price of our common stock to decline and
our existing stockholders may experience significant dilution.

We may issue
additional shares of our common stock in the future and our stockholders may elect
to sell large numbers of shares held by them from time to time.

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We filed a
shelf registration statement on Form F-3 with the SEC on October 8, 2009, which
became effective on November 12, 2009. We may use this registration statement
to issue up to an aggregate public offering price of $300.0 million of
additional common or preferred stock, warrants or subscription rights. In March
2010, under this registration statement, we issued and sold 10,350,000 shares
of common stock in a public offering. Concurrently with this public offering,
we issued and sold 1,000,000 shares of common stock to Vorini Holdings Inc. in
a private placement. The gross proceeds of the March 2010 public offering and
private placement were $79.45 million. In April 2011, under this registration
statement, we issued and sold 5,000,000 shares of common stock in a public
offering. The gross proceeds of the April 2011 public offering were $42
million. In the future, we may use the registration statement to issue up to an
aggregate public offering price of $178.55 million of additional shares of
common or preferred stock, warrants or subscription rights.

Sales of a
substantial number of shares of our common stock in the public market, or the
perception that these sales could occur, may depress the market price for our
common stock. These sales could also impair our ability to raise additional
capital through the sale of our equity securities in the future.

Our existing
stockholders may also experience significant dilution in the future as a result
of any future offering.

We also
entered into a registration rights agreement in connection with our initial
public offering with Vorini Holdings Inc., our principal stockholder, pursuant
to which we have granted it and certain of its transferees the right, under
certain circumstances and subject to certain restrictions, to require us to
register under the Securities Act of 1933, as amended (the Securities Act),
shares of our common stock held by them. Under the registration rights agreement,
Vorini Holdings and certain of its transferees have the right to request us to
register the sale of shares held by them on their behalf and may require us to
make available shelf registration statements permitting sales of shares into
the market from time to time over an extended period. In addition, those
persons have the ability to exercise certain piggyback registration rights in
connection with registered offerings initiated by us. Registration of such
shares under the Securities Act would, except for shares purchased by
affiliates, result in such shares becoming freely tradable without restriction
under the Securities Act immediately upon the effectiveness of such
registration.

Anti-takeover
provisions in our organizational documents could make it difficult for our
stockholders to replace or remove our current board of directors and together
with our adoption of a stockholder rights plan could have the effect of
discouraging, delaying or preventing a merger or acquisition, which could
adversely affect the market price of the shares of our common stock.

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

| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize
 our board of directors to issue blank check preferred stock without
 stockholder approval;                                                                                   
| |   |                                                                                                                                                                                           
| |  | provide for
 a classified board of directors with staggered, three-year terms;                                                                                                            
| |   |                                                                                                                                                                                           
| |  | prohibit
 cumulative voting in the election of directors;                                                                                                                                 
| |   |                                                                                                                                                                                           
| |  | authorize
 the removal of directors only for cause;                                                                                                                                       
| |   |                                                                                                                                                                                           
| |  | prohibit
 stockholder action by written consent unless the written consent is signed by
 all stockholders entitled to vote on the action;                                                 
| |   |                                                                                                                                                                                           
| |  | establish
 advance notice requirements for nominations for election to our board of
 directors or for proposing matters that can be acted on by stockholders at
 stockholder meetings; and
| |   |                                                                                                                                                                                           
| |  | provide that
 special meetings of our stockholders may only be called by the chairman of
 our board of directors, chief executive officer or a majority of our board of
 directors.       

19

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We have
adopted a stockholder rights plan pursuant to which our board of directors may
cause the substantial dilution of the holdings of any person that attempts to
acquire us without the approval of our board of directors.

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

Tax Risks

In addition to
the following risk factors, you should read Item 10. Additional InformationE.
Tax ConsiderationsMarshall Islands Tax Considerations, Item 10. Additional
InformationE. Tax ConsiderationsLiberian Tax Considerations, and Item 10.
Additional InformationE. Tax ConsiderationsUnited States Federal Income Tax
Considerations for a more complete discussion of expected material Marshall
Islands, Liberian and United States federal income tax consequences of owning
and disposing of our common stock.

We may earn shipping
income that will be subject to United States income tax, thereby reducing our
cash available for distributions to you.

Under United
States tax rules, 50% of our gross income attributable to shipping that begins
or ends in the United States will be subject to a 4% United States federal
income tax (without allowance for deductions). The amount of this income may
fluctuate, and we will not qualify for any exemption from this United States
tax. Many of our charters contain provisions that obligate the charterers to
reimburse us for this 4% United States tax. To the extent we are not actually
reimbursed by our charterers, the 4% United States tax will decrease our cash
that is available for dividends.

For a more
complete discussion, see the section entitled Item 10. Additional
InformationTax ConsiderationsE. United States Federal Income Tax
ConsiderationsTaxation of Our Shipping Income.

United States tax
authorities could treat us as a passive foreign investment company, which
could have adverse United States federal income tax consequences to United
States holders.

A non-United
States corporation will be treated as a passive foreign investment company,
or PFIC, for United States federal income tax purposes if either (a) at least
75% of its gross income for any taxable year consists of certain types of
passive income or (b) 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 that 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. United States stockholders of a PFIC are
subject to a disadvantageous United States federal income tax regime with
respect to the income derived by the PFIC, the distributions they receive from
the PFIC, and the gain, if any, they derive from the sale or other disposition
of their shares in the PFIC. In particular, United States holders who are
individuals would not be eligible for the 15% tax rate on qualified dividends.

Based on our
current operations and anticipated future operations, we believe that it is
more likely than not that we currently will not be treated as a PFIC. In this
regard, we intend to treat gross income we derive or are deemed to derive from
our period time chartering activities as services income, rather than rental
income. Accordingly, we believe that our income from our period time chartering
activities should not constitute passive income, and that the assets we own
and operate in connection with the production of that income do not constitute
passive assets.

There are
legal uncertainties involved in this determination. A recent case decided by
the United States Court of Appeals for the Fifth Circuit held that, contrary to
the position of the United States Internal Revenue Service or the IRS in that
case, and for purposes of a different set of rules under the Internal Revenue
Code of 1986, or the Code, income received under a period time charter of
vessels should be treated as rental income rather than services income. If the
reasoning of this case were extended to the PFIC context, the gross income we derive
or are

20

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deemed to
derive from our period time chartering activities would be treated as rental
income, and we would probably be a PFIC. In recent guidance, however, the IRS
stated that it disagreed with the holding in the Fifth Circuit case, and
specified that income from period time charters should be treated as services
income. In light of these authorities, the IRS or a United States court may not
accept the position that we are not a PFIC, and there is a risk that the IRS or
a United States court could determine that we are a PFIC. Moreover, we may not
constitute a PFIC for any future taxable year if there were to be changes in
our assets, income or operations.

If the IRS
were to find that we are or have been a PFIC for any taxable year, our United
States stockholders will face adverse United States tax consequences. See Item
10. Additional InformationE. Tax ConsiderationsUnited States Federal Income
Tax ConsiderationsUnited States Federal Income Taxation of United States
Holders for a more comprehensive discussion of the United States federal
income tax consequences to United States stockholders if we are treated as a
PFIC.

If the
regulations regarding the exemption from Liberian taxation for non-resident
corporations issued by the Liberian Ministry of Finance were found to be
invalid, the net income and cash flows of our Liberian subsidiaries and
therefore our net income and cash flows would be materially reduced.

The majority
of our vessel-owning subsidiaries is incorporated under the laws of the Republic
of Liberia. The Republic of Liberia enacted a new income tax act effective as
of January 1, 2001 (the New Act) which does not distinguish between the
taxation of non-resident Liberian corporations, such as our subsidiaries,
which conduct no business in Liberia and were wholly exempt from taxation under
the income tax law previously in effect since 1977, and resident Liberian
corporations which conduct business in Liberia and are, and were under the
prior law, subject to taxation.

In 2004, the
Liberian Ministry of Finance issued regulations exempting non-resident
corporations engaged in international shipping (and not exclusively within
Liberia), such as our vessel-owning subsidiaries, from Liberian taxation under
the New Act retroactive to January 1, 2001. It is unclear whether these
regulations, which ostensibly conflict with the express terms of the New Act
adopted by the Liberian legislature, are valid. However, the Liberian Ministry
of Justice issued an opinion that the new regulations are a valid exercise of
the regulatory authority of the Ministry of Finance. The Liberian Ministry of
Finance has not at any time since January 1, 2001 sought to collect taxes from
any of our subsidiaries.

If our
subsidiaries were subject to Liberian income tax under the New Act, they would
be subject to tax at a rate of 35% on their worldwide income. As a result,
their, and subsequently our, net income and cash flows would be materially
reduced. In addition, as the ultimate stockholder of our Liberian subsidiaries,
we would be subject to Liberian withholding tax on dividends paid by our
subsidiaries at rates ranging from 15% to 20%, which would limit our access to
funds generated by the operations of our subsidiaries and further reduce our
income and cash flows.

|        |                           
|------- | --------------------------
|ITEM 4. | INFORMATION ON THE COMPANY

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

Safe Bulkers,
Inc. was incorporated in the Republic of The Marshall Islands on December 11,
2007, under The Marshall Islands Business Corporations Act, for the purpose of
acquiring ownership of various subsidiaries that either owned or were scheduled
to own vessels. We are controlled by the Hajioannou family, which has a long
history of operating and investing in the international shipping industry,
including a long history of vessel ownership. Vassos Hajioannou, the late
father of Polys Hajioannou, our chief executive officer, first invested in
shipping in 1958. Polys Hajioannou has been actively involved in the industry
since 1987, when he joined the predecessor of Safety Management.

Over the past
17 years under the leadership of Polys Hajioannou, we have renewed our fleet
    by selling eleven drybulk vessels during periods of what we viewed as favorable
secondhand market conditions and contracting to acquire 40 drybulk newbuilds.
Also under his leadership, we have expanded the classes of drybulk vessels in
our fleet and the aggregate carrying capacity of our fleet has grown from
146,000 deadweight tons in 1995 to 1,886,400 dwt currently. The
quality and size of our current fleet, together with our long-term
relationships with

21

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several of our
charter customers, are, we believe, the results of our long-term strategy of
maintaining a young, high quality fleet, our broad knowledge of the drybulk
industry and our strong management team. In addition to benefiting from the
experience and leadership of Polys Hajioannou, we also benefit from the
expertise of our Manager which, along with its predecessor, has specialized in
drybulk shipping since 1965, providing services to over 35 drybulk vessels. A
number of our Managers key management and operational personnel have been
continuously employed with Safety Management and its predecessor company for
over 25 years. In June 2008, we completed an initial public offering of our common
stock in the United States and our common stock began trading on the New York
Stock Exchange. We maintain our offices at 30-32 Avenue Karamanli, P.O. Box
70837, 16605 Voula, Athens, Greece. Our telephone number at that address is
011-30-210-899-4980. Our registered address in the Republic of The Marshall
Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro,
Republic of the Marshall Islands MH96960. The name of our registered agent at
such address is The Trust Company of The Marshall Islands, Inc.

|   |                  
|-- | -----------------
|B. | Business Overview

We are an
international provider of marine drybulk transportation services, transporting
bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping
routes for some of the worlds largest consumers of marine drybulk
transportation services. As of February 25, 2012, we had a fleet of 20 drybulk
vessels, with an aggregate carrying capacity of 1,886,400 dwt and an average
age of 4.0 years, making us one of the worlds youngest fleets of Panamax, Kamsarmax,
Post-Panamax and Capesize class vessels. Our fleet is expected to grow through
2014 as the result of the delivery of nine further contracted newbuilds,
comprised of three Panamax class vessels, three Kamsarmax class vessels, two
Post-Panamax class vessels and one Capesize class vessel. Upon delivery of the
last of our contracted newbuilds, our fleet will be comprised of 29 vessels,
having an aggregate carrying capacity of 2,709,600 dwt.

We employ our
vessels on both period time charters and spot charters, according to our
assessment of market conditions, with some of the worlds largest consumers of
marine drybulk transportation services. The vessels we deploy on period time
charters provide us with relatively stable cash flow and high utilization rates,
while the vessels we deploy in the spot market allow us to take advantage of
attractive spot charter rates during periods of strong charter market
conditions.

General

As of February
25, 2012 our fleet comprised 20 vessels, of which five are Panamax class
vessels, three are Kamsarmax class vessels, ten are Post-Panamax class vessels
and two are Capesize class vessels, with an aggregate carrying capacity of
1,886,400 dwt and an average age of 4.0 years. Assuming delivery of the last of
our contracted newbuilds in 2014, our fleet will be comprised of eight Panamax
class vessels, six Kamsarmax class vessels, 12 Post-Panamax class vessels and
three Capesize class vessels, and the aggregate carrying capacity of our 29
vessels will be 2,709,600 dwt. As of February 25, 2012, the average remaining
duration of the charters for our existing fleet was 2.73 years.

The majority
of vessels in our fleet have sister ships with similar specifications in our
existing or newbuild fleet. We believe using sister ships provides cost savings
because it facilitates efficient inventory management and allows for the
substitution of sister ships to fulfill our period time charter obligations.

Our Fleet and Newbuilds

The table
below presents additional information with respect to our drybulk vessel fleet,
including our newbuilds, and its deployment as of February 25, 2012.

22

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|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|------------------ |  | --------- |  | ------------- |  | ----------------------- |  | ----------- |  | - | --------------------- | - | ----------------- |  | --------------------- |  | ----------------
|Vessel
 Name       |  | Dwt       |  | YearBuilt (1) |  | Country
 ofConstruction |  | CharterType |  |   | CharterRate (2)       |   | Commiss-
 ions(3) |  | Charter
 Period (4)   |  | Sister 
 Ship(5)
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Current Fleet      |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Panamax            |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Maria              |  | 76,000    |  | 2003          |  | Japan                   |  | Time        |  | $ | 20,250                |   | 3.50%             |  | Apr. 2011  Apr. 2014 |  | A               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Vassos             |  | 76,000    |  | 2004          |  | Japan                   |  | Time        |  | $ | 29,000                |   | 1.25%             |  | Nov. 2008  Oct. 2013 |  | A               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Katerina           |  | 76,000    |  | 2004          |  | Japan                   |  | Time        |  | $ | 20,000                |   | 3.375%            |  | Feb. 2011  Feb. 2014 |  | A               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Maritsa            |  | 76,000    |  | 2005          |  | Japan                   |  | Time        |  | $ | 26,727                |   | 1.25%             |  | Apr. 2011  Mar. 2015 |  | A               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Efrossini          |  | 75,000    |  | 2012          |  | Japan                   |  | Spot        |  | $ | 5,950                 |   | 5.50%             |  | Feb. 2012  Apr. 2012 |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Kamsarmax          |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Pedhoulas Merchant |  | 82,300    |  | 2006          |  | Japan                   |  | Time        |  | $ | 18,350                |   | 3.50%             |  | Aug. 2011  Aug. 2013 |  | B               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Pedhoulas Trader   |  | 82,300    |  | 2006          |  | Japan                   |  | Time (6)    |  | $ | 69,000                |   | 1.00%             |  | Aug. 2008  Jul. 2009 |  | B               
|                   |  |           |  |               |  |                         |  |             |  | $ | 56,500                |   |                   |  | Aug. 2009  Jul. 2010 |  |                 
|                   |  |           |  |               |  |                         |  |             |  | $ | 42,000                |   |                   |  | Aug. 2010  Jul. 2011 |  |                 
|                   |  |           |  |               |  |                         |  |             |  | $ | 20,000                |   |                   |  | Aug. 2011  Jul. 2013 |  |                 
|                   |  |           |  |               |  |                         |  | Time (7)    |  |   | BPI + 6.5             | % | 3.50%             |  | Aug. 2013  Jul. 2015 |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Pedhoulas Leader   |  | 82,300    |  | 2007          |  | Japan                   |  | Spot        |  | $ | 17,600                |   | 4.75%             |  | Jan. 2012  Mar. 2012 |  | B               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Post-Panamax       |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Stalo              |  | 87,000    |  | 2006          |  | Japan                   |  | Time        |  | $ | 34,160                |   | 1.25%             |  | Mar. 2010  Feb. 2015 |  | C               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Marina             |  | 87,000    |  | 2006          |  | Japan                   |  | Time        |  | $ | 19,500                |   | 1.25%             |  | Dec. 2011  Dec. 2013 |  | C               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Sophia             |  | 87,000    |  | 2007          |  | Japan                   |  | Time        |  | $ | 34,720                |   | 1.25%             |  | Oct. 2008  Sep. 2013 |  | C               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Eleni              |  | 87,000    |  | 2008          |  | Japan                   |  | Time        |  | $ | 34,160                |   | 1.25%             |  | Apr. 2010  Mar. 2015 |  | C               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Martine            |  | 87,000    |  | 2009          |  | Japan                   |  | Time        |  | $ | 40,500                |   | 1.25%             |  | Feb. 2009  Feb. 2014 |  | C               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Andreas K          |  | 92,000    |  | 2009          |  | South Korea             |  | Time        |  | $ | 15,250                |   | 3.75%             |  | Nov. 2011  Mar. 2012 |  | D               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Panayiota K        |  | 92,000    |  | 2010          |  | South Korea             |  | Time        |  | $ | 15,250                |   | 3.75%             |  | Nov. 2011  Apr. 2012 |  | D               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Venus Heritage     |  | 95,800    |  | 2010          |  | Japan                   |  | Spot        |  | $ | 13,500                |   | 4.75%             |  | Jan. 2012  Mar.2012  |  | E               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Venus History      |  | 95,800    |  | 2011          |  | Japan                   |  | Spot        |  | $ | 5,900                 |   | 5.00%             |  | Jan. 2012  Mar. 2012 |  | E               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Venus Horizon      |  | 95,800    |  | 2012          |  | Japan                   |  | Spot        |  | $ | 14,750 + ballastbonus |   | 5.00%             |  | Feb. 2012  Apr. 2012 |  | E               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Capesize           |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Kanaris            |  | 178,100   |  | 2010          |  | China                   |  | Time        |  | $ | 25,928                |   | 2.50%             |  | Sep. 2011  May 2031  |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Pelopidas          |  | 176,000   |  | 2011          |  | China                   |  | Time        |  | $ | 38,000                |   | 1.00%             |  | Jan. 2012  Dec. 2021 |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Subtotal           |  | 1,886,400 |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|New builds         |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Kamsarmax          |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.616        |  | 82,000    |  | 1H 2012       |  | China                   |  | Time (8)    |  | $ | 13,250                |   | 4.75%             |  | Apr. 2012  Apr. 2014 |  | F               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.631        |  | 82,000    |  | 1H 2012       |  | China                   |  | Time (9)    |  |   | (BPI + 4%)-$1,000     |   |                   |  | Jun. 2012  Apr 2013  |  | F               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.617        |  | 82,000    |  | 2H 2012       |  | China                   |  |             |  |   |                       |   |                   |  |                       |  | F               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Panamax            |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.1659       |  | 76,600    |  | 2H 2013       |  | Japan                   |  |             |  |   |                       |   |                   |  |                       |  | G               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.1154       |  | 76,000    |  | 1H 2014       |  | China                   |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No.1660       |  | 76,600    |  | 1H 2014       |  | Japan                   |  |             |  |   |                       |   |                   |  |                       |  | G               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Post-Panamax       |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No. 2396      |  | 84,000    |  | 2H 2014       |  | Japan                   |  |             |  |   |                       |   |                   |  |                       |  | H               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No. 2397      |  | 84,000    |  | 2H 2014       |  | Japan                   |  |             |  |   |                       |   |                   |  |                       |  | H               
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Capesize           |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Hull No. 131       |  | 180,000   |  | 2H 2012       |  | China                   |  | Time (10)   |  | $ | 24,810                |   | 1.25%             |  | Oct. 2012  Oct. 2022 |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|Subtotal           |  | 823,200   |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|TOTAL              |  | 2,709,600 |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 
|                   |  |           |  |               |  |                         |  |             |  |   |                       |   |                   |  |                       |  |                 

23

---



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(1)  | For
 newbuilds, the dates shown reflect the expected delivery dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2)  | Quoted
 charter rates are gross charter rates. Gross charter rates are inclusive of
 commissions. Net charter rates are charter rates after the payment of
 commissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(3)  | Commissions
 reflect payments made to third-party brokers or our charterers, and do not
 include the 1.25% fee payable on gross freight, charter hire, ballast bonus
 and demurrage to our Manager pursuant to our vessel management agreements
 with our Manager.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4)  | The start
 dates listed reflect either actual start dates or, in the case of contracted
 charters that had not commenced as of February 25, 2012, scheduled start
 dates. Actual start dates and redelivery dates may differ from the scheduled
 start and redelivery dates depending on the terms of the charter and market
 conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(5)  | Each vessel
 with the same letter is a sister ship of each other vessel that has the
 same letter, and under certain of our charter contracts, may be substituted
 with its sister ships.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(6)  | Charter
 agreement which provides for variable charter rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(7)  | A period
 time charter with a forward delivery date in August of 2013 for a duration of
 23 to 25 months, at a gross daily charter rate linked to the Baltic Panamax
 Index (BPI) plus a premium of 6.5%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(8)  | The charter
 agreement provides us with the option to nominate any of the three newbuild
 vessels *Hulls 616, 617* or *631* for employment under this charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(9)  | A period
 time charter with a forward delivery date in June of 2012 for a duration of
 10 to 12 months, at a gross daily charter rate linked to the BPI plus a
 premium of 4%. Net daily charter rate payable will be reduced by an amount of
 $1,000. The charter agreement provides us with the option to nominate any of
 the three newbuild vessels *Hulls 616, 617* or *631* for employment under this
 charter.                                                                                                                                                                                                                                                                                                                                                           
|(10) | The charter
 agreement grants the charterer the option to extend the period time charter
 for an additional twelve months at a time, at a gross daily charter rate of
 $26,330, less 1.25% total commissions, which option may be exercised by the
 charterer a maximum of two times. The charter agreement also grants the
 charterer an option to purchase the vessel at any time beginning at the end
 of the seventh year of the period time charter period, at a price of $39
 million less 1.00% commission, decreasing thereafter on a pro-rated basis by
 $1.5 million per year. Should the charterer decide to subsequently sell the
 vessel to a third party after exercising this purchase option, we have
 retained a right of first refusal to buy back the vessel.

From the
beginning of 1995 through February 25, 2012, we have taken delivery of 31
newbuilds. As of February 25, 2012, we were contracted to take delivery of nine
newbuilds, comprised of two Japanese-built Panamax class vessels, three
Chinese-built Kamsarmax vessels, one Chinese-built Panamax class vessel, two
Japanese-built Post-Panamax class vessels and one Chinese-built Capesize class
vessel. As of February 25, 2012, our remaining capital expenditure requirements
were $245.4 million, of which $106.3 million is payable in 2012, $39.9 million
in 2013 and $99.2 million in 2014.

Chartering of Our
Fleet

We currently
deploy the vessels in our fleet under long-term, or period time, charters and
trip time charters, which are short-term time charters of up to three months
where the vessel performs one or more voyages between load port(s) and
discharge port(s). Trip time charters and voyage charters (described below) of
three months or less are referred to in our industry as spot charters or spot
market charters due to their short-term duration. Our vessels are used to
transport bulk cargoes, particularly coal, grain and iron ore, along worldwide
shipping routes. We intend to employ our drybulk vessels on a mix of period and
spot charters and, according to our assessment of market conditions, adjust the
mix of these charters to take advantage of the relatively stable cash flow and
high utilization rates associated with long-term period time charters or to
profit from attractive spot rates during periods of strong charter market
conditions.

A time charter
is a contract to charter a vessel for a fixed period of time at a set daily
rate and can last from a few days up to several years. Under our time charters
the charterer pays for most voyage expenses, such as port, canal and fuel
costs, agents fees, extra war risks insurance and any other expenses related
to the cargoes, and we pay for vessel operating expenses, which include, among
other costs, costs for crewing, provisions, stores, lubricants, insurance,
maintenance and repairs, drydocking and intermediate and special surveys.

24

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Voyage
charters are generally contracts to carry a specific cargo from a load port to
a discharge port, including positioning the vessel at the load port. Under a
voyage charter, the charterer pays an agreed upon total amount or on a per
cargo ton basis, and we pay for both vessel operating expenses and voyage
expenses. We infrequently enter into voyage charters.

Our Customers

Since 2005 our
customers have included over 30 national, regional and international companies,
including Bunge, Cargill, Daiichi Chuo Kishen Kaisha, Intermare Transport
G.m.b.H., Eastern Energy Pte. Ltd., NYK, NS United Kaiun Kaisha, Kawasaki Kisen
Kaisha or their affiliates. During 2011, two of our charterers accounted for
66.10% of our revenues, namely Daiichi Chuo Kishen Kaisha and Kawasaki Kisen
Kaisha, with each one accounting for more than 10% of total revenues. During
2010, three of our charterers accounted for 76.3% of our revenues, namely
Daiichi Chuo Kishen Kaisha, Kawasaki Kisen Kaisha and Cargill, with each one
accounting for more than 10% of total revenues. During 2009, two of our
charterers accounted for 74.9% of our revenues, namely Daiichi Chuo Kishen
Kaisha and Kawasaki Kisen Kaisha, with each one accounting for more than 10% of
total revenue. We seek to charter our vessels primarily to charterers who
intend to use our vessels without sub-chartering them to third parties. A
prospective charterers financial condition and reliability are also important
factors in negotiating employment for our vessels.

Management of Our
Fleet

We have a
management agreement pursuant to which our Manager provides us with technical,
administrative, commercial and certain other services for an initial term of
two years with automatic one-year renewals for an additional eight years,
during which the management fees can be adjusted every year upon agreement
between us and our Manager. The management agreement can be terminated if we
provide notice of non-renewal 12 months prior to the end of the then-current
term. The initial two year term expired on May 28, 2010. We have not provided
notice of termination to our Manager. Our arrangements with our Manager and its
performance are reviewed by our board of directors. Our chief executive
officer, president, chief financial officer and chief operating officer,
collectively referred to in this annual report as our executive officers,
provide strategic management for our company and also supervise the management
of our day-to-day operations by our Manager. Our Manager reports to us and our
board of directors through our executive officers.

In return for
providing such services our Manager receives a management fee of $700 per day
per vessel. In return for chartering services rendered to us, our Manager also
receives a fee of 1.25% on all freight, charter hire, ballast bonus and
demurrage for each vessel. Our Manager also receives a commission of 1.0% based
on the contract price of any vessel bought or sold by it on our behalf, including
the acquisition of each of our contracted newbuilds. We also pay our Manager a
flat supervision fee of $550,000 per newbuild, of which 50% is payable upon the
signing of the relevant supervision agreement, and 50% upon successful
completion of the sea trials of each newbuild, which we capitalize, for the
on-premises supervision by selected engineers and others on the Managers staff
of newbuilds we have agreed to acquire pursuant to shipbuilding contracts,
memoranda of agreement, or otherwise.

Our Manager
has agreed that, during the term of our management agreement and for a period
of one year following its termination, our Manager will not provide management
services to, or with respect to, any drybulk vessels other than (a) on our
behalf or (b) with respect to drybulk vessels that are owned or operated by
companies affiliated with our chief executive officer or his brother Nicolaos
Hadjioannou, and drybulk vessels that are acquired, invested in or controlled
by companies affiliated with our chief executive officer or Nicolaos
Hadjioannou subject in each case to compliance with, or waivers of, the
restrictive covenant agreements entered into between us and such companies. Our
Manager has also agreed that if one of our drybulk vessels and a drybulk vessel
owned or operated by any such company are both available and meet the criteria
for a charter being arranged by our Manager, our drybulk vessel will receive
such charter.

Historically
our Manager has rarely provided services to third parties. Currently our
Manager does not provide management services to any third party vessels.

25

---



Competition

We operate in
highly competitive markets that are based primarily on supply and demand. Our
business fluctuates in line with the main patterns of trade of the major
drybulk cargoes and varies according to changes in the supply and demand for
these items. We believe we differentiate ourselves from our competition by
providing young, modern vessels with advanced designs and technological
specifications. As of February 25, 2012 our fleet had an average age of 4.0
years compared to an industry average of approximately 11.7 years. Upon
delivery of our contracted newbuilds, the majority of our fleet will have been
built in Japanese shipyards, which we believe provides us with an advantage in
attracting large, well-established customers, including Japanese customers.

The drybulk
sector is characterized by relatively low barriers to entry, and ownership of
drybulk vessels is highly fragmented. In general, we compete with other owners
of Panamax class or larger drybulk vessels for charters based upon price,
customer relationships, operating expertise, professional reputation and size,
age, location and condition of the vessel.

Crewing and Shore
Employees

Our management
team consists of our chief executive officer, president, chief financial
officer and chief operating officer, all of whom are provided by our Manager.
In addition, we employ a legal representative for our office in Greece. Our
Manager is responsible for the technical management of our fleet and therefore
also handles the recruiting, either directly or through crewing agents, of the
senior officers and all other crew members for our vessels. As of December 31,
2011, approximately 387 people served on board the vessels in our fleet, and
our Manager employed approximately 47 people on shore.

Permits and
Authorizations

We are
required by various governmental and other agencies to obtain certain permits,
licenses, certificates and financial assurances with respect to each of our
vessels. The kinds of permits, licenses, certificates and financial assurances
required by governmental and other agencies depend upon several factors,
including the commodity being transported, the waters in which the vessel
operates, the nationality of the vessels crew and the type and age of the
vessel. All permits, licenses, certificates and financial assurances currently
required to operate our vessels have been obtained. Additional laws and
regulations, environmental or otherwise, may be adopted which could limit our
ability to do business or increase the cost of doing business.

Risk of Loss and
Liability Insurance

General

The operation
of our fleet includes risks such as mechanical failure, collision, property
loss, cargo loss or damage as well as personal injury, illness and loss of
life. In addition, the operation of any oceangoing vessel is subject to the
inherent possibility of marine disaster, including oil spills and other
environmental mishaps, and the liabilities arising from owning and operating
vessels in international trade. The U.S. Oil Pollution Act of 1990 (OPA 90),
which imposes virtually unlimited liability upon owners, operators and demise
charterers of vessels trading in the United States exclusive economic zone for certain
oil pollution accidents in the United States, has made liability insurance more
expensive for vessel owners and operators trading in the United States market.

Our Manager is
responsible for arranging insurance for all our vessels on terms specified in
our Management Agreement, which we believe are in line with standard industry
practice. In accordance with our Management Agreement, our Manager procures and
maintains hull and machinery insurance, war risks insurance, freight, demurrage
and defense coverage and protection and indemnity coverage with mutual
assurance associations. Due to our low incident rate and the young age of our
fleet, we are generally able to procure relatively low rates for all types of
insurance.

While our
insurance coverage for our drybulk vessel fleet is in amounts that we believe
to be prudent to protect us against normal risks involved in the conduct of our
business and consistent with standard industry practice, our

26

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Manager may
not be able to maintain this level of coverage throughout a vessels useful
life. Furthermore, all risks may not be adequately insured against, any
particular claim may not be paid and adequate insurance coverage may not always
be obtainable at reasonable rates.

Hull and machinery insurance

Our marine
hull and machinery insurance covers risks of partial loss or actual or
constructive total loss from collision, fire, grounding, engine breakdown and
other insured risks up to an agreed amount per vessel. Our vessels will each be
covered up to at least their fair market value after meeting certain
deductibles per incident per vessel. We also maintain increased value coverage
for each of our vessels. Under this increased value coverage, in the event of
the total loss of a vessel, we are entitled to recover amounts in excess of the
total loss amount recoverable under our hull and machinery policy.

Protection and indemnity insurance

Protection and
indemnity insurance is a form of mutual indemnity insurance provided by mutual
marine protection and indemnity associations, or P&I Associations, formed
by vessel owners to provide protection from large financial loss to one club
member by contribution towards that loss by all members.

Protection and
indemnity insurance covers our third-party liabilities in connection with our
shipping activities. This includes third-party liability and other related
expenses of injury or death of crew members, 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. Our coverage, except for pollution, will be unlimited. Furthermore,
within this aggregate limit, club coverage is also limited to the amount of the
members legal liability.

Our protection
and indemnity insurance coverage for pollution is limited to $1.0 billion per
vessel per incident. Our protection and indemnity insurance coverage in respect
of passengers is limited to $2.0 billion and in respect of passengers and
seamen is limited to $3.0 billion per vessel per incident. The 13 P&I
Associations that comprise the International Group of P&I Clubs (the
International Group) insure approximately 90% of the worlds commercial
blue-water tonnage and have entered into a pooling agreement to reinsure each
P&I Associations liabilities. As a member of a P&I Association that is
a member of the International Group, we are subject to calls payable to the
P&I Association based on the International Groups claim records, as well
as the claim records of all other members of the individual associations.

Although the
P&I Associations compete with each other for business, they have found it
beneficial to mutualise their larger risks among themselves through the
International Group. This is known as the Pool. This pooling is regulated by
a contractual agreement which defines the risks that are to be covered and how
claims falling on the Pool are to be shared among the participants in the
International Group. The Pool provides a mechanism for sharing all claims in
excess of $8.0 million up to $60.0 million. For claims in excess of $60.0
million, the International Group purchases reinsurance from the commercial
market of up to $2.06 billion per vessel per incident in excess of $60.0
million and additional overspill insurance of $1.0 billion in excess of $2.05
billion in respect of passengers and seamen, per vessel per incident.

War risks insurance

Our war risk
insurance covers risks of partial loss or actual or constructive total loss
from confiscations, seizure, capture, vandalism, sabotage and other war related
risks and is $500.0 million per vessel per incident.

Inspection by
Classification Societies

Every
oceangoing vessel must be classed by a classification society. The
classification society certifies that the vessel is in class, signifying that
the vessel has been built and maintained in accordance with the rules and
regulations of the classification society. In addition, each vessel must comply
with all applicable laws, rules and regulations of the vessels country of
registry, or flag state, as well as the international conventions of which
that

27

---



flag state is
a member. A vessels compliance with international conventions and
corresponding laws and ordinances of its flag state can be confirmed by the
applicable flag state, port state control or, upon application or by official
order, the classification society, acting on behalf of the authorities
concerned.

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

All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years. The maintenance of class, regular and
extraordinary surveys of a vessels hull and machinery, including the
electrical plant, and any special equipment classed are required to be
performed as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annual Surveys.
 For oceangoing vessels, annual surveys are conducted for their hulls and
 machinery, including the electrical plants, and for any special equipment
 classed, at intervals of 12 months from the date of commencement of the class
 period indicated in the certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Intermediate Surveys.
 Extended annual surveys are referred to as intermediate surveys and
 typically are conducted on the occasion of the second or third annual survey
 after commissioning and after each class renewal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Class Renewal / Special Surveys.
 Class renewal surveys, also known as special surveys, are more extensive
 than intermediate surveys and are carried out at the end of each five-year
 period. During the special survey the vessel is thoroughly examined,
 including thickness-gauging to determine any diminution in the steel
 structures. Should the thickness be found to be less than class requirements,
 the classification society would prescribe steel renewals. It may be
 expensive to have steel renewals pass a special survey if the vessel is aged
 or experiences excessive wear and tear. A vessel owner has the option of
 arranging with the classification society for the vessels machinery to be on
 a continuous survey cycle, according to which all machinery would be surveyed
 within a five-year cycle. At an owners application, the surveys required for
 class renewal may be split according to an agreed schedule to extend over the
 entire period of class.

Vessels are
drydocked during intermediate and special surveys for repairs of their underwater
parts. If In Water Survey notation is assigned by class, as is the case for
our vessels, the vessel owner has the option of carrying out an underwater
inspection of the vessel in lieu of drydocking related to intermediate surveys
up to the tenth anniversary of vessel delivery, subject to certain conditions,
thereby generally achieving a higher utilization for the relevant vessel.

Following an
incident or a scheduled survey, if any defects are found, the classification
surveyor will issue a recommendation or condition of class which must be
rectified by the vessel owner within the prescribed time limits.

In general,
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as in class by a classification society which is a member of the
International Association of Classification Societies (IACS). All of our
vessels are certified as being in class by either Lloyds Register of
Shipping or the American Bureau of Shipping, both of which are a members of
IACS.

The following
table lists the dates by which we expect to carry out the next drydockings and
special surveys for the vessels in our current drybulk vessel fleet:

28

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|                   |                |                   
|------------------ | -------------- | ------------------
|Vessel Name        | Drydocking (1) | Special Survey (1)
|                   |                |                   
|Maria              | April 2012     | April 2013        
|Vassos             | February 2013  | February 2014     
|Katerina           | May 2013       | May 2014          
|Maritsa            | January 2014   | January 2015      
|Pedhoulas Merchant | March 2015     | March 2016        
|Pedhoulas Trader   | May 2015       | May 2016          
|Pedhoulas Leader   | February 2016  | February 2017     
|Stalo              | January 2015   | January 2016      
|Marina             | January 2015   | January 2016      
|Sophia             | June 2016      | June 2012         
|Eleni              | November 2012  | November 2013     
|Martine            | February 2013  | February 2014     
|Andreas K          | August 2013    | August 2014       
|Kanaris            | March 2014     | March 2015        
|Panayiota K        | April 2014     | April 2015        
|Venus Heritage     | December 2014  | December 2015     
|Venus History      | September 2015 | September 2016    
|Pelopidas          | November 2015  | November 2016     

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(1) | We have the
 ability to carry out in-water surveys of these vessels in lieu of drydocking,
 subject to certain conditions, which allows us to achieve a higher
 utilization of the relevant vessel. In the event of an in-water survey as
 part of a particular intermediate survey, drydocking would be required for
 the following special survey. Drydocking can be undertaken as part of a
 special survey if the drydocking occurs within 15 months prior to the special
 survey deadline.

Environmental and
Other Regulations

General

Government
regulation significantly affects the ownership and operation of our vessels.
Our vessels are subject to international conventions and national, state and
local laws and regulations in force in international waters and the countries
in which they operate or are registered, including environmental protection
requirements governing the management and disposal of hazardous substances and
wastes, the cleanup of oil spills and the management of other contamination,
air emissions, water discharges and ballast water. These laws and regulations
include the International Convention for Prevention of Pollution from Ships,
the International Convention for Safety of Life at Sea (SOLAS) and
implementing regulations adopted by the International Maritime Organization
(IMO), the European Union (EU) and other international, national and local
regulatory bodies. They also include laws and regulations in the jurisdictions
where our vessels travel and in the ports where our vessels call. In the U.S.,
the requirements include OPA 90, the U.S. Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), the U.S. Clean Water Act (CWA)
and Clean Air Act (CAA), Compliance with these environmental protection
requirements can impose significant cost and expense, including the cost of
vessel modifications and implementation of certain operating procedures. Our
fleet, however, is young and modern and complies with all current requirements
and we do not anticipate incurring significant vessel modification expenditures
in the current or subsequent fiscal year to comply with such requirements.
Under our Management Agreement, our Manager has assumed technical management
responsibility for our fleet, including compliance with all applicable
government and other regulations. If the Management Agreement with our Manager
terminates, we would attempt to hire another party to assume this responsibility.
In the event of termination, we may be unable to hire another party to perform
these and other services for a fixed fee, as is the case with our Manager.
However, due to the nature of our relationship with our Manager, we do not
expect our Management Agreement to be terminated early.

A variety of
governmental and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities
(such as the U.S. Coast Guard, harbor master or equivalent), classification
societies, flag state administration (country of registry), charterers and
terminal operators. Certain of these entities require us to obtain permits,
licenses, financial assurances and certificates for the operation of our vessels.
Failure to maintain necessary permits or approvals could require us to incur
substantial costs or result in the temporary suspension of the operation of one
or more of our vessels.

29

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We believe
that the heightened level of environmental and quality concerns among insurance
underwriters, regulators and charterers is leading to greater inspection and
safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the drybulk shipping industry. Increasing environmental concerns
have created a demand for vessels that conform to the stricter environmental
standards. We are required to maintain operating standards for all of our
vessels that emphasize operational safety, quality maintenance, continuous
training of our officers and crews and compliance with U.S. and international
regulations. We believe that the operation of our vessels is in substantial
compliance with all environmental laws and regulations applicable to us as of
the date of this annual report. However, because such laws and regulations are
subject to frequent change and may impose increasingly stricter requirements,
such future requirements may limit our ability to do business, increase our
operating costs, force the early retirement of our vessels and/or affect their
resale value, all of which could have a material adverse effect on our
financial condition and results of operations. However, we believe that because
our fleet is young and modern, we will not be exposed to the same level of risk
faced by owners of older, less modern vessels.

The International Maritime Organization

Our vessels
are subject to standards imposed by the IMO, the United Nations agency for
maritime safety and the prevention of pollution by ships. The IMO has adopted
regulations to reduce pollution in international waters, both from accidents
and routine operations, and has negotiated international conventions that
impose liability for oil pollution in international waters and a signatorys
territorial waters. For example, Annex III of the International Convention for
the Prevention of Pollution from Ships (MARPOL) regulates the transportation
of marine pollutants and imposes standards on packing, marking, labeling,
documentation, stowage, quantity limitations and pollution prevention. These
requirements have been expanded by the International Maritime Dangerous Goods
Code, which imposes additional standards for all aspects of the transportation
of dangerous goods and marine pollutants by sea.

In 1997, the
IMO adopted Annex VI to MARPOL to address air pollution from vessels. Annex VI
became effective in 2005, and sets limits on sulfur oxide and nitrogen oxide
emissions from vessel exhausts and prohibits deliberate emissions of ozone
depleting substances, such as chlorofluorocarbons. Annex VI also includes a
global cap on the sulfur content of marine fuels and allows for the
establishment of Emission Control Areas (ECAs) with more stringent controls
on sulfur emissions. An ECA for North America will take effect in 2012 and an
ECA for the Caribbean will take effect in 2014. In 2008, the IMO Marine
Environment Protection Committee adopted amendments to Annex VI regarding
particulate matter, nitrogen oxides and sulfur oxide emissions. These
amendments, which entered into force in 2010, are designed to reduce air
pollution from vessels by, among other things, (i) implementing a progressive
reduction of sulfur oxide emissions from ships; and (ii) establishing new tiers
of stringent nitrogen oxide emissions standards for new marine engines, depending
on their date of installation. In addition, the European Union has established
separate limitations on the sulfur content of marine fuels, and some European
Union countries may be declared Emission Control Areas in the future, pursuant
to Annex VI and its amendments. We have obtained International Air Pollution
Prevention Certificates for all our vessels, and believe that maintaining
compliance with the existing and known future Annex VI requirements will not
have an adverse financial impact on the operation of our vessels. However,
additional or new requirements, conventions, laws or regulations, including the
adoption of additional ECAs, or other new or more stringent emissions
requirements adopted by the IMO, the European Union, the United States or individual
states, or other jurisdictions in which we operate, could require vessel
modifications or otherwise increase the costs of our operations.

The IMO
adopted vessel energy efficient requirements, which will take effect in 2013.
The requirements will impose energy efficiency design on new vessels and
require energy efficiency management plans for existing vessels. We do not
expect these requirements to have a material effect on our operations.

In 2001, the IMO adopted the
International Convention on Civil Liability for Bunker Oil Pollution Damage, or
the Bunker Convention, which imposes strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention also requires registered
owners of ships over 1,000 gross tons to maintain insurance in specified
amounts to cover their liability for relevant pollution damage. The Bunker
Convention became effective on November 21, 2008. The IMO recently adopted a
requirement that vessels traveling through the Antarctic region (waters south
of latitude 60 degrees south) must use lower density fuel. We do not expect
this requirement to affect our operations, which do not involve Antarctic
travel.

30

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The operation
of our vessels is also affected by the requirements set forth in the ISM Code.
The ISM Code requires vessel owners or any other person, such as a manager or
bareboat charterer, who has assumed responsibility for the operation of a
vessel from the vessel owner and on assuming such responsibility has agreed to
take over all the duties and responsibilities imposed by the ISM Code, to
develop and maintain an extensive SMS 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
ISM Code requires that vessel operators obtain a Safety Management
Certificate for each vessel they operate from the government of the vessels
flag state. The certificate verifies that the vessel operates in compliance
with its approved SMS. Currently, our Manager has the requisite documents of
compliance and safety management certificates for each of the vessels in our
fleet for which the certificates are required by the IMO. Our Manager is
required to renew these documents of compliance and safety management
certificates every five years. Compliance is externally verified on an annual
basis for the Manager and between the second and third years for each vessel by
the applicable flag state. Although all our vessels are currently ISM
Code-certified, such certification may not be maintained by all our vessels at
all times.

Noncompliance
by a vessel owner, manager or bareboat charterer with the ISM Code may subject
such party to increased liability, invalidate existing insurance or decrease
available insurance coverage for the affected vessels and result in a denial of
access to, or detention in, certain ports. For example, the U.S. Coast Guard
and EU authorities have indicated that vessels not in compliance with the ISM
Code will be prohibited from trading in U.S. and EU ports.

The U.S. Oil Pollution Act of 1990

OPA 90
established an extensive regulatory and liability regime for the protection of
the environment from oil spills and cleanup of oil spills. OPA 90 applies to
discharges of any oil from a vessel, including discharges of fuel and
lubricants. OPA 90 affects all owners and operators whose vessels trade in the
United States, its territories and possessions or whose vessels operate in U.S.
waters, which includes the United States territorial sea and its two hundred
nautical mile exclusive economic zone. While our vessels do not carry oil as
cargo, they do carry lubricants and fuel oil, or bunkers, which subjects our
vessels to the requirements of OPA 90.

Under OPA 90,
vessel owners, operators and bareboat charterers are responsible parties and
are jointly, severally and strictly liable (unless the discharge of pollutants
results solely from the act or omission of a third party, an act of God or an
act of war) for all containment and clean-up costs and other damages arising
from discharges, or threatened discharges, of pollutants from their vessels,
including bunkers.

OPA 90 preserves
the right to recover damages under other existing laws, including maritime tort
law.

Effective July
31, 2009, the U.S. Coast Guard adopted regulations that adjust the limits of
liability of responsible parties under OPA 90 to the greater of $1,000 per
gross ton or $854,400 per non-tank vessel and established a procedure for
adjusting the limits for inflation every three years. These limits of liability
do not apply if an incident was directly caused by violation of applicable U.S.
safety, construction or operating regulations or by a responsible partys gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil
removal activities. As a result of the oil spill in the Gulf of Mexico
resulting from the explosion of the Deepwater Horizon drilling rig, bills have
been introduced in the U.S. Congress to increase the limits of OPA liability
for all vessels, including tanker vessels.

All owners and
operators of vessels over 300 gross tons are required to establish and maintain
with the U.S. Coast Guard evidence of financial responsibility sufficient to
meet their potential aggregate liabilities under OPA 90 and CERCLA, which is
discussed below. An owner or operator of a fleet of vessels is required only to
demonstrate evidence of financial responsibility in an amount sufficient to
cover the vessel in the fleet having the greatest maximum liability under OPA
90 and CERCLA. We have complied with the U.S. Coast Guard regulations by
providing a financial guarantee evidencing sufficient self-insurance. We have
satisfied these requirements and obtained a U.S. Coast Guard certificate of
financial responsibility for all of our vessels.

The U.S. Coast
Guards regulations concerning certificates of financial responsibility
provide, in accordance with OPA 90, that claimants may bring suit directly
against an insurer or guarantor that furnishes certificates of financial
responsibility and that the insurer or guarantor may only assert limited
defenses. Certain organizations, which had

31

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typically
provided certificates of financial responsibility under pre-OPA 90 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 limit the availability of coverage required by the U.S. Coast
Guard and could increase our costs of obtaining this insurance for our fleet,
as well as the costs of our competitors that also require such coverage.

We currently
maintain, for each of our vessels, oil pollution liability coverage insurance
in the amount of $1.0 billion per incident. Although our vessels carry a
relatively small amount of bunkers, a spill of oil from one of our vessels
could be catastrophic under certain circumstances. We also carry hull and
machinery protection and indemnity insurance to cover the risks of fire and
explosion. Losses as a result of fire or explosion could be catastrophic under
some conditions. While we believe that our existing insurance coverage is
adequate, not all risks can be insured and there can be no guarantee that any
specific claim will be paid, or that we will always be able to obtain adequate
insurance coverage at reasonable rates. If the damages from a catastrophic
spill exceeded our insurance coverage, the payment of those damages could have
a severe, adverse effect on us and could possibly result in our insolvency.

OPA 90
requires the owner or operator of any non-tank vessel of 400 gross tons or more
that carries oil of any kind as a fuel for main propulsion, including bunkers,
to prepare and submit a response plan for each vessel. These vessel response
plans include detailed information on actions to be taken by vessel personnel
to prevent or mitigate any discharge or substantial threat of such a discharge
of ore from the vessel due to operational activities or casualties. All of our
vessels have U.S. Coast Guard-approved response plans.

OPA 90
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states which have enacted such legislation have not yet
issued implementing regulations defining vessels owners responsibilities under
these laws. We intend to comply with all applicable state regulations in the
ports where our vessels call.

The U.S. Comprehensive Environmental
Response, Compensation, and Liability Act

CERCLA applies
to spills or releases of hazardous substances other than petroleum or petroleum
products, whether on land or at sea. CERCLA imposes joint and several
liability, without regard to fault, on the owner or operator of a ship, vehicle
or facility from which there has been a release, along with other specified
parties. Liability under CERCLA is generally limited to the greater of $300 per
gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0
million for vessels carrying hazardous substances), unless the incident is
caused by gross negligence, willful misconduct or a violation of certain
regulations, in which case liability is unlimited. As described above, owners
and operators of vessels must establish and maintain with the U.S. Coast Guard
evidence of financial responsibility sufficient to meet their potential
liabilities under CERCLA.

The U.S. Clean Water Act

The CWA
prohibits the discharge of oil or hazardous substances in navigable waters and
imposes strict liability in the form of penalties for any unauthorized
discharges. It also imposes substantial liability for the costs of removal,
remediation and damages and complements the remedies available under the more
recently enacted OPA 90 and CERCLA, discussed above. The U.S. Environmental
Protection Agency (EPA) regulates the discharge in U.S. ports of ballast
water and other substances incidental to the normal operation of vessels. Under
EPA regulations, commercial vessels greater than 79 feet in length are required
to obtain coverage under the Vessel General Permit, or VGP, to discharge
ballast water and other wastewater into U.S. waters by submitting a Notice of
Intent, or NOI. The VGP requires vessel owners and operators to comply with a
range of best management practices and reporting and other requirements for a
number of incidental discharge types and incorporates current U.S. Coast Guard
requirements for ballast water management, as well as supplemental ballast
water requirements. We have submitted NOIs for our vessels operating in U.S.
waters and will likely incur costs to meet the requirements of the VGP. In
addition, various states have enacted legislation restricting ballast water
discharges and the introduction of non-indigenous species considered to be
invasive. These and any similar ballast water discharge restrictions enacted in
the future could increase the costs of operating in the relevant waters.

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The EPA
recently released a draft of the 2013 VGP. The draft 2012 VGP would require
most vessels to meet numeric ballast water discharge limits based on a
staggered schedule based on the first dry docking after Jan. 1, 2014, or Jan.
1, 2016 (depending on vessel ballast capacity). The 2013 draft VGP would also
impose more strict technology-based limits in the form of best management
practices for discharges related to oil-to-sea interfaces and require routine
inspections, monitoring, reporting, and recordkeeping. The requirements of the
2013 VGP could require vessel modifications, the installation of ballast
treatment equipment, or otherwise increase the costs of our operations.

The U.S. Clean Air Act

In 2008, the
U.S. ratified the amended Annex VI to the MARPOL Convention, addressing air
pollution from ships, which went into effect in 2009. In December 2009, the EPA
announced its intention to publish final amendments to the emission standards
for new marine diesel engines installed on ships flagged or registered in the
United States that are consistent with standards required under recent
amendments to Annex VI of MARPOL. The new regulations include near-term
standards that began in 2011 for newly built engines requiring more efficient
use of engine technologies in use today and long-term standards beginning in
2016 requiring an 80 percent reduction in nitrogen oxide emissions below
current standards. The CAA also requires states to adopt State Implementation
Plans, or SIPs, designed to attain air quality standards. Several SIPs
regulate emissions resulting from vessel loading and unloading operations by
requiring the installation of vapor control equipment. In addition, individual
states, including California, have attempted to regulate vessel emissions within
state waters. The California Air Resources Board also has recently adopted fuel
content regulations that would apply to all vessels sailing within 24 nautical
miles of the California coast and whose itineraries call for them to enter
California ports, terminal facilities or estuarine waters. Our vessels
typically do not enter California ports.

New or more
stringent air emission regulations which may be adopted could require
significant capital expenditures to retrofit vessels and could otherwise
increase our operating costs.

Other environmental initiatives

The EU has
adopted legislation that (1) requires member states to refuse access to their
ports by certain substandard vessels, according to vessel type, flag and number
of previous detentions; (2) obliges member states to inspect at least 25% of
vessels using their ports annually and increase surveillance of vessels posing
a high risk to maritime safety or the marine environment; (3) provides the EU
with greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent societies; and
(4) requires member states to impose criminal sanctions for certain pollution
events, such as the unauthorized discharge of tank washings. It is also
considering legislation that will affect the operation of vessels and the
liability of owners for oil pollution. While we do not believe that the costs
associated with our compliance with these adopted and proposed EU initiatives
will be material, it is difficult to predict what additional legislation, if
any, may be promulgated by the EU or any other country or authority.

The U.S.
National Invasive Species Act (NISA) was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by vessels in foreign ports. Under NISA, the U.S. Coast
Guard adopted regulations in July 2004 imposing mandatory ballast water
management practices for all vessels equipped with ballast water tanks entering
U.S. waters. These requirements can be met by performing mid-ocean ballast
exchange, by retaining ballast water on board the vessel or by using
environmentally sound alternative ballast water management methods approved by
the U.S. Coast Guard. Mid-ocean ballast exchange is the primary method for
compliance with the U.S. Coast Guard regulations, since holding ballast water
can prevent vessels from performing cargo operations and alternative methods
are still under development. The U.S. Coast Guard has proposed amendments to
its ballast water management regulations that, if finalized, could set stricter
discharge limits for various invasive species or lead to requirements for
active treatment of ballast water. Several U.S. states, including Michigan and
California, have adopted legislation or regulations relating to the permitting
and management of ballast water discharges. Other states could adopt similar
requirements that could increase the costs of operation in state waters.

In 2004, the
IMO adopted an International Convention for the Control and Management of
Ships Ballast Water and Sediments (the BWM Convention). The BWM Conventions
implementing regulations call for a phased

33

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introduction
of mandatory ballast water exchange requirements, 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. As of January 31, 2012, the BWM Convention had been adopted
by 33 states, representing 26.46% of the worlds tonnage. Each vessel in our
current fleet has been issued a BWM plan Statement of Compliance by the
classification society with respect to the applicable IMO regulations and
guidelines.

If mid-ocean
ballast exchange is made mandatory at the international level or if ballast
water treatment requirements or options are instituted, significant capital
expenditures to retrofit vessels and install ballast treatment equipment will
be needed and our operating costs could increase.

Greenhouse Gas Regulation

In February
2005, the Kyoto Protocol to the United Nations Framework Convention on Climate
Change entered into force. Pursuant to the Protocol, adopting countries are
required to implement national programs to reduce emissions of certain gases,
generally referred to as greenhouse gases, which are suspected of contributing
to global warming. Currently, the emissions of greenhouse gases from
international shipping are not subject to the Kyoto Protocol. However, a new
treaty may be adopted in the future that includes restrictions on shipping
emissions. International and multinational bodies or individual countries also
may adopt their own climate change regulatory initiatives. The IMO recently
announced its intention to develop reduction measures for greenhouse gases from
international shipping. The European Union has indicated that it intends to
propose an expansion of the existing European Union emissions trading scheme to
include emissions of greenhouse gases from vessels. In the United States, the
EPA is considering a petition from the California Attorney General and a
coalition of environmental groups to regulate greenhouse gas emissions from
ocean-going vessels under the Clean Air Act. These or other developments may
result in regulations relating to the control of greenhouse gas emissions. Any
passage of climate control legislation or other regulatory initiatives in the
jurisdictions where we operate could entail financial impacts on our operations
that we cannot predict with certainty at this time.

Vessel security regulations

A number of
initiatives have been introduced in recent years intended to enhance vessel
security. On November 25, 2002, the Maritime Transportation Security Act of
2002 (the MTSA) came into effect. To implement certain portions of the MTSA,
the U.S. Coast Guard issued regulations in July 2003 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. This new chapter came 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 International
Ship and Port Facilities Security Code, or ISPS Code. Among the various
requirements are:

| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | on-board
 installation of automatic information systems 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.                                                        

The U.S. Coast
Guard regulations, intended to align with international maritime security
standards, exempt non-U.S. vessels from MTSA vessel security measures, provided
such vessels have on board a valid International Ship Security Certificate
that attests to the vessels compliance with SOLAS security requirements and
the ISPS Code. We have implemented the various security measures addressed by
the IMO, SOLAS and the ISPS Code, and we have approved ISPS certificates and
plans on board all our vessels, which have been certified by the applicable
flag state.

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Seasonality

We operate our
vessels in markets that have historically exhibited seasonal variations in
demand and, as a result, in charter rates. This seasonality may result in
quarter-to-quarter volatility in our results of operations. The market for
marine drybulk transportation services is typically stronger in the fall and
winter months in anticipation of increased consumption of coal and other raw
materials in the northern hemisphere during the winter months. In addition,
unpredictable weather patterns in these months tend to disrupt vessel
scheduling and supplies of certain commodities. This seasonality could
materially affect our business, financial condition, results of operations and
ability to pay dividends.

|   |                         
|-- | ------------------------
|C. | Organizational Structure

Safe Bulkers,
Inc. is a holding company with 33 subsidiaries, 24 of which are incorporated in
Liberia, eight of which are incorporated in the Republic of The Marshall
Islands and one of which is incorporated in the Republic of Cyprus. Our
subsidiaries are wholly-owned by us. A list of our subsidiaries as of February
25, 2012 is set forth in Exhibit 8.1 to this annual report.

|   |                              
|-- | -----------------------------
|D. | Property, Plant and Equipment

We have no
freehold or material leasehold interest in any real property. We occupy office
space at 30-32 Avenue Karamanli, 16605 Voula, Athens, Greece, that is provided
to us as part of the services we receive under our Management Agreement. We
have established a representation office in Greece and pursuant to legal
obligations for such establishment, we directly lease an office space in the
same building for that purpose. Other than our vessels, we do not have any
material property. Our vessels are subject to priority mortgages, which secure
our obligations under our various credit facilities. For further details
regarding our credit facilities, refer to Item 5. Operating and Financial
Review and Prospects  B. Liquidity and Capital Resources  Credit Facilities.

|         |                          
|-------- | -------------------------
|ITEM 4A. | UNRESOLVED STAFF COMMENTS

None.

|        |                                             
|------- | --------------------------------------------
|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial
condition and results of operations should be read in conjunction with the
financial statements and the notes to those statements included elsewhere in
this annual report. This discussion includes forward-looking statements that
involve risks and uncertainties. As a result of many factors, such as those set
forth under Item 3. Key InformationD. Risk Factors and elsewhere in this
annual report, our actual results may differ materially from those anticipated
in these forward-looking statements. Please see the section Forward-Looking
Statements at the beginning of this annual report.

Overview

Our business
is to provide international marine drybulk transportation services by operating
vessels in the drybulk sector of the shipping industry. As of February 25, 2012
our fleet consisted of 20 drybulk vessels, and we had newbuild contracts for an
additional nine vessels with an aggregate capacity of 2,709,600 dwt. We deploy
our vessels on a mix of period time and spot charters according to our
assessment of market conditions, adjusting the mix of these charters to take
advantage of the relatively stable cash flow and high utilization rates
associated with period time charters, or to profit from attractive spot charter
rates during periods of strong charter market conditions, or to maintain
employment flexibility that the spot market offers during periods of weak time
charter market conditions. As of February 25, 2012, 15 out of 20 vessels in our
fleet were employed on period time charters. We believe our customers, some of
which have been chartering our vessels or vessels of our predecessor for over
22 years, enter into period time and spot charters with us because of the
quality of our young and modern vessels and our record of safe and efficient
operations.

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The average
number of vessels in our fleet for the years ended December 31, 2009, 2010 and
2011 was 13.2, 14.6 and 16.4 respectively.

After delivery
of our contracted newbuilds, our drybulk fleet will consist of 29 vessels and
will have an aggregate carrying capacity of 2,709,600 dwt, assuming we do not
acquire any additional vessels or dispose of any of our vessels.

Our Manager

Our operations
are managed by our Manager, Safety Management Overseas S.A., under the
supervision of our executive officers and our board of directors. Under our
Management Agreement, our Manager provides us with technical, administrative
and commercial services for an initial term that expired on May 28, 2010, with
automatic one-year renewals for an additional eight years, at our option. Our
Manager is controlled by Polys Hajioannou.

|   |                  
|-- | -----------------
|A. | Operating Results

Our operating
results are largely driven by the following factors:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ownership days. We define ownership days as
 the aggregate number of days in a period during which each vessel in our
 fleet has been owned by us. Ownership days are an indicator of the size of
 our fleet over a period and affect both the amount of revenues and the amount
 of expenses that we record during a period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Available days. We define available days
 (also referred to as voyage days) as the total number of days in a period
 during which each vessel in our fleet was in our possession net of off-hire
 days associated with scheduled maintenance, which includes major repairs,
 drydockings, vessel upgrades or special or intermediate surveys. Available
 days are used to measure the number of days in a period during which vessels
 should be capable of generating revenues.                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Operating days. We define operating days as
 the number of our available days in a period less the aggregate number of
 days that our vessels are off-hire due to any reason, excluding scheduled
 maintenance. Operating days are used to measure the aggregate number of days
 in a period during which vessels actually generate revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Fleet utilization. We calculate fleet
 utilization by dividing the number of our operating days during a period by
 the number of our ownership days during that period. Fleet utilization is
 used to measure a companys ability to efficiently find suitable employment
 for its vessels and minimize the number of days that its vessels are off-hire
 for reasons such as scheduled repairs, vessel upgrades, drydockings or
 special surveys. During the three years ended December 31, 2011, our average
 annual fleet utilization rate was approximately 99.22%. However, an increase
 in annual off-hire days could reduce our operating days, and therefore, our
 fleet utilization.                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Time charter equivalent rates. We define
 time charter equivalent rates, or TCE rates, as our charter revenues less
 commissions and voyage expenses during a period divided by the number of our
 available days during the period. TCE rate is a standard shipping industry
 performance measure used primarily to compare daily earnings generated by
 vessels on period time charters and trip time charters with daily earnings
 generated by vessels on voyage charters, because charter rates for vessels on
 voyage charters are generally not expressed in per day amounts, while charter
 rates for vessels on period time charters and trip time charters generally
 are expressed in such amounts. We have only rarely employed our vessels on
 voyage charters and, as a result, generally our TCE rates approximate our
 time charter rates.

36

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|                                 |  |                                                                                        |         |      |   |         |  |   |         | 
|-------------------------------- |  | -------------------------------------------------------------------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
|                                 |  | Year Ended December 31,                                                                |        
|                                 |  |                                                                                        |        
|                                 |  | 2009                                                                                   |         | 2010 |   | 2011    | 
|                                 |  |                                                                                        |         |      |   |         | 
|                                 |  | (In thousands of U.S. dollars except
 available days and time charter equivalent rate) |        
|Time charter
 revenues           |  | $                                                                                      | 168,400 |      | $ | 159,698 |  | $ | 172,036 | 
|Less
 commissions                |  |                                                                                        | 3,794   |      |   | 2,678   |  |   | 3,128   | 
|Less voyage
 expenses            |  |                                                                                        | 577     |      |   | 610     |  |   | 1,987   | 
|                                 |  |                                                                                        |         |      |   |         |  |   |         | 
|Time charter
 equivalent revenue |  | $                                                                                      | 164,029 |      | $ | 156,410 |  | $ | 166,921 | 
|                                 |  |                                                                                        |         |      |   |         |  |   |         | 
|Available
 days                  |  |                                                                                        | 4,795   |      |   | 5,296   |  |   | 5,976   | 
|                                 |  |                                                                                        |         |      |   |         |  |   |         | 
|Time charter
 equivalent rate    |  | $                                                                                      | 34,208  |      | $ | 29,534  |  | $ | 27,932  | 
|                                 |  |                                                                                        |         |      |   |         |  |   |         | 

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Daily vessel operating expenses. We define
 daily vessel operating expenses to include the costs for crewing, insurance,
 lubricants, spare parts, provisions, stores, repairs, maintenance, statutory
 and classification expense, drydocking, intermediate and special surveys and
 other miscellaneous items. Daily vessel operating expenses are calculated by
 dividing vessel operating expenses by ownership days for the relevant period.
 Our ability to control our fixed and variable expenses, including our daily
 vessel operating expenses, also affects our financial results. In addition,
 factors beyond our control, such as developments relating to market premiums for
 insurance and the value of the U.S. dollar compared to currencies in which
 certain of our expenses, including certain crew wages, are denominated can
 cause our vessel operating expenses to increase.

The following
table reflects our ownership days, available days, operating days, fleet
utilization, TCE rates and daily vessel operating expenses for the periods
indicated:

|                                 |  |                         |        |      |   |        |   |   |        |  
|-------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                 |  | Year Ended December 31, |       
|                                 |  |                         |       
|                                 |  | 2009                    |        | 2010 |   | 2011   |  
|                                 |  |                         |        |      |   |        |  
|Ownership
 days                  |  |                         | 4,817  |      |   | 5,326  |   |   | 5,992  |  
|Available
 days                  |  |                         | 4,795  |      |   | 5,296  |   |   | 5,976  |  
|Operating
 days                  |  |                         | 4,778  |      |   | 5,269  |   |   | 5,962  |  
|Fleet
 utilization               |  |                         | 99.19  | %    |   | 98.93  | % |   | 99.50  | %
|TCE rates                        |  | $                       | 34,208 |      | $ | 29,534 |   | $ | 27,932 |  
|Daily vessel
 operating expenses |  | $                       | 4,075  |      | $ | 4,342  |   | $ | 4,350  |  

Revenues

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

| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | levels of demand and supply in the drybulk shipping industry;                                                                                                                                                        
| |   |                                                                                                                                                                                                                      
| |  | the age,
 condition and specifications of our vessels;                                                                                                                                                               
| |   |                                                                                                                                                                                                                      
| |  | the duration
 of our charters;                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                      
| |  | our
 decisions relating to vessel acquisitions and disposals;                                                                                                                                                        
| |   |                                                                                                                                                                                                                      
| |  | the amount
 of time that we spend positioning our vessels;                                                                                                                                                           
| |   |                                                                                                                                                                                                                      
| |  | the
 availability of our vessels, which is related to the amount of time that our
 vessels spend in drydock undergoing repairs and the amount of time required
 to perform necessary maintenance or upgrade work; and
| |   |                                                                                                                                                                                                                      
| |  | other
 factors affecting charter rates for drybulk vessels.                                                                                                                                                          

Revenue is
recognized as earned on a straight-line basis over the charter period in
respect of charter agreements that provide for varying rates. The difference
between the revenue recognized and the actual charter rate is recorded

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either as
unearned revenue or accrued revenue (see Unearned Revenue below).
Commissions (address and brokerage), regardless of charter type, are always
paid by us and are deferred and amortized over the related charter period and
are presented as a separate line item in revenues to arrive at net revenues in
the accompanying consolidated statements of income.

Revenues from
our period time charters comprised 92.8%, 99.5% and 92.0% respectively, of our
charter revenues for the years ended December 31, 2009, 2010 and 2011. The
revenues from our spot charters comprised 7.2%, 0.5% and 8.0%, respectively, of
our charter revenues for the years ended December 31, 2009, 2010 and 2011.

Vessels
operating on period time charters provide more predictable cash flows, but can
yield lower profit margins than vessels operating in the spot market during
periods characterized by favorable market conditions. Vessels operating in the
spot market generate revenues that are less predictable than those on period
time charters, but may enable us to capture increased profit margins during
periods of high drybulk charter rates, although we are exposed to the risk of
low drybulk charter rates, which may have a materially adverse impact on our
financial performance. During periods of volatility or weak market conditions,
period time charters of past periods may provide relatively stable cash flows,
while spot time charters can provide employment flexibility. If we fix vessels
on period time charters, future spot market rates may be higher or lower than
those rates at which we have time chartered our vessels. We are constantly
evaluating potential opportunities to increase the number of our drybulk
vessels employed on period time charters, but only expect to enter into
additional period time charters if we can obtain contract terms that satisfy
our criteria.

Unearned Revenue

Unearned
revenue as of December 31, 2011 includes: (i) cash received prior to the
balance sheet date relating to services to be rendered after the balance sheet
date amounting to $4.1 million as of December 31, 2011 and (ii) deferred
revenue resulting from straight-line revenue recognition in respect of charter
agreements that provide for varying charter rates amounting to $36.9 million,
all of which will be recognized as revenue during the period from January 1,
2012 until March 1, 2015.

Unearned
revenue as of December 31, 2010 includes: (i) cash received prior to the
balance sheet date relating to services to be rendered after the balance sheet
date amounting to $4.7 million as of December 31, 2010 and (ii) deferred
revenue resulting from straight-line revenue recognition in respect of charter
agreements that provide for varying charter rates amounting to $37.4 million,
all of which would be recognized as revenue during the period from January 1,
2010 until March 1, 2015.

Commissions

We pay
commissions currently ranging up to 5.5% on our period time and trip time
charters, which are a type of spot charter, to unaffiliated ship brokers, other
brokers associated with our charterers and to our charterers. These commissions
are directly related to our revenues, from which they are deducted. We expect
that the amount of our total commissions to unaffiliated ship brokers and
other brokers associated with our charterers and our charterers will continue to grow as the
size of our fleet grows and revenues increase following delivery of our nine
remaining contracted newbuilds and as a result of additional vessel acquisitions.
These commissions do not include fees we pay to our Manager, which are
described under Item 4. Information on the CompanyB. Business
OverviewManagement of Our Fleet.

Voyage Expenses

We charter our
vessels primarily through period time charters and trip time charters under
which the charterer is responsible for most voyage expenses, such as the cost
of bunkers, port expenses, agents fees, canal dues, extra war risks insurance
and any other expenses related to the cargo. We are responsible for the
remaining voyage expenses such as draft surveys, hold cleaning, bunkers during
ballast period, postage and other minor miscellaneous expenses related to the
voyage. We generally do not employ our vessels on voyage charters under which
we would be responsible for all voyage expenses. We also record within voyage
expenses the 4% United States federal tax we pay in respect of our U.S. source
shipping income (imposed on gross income without the allowance for any

38

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deductions).
In many cases, we recover these taxes from the charterers, and we record such
recovered amounts within revenues.

Vessel Operating
Expenses

Vessel
operating expenses include costs for crewing, insurance, lubricants, spare
parts, provisions, stores, repairs, maintenance, statutory and classification
expense, drydocking, intermediate and special surveys and other minor
miscellaneous items. We expect that crewing costs will continue to increase in
the future due to the limited supply and increase in demand for well-qualified
crew. In addition, we expect that insurance costs, drydocking and maintenance
costs will increase as our vessels age. In addition, a portion of our vessel
operating expenses, crew wages paid to our Greek crew members, are in
currencies other than the U.S. dollar. These expenses may increase or decrease
as a result of fluctuation of the U.S. dollar against these currencies.

Depreciation

We depreciate
our drybulk vessels on a straight-line basis over the expected useful life of
each vessel. Depreciation is based on the cost of the vessel less its estimated
residual value. We estimate the useful life of our vessels to be 25 years from
the date of delivery from the shipyard. Furthermore, we estimate the residual
value of our vessels to be $182 per light-weight ton.

Vessels, Net

Vessels are
recorded at their historical cost, which consists of the contracted purchase
price, any direct material expenses incurred upon acquisition (including
improvements, on-site supervision expenses incurred during the construction
period, commissions paid, delivery expenses and other expenditures to prepare
the vessel for her initial voyage) and financing costs incurred during the
construction of the vessel, less any potential discount or commission payable
to us resulting in a contract price reduction. Subsequent expenditures for
conversions and major improvements are also capitalized when it is determined
that they appreciably extend the life, increase the earning capacity or improve
the efficiency or safety of the vessels. If such factors are not met, such
expenditures are not capitalized and, instead, are charged to expenses as
incurred.

For the years
ended December 31, 2010 and 2011, we capitalized interest amounting to $315,084
and $1,471,785, respectively.

Under our
Management Agreement with our Manager, for purchases of vessels including with
respect to each of our nine remaining contracted newbuilds, we will pay our
Manager a commission of 1.0% on the contract price of the relevant vessel for
our Managers services in connection with finalizing the contract and arranging
for various regulatory approvals. In addition, as of May 29, 2011, according to
an agreement between us and our Manager, the flat supervision fee we pay our
Manager was set to $550,000 per newbuild, of which 50% is payable upon the
signing of the relevant supervision agreement, and 50% upon successful
completion of the sea trials of each newbuild, for the on-premises supervision
of all newbuilds we have agreed to acquire pursuant to shipbuilding contracts,
memoranda of agreement, or otherwise. These amounts payable to our Manager are
included as part of the vessel cost.

General and
Administrative Expenses

General and
administrative expenses consist of management fees paid to our Manager, which
is a related party, in relation to management services offered, and expenses
paid to third parties associated with us being a public company, which include
the preparation of disclosure documents, legal and accounting costs, including
costs related to compliance with the Sarbanes-Oxley Act of 2002, director and
officer liability insurance costs and director compensation.

In connection
with our initial public offering which was completed in June 2008, we entered
into a two year initial term Management Agreement with our Manager, with
automatic one-year renewals for an additional eight years. The fees were fixed
for the initial two-year period at $575 per day and 1.0% on gross freight,
charter hire, ballast

39

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bonus and
demurrage and were to be adjusted thereafter every year by agreement between us
and our Manager. The initial term of two years expired on May 28, 2010 and as
of May 29, 2010, pursuant to an agreement between us and our Manager, the fee
on gross freight, charter hire, ballast bonus and demurrage was readjusted to 1.25%.
As of May 29, 2011, pursuant to an agreement between us and our Manager, the
flat daily fee was readjusted to $700 per day per vessel from $575 per day.

In addition to
the fees described above, we pay our Manager the commissions and fees with
respect to vessel purchases and newbuilds described above in Vessels, Net
and the commissions with respect to vessel sales described below under Gain
on Sale of Assets. Such commissions and fees remained unchanged.

Although we
have not, within the past seven years, deployed our vessels on bareboat
charters and do not currently have any plans to deploy our vessels on bareboat
charters, under our Management Agreement, we will also provide our Manager with
a fee of $250 per day per vessel deployed on bareboat charters for providing
commercial, technical and administrative services. We expect that the amount of
our total management fees will increase following the delivery of our nine
contracted newbuilds and as a result of additional vessel acquisitions.

Interest Expense and
Other Finance Costs

We incur
interest expense on outstanding indebtedness under our existing credit
facilities, which we include in interest expenses. We also incurred financing
costs in connection with establishing those facilities, which are capitalized
and amortized over the period of the facility. The amortization of the finance
costs is included in amortization and write-off of deferred finance charges. We
will incur additional interest expense in the future on our outstanding borrowings
and under future borrowings.

Inflation

Inflation has
only a moderate effect on our expenses given current economic conditions. In
the event that significant global inflationary pressures appear, these
pressures would increase our operating, voyage, administrative and financing
expenses.

Gain on Sale of
Assets

In June 2009,
we agreed to sell our oldest vessel, the Panamax class Efrossini(which is hereinafter calledOld Efrossini, as we currently own
another vessel with the same name), which was delivered to her new owners on
January 7, 2010. The gain from the sale of this vessel amounted to $15.2
million, which was recorded as gain on sale of assets during the year ended
December 31, 2010. In connection with the sale of Old Efrossini, we paid our Manager a commission of 1.0% of
the sale price of the vessel. Under our Management Agreement, we are required
to pay our Manager a commission of 1.0% of the sale price of a vessel for any
future vessel sales.

No gain on
sale of assets was recorded in the other periods presented.

Early Redelivery
Income, Net

Early redelivery cost reflects
amounts payable to charterers for early termination of a period time charter
resulting from our request for early redelivery of a vessel. We generally
request such early redelivery when we would like to take advantage of a strong
period time charter market environment and believe that an opportunity to enter
into a similarly priced period time charter is not likely to be available when
the relevant vessel is scheduled to be redelivered.

Early redelivery income
reflects amounts payable to us for early termination of a period time charter
resulting from a charterers request for early redelivery of a vessel. We may
accept such requests from charterers when we believe that we are compensated by
a substantial portion of the contracted revenue and maintain the opportunity to
re-employ the vessel either in the spot or in the period time charter market at
adequate levels.

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We have
entered into such arrangements for early redelivery, and incurred such costs or
income in the past and we may continue to do so in the future, depending on
market conditions.

On January 1,
2009, we took early redelivery of the Maritsa,
instead of on January 13, 2009. The respective charterer paid cash compensation
of $0.6 million, net of commissions. No replacement charter contract had been
secured at the time of conclusion of the early redelivery agreement. The vessel
was subsequently fixed at a gross daily charter rate of $15,500 until February
2010.

On March 15,
2009, we took early redelivery of the Old
Efrossini, instead of on January 8, 2011. The respective charterer
paid cash compensation of $25.5 million, net of commissions. An amount of $3.6
million, representing the unearned revenue from the terminated period time
charter contract, was recorded as additional early redelivery income. No
replacement charter contract had been secured at the time of conclusion of the
early redelivery agreement. The vessel was subsequently fixed in the spot
market, at a gross daily charter rate of $13,750 until April 2009.

On June 26,
2009, we took early redelivery of the Katerina,
instead of on November 26, 2010. The respective charterer paid cash
compensation of $21.5 million, net of commissions. An amount of $0.9 million,
representing the unearned revenue from the terminated period time charter
contract, was recorded as additional early redelivery income. No replacement
charter contract had been secured at the time of conclusion of the early
redelivery agreement. The vessel was subsequently fixed at a gross daily
charter rate of $15,500 until September 2011.

On June 28,
2009, we took early redelivery of the Maria,
instead of on January 2, 2011. The respective charterer paid cash compensation
of $15.5 million, net of commissions. An amount of $4.5 million, representing
the unearned revenue from the terminated period time charter contract, was
recorded as additional early redelivery income. No replacement charter contract
had been secured at the time of conclusion of the early redelivery agreement.
The vessel was subsequently fixed at a gross daily charter rate of $18,000
until August 2010.

On July 19,
2009, we took early redelivery of the Pedhoulas
Leader, instead of on November 22, 2009. The respective charterer
paid cash compensation of $2.7 million, net of commissions. No replacement
charter contract had been secured at the time of conclusion of the early
redelivery agreement. The vessel was subsequently fixed at a gross daily
charter rate of $18,500 until November.

On July 20,
2009, we took early redelivery of the Stalo,
instead of on July 29, 2009. The respective charterer paid cash compensation of
$0.2 million, net of commissions. No replacement charter contract had been
secured at the time of conclusion of the early redelivery agreement. The vessel
was subsequently fixed in the spot market at a gross daily charter rate of
$42,500 until October 2009.

On March 25,
2010, we agreed with the charterers of the Katerina
to terminate the $15,500 daily fixed rate time charter which had commenced on
June 26, 2009, and was due to expire by September 15, 2011. As compensation for
early redelivery, we paid the charterers $1.5 million. No replacement charter
contract had been secured at the time of conclusion of the early redelivery
agreement. The vessel was subsequently fixed at a gross daily charter rate of
$20,000 for three years.

On April 13,
2010, we took early redelivery of the Pedhoulas
Merchant, instead of the contracted earliest redelivery date of
November 5, 2010. In connection with this early redelivery, we recognized early
redelivery income of $3.6 million, comprising cash compensation paid by the
relevant charterer of $4.8 million net of commissions, less accrued revenue of
$1.2 million. No replacement charter contract had been secured at the time of
conclusion of the early redelivery agreement. The vessel was subsequently fixed
at a gross daily charter rate of $27,250 until April 2011.

On April 28,
2010, we agreed with the charterers of the Pedhoulas
Leader to terminate the $18,500 daily fixed rate time charter which
had commenced on July 19, 2009, and was due to expire by September 30, 2011. As
compensation for early redelivery of the vessel, we paid the charterers $1.8
million. No replacement charter contract had been secured at the time of
conclusion of the early redelivery agreement. The vessel was redelivered on
November 12, 2010, and was subsequently fixed in the spot market at a gross
daily charter rate of $21,750.

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On July 30,
2010, we agreed with the charterers of the Maria
to terminate the $18,000 daily fixed rate time charter which had commenced on
June 28, 2009, and was due to expire by November 30, 2010. As compensation for
early redelivery of the vessel, we paid the charterers $0.2 million. No
replacement charter contract had been secured at the time of conclusion of the
early redelivery agreement. The vessel was redelivered on August 24, 2010, and
was subsequently fixed at a gross daily charter rate of $17,750 until April
2011.

Critical Accounting
Policies

We prepared
our consolidated financial statements in accordance with U.S. GAAP, which
requires us to make estimates in the application of our accounting policies
based on our best assumptions, judgments and opinions. We base these estimates
on the information currently available to us and on various other assumptions
we believe are reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. Following is a
discussion of the accounting policies that involve a high degree of judgment
and the methods of their application. For a further description of our material
accounting policies, please read Note 2 to our financial statements at the end
of this annual report.

Vessels Depreciation

Depreciation
is computed using the straight-line method over the estimated useful life of a
vessel, after considering the estimated residual value. We estimate the useful
life of our vessels to be 25 years from the date of initial delivery from the
shipyard. An increase in the useful life of a drybulk vessel or in its residual
value would have the effect of decreasing the annual depreciation and extending
it into later periods. A decrease in the useful life of a drybulk vessel or in
its residual value would have the effect of increasing the annual depreciation.

Impairment of Long-lived Assets

The Company
reviews for impairment its long-lived assets held and used whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. When the estimate of undiscounted cash flows, excluding
interest charges, expected to be generated by the use of the asset is less than
its carrying amount, we are required to evaluate the asset for an impairment
loss. Measurement of the impairment loss is based on the fair value of the
asset.

The carrying
values of our vessels may not represent their fair market value at any point in
time since the market prices of second-hand vessels tend to fluctuate with
changes in charter rates and the cost of newbuilds. Historically, both charter
rates and vessel values tend to be cyclical. Declines in the fair market value
of vessels, prevailing market charter rates, vessel sale and purchase
considerations, and regulatory changes in dry bulk shipping industry, changes
in business plans or changes in overall market conditions that may adversely
affect cash flows are considered as potential impairment indicators. In the
event the independent market value of a vessel is lower than its carrying
value, we determine undiscounted projected net operating cash flow for such
vessel and compare it to the vessel carrying value.

The
undiscounted projected net operating cash flows for each vessel are determined
by considering the charter revenues from existing time charters for the fixed
vessel days and an estimated daily time charter equivalent for the unfixed days
(based on our company budgeted charter rate for the first 12 months and the
most recent ten year historical average of similar size vessels for the period
thereafter) over the remaining estimated life of the vessel, net of brokerage
commissions, expected outflows for vessels maintenance, vessel operating
expenses, assuming an average annual inflation rate and management fees. The
undiscounted cash flows incorporate various factors such as estimated future
charter rates, future drydocking costs, estimated vessel operating costs
assuming an average annual inflation rate of 3%, estimated vessel utilization
rates, estimated remaining lives of the vessels, assumed to be 25 years from
the delivery of the vessel from the shipyard and estimated salvage value of the
vessels at $182 per light weight ton. These assumptions are based on historical
trends as well as future expectations. Although management believes that the
assumptions used to evaluate potential impairment are reasonable and
appropriate, such assumptions are highly subjective.

42

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Our analysis
of the impairment test performed for the year ended December 31, 2010,
indicated a variance of plus 6% for the first twelve months, between actual net
receipts during 2011 and net receipts forecasted by the company for the same
period. Our analysis of the impairment test performed for the year ended December
31, 2011, which also involved sensitivity tests on the future time charter
rates (which is the input that is most sensitive to variations), allowing for
variances of up to 37% depending on vessel type on time charter rates from the
Companys base scenario, indicated no impairment on any of our vessels.

No impairment
loss was recorded for any of the periods presented.

Recent Accounting Pronouncements

Refer to Note
2 of the consolidated financial statements attached to this report.

Results of Operations

Year ended December
31, 2011 compared to year ended December 31, 2010

During the
year ended December 31, 2011, we had an average of 16.4 drybulk vessels in our
fleet. During the year ended December 31, 2010, we had an average of 14.6
drybulk vessels in our fleet.

During the
year ended December 31, 2011, we acquired the vessels Venus History, a Post-Panamax class vessel
and Pelopidas, a Capesize class
vessel.

During the
year ended December 31, 2010, we acquired the vessels *Kanaris*, a Capesize class
vessel, *Panayiota K*, a Post-Panamax class vessel, and Venus Heritage, a Post-Panamax class
vessel and sold Old Efrossini, a
Panamax class vessel.

Revenues

Revenues
increased by 7.7%, or $12.3 million, to $172.0 million during the year ended
December 31, 2011 from $159.7 million during the year ended December 31, 2010,
as result of the net effect of the following factors: (i) a decrease in the TCE
rate for 2011 by 5.4% to $27,932, compared to $29,534 for 2010 due to the
decrease in prevailing charter rates and (ii) an increase in operating days for
the year ended December 31, 2011 by 13.2% to 5,962 days, compared to 5,269 days
for the year ended December 31, 2010, due to an increase in the weighted number
of vessels during 2010 of 14.6 compared to 16.4 during 2011, due to the
deliveries of the vessels Venus History
in September 2011, and Pelopidas
in November 2011.

Commissions

Commissions to
unaffiliated ship brokers, other brokers associated with our charterers and our
charterers during the year ended December 31, 2011 amounted to $3.1 million, an
increase of $0.4 million, or 14.8%, compared to $2.7 million during the year
ended December 31, 2010, primarily due to the increase in our revenues and to a
lesser extent to higher average contracted commissions, which increased in 2011
to 1.81% from 1.68% in 2010.

Vessel operating expenses

Vessel
operating expenses increased by 12.6% to $26.0 million during the year ended
December 31, 2011 from $23.1 million during the year ended December 31, 2010.
This increase of $2.9 million reflects mainly: (i) crewing cost of $13.2
million, compared to $11.4 million primarily attributable to increased salaries
paid to our crews and increased number of ownership days from 5,326 in 2010 to
5,992 in 2011, (ii) insurance cost of $2.3 million, compared to $1.9 million
primarily attributable to the increase number of vessels in 2011 and to
increased insurances paid to our insurers, (iii) the cost for repairs,
maintenance and drydocking of $2.1 million, compared to $1.8 million, and (iv)
cost for lubricants of $3.1 million, compared to $2.8 million mainly due to
increased number of operating days from 5,269 in 2010 to 5,962 in 2011 and
increased lubricants prices.

43

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Consequently,
daily operating expenses, which represent the operating expenses per vessel per
ownership day, increased marginally by 0.2% to $4,350 during the year ended
December 31, 2011 from $4,342 during the year ended December 31, 2010.

Depreciation

Depreciation
expenses increased by 19.8% to $23.6 million during the year ended December 31,
2011, compared to $19.7 million during the year ended December 31, 2010, due to
the increase in the average number of vessels from 14.6 during the year ended
December 31, 2010 to 16.4 during the year ended December 31, 2011.

General and administrative expenses

General and
administrative expenses increased by 21.4% to $8.5 million during the year
ended December 31, 2011 from $7.0 million during the year ended December 31,
2010, due to an increase in the number of ownership days by 12.5% from 5,326 in
2010 to 5,992 in 2011, as well as due to an increase, as of May 29, 2011, in
the flat daily fee per vessel to $700 from $575.

Interest expense

Interest
expenses decreased by 18.8% to $5.2 million during the year ended December 31,
2011 from $6.4 million during the year ended December 31, 2010. The $1.2
million decrease in interest expense was mainly attributable to the increase in
the capitalized interest during the year ended December 31, 2011 of $1.5
million from $0.3 million during the year ended December 31, 2010, and the
decrease in the average loans outstanding during the year ended December 31,
2011 of $460.4 million from $476.9 million during the year ended December 31,
2010, partly offset by the increase of the weighted average interest rate of
our outstanding indebtedness to 1.439% per annum (p.a.) for the year ended
December 31, 2011 from 1.394% p.a. for the year ended December 31, 2010.

Loss on derivatives

Loss on
derivatives increased by $4.3 million to $12.5 million during the year ended
December 31, 2011 from $8.2 million during the year ended December 31, 2010.
The increase of $4.3 million mainly reflects an increase in losses of $4.4
million from interest rate derivatives as a result of the realized loss and the
mark-to-market valuation of interest rate swap transactions to $12.4 million
for the year ended December 31, 2011 compared to $8.0 million for the year
ended December 31, 2010.

As of December
31, 2011, the aggregate notional amount of interest rate swap transactions
outstanding was $547.1 million, compared to $638.0 million at December 31,
2010. The aggregate notional amount of interest rate swap transactions
outstanding at December 31, 2011 is higher than the aggregate loans outstanding
at December 31, 2011, of $484.3 million, as two of the interest rate swap
transactions outstanding at December 31, 2011 will become effective upon the
expiration of the existing interest rate swap transactions relating to such
loans. These swaps economically hedged the interest rate exposure of 95% of the
Companys aggregate loans outstanding as of December 31, 2011. The
mark-to-market valuation of these interest rate swap transactions at the end of
each period is affected by the prevailing comparable interest rates at that
time.

Foreign currency gain/(loss)

Foreign
currency loss was $0.8 million during the year ended December 31, 2011,
compared to gain of $0.3 million during the year ended December 31, 2010.
Foreign currency exchange gains or losses resulted primarily from currency translation
or currency conversion of advances for vessel acquisitions and vessels under
construction denominated in foreign currencies. None of our loans were
denominated in foreign currency as of December 31, 2011.

Early redelivery income, net

44

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During the
year ended December 31, 2011, we recorded early redelivery income, relating to
the early termination of period time charters of our vessels, of $0.2 million
compared to $0.1 million early redelivery income during the year ended December
31, 2010.

Year ended December
31, 2010 compared to year ended December 31, 2009

During the
year ended December 31, 2010, we had an average of 14.6 drybulk vessels in our
fleet. During the year ended December 31, 2009, we had an average of 13.2
drybulk vessels in our fleet.

During the
year ended December 31, 2010, we acquired the vessels Kanaris, a Capesize class
vessel, Panayiota K, a Post-Panamax class vessel, and Venus Heritage, a Post-Panamax class
vessel and sold Old Efrossini, a
Panamax class vessel.

During the
year ended December 31, 2009, we acquired the vessels Martine, a Post-Panamax
class vessel, and Andreas K, a
Post-Panamax class vessel.

Revenues

Revenues
decreased by 5.2%, or $8.7 million, to $159.7 million during the year ended
December 31, 2010 from $168.4 million during the year ended December 31, 2009,
as result of the net effect of the following factors: (i) a decrease in the TCE
rate for 2010 by 13.7% to $29,534, compared to $34,208 for 2009 due to the
decrease in prevailing charter rates at which a number of our vessels were
chartered and (ii) an increase in operating days for the year ended December
31, 2010 by 10.3% to 5,269 days, compared to 4,778 days for the year ended
December 31, 2009 due to deliveries of the vessels Kanaris in March 2010, Panayiota
K in April 2010 and Venus
Heritage in December 2010 and the sale of Old Efrossini in January 2010.

Commissions

Commissions to
unaffiliated ship brokers, other brokers associated with our charterers and our
charterers during the year ended December 31, 2010 amounted to $2.7 million, a
decrease of $1.1 million, or 28.9%, compared to $3.8 million during the year
ended December 31, 2009, primarily due to the decrease in our revenues and to
lower average contracted commissions, which were reduced to 1.68% from 2.25%
for the years ended December 31, 2010 and 2009, respectively.

Vessel operating expenses

Vessel
operating expenses increased by 17.9% to $23.1 million during the year ended
December 31, 2010 from $19.6 million during the year ended December 31, 2009.
This increase of $3.5 million reflects mainly: (i) the cost for repairs,
maintenance and drydocking of $1.8 million, compared to $1.0 million, including
three drydockings completed during 2010, of our vessels Marina, Pedhoulas Trader
and Pedhoulas Merchant, compared
to two drydockings completed during 2009, of our vessels Stalo, and Maritsa, (ii) crewing cost of $11.4 million, compared to
$10.1 million primarily attributable to increased salaries paid to our crews
and increased number of ownership days from 4,817 in 2009 to 5,326 in 2010,
(iii) cost for lubricants of $2.8 million, compared to $2.5 million mainly due
to increased number of operating days from 4,778 in 2009 to 5,269 in 2010 and
increased lubricants prices and (iv) cost for spares, stores and provisions of
$3.9 million, compared to $2.8 million due to increased use of spares for
repairs, including one additional dry-docking and one additional vessel
delivery, increased prices for stores and provisions and increased number of ownership
days during the year ended December 31, 2010 and December 31, 2009,
respectively.

Consequently,
daily operating expenses, which represent the operating expenses per vessel per
ownership day, increased by 6.6% to $4,342 during the year ended December 31,
2010 from $4,075 during the year ended December 31, 2009, as a result of the
increase of vessel operating expenses by 17.9% partially offset by the 10.6%
increase of ownership days, as described above.

Depreciation

45

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Depreciation
expense increased by 41.7% to $19.7 million during the year ended December 31,
2010, compared to $13.9 million during the year ended December 31, 2009, due to
the increase in the average number of vessels from 13.2 during the year ended
December 31, 2009 to 14.6 during the year ended December 31, 2010.

General and administrative expenses

General and
administrative expenses remained stable at $7.0 million for the years ended
December 31, 2010, and December 31, 2009.

Interest expense

Interest
expense decreased by 37.9% to $6.4 million during the year ended December 31,
2010 from $10.3 million during the year ended December 31, 2009. The $3.9
million decrease in interest expense was mainly attributable to the decrease
    in the weighted average interest rate of our outstanding indebtedness to
    1.39% p.a. for the year ended December 31, 2010 from 2.14% p.a. for the
year ended December 31, 2009 due to lower prevailing LIBOR rates. The total
loans outstanding as of December 31, 2010 amounted to $494.74 million compared
to $471.2 million as of December 31, 2009.

Loss on derivatives

Loss on
derivatives increased by $3.8 million to $8.2 million during the year ended
December 31, 2010 from $4.4 million during the year ended December 31, 2009.
The increase of $3.8 million reflects: (i) an increase in losses of $4.5
million from interest rate derivatives as a result of the realized loss and the
mark-to-market valuation of interest rate swap transactions to $8.0 million for
the year ended December 31, 2010 compared to $3.5 million for the year ended
December 31, 2009, and (ii) a decrease in losses of $0.7 million from foreign
exchange derivatives, as a result of the decrease in the nominal value of the
foreign exchange derivatives and movements of the rates of the currencies in
which the derivatives contracts were denominated, to $0.2 million for the year
ended December 31, 2010, compared to $0.9 million for the year ended December
31, 2009.

As of December
31, 2010, the aggregate notional amount of interest rate swap transactions
outstanding was $638.0 million, compared to $452.5 million at December 31,
2009. The aggregate notional amount of interest rate swap transactions
outstanding at December 31, 2010 is higher than the aggregate loans outstanding
at December 31, 2010, of $494.7 million, as during the year ended December 31,
2010, we entered into four interest rate swap transactions relating to four
outstanding loans, whereby the new interest rate swap transactions will become
effective upon the expiration of the existing interest rate swap transactions
relating to such loans. These swaps economically hedged the interest rate
exposure of 98% of the Companys aggregate loans outstanding as of December 31,
2010. The mark-to-market valuation of these interest rate swap transactions at
the end of each period is affected by the prevailing comparable interest rates
at that time.

Foreign currency gain/(loss)

Foreign
currency gain was $0.3 million during the year ended December 31, 2010,
compared to gain of $0.8 million during the year ended December 31, 2009.
Foreign currency exchange gains resulted primarily from currency translation
or currency conversion of loans denominated in foreign currencies. Following
conversions during 2008 and the first quarter of 2009, none of our loans were
denominated in foreign currency as of December 31, 2010.

Early redelivery income, net

During the
year ended December 31, 2010, we recorded early redelivery income, relating to
the early termination of period time charters of our vessels, of $0.1 million
compared to $75.0 million early redelivery income during the year ended
December 31, 2009. Early redelivery income during the year ended December 31,
2010 is analyzed as follows: (i) Maria
was redelivered on August 24, 2010 instead of November 30, 2010, for which we
paid compensation of $0.2 million, net of commissions, (ii) Katerina was agreed to be redelivered on
January 15, 2011 instead of September 15, 2011, for which we recognized a cost
of $1.5 million, consisting of cash compensation paid to charterer on April 7,
2010, net of commissions, (iii) Pedhoulas
Merchant was redelivered on April 13, 2010

46

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instead of
November 5, 2010, for which we recognized income of $3.6 million, consisting of
cash compensation paid by the relevant charterer on May 6, 2010 of $4.8
million, net of commissions, less $1.2 million representing the accrued revenue
from the terminated period time charter contract, (iv) Pedhoulas Leader was redelivered on
November 12, 2010 instead of September 30, 2011, for which we recognized a cost
of $1.8 million, consisting all of cash compensation paid to the relevant
charterer on May 6, 2010, net of commissions. Early redelivery income during
the year ended December 31, 2009 is analyzed as follows: (i) Maritsa was redelivered on January 1, 2009
instead of January 13, 2009, for which we received compensation of $0.6
million, net of commissions, (ii) Old
Efrossini was redelivered on
March 15, 2009 instead of January 8, 2011, for which we recognized income of
$29.1 million consisting of cash compensation received of $25.5 million, net of
commissions, and $3.6 million representing the unearned revenue from the
terminated period time charter contract, (iii) Katerina
was redelivered on June 26, 2009 instead of November 26, 2010, for which we
recognized income of $22.3 million consisting of cash compensation paid by the
relevant charterer on July 1, 2009 of $21.5 million, net of commissions, and
$0.9 million representing the unearned revenue from the terminated period time
charter contract, (iv) Maria was
redelivered on June 28, 2009 instead of January 2, 2011, for which we
recognized income of $20.0 million consisting of cash compensation paid by the
relevant charterer on July 1, 2009 of $15.5 million, net of commissions, and
$4.5 million representing the unearned revenue from the terminated period time
charter contract, (v) Pedhoulas Leader
was redelivered on July 19, 2009 instead of November 22, 2009, for which we
received cash compensation of $2.7 million, net of commissions and (vi) Stalo was redelivered on July 20, 2009
instead of July 29, 2009, for which we received cash compensation of $0.2
million, net of commissions.

|   |                                
|-- | -------------------------------
|B. | Liquidity and Capital Resources

As of December
31, 2011, we had $33.5 million in cash and restricted cash, of which $28.1
million consisted of cash and cash equivalents, and $5.4 million was long-term
restricted cash. In addition, as of December 31, 2011, we had $50.0 million in
a long-term floating rate note investment (for more information, please see
Note 8 to our financial statements included at the end of this annual report).
Against this investment we may borrow, under certain conditions, up to $40.0
million in cash.

As of December
31, 2011, we had aggregate debt outstanding of $484.3 million, of which $18.5
million was payable within the next 12 months. As of December 31, 2011, we had
aggregate additional borrowing capacity of $178.9 million, consisting of $135.2
million available in undrawn or committed loan facilities and $43.7 million
available under existing revolving credit facilities. The undrawn loan
facilities consist of $24.0 million under a new credit facility for Panayiota K signed in 2010, $52.8 million
under a new credit facility for Pelopidas
signed in 2011 and $38.4 million under a new credit facility for Venus Horizon signed in 2011. In addition,
in 2011 we accepted a commitment letter for a new credit facility for Hull No. 616 scheduled to be delivered in
2012, in the amount of $20 million, the documentation for which was concluded
in February 2012. In February 2012, we accepted an offer letter from a bank for
a new revolving credit facility of up to $18 million which will be utilized to
finance the acquisition of one of the remaining newbuild vessels (see Note 23
to our financial statements included at the end of this annual report).

Our primary
liquidity needs are to fund capital expenditures in relation to newbuild
contracts, financing expenses, debt repayment, vessel operating expenses,
general and administrative expenses and dividend payments to our stockholders.
We anticipate that our primary sources of funds will be the existing cash and
cash equivalents as of December 31, 2011 of $28.1 million, borrowings of $40
million against our long term floating rate note investment, additional undrawn
or committed borrowing capacity of $178.9 million, cash from operations and
possibly, additional indebtedness to be raised against seven unencumbered
newbuild vessels upon their delivery and equity financing.

Our
commitments for newbuilds of $259.7 million as of December 31, 2011 consisted
of $150.9 million, payable in 2012, $38.2 million, payable in 2013 and $70.6
million, payable in 2014. These commitments represent the remaining installment
payments for the delivery of ten newbuild vessels, six of which are scheduled
to be delivered in 2012, one in 2013 and three in 2014.

We currently
estimate that the contracted cash flow from operations, existing cash and cash
equivalents, additional borrowing against our floating rate note investment,
existing undrawn loan and revolving credit facilities and commitments and
additional indebtedness secured by seven newbuild vessels which are currently
unencumbered, will

47

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be sufficient
to fund the operations of our fleet, including our working capital requirements,
and the capital expenditure requirements through the end of 2012. However,
during 2012 or 2013, we may seek additional indebtedness to partially fund our
capital expenditure requirements in order to maintain a strong cash position.
We may incur additional indebtedness secured by our other seven newbuild vessels
upon their delivery which are currently unencumbered. To the extent that market
    conditions deteriorate, charterers may default or seek to renegotiate charter
    contracts, and vessel valuations may decrease, resulting in a breach of our
    debt covenants. In such case our contracted revenues may decrease and we
    may be required to make additional prepayments under existing loan facilities,
resulting in additional financing needs. If we acquire additional vessels, our
capital expenditure requirements will increase and we will need to rely on
existing cash and time deposits, operating cash surplus and existing undrawn
loan commitments. If we are unable to obtain additional indebtedness, or to
find alternative financing, we will not be capable of funding our commitments
for capital expenditures relating to our contracted newbuilds. A failure to
fulfill our commitment would generally result in a forfeiture of the advance
    we paid to the shipyard with respect to the contracted newbuild. In addition,
    we may also be liable for other damages for breach of contract. Examples
    of such liabilities could include payments to the shipyard for the difference
    between the forfeited advance and the amount that remains to be paid by us
    if the shipyard cannot locate a third-party buyer that is willing to pay
    an amount equal to the difference or compensatory payments by us to charter
    parties with whom we have entered into charters with respect to the contracted
    newbuilds. Such events could adversely impact the dividends we intend to
    pay, and could have a material adverse effect on our business, financial
condition and results of operation.

We have paid
dividends to our stockholders each quarter since our initial public offering in
June 2008, including an aggregate amount of $41.8 million over four consecutive
quarterly dividends, each in the amount of $0.15 per share, payable during
2011. We also declared a dividend of $0.15 per share, payable on February 29,
2012, to our shareholders of record on February 24, 2012. Our future liquidity
needs will impact our dividend policy. We currently intend to use a portion of
our free cash to pay dividends to our stockholders. The declaration and payment
of dividends, if any, will always be subject to the discretion of our board of
directors. The timing and amount of any dividends declared will depend on,
among other things: (i) our earnings, financial condition and cash requirements
and available sources of liquidity, (ii) decisions in relation to our growth
strategies, (iii) provisions of Marshall Islands and Liberian law governing the
payment of dividends, (iv) restrictive covenants in our existing and future
debt instruments and (v) global financial conditions. Dividends might not be
paid in the future.

Cash Flows

Cash and cash
equivalents decreased to $28.1 million as of December 31, 2011, compared to
$65.3 million as of December 31, 2010. We consider highly liquid investments
such as time deposits and certificates of deposit with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
primarily held in U.S. dollars.

Net Cash Provided by Operating Activities

Net cash
provided by operating activities amounted to $107.2 million in 2011, consisting
of net income after non-cash items of $114.4 million plus an increase in
working capital of $7.2 million. Net cash provided by operating activities
amounted to $118.1 million in 2010, consisting of net income after non-cash
items of $109.6 million plus a decrease in working capital of $8.5 million. Net
cash provided by operating activities amounted to $211.3 million in 2009,
consisting of net income after non-cash items of $195.1 million plus a decrease
in working capital of $16.2 million.

Net Cash Used in Investing Activities

Net cash flows
used in investing activities were $125.9 million for the year ended December
31, 2011 compared to net cash flows used in investing activities of $131.7
million for the year ended December 31, 2010. The decrease in cash flows used
in investing activities of $5.8 million from 2010 is mainly attributable to the
net effect of the following factors: (i) a decrease in our net bank time
deposits by $35.0 million during the year ended December 31, 2011, compared to
a decrease of $22.8 million during the same period in 2010 and (ii) a decrease
of $31.5 million in payments for vessel acquisitions and advances for vessels
under construction during the year ended December 31, 2011 due to our
acquisition of two new vessels, Venus
History in September, and Pelopidas
in November, while during the year ended December 31, 2010, we acquired three
new vessels, Kanaris in March, Panayiota K in April

48

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and Venus Heritage in December, 2010 and (iii)
proceeds from sale of vessels, amounting to $32.2 million in 2010 due to the
sale of the Old Efrossini; no
vessels were sold in 2011.

Net cash flows
used in investing activities were $131.7 million for the year ended December
31, 2010 compared to net cash flows used in investing activities of $191.9
million for the year ended December 31, 2009. The decrease in cash flows used
in investing activities of $60.2 million from 2010 is mainly attributable from
the following factors: (i) investment in a 5 year floating rate note of $50
million in 2009, compared to no new long term investments in 2010, (ii) a
decrease in our net bank time deposits by $22.8 million during the year ended
December 31, 2010, compared to an increase of $36.6 million during the same
period in 2009 and (iii) proceeds of $32.2 million during the year ended
December 31, 2010 from the sale of Old
Efrossinion January 7, 2010, compared to no sales of assets during
the year ended December 31, 2009 and (iv) a partial offset caused by an
increase of $60.9 million to $192.4 million from $131.5 million in vessel
acquisitions and advances for vessels payments during the year ended December
31, 2010 due to our acquisition of three new vessels, Kanaris in March, Panayiota K in April and Venus Heritage in December, while during
the year ended December 31, 2009, we acquired two new vessels, Martine in February and Andreas K in September.

Net Cash (Used in)/Provided by Financing
Activities

Net cash flows
used in financing activities were $18.5 million for the year ended December 31,
2011, compared to net cash flows provided by financing activities of $60.1
million for the year ended December 31, 2010. This increase of $78.6 million
compared to 2010 is largely attributable to a decrease of $35.4 million in
proceeds from the issuance of common stock, an increase in long-term debt principal
payments of $43.5 million, an increase in long-term debt proceeds of $9.5
million an increase in payments of deferred financing costs of $5.4 million and
an increase in dividends paid of $4 million.

Net cash flows
provided by financing activities were $60.1 million for the year ended December
31, 2010, compared to net cash flows used in financing activities of $28.7
million for the year ended December 31, 2009. This increase of $88.8 million,
compared to 2010 is largely attributable to an increase of $75.0 million in
proceeds from the issuance of common stock, an increase in long-term debt
principal payments of $13.0 million, an increase in long-term debt proceeds of
$32.5 million and an increase in dividends paid of $5.1 million.

Credit Facilities

We operate in
a capital intensive industry which requires significant amounts of investment,
and we fund a portion of this investment through long-term bank debt. Our
subsidiaries have generally entered into individual credit facilities in order
to finance the acquisition of the vessels owned by these subsidiaries and for
general corporate purposes. The durations until maturity of our 16 credit
facilities outstanding on December 31, 2011, ranged from four to 12 years, and
they are generally repaid by semiannual principal installments and a balloon
payment for 13 out of 15 of them, due on maturity except for the Maxdeka and
Shikoku loan facilities, which are repayable in semi-annual installments. We
generally pay interest on these facilities which bear interest at LIBOR plus a
margin, except for the Maxdeka and Shikoku loan facilities, under which a
portion of the principal amounts bear interest at the Commercial Interest
Reference Rate published by the Organization for Economic Co-operation and
Development (OECD) applicable on the date of signing of the relevant loan
agreements. The obligations under our credit facilities are secured by, among
other types of security, first priority mortgages over the vessels owned by the
respective borrower subsidiaries, first priority assignments of all insurances
and earnings of the mortgaged vessels and guarantees by Safe Bulkers, Inc.

During 2011,
we drew down loans totaling $84.0 million and we repaid $94.5 million of our
indebtedness. As of December 31, 2011, we had 16 outstanding credit facilities
with a combined outstanding balance of $484.3 million. These debt facilities
have maturity dates between 2015 and 2023. For a description of our debt
facilities as of December 31, 2011, please see Note 7 to our financial statements
included at the end of this annual report. During 2012, we plan to repay
approximately $18.5 million of our long-term debt outstanding as of December
31, 2011. During 2011, we entered into a new credit facility in the amount of
$52.8 million for Pelopidasand
we entered into a new credit facility in the amount of $38.4 million for Venus Horizon. Additionally, during 2011,
we accepted a commitment letter from a bank for a credit facility for up to
$20.0 million, which will be used for the financing of the acquisition of Hull No. 616, the documentation for which
was concluded in February 2012. This credit facility

49

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will be made
available after delivery from the shipyard of Hull
No.*616*. Additionally, during February 2012, we accepted a commitment
letter from a bank for a credit facility for up to $18.0 million, which will
be used for the financing of the acquisition of Hull
No. 631. For more
information regarding these credit facilities, please refer to Notes 10(b) and
23(b) of the financial statements included at the end of this annual report.

Covenants under Credit Facilities

The credit
facilities impose operating and financial restrictions on us. These
restrictions in our existing credit facilities generally limit our
subsidiaries ability to, among other things, and subject to exceptions set
forth in such credit facilities:

| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay
 dividends if an event of default has occurred and is continuing or would
 occur as a result of the payment of such dividends;                                    
| |   |                                                                                                                                                                       
| |  | enter into
 certain long-term charters;                                                                                                                               
| |   |                                                                                                                                                                       
| |  | incur
 additional indebtedness, including through the issuance of guarantees;                                                                                         
| |   |                                                                                                                                                                       
| |  | change the
 flag, class or management of the vessel mortgaged under such facility or
 terminate or materially amend the management agreement relating to such
 vessel;
| |   |                                                                                                                                                                       
| |  | create liens
 on their assets;                                                                                                                                        
| |   |                                                                                                                                                                       
| |  | make loans;                                                                                                                                                           
| |   |                                                                                                                                                                       
| |  | make
 investments;                                                                                                                                                    
| |   |                                                                                                                                                                       
| |  | make capital
 expenditures;                                                                                                                                           
| |   |                                                                                                                                                                       
| |  | undergo a
 change in ownership or control or permit a change in ownership and control of
 our Manager;                                                                
| |   |                                                                                                                                                                       
| |  | sell the
 vessel mortgaged under such facility; and                                                                                                                   
| |   |                                                                                                                                                                       
| |  | permit our
 chief executive officer to change.                                                                                                                        

Our existing
credit facilities also require certain of our subsidiaries to maintain
financial ratios and satisfy financial covenants. Depending on the credit
facility, certain of our subsidiaries are subject to financial ratios and
covenants requiring that these subsidiaries:

| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ensure that
 the market value of the vessel mortgaged under the applicable credit
 facility, determined in accordance with the terms of that facility, does not
 fall below 110% to 120%, as applicable, of the outstanding amount of the loan
 (the Minimum Value Covenant);                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                       
| |  | ensure that
 outstanding amounts in currencies other than the U.S. dollar do not exceed
 100% or 110%, as applicable, of the U.S. dollar equivalent amount specified
 in the relevant credit agreement for the applicable period by, if necessary,
 providing cash collateral security in an amount necessary for the outstanding
 amounts to meet this threshold; and
| |   |                                                                                                                                                                                                                                                                                                                                                                       
| |  | ensure that
 we comply with certain financial covenants under the guarantees described
 below.                                                                                                                                                                                                                                                                        

In addition,
under guarantees we have entered into with respect to certain of our
subsidiaries existing credit facilities, we are subject to financial covenants.
Depending on the guarantee, these financial covenants include the following:

50

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| |   |                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our total
 consolidated liabilities with the relevant bank divided by our total
 consolidated assets must not exceed 70% or 80% as the case may be
 (Consolidated Leverage Covenant). The total consolidated assets are based
 on the market value of our vessels and the book values of all other assets,
 on an adjusted basis as set out in the relevant guarantee;
| |   |                                                                                                                                                                                                                                                                                                                                                                         
| |  | the ratio of
 our aggregate debt to EBITDA must not at any time exceed 5.5:1 on a trailing
 12 months basis (EBITDA Covenant);                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                         
| |  | our net
 consolidated worth (total consolidated assets less total consolidated
 liabilities) (Consolidated Net Worth Covenant) must not at any time be less
 than $150.0 million, $175.0 million or $200.0 million, as the case may be,
 with the relevant bank;                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                         
| |  | payment of
 dividends is subject to no event of default having occurred;                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                         
| |  | maintenance
 of minimum free liquidity of $500,000 is required on deposit on a per vessel
 basis for five vessels; and                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                         
| |  | a minimum of
 51% of the Companys shares shall remain directly or indirectly beneficially
 owned by the Hajioannou family for the duration of the relevant credit
 facilities.                                                                                                                                                                                         

As of December
31, 2011, the Company was in compliance with all debt covenants with respect to
its credit facilities.

Interest Rate Swaps

We have
entered into interest rate swap agreements converting floating interest rate
exposure into fixed interest rates in order to economically hedge our exposure
to fluctuations in prevailing market interest rates. For more information on
our interest rate swap agreements, refer to Note 13 to our financial statements
included at the end of this annual report.

|   |                                               
|-- | ----------------------------------------------
|C. | Research and Development, Patents and Licenses

We incur from
time to time expenditures relating to inspections for acquiring new vessels
that meet our standards. Such expenditures are insignificant and they are
expensed as they are incurred.

|   |                  
|-- | -----------------
|D. | Trend Information

Our results of
operations depend primarily on the charter hire rates that we are able to
realize, and the demand for drybulk vessel services. After reaching historical
highs in mid-2008, charter hire rates for Panamax and Capesize drybulk vessels
reached near historically low levels. For example, the Baltic Drybulk Index, or
BDI, declined from
a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents
a decline of 94% within a single calendar year. During 2011, the BDI remained
volatile, reaching a low of 1,043 on February 4, 2011 and a high of 2,173 on
October 14, 2011. On February 3, 2012, the BDI reached a 26 year low of 647,
due to a combination of weak demand and further growth in vessel supply. As of
February 24, 2012, the BDI was 718.

The decline and volatility in charter rates
in the drybulk market reflects in part the fact that the supply of drybulk
vessels in the market has been increasing, and the number of newbuild drybulk
vessels on order is near historic highs. Demand for drybulk vessel services is
influenced by global financial conditions. The recovery in China and India
positively influenced the charter rates; however, global financial conditions
remain volatile and demand for drybulk services may decrease in the future. The
combination of increasing drybulk capacity (both current and expected) and
decreasing demand or demand which is not offset by the increase in drybulk
capacity is likely to result in reductions in charter hire rates and, as a
consequence, adversely affect our operating results.

| |  | 
| |  | 
| | 
| | 

51

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In response to
the volatile market conditions, we seek to strengthen our charter coverage.
Currently, 15 of our 20 vessels are employed or scheduled to be employed in
period time charters of more than three months. Additionally, we believe we
have structured our capital expenditure requirements, debt commitments and
liquidity resources is a way that will provide us with financial flexibility
(see Item 5. Operating and Financial Review and Prospects  B. Liquidity and
Capital Resources for more information).

|   |                               
|-- | ------------------------------
|E. | Off-Balance Sheet Arrangements

As of December
31, 2011, we did not have any off-balance sheet arrangements.

|   |                        
|-- | -----------------------
|F. | Contractual Obligations

Our
contractual obligations as of December 31, 2011 were:

|                            |  |                       |         |                         |   |                       |  |                       |         |                                         |   |         |  |   |         | 
|--------------------------- |  | --------------------- | ------- | ----------------------- | - | --------------------- |  | --------------------- | ------- | --------------------------------------- | - | ------- |  | - | ------- | 
|                            |  | Total                 |         | Less than 1
year (2012) |   | 1-3 years
(2013-2014) |  | 3-5 years
(2015-2016) |         | More than
5 years
(AfterJanuary 1,2017) |  
|                            |  |                       |         |                         |   |                       |  |                       |         |                                         |  
|                            |  | (Dollars inthousands) |         |                         |   |                       |  |                       |         |                                         |   |         |  |   |        
|Long-term debt obligations  |  | $                     | 484,291 |                         | $ | 18,486                |  | $                     | 55,321  |                                         | $ | 101,032 |  | $ | 309,452 | 
|Interest payments (1)       |  | $                     | 69,962  |                         | $ | 16,834                |  | $                     | 23,877  |                                         | $ | 15,328  |  | $ | 13,923  | 
|Payments to our Manager (2) |  | $                     | 16,794  |                         | $ | 10,661                |  | $                     | 6,133   |                                         |   |        |  |   |        | 
|Newbuild contracts          |  | $                     | 251,837 |                         | $ | 146,515               |  | $                     | 37,026  |                                         | $ | 68,296  |  |   |        | 
|                            |  |                       |         |                         |   |                       |  |                       |         |                                         |   |         |  |   |         | 
|Total                       |  | $                     | 822,884 |                         | $ | 192,496               |  | $                     | 122,357 |                                         | $ | 184,656 |  | $ | 323,375 | 
|                            |  |                       |         |                         |   |                       |  |                       |         |                                         |   |         |  |   |         | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(1) | Amounts
shown reflect estimated interest payments we expect to make with respect to
our long-term debt obligations and interest rate swaps. The interest payments
reflect an assumed LIBOR-based applicable interest rate of 0.8080% (the
six-month LIBOR rate as of December 31, 2011), plus the relevant margin of
the applicable credit facility and the estimated net settlement of our
interest rate swaps. See B. Liquidity and Capital ResourcesInterest Rate
Swaps.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(2) | Represents a
fee of $700 per vessel per day and 1.25% of estimated charter hire based on
charter agreements in place as of December 31, 2011, based on the management
fees effective as of May 29, 2011. In addition, it includes amounts payable
to our Manager in respect of the commission of 1.0% of the contract price of
our newbuilds and $550,000 per newbuild for the on-premises supervision of
newbuilds, of which 50% is payable upon the signing of the relevant
supervision agreement, and 50% upon successful completion of the sea trials
of each newbuild, we have agreed to acquire pursuant to shipbuilding
contracts, memoranda of agreement or otherwise. The levels of the above
mentioned fees are subject to adjustment every year and will be agreed upon
between us and our Manager. The fees shown in the table above do not take
into account any potential future changes to the fees.

|        |                                           
|------- | ------------------------------------------
|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

|   |                                
|-- | -------------------------------
|A. | Directors and Senior Management

The following
table sets forth, as of February 25, 2012, information regarding our directors
and executive officers.

|                         |  |     |  |                                                                    
|------------------------ |  | --- |  | -------------------------------------------------------------------
|Name                     |  | Age |  | Position                                                           
|                         |  |     |  |                                                                    
|                         |  |     |  |                                                                    
|Polys Hajioannou         |  | 45  |  | Chief Executive Officer,
Chairman of the Board and Class I Director
|Dr. Loukas Barmparis     |  | 49  |  | President, Secretary and
Class II Director                         
|Konstantinos Adamopoulos |  | 49  |  | Chief Financial Officer
and Class III Director                     
|Ioannis Foteinos         |  | 53  |  | Chief Operating Officer
and Class I Director                       
|John Gaffney             |  | 51  |  | Class II Director                                                  
|Frank Sica               |  | 61  |  | Class III Director                                                 
|Ole Wikborg              |  | 56  |  | Class I Director                                                   

52

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Certain
biographical information about each of these individuals is set forth below.
The term of our Class I directors expires in 2012, the term of our Class II
directors expires in 2013 and the term of our Class III directors expires in
2014.

Polys Hajioannou is
our Chief Executive Officer and has been Chairman of our board of directors
since 2008. Mr. Hajioannou also serves with our Manager and prior to its
inception, our Managers predecessor Alassia Steamship Co., Ltd., which he
joined in 1987. Mr. Hajioannou was elected as a member of the board of
directors of the Union of Greek Shipowners in 2006 and served on the board
until February 2009. Mr. Hajioannou is also a founding member of the Union of
Cyprus Shipowners. Mr. Hajioannou is a member of the Lloyd’s Register Hellenic
Advisory Committee. In 2011, Mr. Hajioannou was appointed to the board of directors of the Hellenic Mutual War Risks Association
(Bermuda) Limited. Mr. Hajioannou holds a Bachelor of Science degree in
nautical studies from Sunderland University.

Dr. Loukas Barmparis
is our President and Secretary and has been a member of our board of directors
since 2008. Dr. Barmparis also serves as the technical manager of our Manager,
which he joined in February 2006. Until 2009 he was the project development
manager of the affiliated Alasia Development S.A., responsible for renewable
energy projects. Prior to joining our Manager and Alasia Development S.A., from
1999 to 2005 and from 1993 to 1995, Dr. Barmparis was employed at N.
Daskalantonakis Group, Grecotel, one of the largest hotel chains in Greece, as
technical manager and project development general manager. During the interim
period between 1995 and 1999, Dr. Barmparis was employed at Exergia S.A. as an
energy consultant. Dr. Barmparis holds a master of business administration
(MBA) from the Athens Laboratory of Business Administration, a doctorate from
the Imperial College of Science Technology and Medicine, a master of applied
science from the University of Toronto and a diploma in mechanical engineering
from the Aristotle University of Thessaloniki.

Konstantinos Adamopoulos
is our Chief Financial Officer and has been a member of our board of directors
since 2008. Prior to joining us, Mr. Adamopoulos was employed at Calyon, a
financial institution, as a senior relationship manager in shipping finance for
14 years. Prior to this, from 1990 to 1993, Mr. Adamopoulos was employed by the
National Bank of Greece in London as an account officer for shipping finance
and in Athens as deputy head of the export finance department. Prior to this,
from 1987 to 1989, Mr. Adamopoulos served as a finance officer in the Greek Air
Force. Mr. Adamopoulos holds an MBA in finance from the City University
Business School and a Bachelor of Science degree in business administration
from the Athens School of Economics and Business Science.

Ioannis Foteinos is
our Chief Operating Officer and has been a member of our board of directors
since February 2009. Mr. Foteinos has 25 years of experience in the shipping
industry. After obtaining a bachelors degree in nautical studies from
Sunderland University, he joined the predecessor of our Manager, Safety
Management Overseas, in 1984, where he presently serves and will continue to
serve as Chartering Manager.

Frank Sica has been
a member of our board of directors and of our corporate governance, nominating
and compensation committee, and a member and chairman of our audit committee, since
2008. Mr. Sica has served as a Managing Partner at Tailwind Capital, a private
equity firm since 2006. From 2004 to 2005, Mr. Sica was a Senior Advisor to
Soros Private Funds Management. From 1998 to 2003, Mr. Sica worked at Soros
Fund Management where he oversaw the direct real estate and private equity
investment activities of Soros. From 1988 to 1998, Mr. Sica was a Managing
Director at Morgan Stanley. Mr. Sica is a graduate of Wesleyan University,
where he received a B.A. degree, and of the Amos Tuck School of Business at
Dartmouth College, where he received his M.B.A. Mr. Sica is also director of
CSG Systems International, an account management and billing software company
for communication industries, JetBlue Airways Corporation, a commercial airline,
and Kohls Corporation, an owner and operator of department stores.

Ole Wikborg has been
a member of our board of directors and of our audit committee and corporate
governance, nominating and compensation committee since 2008. Mr. Wikborg has
been involved in the marine and shipping industry in various capacities for
over 30 years. Since 2002, Mr. Wikborg has served as a director, senior
underwriter and member of the management team of the Norwegian Hull Club, based
in Oslo, Norway. From 2002 to 2006, Mr. Wikborg also served as a member and
chairman of the Ocean Hull Committee of the International

53

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Union of
Marine Insurance (IUMI). Since 2006, he has served as Vice President and a
member of the Executive Board of the IUMI and in 2010, he was elected as
President of IUMI. Since 1997, Mr. Wikborg has served as a board member of the
Central Union of Marine Insurers, based in Oslo, and is presently that
organizations Chairman. From 1997 until 2002, Mr. Wikborg served as the senior
vice president and manager of the marine and energy division of the Zurich
Protector Insurance Company ASA, based in Oslo and Zurich, and from 1993 until
1997, he served as a senior underwriter for the marine division of Protector
Insurance Company ASA, based in Oslo. Priorf to his career in the field of
marine insurance, Mr. Wikborg served in the Royal Norwegian Navy, attaining the
rank of Lieutenant Commander.

John Gaffney has been a member of our board of directors and of our audit
committee, and a member and chairman of our corporate governance, nominating
and compensation committee, since October 2011. Mr. Gaffney joined the law firm
of Gibson, Dunn & Crutcher LLP as a partner in November 2011. From January
2010 through September 2011, Mr. Gaffney was a Senior Vice President, Corporate
Affairs and General Counsel of Solyndra, Inc., where he led Solyndras
corporate affairs and legal activities. From January 2008 through December
2009, Mr. Gaffney was an Executive Vice President at First Solar, where he led
First Solars corporate development, legal, sustainable development and
environmental affairs activities. Prior to joining First Solar, Mr. Gaffney
practiced law at the firm of Cravath, Swaine & Moore LLP, where he was a
partner from 1993 to 2008. During his time at Cravath, Mr. Gaffney advised
numerous corporate and financial institution clients on merger, acquisition and
capital markets transactions. Mr. Gaffney holds a B.A. from George Washington
University and a J.D. and an MBA from New York University.

|   |                                                
|-- | -----------------------------------------------
|B. | Compensation of Directors and Senior Management

Non-executive
independent directors of the Company are paid an annual fee in the amount of
$40,000 plus reimbursement for their out-of-pocket expenses.

In addition,
the chairman of the audit committee, Frank Sica, receives the annual equivalent
of $60,000 in the form of shares of our common stock. John Gaffney and Ole
Wikborg receive the annual equivalent of $30,000 in the form of shares of our
common stock. The members of our senior management are provided and compensated
by our Manager and have not received and will not receive any compensation from
us. We do not have any employment contracts with any of our executive officers
whose services are provided to us by our Manager. For a discussion of the fees
payable to our Manager, refer to Item 7. Major Shareholders and Related Party
TransactionsB. Related Party TransactionsManagement Agreement. Also, we do
not have any service contracts with any of our non-executive directors that
provide for benefits upon termination of their services.

No amounts are
set aside or accrued by us to provide pension, retirement or similar benefits.

|   |                
|-- | ---------------
|C. | Board Practices

As of December
31, 2011, we had seven members on our board of directors. The board of
directors may change the number of directors to not less than three, nor more
than 15, by a vote of a majority of the entire board. Each director shall be
elected to serve until the third succeeding annual meeting of stockholders and
until his or her successor shall have been duly elected and qualified, except
in the event of death, resignation or removal. A vacancy on the board created
by death, resignation, removal (which may only be for cause), or failure of the
stockholders to elect the entire class of directors to be elected at any election
of directors or for any other reason, may be filled only by an affirmative vote
of a majority of the remaining directors then in office, even if less than a
quorum, at any special meeting called for that purpose or at any regular
meeting of the board of directors. None of our directors is a party to service
contracts with us providing for benefits upon termination of employment.

During the
fiscal year ended December 31, 2011, the full board of directors held four
meetings. Each director attended all of the meetings of committees of which the
director was a member. Our board of directors has determined that each of Mr.
Sica, Gaffney and Wikborg are independent within the current meanings of
independence employed by the corporate governance rules of the New York Stock
Exchange and the SEC.

54

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Stockholders
who wish to send communications on any topic to the board of directors or to
the independent directors as a group, or to the chairman of the audit
committee, Mr. Frank Sica, or to the chairman of the corporate governance,
nominating and compensation committee, Mr. John Gaffney, may do so by writing
to our Secretary, Dr. Loukas Barmparis, Safe Bulkers, Inc., 30-32 Avenue
Karamanli, 16605, Voula, Athens, Greece.

Corporate Governance

The board of
directors and our Companys management have engaged in an ongoing review of our
corporate governance practices in order to oversee our compliance with the
applicable corporate governance rules of the New York Stock Exchange and the
SEC.

We have
adopted a number of key documents that are the foundation of the Companys
corporate governance, including:

| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a Code of
Business Conduct and Ethics for all officers and employees, which
incorporates a Code of Ethics for directors and a Code of Conduct for corporate officers;
| |   |                                                                                                                                                                      
| |  | a Corporate
Governance, Nominating and Compensation Committee Charter; and                                                                                           
| |   |                                                                                                                                                                      
| |  | an Audit
Committee Charter.                                                                                                                                          

These
documents and other important information on our governance are posted on our
website and may be viewed at http://www.safebulkers.com.
We will also provide a paper copy of any of these documents upon the written
request of a stockholder. Stockholders may direct their requests to the
attention of our Secretary, Dr. Loukas Barmparis, Safe Bulkers, Inc., 30-32
Avenue Karamanli, 16605, Voula, Athens, Greece.

Committees of the
Board of Directors

Audit committee

Our audit
committee consists of Ole Wikborg, John Gaffney and Frank Sica, as chairman.
Our board of directors has determined that Frank Sica qualifies as an audit
committee financial expert, as such term is defined in Regulation S-K
promulgated by the SEC. The audit committee is responsible for:

| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
appointment, compensation, retention and oversight of independent auditors
and approving any non-audit services performed by such auditor;                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                  
| |  | assisting
the board in monitoring the integrity of our financial statements, the
independent auditors qualifications and independence, the performance of the
independent accountants and our internal audit function and our compliance
with legal and regulatory requirements;
| |   |                                                                                                                                                                                                                                                                                  
| |  | annually
reviewing an independent auditors report describing the auditing firms
internal quality-control procedures, and any material issues raised by the
most recent internal quality control review, or peer review, of the auditing
firm;                                  
| |   |                                                                                                                                                                                                                                                                                  
| |  | discussing
the annual audited financial and quarterly statements with management and the
independent auditors;                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                  
| |  | discussing
earnings press releases, as well as financial information and earnings
guidance provided to analysts and rating agencies;                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                  
| |  | discussing
policies with respect to risk assessment and risk management;                                                                                                                                                                                                         

55

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| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | meeting
separately, and periodically, with management, internal auditors and the
independent auditor;                                                                                
| |   |                                                                                                                                                                                      
| |  | reviewing with
the independent auditor any audit problems or difficulties and managements
responses;                                                                                
| |   |                                                                                                                                                                                      
| |  | setting
clear hiring policies for employees or former employees of the independent
auditors;                                                                                         
| |   |                                                                                                                                                                                      
| |  | annually
reviewing the adequacy of the audit committees written charter, the internal
audit charter, the scope of the annual internal audit plan and the results of
internal audits;
| |   |                                                                                                                                                                                      
| |  | reporting
regularly to the full board of directors; and                                                                                                                              
| |   |                                                                                                                                                                                      
| |  | handling
such other matters that are specifically delegated to the audit committee by
the board of directors from time to time.                                                      

Corporate governance, nominating and
compensation committee

Our corporate
governance, nominating and compensation committee consists of Ole Wikborg,
Frank Sica and John Gaffney, as chairman. The corporate governance, nominating
and compensation committee is responsible for:

| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | nominating
candidates, consistent with criteria approved by the full board of directors,
for the approval of the full board of directors to fill board vacancies as
and when they arise, as well as putting in place plans for succession, in
particular, of the chairman of the board of directors and executive officers;
| |   |                                                                                                                                                                                                                                                                                                                            
| |  | selecting,
or recommending that the full board of directors select, the director
nominees for the next annual meeting of shareholders;                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                            
| |  | developing
and recommending to the full board of directors corporate governance
guidelines applicable to us and keeping such guidelines under review;                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                            
| |  | overseeing
the evaluation of the board and management; and                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                            
| |  | handling
such other matters that are specifically delegated to the corporate
governance, nominating and compensation committee by the board of directors
from time to time.                                                                                                                                                

|   |          
|-- | ---------
|D. | Employees

Other than an
employee who serves as our legal representative in Greece, we have no salaried
employees and have not entered into any employment agreements. Our Manager
employs, and provides us with, all four of our executive officers, including
our chief executive officer, Polys Hajioannou, our president, Dr. Loukas
Barmparis, our chief financial officer, Konstantinos Adamopoulos, and our chief
operating officer, Ioannis Foteinos. Our Manager is responsible for paying any
salaries payable to our executive officers. As of December 31, 2011, approximately
387 people served on board the vessels in our fleet, and our Manager employed
approximately 47 people on shore.

|   |                
|-- | ---------------
|E. | Share Ownership

The common
stock beneficially owned by our directors and executive officers and/or
companies affiliated with these individuals is disclosed in Item 7. Major
Shareholders and Related Party TransactionsA. Major Shareholders below.

56

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Equity Compensation
Plans

We have agreed
to provide the chairman of the audit committee, Mr. Frank Sica, as part of his
remuneration, the annual equivalent of $60,000 in the form of shares of our
common stock, and our non-executive independent directors, Mr. John Gaffney and
Mr. Ole Wikborg, as part of their remuneration, the annual equivalent of
$30,000 each, in the form of shares of our common stock.

|        |                                                  
|------- | -------------------------------------------------
|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

|   |                   
|-- | ------------------
|A. | Major Shareholders

The following
table sets forth certain information regarding the beneficial ownership of our
outstanding common stock as of February 25, 2012 held by:

| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | each person
or entity that we know beneficially owns 5% or more of our common stock;
| |   |                                                                                     
| |  | each of our
officers and directors; and                                             
| |   |                                                                                     
| |  | all our
directors and officers as a group.                                          

Beneficial
ownership is determined in accordance with the rules of the SEC. In general, a
person who has voting power or investment power with respect to securities is
treated as a beneficial owner of those securities.

Beneficial
ownership does not necessarily imply that the named person has the economic or
other benefits of ownership. For purposes of this table, shares subject to
options, warrants or rights or shares exercisable within 60 days of February
25, 2012 are considered as beneficially owned by the person holding those
options, warrants or rights. Each stockholder is entitled to one vote for each
share held. The applicable percentage of ownership for each stockholder is
based on 70,896,924 shares of common stock outstanding as of February 25, 2012.
Information for certain holders is based on their latest filings with the SEC
or information delivered to us. Except as noted below, the address of all
stockholders, officers and directors identified in the table and the
accompanying footnotes below is in care of our principal executive offices.

|                                                            |  |                                        |            |                            |  |       |  
|----------------------------------------------------------- |  | -------------------------------------- | ---------- | -------------------------- |  | ----- | -
|Identity of Person or Group                                 |  | Number of
Shares
of Common
Stock Owned |            | Percentage
of
Common
Stock | 
|                                                            |  |                                        |            |                            | 
|5%
Beneficial Owners:                                       |  |                                        |            |                            |  |       |  
|Vorini Holdings Inc. (1)                                    |  |                                        | 45,826,015 |                            |  | 64.64 | %
|Officers
and Directors:                                     |  |                                        |            |                            |  |       |  
|Polys Hajioannou (2)                                        |  |                                        | 45,826,015 |                            |  | 64.64 | %
|Dr. Loukas Barmparis                                        |  |                                        |           |                            |  |      |  
|Konstantinos Adamopoulos                                    |  |                                        |           |                            |  |      |  
|Ioannis Foteinos                                            |  |                                        |           |                            |  |      |  
|Frank Sica                                                  |  |                                        | 46,877     |                            |  | *     |  
|Ole Wikborg                                                 |  |                                        | 8,070      |                            |  | *     |  
|John Gaffney                                                |  |                                        | 8,070      |                            |  | *     |  
|All
executive officers and directors as a group (7 persons) |  |                                        | 45,889,032 |                            |  | 64.73 | %

|    |                                                                                                        | 
|--- | ------------------------------------------------------------------------------------------------------ | 
|    |                                                                                                       
|*   | Less than 1%                                                                                          
|(1) | Vorini
Holdings Inc. is controlled by Polys Hajioannou and his family.                                
|(2) | By virtue of
shares owned indirectly through Vorini Holdings Inc., which is our principal
stockholder.

In June 2008,
we completed a registered public offering of our shares of common stock in
which the selling stockholder was Vorini Holdings Inc., and our common stock
began trading on the New York Stock Exchange. Our major stockholders have the
same voting rights as our other stockholders. As of February 25, 2012, we had
five

57

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stockholders
of record, three of these stockholders of record were located in the United
States and held an aggregate 25,388,854 shares of common stock, representing
approximately 35.8% of our outstanding shares of common stock. However, one of
the United States stockholders of record is Cede & Co., a nominee of The
Depository Trust Company, which holds 25,372,059 shares of our common stock.
Accordingly, we believe that the shares held by Cede & Co. include shares
of common stock beneficially owned by both holders in the United States and
non-United States beneficial owners. We are not aware of any arrangements the
operation of which may at a subsequent date result in our change of control. We
are not aware of any significant changes in the percentage ownership held by
any major stockholders since our initial public offering.

Vorini
Holdings Inc. owns approximately 64.64% of our outstanding common stock. This
stockholder is able to control the outcome of matters on which our stockholders
are entitled to vote, including the election of our entire board of directors
and other significant corporate actions. Shares of our common stock held by
Vorini Holdings Inc. do not have different or unique voting rights.

|   |                           
|-- | --------------------------
|B. | Related Party Transactions

Management
Affiliations

Our Manager,
Safety Management Overseas S.A., is controlled by Polys Hajioannou, our chief
executive officer, through another entity, Machairiotissa Holdings, Inc. Our
Manager, along with its predecessor, has provided services to our vessels since
1965 and continues to provide technical, administrative and certain commercial
services which support our business, as well as comprehensive ship management
services such as technical supervision and commercial management, including chartering
our vessels, pursuant to our Management Agreement described below.

Management Agreement

Under our
Management Agreement, our Manager is responsible for providing us with
technical, administrative and certain commercial services, which include the
following:

Technical Services

These services
include managing day-to-day vessel operations, performing general vessel
maintenance, ensuring regulatory compliance and compliance with the law of the
flag state of each vessel and of the places where the vessel operates, ensuring
classification society compliance, supervising the maintenance and general
efficiency of vessels, arranging the hire of qualified officers and crew,
training, transportation and lodging, insurance (including handling and
processing all claims) of, and appropriate investigation of any charterer
concerns with respect to, the crew, conducting union negotiations concerning
the crew, performing normally scheduled drydocking and general and routine
repairs, arranging insurance for vessels (including marine hull and machinery,
protection and indemnity and risks insurance), purchasing stores, supplies,
spares, lubricating oil and maintenance capital expenditures for vessels,
appointing supervisors and technical consultants, providing technical support,
shoreside support and shipyard supervision, and attending to all other
technical matters necessary to run our business.

Commercial Services

These services
include chartering the vessels which we own, assisting in our chartering,
locating, purchasing, financing and negotiating the purchase and sale of our
vessels, supervising the design and construction of newbuilds, and such other
commercial services as we may reasonably request from time to time.

Administrative Services

These services
include administering payroll services, assistance with the preparation of our
tax returns and financial statements, assistance with corporate and regulatory
compliance matters not related to our vessels, procuring legal and accounting
services, assistance in complying with U.S. and other relevant securities laws,
human resources (including provision of our executive officers and directors of
our subsidiaries), cash management and bookkeeping

58

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services,
development and monitoring of internal audit controls, disclosure controls and
information technology, assistance with all regulatory and reporting functions
and obligations, furnishing any reports or financial information that might be
requested by us and other non-vessel related administrative services,
assistance with office space, providing legal and financial compliance
services, overseeing banking services (including the opening, closing,
operation and management of all of our accounts, including making deposits and
withdrawals reasonably necessary for the management of our business and
day-to-day operations), arranging general insurance and director and officer
liability insurance (at our expense), providing all administrative services
required for any subsequent debt and equity financings and attending to all other
administrative matters necessary to ensure the professional management of our
business.

Reporting Structure

Our Manager
reports to us and to our board of directors through our executive officers.

Compensation of Our Manager

Under our
Management Agreement, in return for providing technical, commercial and
administrative services, our Manager receives a flat daily fee of $700 per
vessel for vessels in our fleet, prorated for the number of calendar days that
we own or charter-in each vessel and $250 per vessel per day, for bareboat
charters. Our Manager also receives a fee of 1.25% on all gross freight,
charter hire, ballast bonus and demurrage with respect to each vessel in our
fleet. Further, our Manager receives a commission of 1.0% based on the contract
price of any vessel bought or sold by it on our behalf, including each of our
contracted newbuilds. We also pay our Manager a flat supervision fee of
$550,000 per newbuild, of which 50% is payable upon the signing of the relevant
supervision agreement, and 50% upon successful completion of the sea trials of
each newbuild, for the on-premises supervision of all newbuilds we have agreed
to acquire pursuant to shipbuilding contracts, memoranda of agreement, or
otherwise. The management fees were constant for the 2 year initial period of
the Management Agreement, which ended on May 29, 2010. On May 29, 2010,
pursuant to an agreement between us and our Manager, the fee on gross freight,
charter hire, ballast bonus and demurrage was readjusted to 1.25% from 1.0%. On
May 29, 2011, the flat daily fee per vessel was readjusted to $700 from $575,
and the flat supervision fee per newbuild was readjusted to $550,000 from
$375,000, while all other management fees remained constant.

The management fees do not
cover capital expenditure, financial costs and operating expenses for our
vessels and our general and administrative expenses such as directors, and
officers liability insurance, legal and accounting fees and other similar
third party expenses. More specifically, we reimburse expenses of the Manager
or its personnel directly related to the operation and management of our
vessels, such as:

| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | interest,
principal and other financial costs,                                                                                                                                                              
| |   |                                                                                                                                                                                                             
| |  | voyage
expenses                                                                                                                                                                                             
| |   |                                                                                                                                                                                                             
| |  | vessel
operating expenses including crewing costs, surveyors attendance fees,
bunkers, lubricant oils, spares, survey fees, classification society fees,
maintenance and repair costs and vetting expenses,
| |   |                                                                                                                                                                                                             
| |  | commissions,
remuneration or disbursements due to lawyers, brokers, agents, surveyors, consultants,
financial advisors, investment bankers, insurance advisors,                                             
| |   |                                                                                                                                                                                                             
| |  | deductibles,
insurance premiums and/or P&I calls,                                                                                                                                                           
| |   |                                                                                                                                                                                                             
| |  | postage,
communication, traveling, victualling and other out of pocket expenses.                                                                                                                            

Each year, our
Manager prepares and submits to us a detailed draft budget for the next
calendar year, which includes a statement of estimated revenue, estimated
general and administrative expenses and a proposed budget for capital
expenditures, repairs or alterations. Once approved by us, this draft budget
becomes the approved budget.

59

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Term and Termination Rights

Subject to the termination rights described
below, the initial term of our Management Agreement expired on May 28, 2010.
Since then our Management Agreement has been automatically renewed for two
one-year periods, expiring May 28, 2012. Upon expiration of the renewal term,
our Management Agreement automatically renews for one-year periods until May
28, 2018, at which point the agreement will expire. In addition to the
termination provisions outlined below, we are able to terminate our Management
Agreement at any point after the initial term upon 12 months notice to our
Manager. Such notice of termination has not been provided to our Manager by us.

Our Managers Termination Rights

Our Manager
may terminate our Management Agreement prior to the end of its term if:

|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------ | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                             |  | any money
payable by us is not paid when due or if due on demand, within ten business
days following demand by our Manager;                                                                                                                                                                                                                                                                                    
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | we default
in the performance of any other material obligation under the Management
Agreement and the matter is unresolved within 20 business days after we
receive written notice of such default from our Manager;                                                                                                                                                                                           
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | the
management fee determined by arbitration in respect of any annual period
following the initial term is unsatisfactory to our Manager, in which case
the Manager may terminate upon 12 months written notice to us;                                                                                                                                                                                        
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | any
acquisition of our shares or a merger, consolidation or similar transaction
results in any person or group acquiring 40% or more of the total voting
power of our or the resulting entitys outstanding voting securities, and
such percentage represents a higher percentage of such voting power than that
held directly or indirectly by Polys Hajioannou and Nicolaos Hadjioannou,
collectively; or
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | there is a
change in directors after which a majority of the members of our board of
directors are not continuing directors.                                                                                                                                                                                                                                                                                   
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|Continuing
directors means, as of any date of determination, any member of our board of
directors who was:
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | a member of
our board of directors on June 4, 2008; or                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |  | nominated
for election or elected to our board of directors with the approval of a
majority of the directors then in office who were either directors on June 4,
2008 or whose nomination or election was previously so approved.                                                                                                                                                                              

Our Termination Rights

In addition to
certain standard termination rights, we may terminate our Management Agreement
prior to the end of its term if:

| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our Manager
defaults in the performance of any material obligation under our Management
Agreement and the matter is not resolved within 20 business days after our
Manager receives from us written notice of such default; or
| |   |                                                                                                                                                                                                                               
| |  | any money
payable by our Manager to us or third parties under our Management Agreement
is not paid or accounted for within ten business days following written
notice by us.                                                  

Non-Competition

60

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Our Manager
has agreed that, during the term of our Management Agreement and for one year
after its termination, our Manager will not provide any management services to,
or with respect to, any drybulk vessels, other than in the following
circumstances:

| |     |                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | pursuant to
its involvement with us; or                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                    
| | (b) | with respect
to drybulk vessels that are owned or operated by companies affiliated with
our chief executive officer or Nicolaos Hadjioannou, subject in each case to
compliance with, or waivers of, the restrictive covenant agreements entered
into between us and companies affiliated with our chief executive officer or
Nicolaos Hadjioannou.

Our Manager
has also agreed that if one of our drybulk vessels and a drybulk vessel owned
or operated by a company affiliated with our chief executive officer or
Nicolaos Hadjioannou are both available and meet the criteria for a charter
being fixed by our Manager, our drybulk vessel will receive such charter.
Currently our Manager does not provide management services to any third party.

Sale of Our Manager

Our Manager
has agreed that, during the term of the Management Agreement and for one year
after its termination, our Manager will not transfer, assign, sell or dispose
of all or substantially all of its business that is necessary for the
performance of its services under the Management Agreement without the prior
written consent of our board of directors. Furthermore, during such period, in
the event of any proposed change in control of our Manager, we have a 30-day
right of first offer to purchase our Manager. In December 2011, the Management
Agreement was amended to define a proposed change in control of our Manager
to mean (a) the approval by the board of directors of the Manager or the
shareholders of the Manager of a proposed sale of all or substantially all of
the assets or property of the Manager necessary for the performance of its
services under the Management Agreement; or (b) the approval of any transaction
that would result in: (i) Polys Hajioannou or Vorini Holdings Inc., or any
entity controlled by, or under common control with, any of the above,
beneficially owning, directly or indirectly, less than 60% of the outstanding
voting securities or voting power of the Manager or Machairiotissa Holdings
Inc., respectively, or (ii) Polys Hajioannou or Vorini Holdings Inc., or any
entity controlled by, or under common control with, any of the above, together
with all directors, officers and employees of the Manager beneficially owning,
directly or indirectly, less than 80% of the outstanding voting securities or
voting power of the Manager or Machairiotissa Holdings Inc., respectively. The
Management Agreement was also amended to provide us the right to obtain certain
information about the ownership of the Manager.

Restrictive Covenant
Agreements

Under the
restrictive covenant agreements entered into with us, Polys Hajioannou, Vorini
Holdings Inc., Machairiotissa Holdings Inc., or any entity controlled by, or
under common control with, any of the above (together, the Hajioannou
Entities), have agreed to restrictions on their ownership or operation of any
drybulk vessels or the acquisition, investment in or control of any business
involved in the ownership or operation of drybulk vessels, subject to the
exceptions described below.

In the case of
Polys Hajioannou, the restricted period continues until the later of (a) one
year following the termination of the Management Agreement and (b) one year
following the termination of his services and employment with us. In the case
of the Hajioannou Entities, the restricted period continues until one year
following the termination of the Management Agreement. Notwithstanding these
restrictions, Polys Hajioannou and the Hajioannou Entities are permitted to
engage in the restricted activities during the restricted periods in the
following circumstances:

|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(a) | pursuant to
their involvement with us;                                                                              
|    |                                                                                                                     
|(b) | pursuant to
their involvement with our Manager, subject to compliance with, or waivers
of, the Management Agreement;

61

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|    |                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | with respect
to certain permitted acquisitions (as defined below), provided that (i) any
commercial management of drybulk vessels controlled by the restricted
individuals and entities in connection with such permitted acquisition is
performed by our Manager and (ii) the restricted individuals and entities
comply with the requirements for permitted acquisitions described below; and
|    |                                                                                                                                                                                                                                                                                                                                                                                                
|(d) | pursuant to
their passive ownership of up to 9.99% of the outstanding voting securities
of any publicly traded company that is engaged in the drybulk vessel
business.                                                                                                                                                                                                                         

As noted
above, Polys Hajioannou and the Hajioannou Entities are permitted to engage in
restricted activities with respect to two types of permitted acquisitions. One
such permitted acquisition is an acquisition of a drybulk vessel or an
acquisition or investment in a drybulk vessel business on terms and conditions
as to price that are not more favorable, and on such other terms and conditions
that are not materially more favorable, than those first offered to us and
refused by a majority of our independent directors. The second type of
permitted acquisition is an acquisition of a group of vessels or a business
that includes non-drybulk vessels and non-drybulk vessel businesses, provided
that less than 50% of the fair market value of the acquisition is attributable
to drybulk vessels or drybulk vessel businesses. Under this second type of
permitted acquisition, we must be promptly given the opportunity to buy the
drybulk vessels or drybulk vessel businesses included in the acquisition for
their fair market value plus certain break-up costs.

Polys
Hajioannou and the Hajioannou Entities have also agreed that if one of our
drybulk vessels and a drybulk vessel owned or operated by any of the Hajioannou
Entities are both available and meet the criteria for a charter being fixed by
our Manager, our drybulk vessels will receive such charter.

Registration Rights
Agreement

In connection
with the closing of our initial public offering, we entered into a registration
rights agreement with Vorini Holdings Inc., our largest stockholder, pursuant
to which we have granted it and certain of its transferees the right, under
certain circumstances and subject to certain restrictions, to require us to
register under the Securities Act shares of our common stock held by those
persons. Under the registration rights agreement, Vorini Holdings Inc. and
certain of its transferees have the right to request us to register the sale of
shares held by them on their behalf and may require us to make available shelf
registration statements permitting sales of shares into the market from time to
time over an extended period. In addition, those persons have the ability to
exercise certain piggyback registration rights in connection with registered
offerings initiated by us. Vorini Holdings Inc. currently owns 44,500,000
shares entitled to these registration rights.

|   |                                 
|-- | --------------------------------
|C. | Interests of Experts and Counsel

Not
applicable.

|        |                      
|------- | ---------------------
|ITEM 8. | FINANCIAL INFORMATION

|   |                                                        
|-- | -------------------------------------------------------
|A. | Consolidated Statements and Other Financial Information

See Item 18.
Financial Statements below.

Legal Proceedings

We have not
been involved in any legal proceedings which may have, or have had, a
significant effect on our business, financial position, results of operations
or liquidity, nor are we aware of any proceedings that are pending or
threatened which may have a significant effect on our business, financial
position, results of operations or liquidity.

The nature of
our business exposes us to the risk of lawsuits for damages or penalties
relating to, among other things, personal injury, property casualty and
environmental contamination. From time to time, we may be subject to legal
proceedings and claims in the ordinary course of business, principally personal
injury and property casualty

62

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claims. We
expect that these claims would be covered by insurance, subject to customary
deductibles. However, such claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources.

Dividend Policy

We paid our
first quarterly dividend as a public company of $0.1461 per share in August
2008 and subsequent dividends of $0.475 per share in November 2008 and $0.15
per share in February 2009, May 2009, August 2009, November 2009, February
2010, May 2010, August 2010, November 2010, February 2011, May 2011, August
2011 and November 2011. We also declared a dividend of $0.15 per share on
February 14, 2012, for the shareholders of record on February 24, 2012, payable
on February 29, 2012.

We currently
intend to use a portion of our free cash to pay dividends to our shareholders.
The declaration and payment of dividends, if any, will always be subject to the
discretion of our board of directors. The timing and amount of any dividends
declared will depend on, among other things: (a) our earnings, financial
condition and cash requirements and available sources of liquidity, (b)
decisions in relation to our growth strategies, (c) provisions of Marshall
Islands and Liberian law governing the payment of dividends, (d) restrictive
covenants in our existing and future debt instruments and (e) global financial
conditions. Dividends might not be paid by us. Our ability to pay dividends may
be limited by the amount of cash we can generate from operations following the
payment of fees and expenses and the establishment of any reserves, as well as
additional factors unrelated to our profitability. We are a holding company,
and we depend on the ability of our subsidiaries to distribute funds to us in
order to satisfy our financial obligations and to make dividend payments. See
Item 3. Key InformationD. Risk FactorsRisks Inherent in Our Industry and Our
Business for a discussion of the risks related to our ability to pay
dividends.

|   |                    
|-- | -------------------
|B. | Significant Changes

No significant
change has occurred since the date of the annual financial statements included
in this annual report on Form 20-F.

63

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|        |                      
|------- | ---------------------
|ITEM 9. | THE OFFER AND LISTING

Trading on the New York Stock Exchange

Since our
initial public offering in the United States on May 29, 2008, our common stock
has been listed on the New York Stock

Exchange under
the symbol SB. The following table shows the high and low closing sales
prices for our common stock during the indicated periods.

|                    |  |             |       |     |   |      | 
|------------------- |  | ----------- | ----- | --- | - | ---- | 
|                    |  | Price
Range |      
|                    |  |             |      
|                    |  | High        |       | Low |  
|                    |  |             |       |     |  
|2008 (1)            |  | $           | 19.05 |     | $ | 3.27 | 
|2009                |  |             | 9.40  |     |   | 2.81 | 
|2010                |  |             | 9.11  |     |   | 6.66 | 
|2011                |  |             | 9.53  |     |   | 5.61 | 
|                    |  |             |       |     |   |      | 
|First Quarter 2010  |  |             | 9.11  |     |   | 6.97 | 
|Second Quarter 2010 |  |             | 8.26  |     |   | 6.66 | 
|Third Quarter 2010  |  |             | 7.93  |     |   | 6.79 | 
|Fourth Quarter 2010 |  |             | 8.86  |     |   | 7.79 | 
|First Quarter 2011  |  |             | 9.53  |     |   | 8.30 | 
|Second Quarter 2011 |  |             | 9.52  |     |   | 7.03 | 
|Third Quarter 2011  |  |             | 7.92  |     |   | 6.19 | 
|Fourth Quarter 2011 |  |             | 7.01  |     |   | 5.61 | 
|                    |  |             |       |     |   |      | 
|August 2011         |  |             | 7.56  |     |   | 6.26 | 
|September 2011      |  |             | 6.97  |     |   | 6.19 | 
|October 2011        |  |             | 7.01  |     |   | 5.61 | 
|November 2011       |  |             | 6.87  |     |   | 5.97 | 
|December 2011       |  |             | 6.32  |     |   | 5.94 | 
|January 2012        |  |             | 7.28  |     |   | 6.22 | 
|February 2012(2)    |  |             | 7.65  |     |   | 6.75 | 

|    |                                                                                                                                                 | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                
|(1) | For the
period from May 29, 2008, the date on which our common stock began trading on
the New York Stock Exchange, until the end of the period.
|(2) | For the
period through February 28, 2012.                                                                                                      

|         |                       
|-------- | ----------------------
|ITEM 10. | ADDITIONAL INFORMATION

|   |              
|-- | -------------
|A. | Share Capital

Under our
articles of incorporation, our authorized capital stock consists of 200,000,000
shares of common stock, par value $0.001 per share, of which, as of December
31, 2011 and February 25, 2012, 70,891,916 and 70,896,924 shares were issued
and outstanding, respectively, and 20,000,000 shares of blank check preferred
stock, par value $0.01 per share, of which, as of December 31, 2011 and
February 25, 2012, no shares were issued and outstanding. Of this blank check
preferred stock, 1,000,000 shares have been designated Series A Participating
Preferred Stock in connection with our adoption of a stockholder rights plan as
described below under Stockholder Rights Plan. All of our shares of stock
are in registered form.

Please see
Note 9 to our financial statements included at the end of this annual report
for a discussion of the history of our share capital.

|   |                                       
|-- | --------------------------------------
|B. | Memorandum and Articles of Association

64

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Our purpose,
as stated in our articles of incorporation, is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
BCA. Our articles of incorporation and bylaws do not impose any limitations on
the ownership rights of our stockholders.

The rights of
our stockholders are set forth in our articles of incorporation and bylaws.
Amendments to our articles of incorporation require the affirmative vote of the
holders of a majority of all outstanding shares entitled to vote, except that
amendments to certain provisions of our articles of incorporation dealing with
the rights of stockholders, the board of directors, our bylaws and amendments
to the articles of incorporation require the affirmative vote of at least 75%
of all outstanding shares entitled to vote. Amendments to our bylaws require the
affirmative vote of at least 75% of all outstanding shares entitled to vote.

Under our
bylaws, annual stockholder meetings will be held at a time and place selected
by our board of directors. The meetings may be held inside or outside of the
Republic of The Marshall Islands. Special meetings may be called by the
chairman of the board of directors, the chief executive officer or a majority
of the board of directors. Our board of directors may set a record date between
15 and 60 days before the date of any meeting to determine the stockholders
that will be eligible to receive notice and vote at the meeting. Our bylaws
permit stockholder action by unanimous written consent.

We are
registered at The Trust Company of The Marshall Islands, Inc. under registration
number 27394.

Directors

Under our
bylaws, our directors are elected by a plurality of the votes cast at each
annual meeting of the stockholders by the holders of shares entitled to vote in
the election. There is no provision for cumulative voting.

Pursuant to
the provisions of our bylaws, the board of directors may change the number of
directors to not less than three, nor more than 15, by a vote of a majority of
the entire board. Each director shall be elected to serve until the third
succeeding annual meeting of stockholders and until his or her successor shall
have been duly elected and qualified, except in the event of death, resignation
or removal. A vacancy on the board created by death, resignation, removal
(which may only be for cause), or failure of the stockholders to elect the
entire class of directors to be elected at any election of directors or for any
other reason may be filled only by an affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum, at any special
meeting called for that purpose or at any regular meeting of the board of
directors. The board of directors has the authority to fix the amounts which
shall be payable to the non-employee members of our board of directors for
attendance at any meeting or for services rendered to us.

Common Stock

Each
outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of shares of
common stock are entitled to receive ratably all dividends, if any, declared by
our board of directors out of funds legally available for dividends. Upon our
dissolution or liquidation or the sale of all or substantially all of our
assets, after payment in full of all amounts required to be paid to creditors
and to the holders of preferred stock having liquidation preferences, if any,
the holders of our common stock will be entitled to receive pro rata our
remaining assets available for distribution. Holders of common stock do not
have conversion, redemption or preemptive rights to subscribe to any of our
securities. All outstanding shares of common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of any shares of preferred stock
which we may issue in the future. Our common stock is not subject to any
sinking fund provisions and no holder of any shares will be required to make
additional contributions of capital with respect to our shares in the future.
There are no provisions in our articles of incorporation or bylaws
discriminating against a shareholder because of his or her ownership of a
particular number of shares.

We are not aware of any
limitations on the rights to own our common stock, including rights of
non-resident or foreign stockholders to hold or exercise voting rights on our
common stock, imposed by foreign law or by our articles of incorporation or
bylaws.

65

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Preferred Stock

Our articles
of incorporation authorize our board of directors, without any further vote or
action by our stockholders, to issue up to 20,000,000 shares of blank check
preferred stock, of which 1,000,000 shares have been designated Series A
Participating Preferred Stock, in connection with our adoption of a stockholder
rights plan as described below under Stockholder Rights Plan, and to
determine, with respect to any series of preferred stock established by our
board of directors, the terms and rights of that series, including:

| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
 designation of the series;                                                                                                                               
| |   |                                                                                                                                                               
| |  | the number
 of shares of the series;                                                                                                                          
| |   |                                                                                                                                                               
| |  | the
 preferences and relative, participating, option or other special rights, if
 any, and any qualifications, limitations or restrictions of such series; and
| |   |                                                                                                                                                               
| |  | the voting
 rights, if any, of the holders of the series.                                                                                                     

Stockholder Rights
Plan

Each share of
our common stock includes a right that entitles the holder to purchase from us
a unit consisting of one-thousandth of a share of our Series A participating
preferred stock at a purchase price of $25.00 per unit, subject to specified
adjustments. The rights are issued pursuant to a stockholder rights agreement
between us and American Stock Transfer & Trust Company, as rights agent.
Until a right is exercised, the holder of a right will have no rights to vote
or receive dividends or any other stockholder rights.

The rights may
have anti-takeover effects. The rights will cause substantial dilution to any
person or group that attempts to acquire us without the approval of our board
of directors. As a result, the overall effect of the rights may be to render
more difficult or discourage any attempt to acquire us. Because our board of
directors can approve a redemption of the rights or a permitted offer, the
rights should not interfere with a merger or other business combination
approved by our board of directors. The adoption of the rights agreement was
approved by our existing stockholder prior to our initial public offering in
May 2008.

We have
summarized the material terms and conditions of the rights agreement and the
rights below. For a complete description of the rights, we encourage you to
read the stockholder rights agreement, which we have filed as an exhibit to this
annual report.

Detachment of rights

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

| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ten days
 following the first public announcement that a person or group of affiliated
 or associated persons or an acquiring person has acquired or obtained the
 right to acquire beneficial ownership of 15% or more of our outstanding
 common stock; or
| |   |                                                                                                                                                                                                                                                               
| |  | ten business
 days following the start of a tender or exchange offer that would result, if
 closed, in a person becoming an acquiring person.                                                                                                               

Our
controlling stockholder, Vorini Holdings Inc., and its affiliates are excluded
from the definition of acquiring person for purposes of the rights, and
therefore their ownership or future share acquisitions cannot trigger the
rights. Specified inadvertent owners that would otherwise become an acquiring
person, including those who

66

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would have this
designation as a result of repurchases of common stock by us, will not become
acquiring persons as a result of those transactions.

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

Until the
rights distribution date:

| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our common
 stock certificates will evidence the rights, and the rights will be
 transferable only with those certificates; and                           
| |   |                                                                                                                                                           
| |  | any new
 shares of common stock will be issued with rights, and new certificates will
 contain a notation incorporating the rights agreement by reference.

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

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

Flip-in event

A flip-in
event will occur under the rights agreement when a person becomes an acquiring
person. If a flip-in event occurs and we do not redeem the rights as described
under the heading Redemption of rights below, each right, other than any
right that has become void, as described below, will become exercisable at the
time it is no longer redeemable for the number of shares of common stock, or,
in some cases, cash, property or other of our securities, having a current
market price equal to two times the exercise price of such right.

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

Flip-over event

A flip-over
event will occur under the rights agreement when, at any time after a person
has become an acquiring person:

| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | we are
 acquired in a merger or other business combination transaction; or     
| |   |                                                                                
| |  | 50% or more
 of our assets, cash flows or earning power is sold or transferred.

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

Antidilution

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

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date of
exercise. The rights agreement reserves us the right to require, prior to the
occurrence of any flip-in event or flip-over event, that, on any exercise of
rights, a number of rights must be exercised so that we will issue only whole
shares of stock.

Redemption of rights

At any time
until ten days after the date on which the occurrence of a flip-in event is
first publicly announced, we may redeem the rights in whole, but not in part,
at a redemption price of $0.01 per right. The redemption price is subject to
adjustment for any stock split, stock dividend or similar transaction occurring
before the date of redemption. At our option, we may pay that redemption price
in cash, shares of common stock or any other consideration our board of
directors may select. The rights are not exercisable after a flip-in event
until they are no longer redeemable. If our board of directors timely orders
the redemption of the rights, the rights will terminate on the effectiveness of
that action.

Exchange of rights

We may, at our
option, exchange the rights (other than rights owned by an acquiring person or
an affiliate or an associate of an acquiring person, which have become void),
in whole or in part. The exchange must be at an exchange ratio of one share of
common stock per right, subject to specified adjustments at any time after the
occurrence of a flip-in event and prior to

| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any person
 other than our existing stockholder becoming the beneficial owner of common
 stock with voting power equal to 50% or more of the total voting power of all
 shares of common stock entitled to vote in the election of directors; or
| |   |                                                                                                                                                                                                                                                 
| |  | the
 occurrence of a flip-over event.                                                                                                                                                                                                           

Amendment of terms of rights

While the
rights are outstanding, we may amend the provisions of the rights agreement
only as follows:

| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to cure any
 ambiguity, omission, defect or inconsistency;                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                       
| |  | to make
 changes that do not adversely affect the interests of holders of rights,
 excluding the interests of any acquiring person; or                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                       
| |  | to shorten
 or lengthen any time period under the rights agreement, except that we cannot
 change the time period when rights may be redeemed or lengthen any time
 period, unless such lengthening protects, enhances or clarifies the benefits
 of holders of rights other than an acquiring person.

At any time
when no rights are outstanding, we may amend any of the provisions of the
rights agreement, other than decreasing the redemption price.

Dissenters Rights of Appraisal and Payment

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

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exchange. The
value of the shares of the dissenting stockholder is fixed by the court after
reference, if the court so elects, to the recommendations of a court-appointed
appraiser.

Stockholders Derivative Actions

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

Limitations on Liability and Indemnification
of Officers and Directors

The BCA
authorizes corporations to limit or eliminate the personal liability of
directors and officers to corporations and their stockholders for monetary
damages for breaches of directors fiduciary duties. Our articles of
incorporation include a provision that eliminates the personal liability of
directors for monetary damages for actions taken as a director to the fullest
extent permitted by law.

Our bylaws
provide that we must indemnify our directors and officers to the fullest extent
authorized by law. We are also expressly authorized to advance certain expenses
(including attorneys fees and disbursements and court costs) to our directors
and officers and carry directors and officers insurance providing
indemnification for our directors, officers and certain employees for some
liabilities. We believe that these indemnification provisions and insurance are
useful to attract and retain qualified directors and executive officers.

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

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

Anti-Takeover Effect of Certain Provisions of
our Articles of Incorporation and Bylaws

Several
provisions of our articles of incorporation and bylaws, which are summarized in
the following paragraphs, 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 stockholder value in connection with any unsolicited offer to acquire
us. However, these anti-takeover provisions could also delay, defer or prevent
(a) the merger or acquisition of our company by means of a tender offer, a
proxy contest or otherwise that a stockholder might consider in its best
interest, including attempts that may result in a premium over the market price
for the shares held by the stockholders, and (b) the removal of incumbent
officers and directors.

Blank check preferred stock

Under the
terms of our articles of incorporation, our board of directors has authority,
without any further vote or action by our stockholders, to issue up to
20,000,000 shares of blank check preferred stock, of which 1,000,000 shares
have been designated Series A Participating Preferred Stock, in connection with
our adoption of a stockholder rights plan as described above under Stockholder
Rights Plan. Our board of directors may issue shares of preferred stock on
terms calculated to discourage, delay or prevent a change of control of our
company or the removal of our management.

Classified board of directors

Our articles
of incorporation provide for a board of directors serving staggered, three-year
terms. Approximately one-third of our board of directors will be elected each
year. This classified board provision could discourage a third

69

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party from
making a tender offer for our shares or attempting to obtain control of our
company. It could also delay stockholders who do not agree with the policies of
the board of directors from removing a majority of the board of directors for
two years.

Election and removal of directors

Our articles
of incorporation prohibit cumulative voting in the election of directors. Our
bylaws require parties other than the board of directors to give advance
written notice of nominations for the election of directors. Our articles of
incorporation and bylaws also provide that our directors may be removed only
for cause. These provisions may discourage, delay or prevent the removal of
incumbent officers and directors.

Calling of special meeting of stockholders

Our articles
of incorporation and bylaws provide that special meetings of our stockholders
may only be called by our Chairman of the board of directors, chief executive
officer or by either, at the request of a majority of our board of directors.

Advance notice requirements for stockholder
proposals and director nominations

Our bylaws
provide that stockholders seeking to nominate candidates for election as
directors or to bring business before an annual meeting of stockholders must
provide timely notice of their proposal in writing to the corporate secretary.

Generally, to
be timely, a stockholders notice must be received at our offices not less than
90 days nor more than 120 days prior to the first anniversary date of the
previous years annual meeting. Our bylaws also specify requirements as to the
form and content of a stockholders notice. These provisions may impede
stockholders ability to bring matters before an annual meeting of stockholders
or to make nominations for directors at an annual meeting of stockholders.

|                                                                                                                                                                                                                                                                             |                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------
|C.                                                                                                                                                                                                                                                                           | Material Contracts                                                
|                                                                                                                                                                                                                                                                             |                                                                   
|Not
 applicable.                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                             |                                                                   
|D.                                                                                                                                                                                                                                                                           | Exchange Controls and Other Limitations Affecting Security Holders
|                                                                                                                                                                                                                                                                             |                                                                   
|Under
 Marshall Islands law, there are currently no restrictions on the export or
 import of capital, including foreign exchange controls or restrictions that affect
 the remittance of dividends, interest or other payments to non-resident
 holders of our common stock.
|                                                                                                                                                                                                                                                                             |                                                                   
|E.                                                                                                                                                                                                                                                                           | Tax Considerations                                                

Marshall Islands Tax
Considerations

We are a
non-resident domestic Marshall Islands corporation. Because we do not, and we
do not expect that we will, conduct business or operations in the Republic of
The Marshall Islands, under current Marshall Islands law we are not subject to
tax on income or capital gains and our stockholders (so long as they are not
citizens or residents of the Republic of The Marshall Islands) will not be
subject to Marshall Islands taxation or withholding on dividends and other
distributions (including upon a return of capital) we make to our stockholders.
In addition, so long as our stockholders are not citizens or residents of the
Republic of The Marshall Islands, our stockholders will not be subject to
Marshall Islands stamp, capital gains or other taxes on the purchase, holding
or disposition of our common stock, and our stockholders will not be required
by the Republic of The Marshall Islands to file a tax return relating to our
common stock.

Each
stockholder is urged to consult their tax counselor or other advisor with
regard to the legal and tax consequences, under the laws of pertinent jurisdictions,
including the Republic of The Marshall Islands, of their

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investment in
us. Further, it is the responsibility of each stockholder to file all state,
local and non-U.S., as well as U.S. federal tax returns that may be required of
them.

Liberian Tax
Considerations

Some of our
vessel-owning subsidiaries are incorporated under the laws of the Republic of
Liberia. The Republic of Liberia enacted a new income tax act effective as of
January 1, 2001 (the New Act) which did not distinguish between the taxation
of non-resident Liberian corporations, such as our subsidiaries, which
conduct no business in Liberia and were wholly exempt from taxation under the
income tax law previously in effect since 1977, and resident Liberian
corporations which conduct business in Liberia and are, and were under the
prior law, subject to taxation. The New Act was amended by the Consolidated Tax
Amendments Act of 2011 which was published and became effective on November 1,
2011 (the Amended Act). The Amended Act specifically exempts from taxation
non-resident Liberian corporations such as our Liberian subsidiaries that
engage in international shipping (and not exclusively in Liberia) and that do
not engage in other business or activities in Liberia other than specifically
enumerated in the Amended Act. In addition, the Amended Act made such exemption
from taxation retroactive to the effective date of the New Act.

United States
Federal Income Tax Considerations

The following
discussion of United States federal income tax matters is based on 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. This discussion
does not address any United States state or local taxes.

Taxation of Our
Shipping Income

For purposes
of the following discussion shipping income means income that is derived by a
non- United States corporation from:

| |     |                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the use of vessels;                                                                                                                                                                               
| |     |                                                                                                                                                                                                   
| | (b) | the hiring
 or leasing of vessels for use on a time, operating or bareboat charter basis;                                                                                                         
| |     |                                                                                                                                                                                                   
| | (c) | the
 participation in a pool, partnership, strategic alliance, joint operating
 agreement or other joint venture it directly or indirectly owns or
 participates in that generates such income; or
| |     |                                                                                                                                                                                                   
| | (d) | the
 performance of services directly related to those uses.                                                                                                                                      

Shipping
income attributable to transportation exclusively between non-United States
ports is generally not subject to United States income tax. However, unless
exempt from United States income tax under the rules contained in Section 883
of the Code, a non-United States corporation is, under the rules of Section 887
of the Code, subject to a 4% United States income tax in respect of its United
States source gross transportation income (without the allowance for
deductions). United States source gross transportation income includes 50% of
shipping income that is attributable to transportation that begins or ends (but
that does not both begin and end) in the United States. Under Section 883 of
the Code, a non-United States corporation will be exempt from United States
income tax on its United States source gross transportation income if:

| |     |                                                                                                                                                    |                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | it is
 organized in a foreign country (or its country of organization) that grants
 an equivalent exemption to United States corporations; and
| |     |                                                                                                                                                    |                                                                                                                                                    
| | (b) | either                                                                                                                                            
| |     |                                                                                                                                                    |                                                                                                                                                    
| |     | (i)                                                                                                                                                | more than
 50% of the value of its stock is owned, directly or indirectly, by
 individuals who are residents of its country of organization or of

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| |      |                                                                                                                                                                                                                                      
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | another
 foreign country that grants an equivalent exemption to United States
 corporations; or                                                                                                                                    
| |      |                                                                                                                                                                                                                                      
| | (ii) | its stock is
 primarily and regularly traded on an established securities market in its
 country of organization, in another country that grants an equivalent
 exemption to United States corporations, or in the United States.

We believe
that we will not satisfy the requirements of Section 883 of the Code. As a
result, we will be subject to the 4% United States income tax on United States
source gross transportation income. Since 50% of our gross shipping income for
transportation that begins or ends in the United States would be treated as
United States source gross transportation income, we expect that the effective
rate of United States income tax on our gross shipping income for such
transportation would equal 2%. Many of our charters contain a provision that
obligates the charterer to reimburse us for the 4% United States income tax
that we are required to pay in respect of the vessel subject to the relevant
charter.

In lieu of the
foregoing rules, since the exemption of Section 883 of the Code will not apply
to us, our United States source gross transportation income that is considered
to be effectively connected with the conduct of a United States trade or
business would be subject to the United States corporate income tax currently
imposed at rates of up to 35% (net of applicable deductions). In addition, we
may be subject to the 30% United States branch profits taxes 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 United States trade or business.

We expect that
none of our United States source gross transportation income will be
effectively connected with the conduct of a United States trade or business.
Such income would be considered effectively connected only if:

| |     |                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | we had, or were
 considered to have, a fixed place of business in the United States involved
 in the earning of our United States source gross transportation income; and                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                    
| | (b) | substantially
 all of our United States source gross
 transportation income was attributable to regularly scheduled transportation,
 such as the operation of a vessel that followed a published schedule with
 repeated sailings at regular intervals between the same points for voyages
 that begin or end in the United States.

We believe
that we will not meet these conditions because we will not have, or permit
circumstances that would result in our having, any vessel sailing to or from
the United States on a regularly scheduled basis. In addition, income
attributable to transportation that both begins and ends in the United States
is not subject to the tax rules described above. Such income is subject to
either a 30% gross-basis tax or to United States corporate income tax on net
income at rates of up to 35% (and the branch profits tax discussed above). Although
there can be no assurance, we do not expect to engage in transportation that
produces shipping income of this type.

Taxation of Gain on Sale of Assets

Regardless of
whether we qualify for the exemption under Section 883 of the Code, we will not
be subject to United States 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 (as determined under United States 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) passes to the buyer outside of the United States. We expect that any
sale of a vessel will be so structured that it will be considered to occur
outside of the United States.

United States
Federal Income Taxation of United States Holders

You are a
United States holder if you are a beneficial owner of our common stock and
you are a United States citizen or resident, a United States corporation (or
other United States entity taxable as a corporation), an estate the

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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 that trust.

If a partnership holds our
common stock, the tax treatment of a partner will generally depend upon the
status of the partner and upon the activities of the partnership. Partners in a
partnership holding our common stock are encouraged to consult their tax
advisors.

Distributions on Our Common Stock

Subject to the discussion of
PFICs below, any distributions with respect to our common stock that you
receive from us will generally constitute dividends, which may be taxable as
ordinary income or qualified dividend income as described below, to the
extent of our current or accumulated earnings and profits (as determined under
United States tax principles). Distributions in excess of our earnings and
profits will be treated first as a nontaxable return of capital to the extent
of your tax basis in our common stock (on a dollar-for-dollar basis) and
thereafter as capital gain. Because we do not intend to determine our earnings
and profits on the basis of United States federal income tax principles, any
distribution paid will generally be treated as a dividend for United States
federal income tax purposes.

Because we are not a United
States corporation, if you are a United States corporation (or a United States
entity taxable as a corporation), you will not be entitled to claim a
dividends-received deduction with respect to any distributions you receive from
us.

Dividends paid with respect
to our common stock will generally be treated as passive category income for
purposes of computing allowable foreign tax credits for United States foreign
tax credit purposes.

If you are an individual,
trust or estate, dividends you receive from us should be treated as qualified
dividend income taxed at a preferential rate of 15% (through 2012), provided
that:

| |     |                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the common stock is
 readily tradable on an established securities market in the United States
 (such as the New York Stock Exchange);                               
| |     |                                                                                                                                                                      
| | (b) | We are not a PFIC for the
 taxable year during which the dividend is paid or the immediately preceding
 taxable year (see the discussion below under PFIC Status);
| |     |                                                                                                                                                                      
| | (c) | You own our common stock
 for more than 60 days in the 121-day period beginning 60 days before the date
 on which the common stock becomes ex-dividend;              
| |     |                                                                                                                                                                      
| | (d) | You are not under an
 obligation to make related payments with respect to positions in
 substantially similar or related property; and                               
| |     |                                                                                                                                                                      
| | (e) | Certain other conditions
 are met.                                                                                                                                   

Special rules may apply to
any extraordinary dividend. Generally, an extraordinary dividend is a
dividend in an amount that is equal to (or in excess of) 10% of your adjusted
tax basis (or fair market value in certain circumstances) in a share of our
common stock. If we pay an extraordinary dividend on our common stock that is
treated as qualified dividend income and if you are an individual, estate or
trust, then any loss you derive from a subsequent sale or exchange of such
common stock will be treated as long-term capital loss to the extent of such
dividend.

There is no assurance that
dividends you receive from us will be eligible for the preferential 15% rate.
Dividends you receive from us that are not eligible for the preferential rate
of 15% will be taxed at the ordinary income rates.

Sale, Exchange or other Disposition of Common Stock

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Provided that we are not a
PFIC for any taxable year, you generally will recognize taxable gain or loss
upon a sale, exchange or other disposition of our common stock in an amount
equal to the difference between the amount realized by you from such sale,
exchange or other disposition and your tax basis in such stock. Such gain or
loss will be treated as long-term capital gain or loss if your holding period
is greater than one year at the time of the sale, exchange or other
disposition. Such capital gain or loss will generally be treated as United
States source income or loss, as applicable, for United States foreign tax
credit purposes. Your ability to deduct capital losses against ordinary income
is subject to limitations.

PFIC Status

Special United States income
tax rules apply to you if you hold stock in a non-United States corporation
that is classified as a passive foreign investment company (or PFIC) for
United States income tax purposes. In general, we will be treated as a PFIC in
any taxable year in which, after applying certain look-through rules, either:

| |     |                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | 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
| |     |                                                                                                                                                                                                              
| | (b) | at least 50% of the
 average value of our assets during such taxable year consists of passive
 assets (i.e., assets that
 produce, or are held for the production of, passive income).                     

For purposes of determining
whether we are a PFIC, we will be treated as earning and owning our
proportionate share of the income and assets, respectively, of any of our
subsidiary corporations in which we own at least 25% of the value of the
subsidiarys stock. Income we earned, or are deemed to earn, in connection with
the performance of services will not constitute passive income. By contrast,
rental income will generally constitute passive income (unless we are treated
under certain special rules as deriving our rental income in the active conduct
of a trade or business).

Because we have chartered
all our vessels to unrelated charterers on the basis of period time and spot
charter contracts (and not on the basis of bareboat charters) and because we
expect to continue to do so, we believe that currently we should not be treated
as being and should not become a PFIC. We believe it is more likely than not
that our gross income derived from our time charter activities constitutes active
service income (as opposed to passive rental income) and, as a result, our
vessels constitute active assets (as opposed to passive assets) for purposes of
determining whether we are a PFIC. We believe there is legal authority
supporting this position, consisting of case law and IRS pronouncements
concerning the characterization of income derived from time charters as service
income for other tax purposes. However, there is no legal authority
specifically relating to the statutory provisions governing PFICs or relating
to circumstances substantially similar to ours. Moreover, a recent case by the
United States Court of Appeals for the Fifth Circuit held that, contrary to the
position of the IRS in that case, and for purposes of a different set of rules
under the Code, income received under a time charter of vessels should be
treated as rental income rather than services income. If the reasoning of the
Fifth Circuit case were extended to the PFIC context, the gross income we
derive or are deemed to derive from our time chartering activities would be
treated as rental income, and we would probably be a PFIC.

We have not sought, and we
do not expect to seek, an IRS ruling on this matter. As a result, the IRS or a
court could disagree with our position that we are not currently a PFIC. No
assurance can be given that this result will not occur. In addition, although
we intend to conduct our affairs in a manner to avoid, to the extent possible,
being classified as a PFIC with respect to any taxable year, we cannot assure
you that the nature of our operations will not change in the future, or that we
can avoid PFIC status in the future.

As discussed below, if we
were to be treated as a PFIC for any taxable year, you generally would be
subject to one of three different United States income tax regimes, depending
on whether or not you make certain elections.

Taxation of United States Holders That Make a Timely QEF
Election

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If we were treated as a
PFIC, and if you make a timely election to treat us as a Qualifying Electing
Fund for United States tax purposes (a QEF Election), you would be required
to report each year your pro rata share of our ordinary earnings and our net
capital gain for our taxable year that ends with or within your taxable year,
regardless of whether we make any distributions to you. Such income inclusions
would not be eligible for the preferential tax rates applicable to qualified
dividend income. Your adjusted tax basis in our common stock would be
increased to reflect such taxed but undistributed earnings and profits.
Distributions of earnings and profits that had previously been taxed would
result in a corresponding reduction in your adjusted tax basis in our common
stock and would not be taxed again once distributed. You would generally
recognize capital gain or loss on the sale, exchange or other disposition of
our common stock. Even if you make a QEF Election for one of our taxable years,
if we were a PFIC for a prior taxable year during which you held our common
stock and for which you did not make a timely QEF Election, you would also be
subject to the more adverse rules described below under Taxation of United
States Holders That Make No Election.

You would make a QEF
Election with respect to any year that our company is treated as a PFIC by
completing and filing IRS Form 8621 with your United States income tax return
in accordance with the relevant instructions. If we were to become aware that
we were to be treated as a PFIC for any taxable year, we would notify all
United States holders of such treatment and would provide all necessary
information to any United States holder who requests such information in order
to make the QEF election described above.

Taxation of United States Holders That Make a Timely
Mark-to-Market Election

Alternatively, if we were to
be treated as a PFIC for any taxable year and, as we believe, our common stock
is treated as marketable stock, you would be allowed to make a
mark-to-market election with respect to our common stock, provided that you
complete and file IRS Form 8621 in accordance with the relevant instructions.
If that election is made, you generally would include as ordinary income in
each taxable year the excess, if any, of the fair market value of our common
stock at the end of the taxable year over your adjusted tax basis in our common
stock. You also would be permitted an ordinary loss in respect of the excess,
if any, of your adjusted tax basis in our common stock over its fair market
value at the end of the taxable year (but only to the extent of the net amount
previously included in income as a result of the mark-to-market election). Your
tax basis in our common stock would be adjusted to reflect any such income or
loss amount. Gain realized on the sale, exchange or other disposition of our
common stock would be treated as ordinary income, and any loss realized on the
sale, exchange or other disposition of the common stock would be treated as
ordinary loss to the extent that such loss does not exceed the net
mark-to-market gains previously included by you.

Taxation of United States Holders That Make No Election

Finally, if we were treated
as a PFIC for any taxable year and if you did not make either a QEF Election or
a mark-to-market election for that year, you would be subject to special
rules with respect to (a) any excess distribution (that is, the portion of any
distributions received by you on our common stock in a taxable year in excess
of 125% of the average annual distributions received by you in the three
preceding taxable years, or, if shorter, your holding period for our common
stock) and (b) any gain realized on the sale, exchange or other disposition of
our common stock. Under these special rules:

| |       |                                                                                                                                                                                                                                                                                                                                     
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the excess distribution or
 gain would be allocated ratably over your aggregate holding period for our
 common stock;                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                     
| | (ii)  | the amount allocated to
 the current taxable year would be taxed as ordinary income; and                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                     
| | (iii) | the amount allocated to
 each of the other taxable years would be subject to tax at the highest rate
 of tax in effect for the applicable class of taxpayer for that year, and an
 interest charge for the deemed deferral benefit would be imposed with respect
 to the resulting tax attributable to each such other taxable year.

75

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If an individual dies while
owning our common stock, the individuals successor generally would not receive
a step-up in tax basis with respect to such stock for United States tax
purposes.

United States Federal Income Taxation of
Non-United States Holders

You are a non-United States
holder if you are a beneficial owner of our common stock (other than a
partnership for United States tax purposes) and you are not a United States
holder.

Distributions on Our Common Stock

You generally will not be
subject to United States income or withholding taxes on dividends you receive
from us with respect to our common stock, unless that income is effectively
connected with your conduct of a trade or business in the United States. If you
are entitled to the benefits of an applicable income tax treaty with respect to
those dividends, that income generally is taxable in the United States only if
it is attributable to a permanent establishment maintained by you in the United
States.

Sale, Exchange or Other Disposition of Our Common Stock

You generally will not be
subject to United States income tax or withholding tax on any gain realized
upon the sale, exchange or other disposition of our common stock, unless:

| |     |                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the gain is effectively
 connected with your conduct of a trade or business in the United States. If
 you are entitled to the benefits of an applicable income tax treaty with
 respect to that gain, that gain generally is taxable in the United States
 only if it is attributable to a permanent establishment maintained by you in
 the United States; or
| |     |                                                                                                                                                                                                                                                                                                                                                               
| | (b) | you are an individual who
 is present in the United States for 183 days or more during the taxable year
 of disposition and certain other conditions are met.                                                                                                                                                                                                 

If you are engaged in a
United States trade or business for United States tax purposes, you will be
subject to United States tax with respect to your income from our common stock
(including dividends and the gain from the sale, exchange or other disposition
of the stock that is effectively connected with the conduct of that trade or
business) in the same manner as if you were a United States holder. In
addition, if you are a corporate non-United States holder, your earnings and
profits that are attributable to the effectively connected income (subject to
certain adjustments) may be subject to an additional United States branch
profits tax at a rate of 30%, or at a lower rate as may be specified by an
applicable income tax treaty.

United States Backup Withholding and
Information Reporting

In general, if you are a non-corporate
United States holder, dividend payments (or other taxable distributions) made
within the United States will be subject to information reporting requirements
and backup withholding tax if you:

| |     |                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | fail to provide us with an
 accurate taxpayer identification number;                                                                          
| |     |                                                                                                                                               
| | (2) | are notified by the IRS
 that you have failed to report all interest or dividends required to be shown
 on your federal income tax returns; or
| |     |                                                                                                                                               
| | (3) | in certain circumstances,
 fail to comply with applicable certification requirements.                                                         

Under legislation enacted in
2010, United States holders who are individuals generally will be required to
report our name, address and such information relating to an interest in our
common stock as is necessary to identify the class or issue of which your
common shares are a part. These
requirements are subject to exceptions, including an exception for shares held
in accounts maintained by certain financial institutions and an exception
applicable if the aggregate value of all specified foreign financial assets
(as defined in the Code) does not exceed $50,000.

76

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If you are a non-United
States holder, you may be required to establish your exemption from information
reporting and backup withholding by certifying your status on IRS Form W-8BEN,
W-8ECI or W-8IMY, as applicable. If you sell our common stock to or through a
United States office or broker, the payment of the sales proceeds is subject to
both United States backup withholding and information reporting unless you
certify that you are a non-United States person, under penalties of perjury, or
you otherwise establish an exemption. If you sell our common stock 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 outside the
United States, if you sell our common stock through a non-United States office
of a broker that is a United States person or has certain other connections
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 accurately completing and timely filing a refund claim with the IRS. You
should consult your own tax advisor regarding the application of the backup
withholding and information reporting rules.

|                |                             
|--------------- | ----------------------------
|F.              | Dividends
 and Paying Agents
|                |                             
|Not applicable.
|                |                             
|G.              | Statement
 by Experts       
|                |                             
|Not applicable.
|                |                             
|H.              | Documents
 on Display       

We are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the Exchange Act). In accordance with these requirements, we file reports
and other information as a foreign private issuer with the SEC. You may inspect
and copy our public filings without charge at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference room. You may obtain copies of all or any part of such materials from
the SEC upon payment of prescribed fees. You may also inspect reports and other
information regarding registrants, such as us, that file electronically with
the SEC without charge at a web site maintained by the SEC at http://www.sec.gov.

|                |                        
|--------------- | -----------------------
|I.              | Subsidiary
 Information
|                |                        
|Not applicable.

|         |                                                            
|-------- | -----------------------------------------------------------
|ITEM 11. | QUANTITATIVE
 AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

|                   |                                            
|------------------ | -------------------------------------------
|A.                 | Quantitative
 Information About Market Risk
|                   |                                            
|Interest Rate Risk

We are subject to market
risks relating to changes in interest rates because we have floating rate debt
outstanding, which is based on U.S. dollar LIBOR plus, in the case of each
credit facility, a specified margin. Our objective is to manage the impact of
interest rate changes on our earnings and cash flow in relation to our
borrowings and to this effect, when we deem appropriate, we use derivative
financial instruments. We had entered into 17 interest rate swap agreements as
of December 31, 2011, compared to 18 interest rate swap agreements as of
December 31, 2010, in order to manage future interest costs and the risk
associated with changing interest rates.

The total notional principal
amount of these swaps as of December 31, 2011 was $547.1 million of which
$459.8 million was effective as of December 31, 2011 and $87.3 million becomes
effective during 2012 and 2013. The swaps have specified rates and durations.
Refer to the table in Note 13 of our financial statements included at the

77

---



end of this annual report
which summarizes the interest rate swaps in place as of December 31, 2011 and
December 31, 2010.

Under our interest rate swap
transactions, the bank effects quarterly or semiannual floating-rate payments
to us for the relevant amount based either on the three- or six-month U.S.
dollar LIBOR and we make quarterly or semiannual payments to the bank on the
relevant amount at the respective fixed rates.

We entered into these
interest rate swap agreements to mitigate our exposure to interest rate
fluctuations and at a time when we believed long-term interest rates were
reasonably low. None of our interest rate swap meets hedge accounting criteria
under accounting guidance relating to Fair
Value Measurement. Although we are exposed to credit-related losses
in the event of non-performance in connection with such swap agreements,
because the counterparties are major financial institutions, we consider the
risk of loss due to their nonperformance to be minimal.

Through these swap
transactions, we effectively hedged the interest rate exposure of 95.0% of our
loans outstanding as of December 31, 2011.

The following table sets
forth the sensitivity of our existing loans as of December 31, 2011 as to a 100
basis point increase in LIBOR taking into account our interest rate swap
agreements that are currently in place, during the next five years, and
reflects the additional interest expense.

|     |  |              
|---- |  | -------------
|Year |  | Amount       
|     |  |              
|2012 |  | $0.4
 million
|2013 |  | $1.0
 million
|2014 |  | $1.6
 million
|2015 |  | $2.4
 million
|2016 |  | $2.6
 million

Foreign Currency Exchange Risk

We generate all of our
revenues in U.S. dollars, but for the year ended December 31, 2011 we incurred
approximately 22.88% of our vessel operating expenses in currencies other than
the U.S. dollar. As of December 31, 2011, approximately 20.51% of our
outstanding accounts payable were denominated in currencies other than the U.S.
dollar and were subject to exchange rate risk, as their value fluctuates with
changes in exchange rates.

A hypothetical 10% immediate
and uniform adverse move in all currency exchange rates from the rates in
effect as of December 31, 2011, would have increased our vessel operating
expenses by approximately $596,271 and the fair value of our outstanding
accounts payable by approximately $23,462.

As of December 31, 2011 a
portion of our remaining capital expenditures related to the agreements for the
purchase of newbuilds was denominated in Japanese yen, equivalent to $3
million. A hypothetical 10% immediate adverse move in the Japanese yen exchange
rate from the rate in effect as of December 31, 2011, would have increased our
remaining capital expenditures by approximately $335,759. While, from time to
time, we have in the past used financial derivatives in the form of foreign
exchange forward agreements to mitigate the risk associated with exchange rate
fluctuations, currently, no such instruments are in place, although we may
enter into foreign exchange forward agreements in the future in relation to the
remaining payments denominated in Japanese Yen for the newbuild vessels we have
contracted to purchase.

There have been no material
quantitative changes in market risk exposures between 2011 and 2010.

|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 12. | DESCRIPTION
 OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

78

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PART II

|         |                                                                              
|-------- | -----------------------------------------------------------------------------
|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              
|         |                                                                              
|None.    |                                                                              
|         |                                                                              
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
 AND USE OF PROCEEDS

|   |                                                          
|-- | ---------------------------------------------------------
|A. | Material
 Modifications to the Rights of Security Holders

We adopted a stockholder
rights plan on May 13, 2008 that authorizes the issuance to our existing
stockholders of preferred share rights and additional shares of common stock if
any third party seeks to acquire control of a substantial block of our common
stock. See Item 10. Additional Information B. Memorandum and Articles of
AssociationStockholder Rights Plan included in this annual report for a
description of the stockholder rights plan.

|         |                        
|-------- | -----------------------
|ITEM 15. | CONTROLS AND PROCEDURES

|   |                                    
|-- | -----------------------------------
|A. | Disclosure
 Controls and Procedures

Our management, with the
participation of our chief executive officer and chief financial officer, has
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act as of December 31, 2011. Disclosure controls and procedures are
defined under SEC rules as controls and other procedures that are designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within required time periods. Disclosure controls and
procedures include controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuers
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including
the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives.

Based on our evaluation, the
chief executive officer and the chief financial officer have concluded that our
disclosure controls and procedures were effective as of December 31, 2011.

|   |                                                                         
|-- | ------------------------------------------------------------------------
|B. | Managements
 Annual Report on Internal Control Over Financial Reporting

Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act and for the assessment of the effectiveness of internal control
over financial reporting. Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States (U.S. GAAP).

A companys internal control
over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit the preparation of financial statements in accordance with
U.S. GAAP, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

79

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

In making its assessment of
our internal control over financial reporting as of December 31, 2011,
management, including the chief executive officer and chief financial officer,
used the criteria set forth in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management concluded that,
as of December 31, 2011, our internal control over financial reporting was
effective. Deloitte Hadjipavlou, Sofianos & Cambanis S.A. (Deloitte), our
independent registered public accounting firm, has audited the financial
statements included herein and our internal control over financial reporting and
has issued an attestation report on the effectiveness of our internal control
over financial reporting as of December 31, 2011 which is reproduced in its
entirety in Item 15(c) below.

|   |                                                             
|-- | ------------------------------------------------------------
|C. | Attestation
 Report of the Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Stockholders of Safe Bulkers, Inc., 
Majuro, Republic of The Marshall Islands,

We have audited the internal
control over financial reporting of Safe Bulkers, Inc., and its subsidiaries
(the Company) as of December 31, 2011, based on criteria established in Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission. The
Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Companys internal control over financial
reporting based on our audit.

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

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

Because of the inherent
limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over

80

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financial reporting to
future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2011, based on the criteria established in Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year
ended December 31, 2011 of the Company and our report dated February 29,
2012 expressed an unqualified opinion on those financial statements.

/s/ Deloitte Hadjipavlou,
Sofianos & Cambanis S.A.

Athens, Greece

February 29, 2012

|   |                                                      
|-- | -----------------------------------------------------
|D. | Changes
 in Internal Control over Financial Reporting

During the period covered by
this annual report, we have made no changes to our internal control over
financial reporting that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.

|         |           
|-------- | ----------
|ITEM 16. | [RESERVED]

|          |                                 
|--------- | --------------------------------
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT

Our Audit Committee consists
of three independent directors, John Gaffney, Ole Wikborg and Frank Sica, who
is the chairman of the committee. Our board of directors has determined that
Frank Sica, whose biographical details are included in Item 6. Directors,
Senior Management and EmployeesA. Directors and Senior Management, qualifies
as an audit committee financial expert as defined under current SEC
regulations.

|          |               
|--------- | --------------
|ITEM 16B. | CODE OF ETHICS

We have adopted a Code of
Business Conduct and Ethics for all officers and employees of our company,
which incorporates a Code of Ethics for directors and a Code of Conduct for
corporate officers, a copy of which is posted on our website, and may be viewed
at http://www.safebulkers.com/corp_ethics.htm.
We will also provide a paper copy of this document free of charge upon written
request by our stockholders. Stockholders may direct their requests to the
attention of Dr. Loukas Barmparis, Secretary, Safe Bulkers, Inc., 32 Avenue
Karamanli, 16605, Voula, Athens, Greece. No waivers of the Code of Business
Conduct and Ethics have been granted to any person during the fiscal year ended
December 31, 2011.

|          |                                       
|--------- | --------------------------------------
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Aggregate fees billed to the
Company for the fiscal years ended December 31, 2010 and 2011 by the Companys
principal accounting firm, Deloitte, Hadjipavlou, Sofianos & Cambanis S.A,
an independent registered public accounting firm and member of Deloitte Touche
Tohmatsu, Limited, by the category of service, were as follows:

|               |  |                |     |      |   |     | 
|-------------- |  | -------------- | --- | ---- | - | --- | 
|               |  | 2010           |     | 2011 |  
|               |  |                |     |      |  
|               |  | (In Thousands) |    
|Audit fees     |  | $              | 496 |      | $ | 509 | 
|All other fees |  |                |    |      |   |    | 
|Total
 fees    |  | $              | 496 |      | $ | 509 | 

81

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Audit fees represent
compensation for professional services rendered for the integrated audit of the
consolidated financial statements of the Company and for the review of the
quarterly financial information as well as in connection with the review of
registration statements and related consents and comfort letters and any other
audit services required for SEC or other regulatory filings.

Pre-approval Policies and Procedures

The audit committee charter
sets forth our policy regarding retention of the independent auditors, giving
the audit committee responsibility for the appointment, compensation, retention
and oversight of the work of the independent auditors. The audit committee
charter provides that the committee is responsible for reviewing and approving
in advance the retention of the independent auditors for the performance of all
audit and lawfully permitted non-audit services. The chairman of the audit
committee or in the absence of the chairman, any member of the audit committee
designated by the chairman, has authority to approve in advance any lawfully
permitted non-audit services and fees. The audit committee is authorized to
establish other policies and procedures for the pre-approval of such services
and fees. Where non-audit services and fees are approved under delegated
authority, the action must be reported to the full audit committee at its next
regularly scheduled meeting.

|          |                                                           
|--------- | ----------------------------------------------------------
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

|          |                                                                        
|--------- | -----------------------------------------------------------------------
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
 PURCHASERS

On June 10, 2009, the Company
announced that Vorini Holdings Inc. authorized a program under which it may
from time to time purchase shares of the Companys common stock on the open
market. The maximum number of shares of common stock that can be purchased
annually under the program and any private placement is approximately 2% of the
Companys shares outstanding. The program is still in effect and details on the
shares purchased in 2011 pursuant to the program or through private placements
are set forth in the table below. As of February 25, 2012, the Company had
70,896,924 shares of common stock outstanding. Approximately 45,889,032 of
those shares, or 64.73% of common stock outstanding, were held by the Companys
affiliates, according to information provided to the Company by such affiliates.
The remaining 25,007,892 shares, or 35.27% of common stock outstanding,
represented the public float.

|             |  |                                              |        |                                          |   |                                                                                                 |  |  |        | 
|------------ |  | -------------------------------------------- | ------ | ---------------------------------------- | - | ----------------------------------------------------------------------------------------------- |  |  | ------ | 
|Period
 2011 |  | Total Number of Shares
 (or Units) Purchased |        | Average Price Paid per
 Share (or Units) |   | Total Number of
 Shares (or Units)
 Purchased as Part of
 Publicly Announced
 Plans or Programs | 
|             |  |                                              |        |                                          |   |                                                                                                 | 
|            
|January      |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|February     |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|March        |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|April        |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|May          |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|June         |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|July         |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|August       |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|September    |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|October      |  |                                              | 11,200 |                                          | $ | 5.47                                                                                            |  |  | 11,200 | 
|November     |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|December     |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|2012         |  |                                              |        |                                          |   |                                                                                                 |  |  |        | 
|January      |  |                                              |       |                                          |   |                                                                                                |  |  |       | 
|February     |  |                                              |       |                                          |   |                                                                                                |  |  |       | 

82

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|    |                                                                                                                                  | 
|--- | -------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                 
|(a) | All purchases have been
 made on the open market within the safe harbor provisions of Regulation
 10b-18 under the Exchange Act.

|          |                                             
|--------- | --------------------------------------------
|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

Not Applicable.

|          |                      
|--------- | ---------------------
|ITEM 16G. | CORPORATE GOVERNANCE.

Statement of Significant Differences Between our Corporate
Governance Practices and the New York Stock Exchange Corporate Governance
Standards for U.S. Non-Controlled Issuers

Overview

Pursuant to certain
exceptions for foreign private issuers and controlled companies, we are not
required to comply with certain of the corporate governance practices followed
by U.S. and non-controlled companies under the New York Stock Exchange listing
standards. However, pursuant to Section 303.A.11 of the New York Stock Exchange
Listed Company Manual and the requirements of Form 20-F, we are required to
state any significant differences between our corporate governance practices
and the practices required by the New York Stock Exchange. We believe that our
established practices in the area of corporate governance are in line with the
spirit of the New York Stock Exchange standards and provide adequate protection
to our shareholders. For example, our audit committee consists solely of
independent directors. The significant differences between our corporate
governance practices and the New York Stock Exchange standards applicable to
listed U.S. companies are set forth below.

Independent Directors

The New York Stock Exchange
requires that listed companies have a majority of independent directors. As
permitted under Marshall Islands law and our bylaws, our board of directors consists
of a majority of non-independent directors.

Executive Sessions

The New York Stock Exchange
requires that non-management directors meet regularly in executive sessions
without management. The New York Stock Exchange also requires that all independent
directors meet in an executive session at least once a year. As permitted under
Marshall Islands law and our bylaws, our non-management directors do not
regularly hold executive sessions without management and we do not expect them
to do so.

Corporate Governance, Nominating and
Compensation Committee

The New York Stock Exchange
requires that a listed U.S. company have a nominating/corporate governance
committee and a compensation committee, each composed of independent directors.
As permitted under Marshall Islands law and our bylaws, we have a combined
corporate governance, nominating and compensation committee, which at present
is composed wholly of independent directors.

83

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PART III

|         |                     
|-------- | --------------------
|ITEM 17. | FINANCIAL STATEMENTS

Not Applicable.

|         |                     
|-------- | --------------------
|ITEM 18. | FINANCIAL STATEMENTS

Reference is made to pages
F-1 through F-26 included herein by reference.

|         |         
|-------- | --------
|ITEM 19. | EXHIBITS

|                |  |                                                                                                                                                             
|--------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Description                                                                                                                                                 
|                |  |                                                                                                                                                             
|1.1             |  | Amended and Restated
 Articles of Incorporation*                                                                                                            
|                |  |                                                                                                                                                             
|1.2             |  | Articles of Amendment to
 Amended and Restated Articles of Incorporation**                                                                                  
|                |  |                                                                                                                                                             
|1.3             |  | Amended and Restated
 Bylaws*                                                                                                                               
|                |  |                                                                                                                                                             
|2.1             |  | Form of Registration
 Rights Agreement between Safe Bulkers, Inc. and Vorini Holdings Inc.*                                                                 
|                |  |                                                                                                                                                             
|2.2             |  | Stockholder Rights
 Agreement*                                                                                                                              
|                |  |                                                                                                                                                             
|2.3             |  | Specimen Share Certificate*                                                                                                                                 
|                |  |                                                                                                                                                             
|4.1             |  | Form of Management
 Agreement between Safety Management Overseas S.A. and Safe Bulkers, Inc.*                                                               
|                |  |                                                                                                                                                             
|4.2             |  | Amendment No. 1 to
 Management Agreement between Safety Management Overseas S.A. and Safe Bulkers, Inc.                                                     
|                |  |                                                                                                                                                             
|4.3             |  | Form of Restrictive Covenant
 Agreement among Safe Bulkers, Inc., Polys Hajioannou, Vorini Holdings Inc., SafeFixing
 Corp and Machairiotissa Holdings Inc.*
|                |  |                                                                                                                                                             
|4.4             |  | Form of Restrictive
 Covenant Agreement between Safe Bulkers, Inc. and Polys Hajioannou*                                                                    
|                |  |                                                                                                                                                             
|4.5             |  | Amendment No. 1 to
 Restrictive Covenant Agreement between Safe Bulkers, Inc. and Polys Hajioannou                                                          
|                |  |                                                                                                                                                             
|8.1             |  | List of Subsidiaries                                                                                                                                        
|                |  |                                                                                                                                                             
|12.1            |  | Certification of principal
 executive officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
 amended                  
|                |  |                                                                                                                                                             
|12.2            |  | Certification of principal
 financial officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
 amended                  
|                |  |                                                                                                                                                             
|13.1            |  | Certification of principal
 executive officer pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley
 Act of 2002                 
|                |  |                                                                                                                                                             
|13.2            |  | Certification of principal
 financial officer pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley
 Act of 2002                 
|                |  |                                                                                                                                                             
|99.1            |  | Consent of Independent
 Registered Public Accounting Firm                                                                                                   

|   |                                                                                                                                                                                                    | 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   |                                                                                                                                                                                                   
|*  | Previously filed as an
 exhibit to the Companys Registration Statement on Form F-1 (Reg. No. 333-150995) filed with the SEC
 and hereby incorporated by reference to such Registration Statement.
|** | Previously filed as an
 exhibit to the Companys Form 6-K filed with the SEC on October 8, 2009.                                                                                                  

84

---



SIGNATURES

The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.

February 29, 2012

| |                                                 
| | ------------------------------------------------
| | By                                              
| |                                                 
| | /s/ KONSTANTINOS
 ADAMOPOULOS                   
| |                                                 
| | Name:   Konstantinos
 Adamopoulos               
| | Title:     Chief
 Financial Officer and Director

85

---



INDEX TO FINANCIAL STATEMENTS

|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                      |  | Page
|                                                                                                      |  |     
|                                                                                                      |  |     
|Report of Independent Registered Public Accounting Firm                                               |  | F-2 
|                                                                                                      |  |     
|Consolidated Balance Sheets as of December 31, 2010 and 2011                                          |  | F-3 
|                                                                                                      |  |     
|Consolidated Statements of Income for the Years Ended December 31,
 2009, 2010 and 2011               |  | F-4 
|                                                                                                      |  |     
|Consolidated Statements of Shareholders Equity for the Years Ended
 December 31, 2009, 2010 and 2011 |  | F-5 
|                                                                                                      |  |     
|Consolidated Statements of Cash Flows for the Years Ended December
 31, 2009, 2010 and 2011           |  | F-6 
|                                                                                                      |  |     
|Notes to Consolidated Financial Statements                                                            |  | F-7 

F-1

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board
of Directors and Shareholders of
Safe Bulkers, Inc.
Majuro, Republic of The Marshall Islands

We have
audited the accompanying consolidated balance sheets of Safe Bulkers, Inc. and
subsidiaries (the Company) as of December 31, 2010 and 2011, and the related
consolidated statements of income, shareholders equity, and cash flows for
each of the three years in the period ended December 31, 2011. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Safe Bulkers, Inc. and subsidiaries as of
December 31, 2010 and 2011, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2011, in
conformity with accounting principles generally accepted in the United States
of America.

We have also
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial
reporting as of December 31, 2011, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 29, 2012 expressed an unqualified opinion
on the Companys internal control over financial reporting.

/s/ Deloitte
Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
February 29, 2012

F-2

---



|                                                                    
|--------------------------------------------------------------------
|SAFE BULKERS, INC.                                                  
|CONSOLIDATED
 BALANCE SHEETS                                        
|DECEMBER 31, 2010 AND 2011                                          
|(In thousands of U.S. Dollars, except for
 share and per share data)

|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- | -- | ---- | ------------ | ------- |  |  | ------- | 
|                                                                                                                                                       |  |       |    |      | December 31, |        
|                                                                                                                                                       |  |       |    |      |              |        
|                                                                                                                                                       |  | Notes |    | 2010 |              | 2011    | 
|                                                                                                                                                       |  |       |    |      |              |         | 
|ASSETS                                                                                                                                                 |  |       |    |      |              |         |  |  |         | 
|CURRENT ASSETS:                                                                                                                                        |  |       |    |      |              |         |  |  |         | 
|Cash and cash equivalents                                                                                                                              |  |       |    |      |              | 65,335  |  |  | 28,121  | 
|Time deposits  Short-term                                                                                                                             |  |       |    |      |              | 35,080  |  |  |        | 
|Accounts receivable trade                                                                                                                              |  |       |    |      |              | 1,285   |  |  | 5,550   | 
|Due from Manager                                                                                                                                       |  |       |    |      |              |        |  |  | 24      | 
|Inventories                                                                                                                                            |  |       |    |      |              | 1,417   |  |  | 2,653   | 
|Prepaid expenses and other current assets                                                                                                              |  |       |    |      |              | 1,159   |  |  | 1,611   | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|Total current assets                                                                                                                                   |  |       |    |      |              | 104,276 |  |  | 37,959  | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|FIXED ASSETS:                                                                                                                                          |  |       |    |      |              |         |  |  |         | 
|Vessels, net                                                                                                                                           |  |       | 4  |      |              | 541,244 |  |  | 655,356 | 
|Advances for vessel acquisition and vessels
 under construction                                                                                        |  |       | 5  |      |              | 99,014  |  |  | 122,307 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|Total fixed assets                                                                                                                                     |  |       |    |      |              | 640,258 |  |  | 777,663 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|OTHER NON CURRENT ASSETS:                                                                                                                              |  |       |    |      |              |         |  |  |         | 
|Deferred finance charges, net                                                                                                                          |  |       | 6  |      |              | 930     |  |  | 6,226   | 
|Restricted cash                                                                                                                                        |  |       |    |      |              | 5,423   |  |  | 5,423   | 
|Derivative assets                                                                                                                                      |  |       | 13 |      |              | 4,485   |  |  |        | 
|Long-term investment                                                                                                                                   |  |       | 8  |      |              | 50,000  |  |  | 50,000  | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|Total assets                                                                                                                                           |  |       |    |      |              | 805,372 |  |  | 877,271 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                   |  |       |    |      |              |         |  |  |         | 
|CURRENT LIABILITIES:                                                                                                                                   |  |       |    |      |              |         |  |  |         | 
|Current portion of long-term debt                                                                                                                      |  |       | 7  |      |              | 27,674  |  |  | 18,486  | 
|Unearned revenue                                                                                                                                       |  |       | 19 |      |              | 10,685  |  |  | 23,211  | 
|Trade accounts payable                                                                                                                                 |  |       |    |      |              | 1,470   |  |  | 1,183   | 
|Accrued liabilities                                                                                                                                    |  |       | 14 |      |              | 5,903   |  |  | 6,556   | 
|Derivative liability                                                                                                                                   |  |       | 13 |      |              | 6,802   |  |  | 2,237   | 
|Due to Manager                                                                                                                                         |  |       | 3  |      |              | 449     |  |  |        | 
|Total current liabilities                                                                                                                              |  |       |    |      |              | 52,983  |  |  | 51,673  | 
|Derivative liabilities                                                                                                                                 |  |       | 13 |      |              | 9,787   |  |  | 10,130  | 
|Long-term debt, net of current portion                                                                                                                 |  |       | 7  |      |              | 467,070 |  |  | 465,805 | 
|Unearned revenue  Long-term                                                                                                                           |  |       | 19 |      |              | 31,399  |  |  | 17,821  | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|Total liabilities                                                                                                                                      |  |       |    |      |              | 561,239 |  |  | 545,429 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|COMMITMENTS AND CONTINGENCIES                                                                                                                          |  |       | 10 |      |              |        |  |  |        | 
|SHAREHOLDERS EQUITY:                                                                                                                                  |  |       |    |      |              |         |  |  |         | 
|Shareholders equity:                                                                                                                                  |  |       |    |      |              |         |  |  |         | 
|Common stock, $0.001 par value; 200,000,000
 authorized, 65,876,507 and 70,891,916 issued and outstanding at December 31,
 2010 and 2011, respectively |  |       | 9  |      |              | 66      |  |  | 71      | 
|Preferred stock, $0.01 par value;
 20,000,000 authorized, none issued or outstanding                                                                   |  |       |    |      |              |        |  |  |        | 
|Additional paid in capital                                                                                                                             |  |       |    |      |              | 75,166  |  |  | 114,918 | 
|Retained earnings                                                                                                                                      |  |       |    |      |              | 168,901 |  |  | 216,853 | 
|Total shareholders equity                                                                                                                             |  |       |    |      |              | 244,133 |  |  | 331,842 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 
|Total liabilities and shareholders equity                                                                                                             |  |       |    |      |              | 805,372 |  |  | 877,271 | 
|                                                                                                                                                       |  |       |    |      |              |         |  |  |         | 

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

F-3

---



SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS OF INCOME 
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
(In thousands of U.S. Dollars, except for share and per share data)

|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|------------------------------------------------------ |  | ----- | ---- | ---- | ----------------------- | ---------- | - | ---- | ---------- | - |  | ---------- | -
|                                                       |  |       |      |      | Year Ended December 31, |           
|                                                       |  |       |      |      |                         |           
|                                                       |  | Notes |      | 2009 |                         | 2010       |   | 2011 |           
|                                                       |  |       |      |      |                         |            |   |      |           
|REVENUES:                                              |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Revenues                                               |  |       | 11   |      |                         | 168,400    |   |      | 159,698    |   |  | 172,036    |  
|Commissions                                            |  |       |      |      |                         | (3,794     | ) |      | (2,678     | ) |  | (3,128     | )
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Net revenues                                           |  |       |      |      |                         | 164,606    |   |      | 157,020    |   |  | 168,908    |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|EXPENSES:                                              |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Voyage expenses                                        |  |       |      |      |                         | (577       | ) |      | (610       | ) |  | (1,987     | )
|Vessel operating expenses                              |  |       | 12   |      |                         | (19,628    | ) |      | (23,128    | ) |  | (26,066    | )
|Depreciation                                           |  |       | 4    |      |                         | (13,893    | ) |      | (19,673    | ) |  | (23,637    | )
|General and administrative expenses                    |  |       |      |      |                         |            |   |      |            |   |  |            |  
|- Management fee to related party                      |  |       | 3,18 |      |                         | (4,436     | ) |      | (4,880     | ) |  | (6,026     | )
|- Third party expenses                                 |  |       | 18   |      |                         | (2,610     | ) |      | (2,138     | ) |  | (2,463     | )
|Early redelivery income, net                           |  |       | 15   |      |                         | 74,951     |   |      | 132        |   |  | 207        |  
|Loss on asset purchase cancellations                   |  |       | 16   |      |                         | (20,699    | ) |      |           |   |  |           |  
|Gain on sale of assets                                 |  |       | 20   |      |                         |           |   |      | 15,199     |   |  |           |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Operating income                                       |  |       |      |      |                         | 177,714    |   |      | 121,922    |   |  | 108,936    |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|OTHER (EXPENSE)/INCOME:                                |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Interest expense                                       |  |       | 7    |      |                         | (10,342    | ) |      | (6,423     | ) |  | (5,250     | )
|Other finance costs                                    |  |       |      |      |                         | (442       | ) |      | (330       | ) |  | (1,055     | )
|Interest income                                        |  |       |      |      |                         | 2,164      |   |      | 2,627      |   |  | 1,046      |  
|Loss on derivatives                                    |  |       | 13   |      |                         | (4,416     | ) |      | (8,164     | ) |  | (12,491    | )
|Foreign currency gain/(loss)                           |  |       |      |      |                         | 838        |   |      | 281        |   |  | (799       | )
|Amortization and write-off of deferred finance charges |  |       | 6    |      |                         | (106       | ) |      | (266       | ) |  | (653       | )
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Net income                                             |  |       |      |      |                         | 165,410    |   |      | 109,647    |   |  | 89,734     |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|                                                       |  |       |      |      |                         |            |   |      |            |   |  |            |  
|Earnings per share in U.S. Dollars, basic and
 diluted |  |       | 22   |      |                         | 3.03       |   |      | 1.73       |   |  | 1.29       |  
|Weighted average number of shares, basic and diluted   |  |       |      |      |                         | 54,510,587 |   |      | 63,300,466 |   |  | 69,463,093 |  

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

F-4

---



SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY FOR THE YEARS 
ENDED DECEMBER 31, 2009, 2010 AND 2011
(In thousands of U.S. Dollars, except for per share data)

|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|-------------------------------- |  | ------------- | -- | ---------------------------- |  | ------------------ |  | ----- | ------- | - |  | ------- | -
|                                 |  | Common
 Stock |    | Additional
 Paid in
 Capital |  | Retained
 Earnings |  | Total |        
|                                 |  |               |    |                              |  |                    |  |       |        
|Balance
 as of January 1, 2009   |  |               | 55 |                              |  | 30                 |  |       | (35,630 | ) |  | (35,545 | )
|Net income                       |  |               |   |                              |  |                   |  |       | 165,410 |   |  | 165,410 |  
|Share based compensation         |  |               |   |                              |  | 60                 |  |       |        |   |  | 60      |  
|Dividends ($0.60 per
 share)     |  |               |   |                              |  |                   |  |       | (32,706 | ) |  | (32,706 | )
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|Balance
 as of December 31, 2009 |  |               | 55 |                              |  | 90                 |  |       | 97,074  |   |  | 97,219  |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|Net income                       |  |               |   |                              |  |                   |  |       | 109,647 |   |  | 109,647 |  
|Issuance of common stock         |  |               | 11 |                              |  | 74,956             |  |       |         |   |  | 74,967  |  
|Share based compensation         |  |               |   |                              |  | 120                |  |       |        |   |  | 120     |  
|Dividends ($0.60 per
 share)     |  |               |   |                              |  |                   |  |       | (37,820 | ) |  | (37,820 | )
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|Balance
 as of December 31,2010  |  |               | 66 |                              |  | 75,166             |  |       | 168,901 |   |  | 244,133 |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|Net income                       |  |               |   |                              |  |                   |  |       | 89,734  |   |  | 89,734  |  
|Issuance of common stock         |  |               | 5  |                              |  | 39,632             |  |       |        |   |  | 39,637  |  
|Share based compensation         |  |               |   |                              |  | 120                |  |       |        |   |  | 120     |  
|Dividends ($0.60 per
 share)     |  |               |   |                              |  |                   |  |       | (41,782 | ) |  | (41,782 | )
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  
|Balance
 as of December 31,2011  |  |               | 71 |                              |  | 114,918            |  |       | 216,853 |   |  | 331,842 |  
|                                 |  |               |    |                              |  |                    |  |       |         |   |  |         |  

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

F-5

---



SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
(In thousands of U.S. Dollars)

|                                                                                   |  |              |          |      |  |          |   |  |          |  
|---------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | -------- | - |  | -------- | -
|                                                                                   |  | December 31, |         
|                                                                                   |  |              |         
|                                                                                   |  | 2009         |          | 2010 |  | 2011     |  
|                                                                                   |  |              |          |      |  |          |  
|Cash Flows from Operating Activities:                                              |  |              |          |      |  |          |   |  |          |  
|Net income                                                                         |  |              | 165,410  |      |  | 109,647  |   |  | 89,734   |  
|                                                                                   |  |              |          |      |  |          |  
|Adjustments to reconcile net income to net
 cash provided by operating activities: |  |              |          |      |  |          |   |  |          |  
|Depreciation                                                                       |  |              | 13,893   |      |  | 19,673   |   |  | 23,637   |  
|Gain on sale of assets                                                             |  |              |         |      |  | (15,199  | ) |  |         |  
|Loss on asset purchase cancellations                                               |  |              | 20,395   |      |  |         |   |  |         |  
|Amortization and write-off of deferred
 finance charges                            |  |              | 106      |      |  | 266      |   |  | 653      |  
|Unrealized foreign exchange (gain)                                                 |  |              | (1,028   | )    |  | (326     | ) |  |         |  
|Unrealized (gain)/loss on derivatives                                              |  |              | (3,729   | )    |  | (4,508   | ) |  | 263      |  
|Share based compensation                                                           |  |              | 60       |      |  | 120      |   |  | 120      |  
|Change in:                                                                         |  |              |          |      |  |          |   |  |          |  
|Accounts receivable trade                                                          |  |              | (1,377   | )    |  | 620      |   |  | (4,265   | )
|Due from Manager                                                                   |  |              | 112      |      |  |         |   |  | (24      | )
|Inventories                                                                        |  |              | (56      | )    |  | (172     | ) |  | (1,236   | )
|Accrued revenue                                                                    |  |              | 2,245    |      |  | 1,693    |   |  |         |  
|Prepaid expenses and other current assets                                          |  |              | (408     | )    |  | (37      | ) |  | (452     | )
|Due to Manager                                                                     |  |              | 19       |      |  | 430      |   |  | (449     | )
|Trade accounts payable                                                             |  |              | 1,093    |      |  | (1,198   | ) |  | (287     | )
|Accrued liabilities                                                                |  |              | 1,396    |      |  | (1,523   | ) |  | 547      |  
|Unearned revenue                                                                   |  |              | 13,207   |      |  | 8,661    |   |  | (1,052   | )
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Net Cash Provided by Operating Activities                                          |  |              | 211,338  |      |  | 118,147  |   |  | 107,189  |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Cash Flows from Investing Activities:                                              |  |              |          |      |  |          |   |  |          |  
|Vessel acquisitions including advances for
 vessels under construction             |  |              | (131,474 | )    |  | (192,418 | ) |  | (160,969 | )
|Proceeds from sale of assets                                                       |  |              |         |      |  | 32,168   |   |  |         |  
|Acquisition of long term investments                                               |  |              | (50,000  | )    |  |         |   |  |         |  
|Increase in restricted cash                                                        |  |              | (6,405   | )    |  | (650     | ) |  |         |  
|Restricted cash released                                                           |  |              | 32,629   |      |  | 6,382    |   |  |         |  
|Increase in bank time deposits                                                     |  |              | (78,147  | )    |  | (86,548  | ) |  |         |  
|Maturity of bank time deposits                                                     |  |              | 41,534   |      |  | 109,357  |   |  | 35,080   |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Net Cash Used in Investing Activities                                              |  |              | (191,863 | )    |  | (131,709 | ) |  | (125,889 | )
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Cash Flows from Financing Activities:                                              |  |              |          |      |  |          |   |  |          |  
|Proceeds from long-term debt                                                       |  |              | 42,000   |      |  | 74,500   |   |  | 84,000   |  
|Principal payments of long-term debt                                               |  |              | (38,026  | )    |  | (50,992  | ) |  | (94,453  | )
|Dividends paid                                                                     |  |              | (32,706  | )    |  | (37,820  | ) |  | (41,782  | )
|Payment of deferred financing costs                                                |  |              | (10      | )    |  | (519     | ) |  | (5,916   | )
|Proceeds on issuance of common stock (net)                                         |  |              |         |      |  | 74,967   |   |  | 39,637   |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Net Cash (Used in)/Provided by Financing
 Activities                               |  |              | (28,742  | )    |  | 60,136   |   |  | (18,514  | )
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Net (decrease)/ increase in cash and cash
 equivalents                             |  |              | (9,267   | )    |  | 46,574   |   |  | (37,214  | )
|Effect of exchange rate changes on cash                                            |  |              |         |      |  | 326      |   |  |         |  
|Cash and cash equivalents at beginning of
 year                                    |  |              | 27,702   |      |  | 18,435   |   |  | 65,335   |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Cash and cash equivalents at end of year                                           |  |              | 18,435   |      |  | 65,335   |   |  | 28,121   |  
|                                                                                   |  |              |          |      |  |          |   |  |          |  
|Supplemental cash flow information:                                                |  |              |          |      |  |          |   |  |          |  
|Cash paid for interest (excluding
 capitalized interest):                          |  |              | 13,695   |      |  | 6,414    |   |  | 5,050    |  

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

F-6

---



SAFE BULKERS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(In thousands of United States Dollarsexcept for share and per share data,
unless otherwise stated)

|   |                                               
|-- | ----------------------------------------------
|1. | Basis of Presentation and General Information:

Safe Bulkers,
Inc. (Safe Bulkers) was formed on December 11, 2007, under the laws of the
Republic of The Marshall Islands for the purpose of acquiring an ownership
interest in 19 companies, each of which owned a newbuild drybulk vessel or was
scheduled to acquire a newbuild drybulk vessel, all of which were under the
common control of Polys Hajioannou and his family.

Safe Bulkers
successfully completed its initial public offering (the IPO) on June 3, 2008
and its common stock trades on the New York Stock Exchange (NYSE) under the
symbol SB. Immediately prior to the completion of the IPO, the shares of the
19 subsidiaries were contributed to Safe Bulkers by Vorini Holdings, Inc.
(Vorini Holdings), a Marshall Islands corporation controlled by Polys
Hajioannou and his family, in exchange for the issuance of 54,500,000 shares,
which represented 100% of the outstanding common stock of Safe Bulkers. This
transaction is referred to as the Reorganization. Vorini Holdings sold
10,000,000 shares of common stock of Safe Bulkers in the IPO. Following the
Reorganization and the IPO, Safe Bulkers became the owner of 100% of each of
the 19 subsidiaries, and Vorini Holdings became the controlling shareholder of
Safe Bulkers.

As of December
31, 2011, Safe Bulkers held 32 wholly-owned companies which are referred to
herein as Subsidiaries, and which together owned and operated a fleet of 18
drybulk vessels, and which together were scheduled to acquire an additional 10
newbuilds (the Newbuilds).

The
accompanying consolidated financial statements include the operations, assets
and liabilities of Safe Bulkers and its Subsidiaries, using the historical
carrying costs of the assets and the liabilities of the Subsidiaries listed
below.

|                                                      |  |                     |  |              |  |               
|----------------------------------------------------- |  | ------------------- |  | ------------ |  | --------------
|Subsidiary                                            |  | Vessel Name         |  | Type         |  | Built         
|                                                      |  |                     |  |              |  |               
|Marindou
 Shipping Corporation (Marindou) (1)       |  | Maria               |  | Panamax      |  | April 2003    
|Avstes Shipping
 Corporation (Avstes) (1)           |  | Vassos              |  | Panamax      |  | February 2004 
|Kerasies
 Shipping Corporation (Kerasies) (1)       |  | Katerina            |  | Panamax      |  | May 2004      
|Marathassa
 Shipping Corporation (Marathassa) (1)   |  | Maritsa             |  | Panamax      |  | January 2005  
|Maxeikositessera
 Shipping Corporation (1)            |  | Efrossini - (H 804) |  | Panamax      |  | February 2012 
|(Maxeikositessera)
 (1)                             |  |                     |  |              |  |               
|Pemer
 Shipping Ltd. (Pemer) (1)                    |  | Pedhoulas           |  | Kamsarmax    |  | March 2006    
|                                                      |  | Merchant            |  |              |  |               
|Petra
 Shipping Ltd. (Petra) (1)                    |  | Pedhoulas           |  | Kamsarmax    |  | May 2006      
|                                                      |  | Trader              |  |              |  |               
|Pelea Shipping
 Ltd. (Pelea) (1)                    |  | Pedhoulas           |  | Kamsarmax    |  | March 2007    
|                                                      |  | Leader              |  |              |  |               
|Staloudi
 Shipping Corporation (Staloudi) (1)       |  | Stalo               |  | PostPanamax |  | January 2006  
|Marinouki
 Shipping Corporation (Marinouki) (1)     |  | Marina              |  | PostPanamax |  | January 2006  
|Soffive
 Shipping Corporation (Soffive) (1)         |  | Sophia              |  | PostPanamax |  | June 2007     
|Eniaprohi
 Shipping Corporation (Eniaprohi) (1)     |  | Eleni               |  | PostPanamax |  | November 2008 
|Eniadefhi
 Shipping Corporation (Eniadefhi) (1)     |  | Martine             |  | PostPanamax |  | February 2009 
|Maxdodeka
 Shipping Corporation (Maxdodeka) (1)     |  | Andreas K           |  | PostPanamax |  | September 2009
|Maxdekatria
 Shipping Corporation (Maxdekatria) (1) |  | Panayiota K         |  | PostPanamax |  | April 2010    

F-7

---



|                                                            |  |                          |  |              |  |                  
|----------------------------------------------------------- |  | ------------------------ |  | ------------ |  | -----------------
|Subsidiary                                                  |  | Vessel Name              |  | Type         |  | Built            
|                                                            |  |                          |  |              |  |                  
|Maxdeka
 Shipping Corporation (Maxdeka) (2)               |  | Venus Heritage           |  | PostPanamax |  | December 2010    
|Shikoku
 Friendship Shipping Company (Shikoku) (2)        |  | Venus History            |  | PostPanamax |  | September 2011   
|Maxenteka
 Shipping Corporation (Maxenteka) (2)           |  | Venus Horizon - (H 1594) |  | PostPanamax |  | February 2012    
|Maxpente
 Shipping Corporation (Maxpente) (1)             |  | Kanaris                  |  | Capesize     |  | March 2010       
|Eptaprohi
 Shipping Corporation (Eptaprohi) (1)           |  | Pelopidas                |  | Capesize     |  | November 2011    
|Maxeikosi
 Shipping Corporation (Maxeikosi) (1)           |  | TBN - H 616              |  | Kamsarmax    |  | 1H 2012 (3)      
|Maxeikositria
 Shipping Corporation (Maxeikositria) (1)   |  | TBN - H 631              |  | Kamsarmax    |  | 1H 2012 (3)      
|Maxeikosiena
 Shipping Corporation (Maxeikosiena) (1)     |  | TBN - H 617              |  | Kamsarmax    |  | 1H 2012 (3)      
|Maxeikosipente
 Shipping Corporation (Maxeikosipente) (1) |  | TBN - H 131              |  | Capesize     |  | 2H 2012 (3)      
|Efragel
 Shipping Corporation (Efragel) (1)               |  | TBN - H 1154             |  | Panamax      |  | 2H 2014 (3)      
|-//-                                                        |  | Efrossini                |  | Panamax      |  | February 2003 (4)
|                                                            |  | (hereinafter             |  |              |  |                  
|                                                            |  | called Old              |  |              |  |                  
|                                                            |  | Efrossini)              |  |              |  |                  
|Shikokutessera
 Shipping Inc. (Shikokutessera) (2)        |  | TBN - H 1659             |  | Panamax      |  | 2H 2013 (3)      
|Shikokupente
 Shipping Inc. (Shikokupente) (2)            |  | TBN - H 1660             |  | Panamax      |  | 1H 2014 (3)      
|Shikokuexi
 Shipping Inc. (Shikokuexi) (2)                |  | TBN - H 2396             |  | PostPanamax |  | 2H 2014 (3)      
|Shikokuepta
 Shipping Inc. (Shikokuepta) (2),(5)          |  |                         |  |             |  |                 
|Maxtessera
 Shipping Corporation (Maxtessera) (2)         |  |                         |  |             |  |                 
|Maxeikosiexi
 Shipping Corporation (Maxeikosiexi) (1)     |  |                         |  |             |  |                 
|Maxeikosiepta
 Shipping Corporation (Maxeikosiepta) (1)   |  |                         |  |             |  |                 

|    |                                                                      | 
|--- | -------------------------------------------------------------------- | 
|    |                                                                     
|(1) | Incorporated
 under the laws of the Republic of Liberia             
|(2) | Incorporated
 under the laws of the Republic of The Marshall Islands
|(3) | Estimated
 completion date for newbuild vessels                     
|(4) | Vessel sold
 in January 2010. Refer to Note 20.                     
|(5) | See  Note 23(c).                                                    

Safe Bulkers
and the Subsidiaries are collectively referred to in the notes to the
consolidated financial statements as the Company.

The Companys
principal business is the acquisition, ownership and operation of drybulk
vessels. The Companys vessels operate worldwide, carrying drybulk cargo for
the worlds largest consumers of marine drybulk transportation services. Safety
Management Overseas S.A., a company incorporated under the laws of the Republic
of Panama (Safety Management or the Manager), a related party controlled by
Polys Hajioannou, provides technical, commercial and administrative management
services to the Company.

For the years
ended December 31, 2009, 2010 and 2011, the following charterers individually
accounted for more than 10% of the Companys charter revenues as follows:

|  |  |              |       |      |  |       |   |  |       |  
|- |  | ------------ | ----- | ---- |  | ----- | - |  | ----- | -
|  |  | December 31, |      
|  |  |              |      
|  |  | 2009         |       | 2010 |  | 2011  |  
|  |  |              |       |      |  |       |  
|A |  |              | 56.59 | %    |  | 44.92 | % |  | 48.17 | %
|B |  |              | 18.35 | %    |  | 18.78 | % |  | 17.93 | %
|C |  |              |      |      |  | 12.67 | % |  |      |  

There are many
charterers that are active in the market where the Companys vessels are
offered for charter, and management has determined that the concentration of
its business with a limited number of customers does not pose a significant
risk.

F-8

---



|   |                                 
|-- | --------------------------------
|2. | Significant Accounting Policies:

Principles of Consolidation: The accompanying consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) and include
the accounts of Safe Bulkers and its subsidiaries. All intra-group and
intercompany balances and transactions have been eliminated upon consolidation.

Use of Estimates: The preparation of the 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, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Other Comprehensive Income / (Loss): The Company follows the accounting guidance
relating to Statement of Comprehensive
Income, which requires separate presentation of certain transactions
that are recorded directly as components of shareholders equity. The Company
has no other comprehensive income/(loss) and accordingly comprehensive
income/(loss) equals net income for the periods presented.

Foreign Currency Translation: The reporting and functional currency of the
Company is the United States (U.S.) dollar or (USD). Transactions incurred
in other currencies are translated into U.S. dollars using the exchange rates
in effect at the time of the transaction. At the balance sheet date, monetary
assets and liabilities that are denominated in other currencies are translated
to reflect the period end exchange rates. Resulting gains or losses from
foreign currency transactions are recorded within Foreign currency gain/(loss)
in the accompanying consolidated statements of income in the period in which
they arise.

Cash and Cash Equivalents: Cash and cash equivalents consist of
current, call, time deposits and certificates of deposit with original
maturities of three months or less and which are not restricted for use or
withdrawal.

Time Deposits: Time deposits are held with banks with
original maturities longer than three months. In the event original maturities
are shorter than twelve months, such deposits are classified as current assets;
if original maturities are longer than twelve months, such deposits are
classified as non-current assets.

Restricted Cash: Restricted cash represents minimum cash
deposits or cash collateral deposits required to be maintained with certain
banks under the Companys borrowing arrangements or in relation to bank
guarantees issued on behalf of the Company. In the event that the obligation
relating to such deposits is expected to be terminated within the next twelve
months, these deposits are classified as current assets; otherwise they are
classified as non-current assets.

Accounts Receivable Trade: Accounts receivable trade reflects the
receivables from time or voyage charters, net of an allowance for doubtful
accounts. At each balance sheet date, all potentially uncollectible accounts
are assessed individually for purposes of determining the appropriate provision
for doubtful accounts. No allowance for doubtful accounts was recorded for any
of the periods presented.

Inventories: Inventories consist of bunkers and
lubricants owned by the Company remaining on board the vessels at the end of
each reporting period, which are stated at the lower of cost or market. Cost is
determined using the firstin, first-out method.

Vessels, Net: Vessels are stated at their historical cost,
which consists of the contracted purchase price and any direct material
expenses incurred upon acquisition (including improvements, on-site supervision
expenses incurred during the construction period, commissions paid, delivery
expenses and other expenditures to prepare the vessel for her initial voyage),
less accumulated depreciation. Financing costs incurred during the construction
period of the vessels are also capitalized and included in the vessels cost.
Certain subsequent expenditures for conversions and major improvements are also
capitalized if it is determined that they appreciably extend the life, increase
the earning capacity or improve the efficiency or safety of the vessels.

F-9

---



Vessels Depreciation: Depreciation is computed using the
straight-line method over the estimated useful life of the vessels, after
considering the estimated residual value. Management estimates the useful life
of the Companys vessels to be 25 years from the date of initial delivery from
the shipyard.

Accounting for Special Survey and
Drydocking Costs:
Special survey and drydocking costs are expensed in the period incurred and are
included in vessel operating expenses in the accompanying consolidated
statements of income.

Repairs and Maintenance: All repair and maintenance expenses,
including major overhauling and underwater inspection expenses, are expensed
when incurred and are included in vessel operating expenses in the accompanying
consolidated statements of income.

Impairment of Long-lived Assets: The Company follows the Accounting Standards
Codification (ASC) Subtopic 360-10, Property, Plant and Equipment (ASC
360-10), which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amounts. If indicators
of impairment are present, the Company performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset
exceeds the undiscounted cash flows, the carrying value is reduced to its fair
value and the difference is recorded as an impairment loss in the consolidated
statement of income. Various factors
including anticipated future charter rates, estimated scrap values, future
drydocking costs and estimated vessel operating costs are included in this
analysis. No impairment loss was recorded during the years ended December 31,
2009, 2010 and 2011.

Assets Held for Sale: The Company may dispose of certain of its
vessels when suitable opportunities occur, including prior to the end of their
useful lives. The Company classifies assets as being held for sale when the
following criteria are met: (i) management is committed to sell the asset; (ii)
the asset is available for immediate sale in its present condition; (iii) an
active program to locate a buyer and other actions required to complete the
plan to sell the asset have been initiated; (iv) 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; (v) the asset is being actively marketed for
sale at a price that is reasonable in relation to its current fair value; and
(vi) actions required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be
withdrawn.

Long-lived assets classified
as held for sale are measured at the lower of their carrying amount or fair
value less cost to sell. These assets are no longer depreciated once they meet
the criteria of being held for sale.

Deferred Financing Costs: Financing fees incurred for obtaining new
loans and credit facilities are deferred and amortized over the term of the
respective loan or credit facility using the effective interest rate method.
Any unamortized balance of costs relating to loans repaid or refinanced is
expensed in the period in which the repayment or refinancing is made, subject
to the guidance regarding Debt
Extinguishment. Any unamortized balance of costs related to credit
facilities repaid is expensed in the period. Any unamortized balance of costs
relating to credit facilities refinanced is deferred and amortized over the
term of the respective credit facility in the period in which the refinancing
occurs, subject to the provisions of the accounting guidance relating to Changes in Line-of-Credit or Revolving-Debt
Arrangements.

Derivative Instruments: The Company may enter into foreign exchange
forward contracts to create economic hedges for its exposure to currency
exchange risk on payments relating to the acquisition of vessels and on certain
loan obligations. The Company also enters into interest rate derivatives to
create economic hedges for its exposure to interest rate risk of its loan
obligations (see also Notes 7 and 13). When such derivatives do not qualify for
hedge accounting the Company records these financial instruments in the
consolidated balance sheet at their fair value as either a derivative asset or
a liability, and recognizes the fair value changes thereto in the consolidated
statements of income. When the derivatives do qualify for hedge accounting,
depending upon the nature of the hedge, changes in fair value of the
derivatives are either offset against the fair value of assets, liabilities or
firm commitments through income, or recognized in other comprehensive
income/(loss) (effective portion) until the hedged item is recognized in the
consolidated statements of income. For the years ended December 31, 2009, 2010
and 2011, no derivatives were accounted for as accounting hedges.

F-10

---



Financial Instruments: Over-the-counter foreign exchange forward
contracts and interest rate derivatives are recorded at fair value. Other
financial instruments, including cash equivalents and debt are recorded at
amortized cost.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Interest rate risk: The Companys interest rates and long-term
 loan repayment terms are described in Note 7.The Company manages its interest
 rate risk by entering into interest rate derivative instruments which are
 described in Note 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | Concentration of credit risk: Financial instruments, which potentially
 subject the Company to significant concentrations of credit risk, consist
 principally of trade accounts receivable, cash and cash equivalents, time
 deposits and derivative instruments. The Company limits its credit risk with
 accounts receivable by performing ongoing credit evaluations of its customers
 financial condition and generally does not require collateral for its trade
 accounts receivable. The Company places its cash and cash equivalents, time
 deposits and other investments with high credit quality financial
 institutions. The Company performs periodic evaluations of the relative
 credit standing of those financial institutions. The Company is exposed to
 credit risk in the event of non-performance by its counterparties to
 derivative instruments; however, the Company limits its exposure by transacting
 with counterparties with high credit ratings.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | Fair value measurement: In accordance with the requirements of
 accounting guidance relating to Fair Value
 Measurement,the Company classifies and discloses assets and
 liabilities carried at fair value in one of the following three categories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |          |                                                                                             
| | -------- | --------------------------------------------------------------------------------------------
| | Level 1: | Quoted market prices in
 active markets for identical assets or liabilities.                
| |          |                                                                                             
| | Level 2: | Observable market-based
 inputs or unobservable inputs that are corroborated by market data.
| |          |                                                                                             
| | Level 3: | Unobservable inputs that
 are not corroborated by market data.                              

Accounting for Revenues and Related
Expenses: The
Company generates its revenues from charterers for the charter hire of its
vessels. Vessels are chartered under time charter, where a contract is entered
into for the use of a vessel for a specific voyage or a specific period of time
and at a specified daily charter rate. Time charter revenues are recognized as
earned on the straight-line basis over the term of the charter as service is
provided. Revenues from time charter may also include ballast bonus, which is
an amount paid by the charterer for repositioning the vessel at the charterers
disposal (delivery point), which is recognized as revenue over the term of the
charter, and other miscellaneous revenues from vessel operations. Expenses
relating to the Companys time charters are vessel operating expenses and
certain voyage expenses, which are paid by the Company and recognized as
incurred. Vessel operating expenses that are paid by the Company include costs
for crewing, insurance, lubricants, spare parts, provisions, stores, repairs,
maintenance, statutory and classification expense, drydocking, intermediate and
special surveys and other minor miscellaneous expenses. Voyage expenses which
are also recognized as incurred and paid by the Company include costs for draft
surveys, hold cleaning, postage, extra war risk insurance, bunkers during
ballast period and other minor miscellaneous expenses related to the voyage.
The charterer is responsible for paying the cost of bunkers and other voyage
expenses (e.g., port expenses, agents fees, canal dues, extra war risks
insurance and any other expenses related to the cargo).

Revenue is recognized when a
charter agreement exists, the vessel is made available to the charterer and
collection of the related revenue is reasonably assured. Unearned revenue
includes: (i) revenue received prior to the balance sheet date relating to
services to be rendered after the balance sheet date and (ii) deferred revenue
resulting from straight-line revenue recognition in respect of charter
agreements that provide for varying charter rates. Accrued revenue results from
straight-line revenue recognition in respect of charter agreements that provide
for varying charter rates. Commissions (address and brokerage), regardless of
charter type, are always paid by the Company, are deferred and amortized over
the related charter period and are presented as a separate line item in
revenues to arrive at net revenues in the accompanying consolidated statements
of income.

F-11

---



Pension and Retirement Benefit
ObligationsCrew:
The Subsidiaries included in the consolidated financial statements employ the
crew on board under short-term contracts (usually up to nine months) and
accordingly, they are not liable for any pension or post-retirement
benefits.

Taxes: Entities within the group that are
incorporated under the laws of either the Republic of Liberia or the Republic
of The Marshall Islands are not subject to Liberian or Marshall Islands income
taxes. However, each vessel-owning Subsidiary is subject to registration and
tonnage taxes under the laws of the Republic of Cyprus or the Republic of The
Marshall Islands depending on where each Companys vessel is registered, which
is not an income tax. These registration and tonnage taxes are recorded within
Vessel Operating Expenses in the accompanying consolidated statements of
income.

Furthermore, the
Subsidiaries are subject to a 4% United States federal tax in respect of its
U.S. source shipping income (imposed on gross income without the allowance for
any deductions) as they do not meet the requirements for an exemption from such
tax provided by Section 883 of the U.S. Internal Revenue Code of 1986. As a
result, the Subsidiaries file U.S. federal tax returns and pay the relevant
U.S. federal tax on their U.S. source shipping income, which is not an income
tax. Such taxes have been recorded within Voyage expenses in the accompanying
consolidated statements of income. In many cases, these taxes are recovered
from the charterers; such amounts recovered are recorded within Revenues in the
accompanying consolidated statements of income.

Dividends: Dividends are recorded in the period in
which they are approved by the Companys Board of Directors.

Segment Reporting: The Company reports financial information
and evaluates its operations by total charter revenue and not by the type of
vessel or vessel employment for its customers. The Companys vessels have
similar operating and economic characteristics. As a result, management,
including the chief operating decision makers, reviews operating results solely
by revenue per day and operating results of the fleet, and thus the Company has
determined that it operates under one reportable segment. Furthermore, when the
Company charters a vessel to a charterer, the charterer is free to trade the
vessel worldwide and, as a result, the disclosure of geographic information is
impracticable.

Recent Accounting Pronouncements:On May 12, 2011, the Financial Accounting
Standards Board issued Accounting
Standards Update 2011-04 Fair Value
Measurement and Disclosures to Fair Value Measurement 2011-04. This update expands
ASC 820s (Fair Value Measurement) existing disclosure requirements for fair
value measurements and makes other amendments which could change how the fair
value measurement guidance in ASC 820 is applied. This new guidance is
effective prospectively for interim and annual periods beginning after December
15, 2011. The adoption of this pronouncement is not expected to have a material
impact on the Companys consolidated financial position and results of
operations.

F-12

---



|   |                                   
|-- | ----------------------------------
|3. | Transactions
 with Related Parties

Safety Management Overseas S.A., Panama
(the Manager):
On May 29, 2008, Safe Bulkers signed a management agreement (the Management
Agreement) with Safety Management, a related party that is controlled by Polys
Hajioannou. Under such Management Agreement, each vessel-owning Subsidiary has
entered into, or in the case of vessels not yet delivered, will enter into, a
management agreement with the Manager (the Shipmanagement Agreements). Under
these Shipmanagement Agreements, chartering, operations, technical and
accounting services are provided to the vessels by the Manager. In accordance
with the Management Agreement and the Shipmanagement Agreements, the Manager
receives a fixed fee of $0.575 per day plus, 1.25% on gross freight, charter
hire, ballast bonus and demurrage from each of the vessel-owning companies in
exchange for these management services. As of May 29, 2010, pursuant to an
agreement between us and our Manager, the fee on gross freight, charter hire,
ballast bonus and demurrage was readjusted to 1.25% from 1.0%. Effective from
May 29, 2011, the Company and the Manager agreed to set the fixed fee to $0.700
per day. Under the Management Agreement, each of the Subsidiaries that are
scheduled to own a newbuild has entered into or will enter into supervision
agreements with the Manager (the Supervision Agreements). Under the
Supervision Agreements, the Manager will provide on-site supervision services
with respect to all newbuilds, and will receive a fee of $375, of which 50% is
payable upon the signing of the relevant Supervision Agreement, and 50% upon successful
completion of the sea trials of each newbuild. Effective from May 29, 2011, the
Company and the Manager agreed to set the fee for the on-site supervision
services with respect to all newbuilds to $550 for any Supervision Agreements
signed after May 29, 2011. In addition, under the Management Agreement, an
amount equal to 1.0% of the contract price for the sale or acquisition
(constructed or purchased) of each vessel is payable to the Manager with the
exception of the acquisition of Eleni
and Martine.

Management fees charged by
the Manager for the years ended December 31, 2009, 2010 and 2011 amounted to
$4,436, $4,880 and $6,026 respectively, and are recorded in the accompanying
consolidated statements of income within General and Administrative Expenses
(see Note 18). Commissions on the contract price of vessels sold, charged by
the Manager during the years ended December 31, 2009, 2010 and 2011, amounted
to $0, $330 and $0 respectively, and are recorded within Gain on sale of assets
in the consolidated statements of income (see Note 20). Commissions on the
contract price of vessels purchased, charged by the Manager during the years
ended December 31, 2009, 2010 and 2011, amounted to $710, $1,840 and $1,348,
respectively, and are included as part of the vessel cost. Supervision fees
charged by the Manager during the years ended December 31, 2009, 2010 and 2011
amounted to $750, $938 and $2,113, respectively, and are included as part of
the vessel cost.

F-13

---



|                                               |              
|---------------------------------------------- | -------------
|4.                                             | Vessels,
 Net
|                                               |              
|Vessels, net, are
 comprised of the following:

|                                               |  |             |         |                           |   |                |   |   |         |  
|---------------------------------------------- |  | ----------- | ------- | ------------------------- | - | -------------- | - | - | ------- | -
|                                               |  | Vessel Cost |         | Accumulated
 Depreciation |   | Net Book Value |  
|                                               |  |             |         |                           |   |                |  
|Balance, January 1, 2010                       |  |             | 418,443 |                           |   | (44,519        | ) |   | 373,924 |  
|Transfer from Advances for vessel acquisitions |  |             | 186,924 |                           |   |               |   |   | 186,924 |  
|Depreciation expense                           |  |             |        |                           |   | (19,604        | ) |   | (19,604 | )
|                                               |  |             |         |                           |   |                |   |   |         |  
|Balance,
 December 31, 2010                    |  | $           | 605,367 |                           | $ | (64,123        | ) | $ | 541,244 |  
|                                               |  |             |         |                           |   |                |   |   |         |  
|Transfer from Advances for vessel acquisitions |  |             | 137,749 |                           |   |               |   |   | 137,749 |  
|Depreciation expense                           |  |             |        |                           |   | (23,637        | ) |   | (23,637 | )
|                                               |  |             |         |                           |   |                |   |   |         |  
|Balance,
 December 31, 2011                    |  | $           | 743,116 |                           | $ | (87,760        | ) | $ | 655,356 |  
|                                               |  |             |         |                           |   |                |   |   |         |  

Transfer from Advances for
vessel acquisitions represents advances paid in respect of the acquisition of
vessels, which were under construction and delivered to the Company. For the
periods presented, the Company accepted delivery of the following vessels:

| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | During the year ended
 December 31, 2010: Kanaris, Panayiota Kand Venus Heritage.
| |   |                                                                                  
| |  | During the year ended
 December 31, 2011: Venus History and
 Pelopidas.          

Depreciation charges for the
year ended December 31, 2010 include an amount of $69, which relates to the
depreciation of minor movable equipment on board the vessels, which were
capitalized up to December 31, 2007, and which are depreciated on a
straight-line basis over five years. No depreciation charges for such equipment
were incurred during the year ended December 31, 2011. Acquisitions of minor
movable equipment on board the vessels subsequent to December 31, 2007 are
expensed in the year incurred, due to the immaterial amounts involved.

As of December 31, 2011, vessels with a carrying value of 575,167
have been provided as collateral to secure the Companys bank loans as discussed in Note 7 and Note 10.

F-14

---



|   |                                                               
|-- | --------------------------------------------------------------
|5. | Advances for Vessel Acquisition and Vessels under Construction

Advances for vessel acquisition and vessels under construction are comprised of the following:

|                                                           |  |   |          |  
|---------------------------------------------------------- |  | - | -------- | -
|Balance, January 1, 2010                                   |  |   | 93,520   |  
|Advances paid, including capitalized expenses and interest |  |   | 192,418  |  
|Transferred to vessel cost                                 |  |   | (186,924 | )
|                                                           |  |   |          |  
|Balance, December 31, 2010                                 |  | $ | 99,014   |  
|                                                           |  |   |          |  
|Advances paid, including capitalized expenses and interest |  |   | 161,042  |  
|Transferred to vessel cost                                 |  |   | (137,749 | )
|                                                           |  |   |          |  
|Balance, December 31, 2011                                 |  | $ | 122,307  |  
|                                                           |  |   |          |  

Advances Paid
for vessel acquisitions and vessels under construction relate to payments of
installments that were due to the respective shipyard or third-party sellers
and certain capitalized expenses. During 2010 and 2011 such payments were made
for the following vessels:

| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the
year ended December 31, 2010: Kanaris, Panayiota K, Venus
Heritage, Pelopidas, Venus History, Hull 616, Hull 617
and Hull
631; and                              
| |   |                                                                                                                                                                            
| |  | During the
year ended December 31, 2011: Venus Histor*y*, Pelopidas, Venus
Horizon (ex. Hull 1594), Efrossini (ex. Hull 804), Hull 131, Hull 1659, Hull
1660 and Hull
2396.

Transfers to
vessel cost relate to the delivery to the Company from the respective shipyard
or third-party seller of the following vessels:

|   |                               |                                                                                 
|-- | ----------------------------- | --------------------------------------------------------------------------------
|   |                              | During the
year ended December 31, 2010: Kanaris,
Panayiota Kand Venus Heritage.
|   |                               |                                                                                 
|   |                              | During the
year ended December 31, 2011: Venus
Historyand Pelopidas.            
|   |                               |                                                                                 
|6. | Deferred Finance Charges, Net

Deferred finance charges are comprised of the following:

|                           |  |   |       |  
|-------------------------- |  | - | ----- | -
|Balance, January 1, 2010   |  |   | 677   |  
|Additions                  |  |   | 519   |  
|Write-off                  |  |   | (127  | )
|Amortization expense       |  |   | (139  | )
|                           |  |   |       |  
|Balance, December 31, 2010 |  | $ | 930   |  
|                           |  |   |       |  
|Additions                  |  |   | 5,949 |  
|Write-off                  |  |   | (60   | )
|Amortization expense       |  |   | (593  | )
|                           |  |   |       |  
|Balance, December 31, 2011 |  | $ | 6,226 |  
|                           |  |   |       |  

F-15

---



|   |          
|-- | ---------
|7. | Bank Debt

Bank debt is
comprised of the following secured borrowings:

|                  |  |  |               |  |  |               |  |              |         |      |   |         | 
|----------------- |  |  | ------------- |  |  | ------------- |  | ------------ | ------- | ---- | - | ------- | 
|                  |  |  |               |  |  |               |  | December 31, |        
|                  |  |  |               |  |  |               |  |              |        
|Borrower          |  |  | Commencement  |  |  | Maturity      |  | 2010         |         | 2011 |  
|                  |  |  |               |  |  |               |  |              |         |      |  
|Marathassa        |  |  | February
2005 |  |  | February
2017 |  | $            | 18,195  |      | $ | 16,565  | 
|Marinouki         |  |  | March 2006    |  |  | March 2018    |  |              | 29,229  |      |   | 27,695  | 
|Petra             |  |  | January 2007  |  |  | January 2019  |  |              | 32,671  |      |   | 24,971  | 
|Pemer             |  |  | March 2007    |  |  | March 2019    |  |              | 32,667  |      |   | 24,968  | 
|Pelea             |  |  | June 2007     |  |  | June 2019     |  |              | 37,987  |      |   | 31,987  | 
|Soffive           |  |  | November
2007 |  |  | November
2019 |  |              | 39,600  |      |   | 35,400  | 
|Kerasies          |  |  | December
2007 |  |  | December
2019 |  |              | 35,200  |      |   | 33,065  | 
|Marindou          |  |  | January 2008  |  |  | January 2018  |  |              | 34,500  |      |   | 28,500  | 
|Avstes            |  |  | April 2008    |  |  | April 2018    |  |              | 30,000  |      |   | 28,284  | 
|Staloudi          |  |  | July 2008     |  |  | July 2023     |  |              | 49,320  |      |   | 43,860  | 
|Eniaprohi         |  |  | November
2008 |  |  | November
2018 |  |              | 40,000  |      |   | 34,000  | 
|Eniadefhi         |  |  | February
2009 |  |  | February
2019 |  |              | 41,625  |      |   | 34,500  | 
|Maxdodeka         |  |  | February
2010 |  |  | February
2016 |  |              | 33,750  |      |   |        | 
|Maxpente          |  |  | July 2010     |  |  | January 2015  |  |              | 40,000  |      |   | 38,200  | 
|Maxdeka           |  |  | August 2011   |  |  | December
2022 |  |              |        |      |   | 37,496  | 
|Shikoku           |  |  | October 2011  |  |  | August 2023   |  |              |        |      |   | 44,800  | 
|                  |  |  |               |  |  |               |  |              |         |      |   |         | 
|Total             |  |  |               |  |  |               |  | $            | 494,744 |      | $ | 484,291 | 
|                  |  |  |               |  |  |               |  |              |         |      |   |         | 
|                  |  |  |               |  |  |               |  |              |         |      |   |         | 
|Current portion   |  |  |               |  |  |               |  | $            | 27,674  |      | $ | 18,486  | 
|                  |  |  |               |  |  |               |  |              |         |      |   |         | 
|Long-term portion |  |  |               |  |  |               |  | $            | 467,070 |      | $ | 465,805 | 
|                  |  |  |               |  |  |               |  |              |         |      |   |         | 

The above
loans and credit facilities generally bear interest at LIBOR plus a margin,
except for the Maxdeka and Shikoku loan facilities, under which a portion of
the principal amounts bear interest at the Commercial Interest Reference Rate
published by the Organization for Economic Co-operation and Development
applicable on the date of signing of the relevant loan agreements. The above
loans and credit facilities are generally repayable in semi-annual installments
and a balloon payment at maturity except for the Maxdeka and Shikoku loan
facilities, which are repayable in semi-annual installments. The fair value of
the long term debt outstanding on December 31, 2011 amounted to $487,187.

As of December
31, 2011, an aggregate amount of $43,731 was available for drawing under
certain of the above loans and reducing revolving credit facilities. The
estimated minimum annual principal payments required to be made after December
31, 2011, based on the bank loan and credit facility agreements as amended, are
as follows:

|                    |  |   |         | 
|------------------- |  | - | ------- | 
|To December 31,     |  |   |         | 
|                    |  |   |         | 
|2012                |  | $ | 18,486  | 
|2013                |  |   | 23,588  | 
|2014                |  |   | 31,733  | 
|2015                |  |   | 66,216  | 
|2016                |  |   | 34,816  | 
|2017 and thereafter |  |   | 309,452 | 
|                    |  |   |         | 
|Total               |  | $ | 484,291 | 
|                    |  |   |         | 

Total interest
incurred on long-term debt for the years ended December 31, 2009, 2010 and 2011
amounted to $10,399, $6,738, and $6,722, respectively, which includes interest
capitalized of $58, $315 and $1,472 for the years ended December 31, 2009, 2010
and 2011, respectively. The average interest rate (including the margin) for
all bank loan and credit facilities during the years 2009, 2010 and 2011 was
2.137% p.a., 1.394% p.a., and 1.439% p.a., respectively.

F-16

---



Certain of the
above loans or credit facilities have a currency conversion option whereby the
borrower may elect to convert the outstanding loan amount or any part thereof
to certain currencies specified in each agreement, using the spot exchange rate
applicable on the date of conversion. Specified currencies include Japanese Yen
(JPY), Swiss Franc (CHF), Euro (EUR), Canadian dollar (CAD) or pound
sterling (GBP), depending on the relevant agreement. In all the above loans
or credit facilities with a currency conversion option, no consideration has
been or will be paid by any of the borrowers to the respective lenders in
connection with the conversion option since the parties did not ascribe value
to the conversion option as the conversion options are always based on the
market or spot rates at the time they are exercised. The exercise of the
conversion option in any of the above loans or credit facilities results in a
change in both the currency denomination of the loan and the basis of the
interest rate (that is, a USD-denominated loan bears interest based on USD
LIBOR and, upon conversion into a JPY-denominated loan, will bear interest
based on JPY LIBOR). All other terms of the loans or credit facilities,
including the margin (the interest rate spread over LIBOR) and the repayment
terms, will remain the same upon exercise of the currency conversion option.

The Company
considered the accounting guidance relating to Accounting
for Derivative Instruments and Hedging Activities, and concluded
that the conversion options are embedded derivatives that would require
bifurcation and separate accounting because of the following:

| |       |                                                                                                                                                                                                                                                            
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | The economic
characteristics and risks of an instrument in which the underlying is both a
foreign currency and interest rate are not clearly and closely related to the
economic characteristics and risks of a debt host;                                 
| |       |                                                                                                                                                                                                                                                            
| | (ii)  | The
borrowing arrangement that embodies both the conversion option and the debt
host is not remeasured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported in
earnings as they occur; and
| |       |                                                                                                                                                                                                                                                            
| | (iii) | A separate
instrument with the same terms as the conversion option would be a derivative
instrument subject to the requirements of this accounting guidance.                                                                                               

However, the
Company believes that the conversion option under the borrowing arrangements
has no fair value due to the fact that the conversion into a different
currency, and, accordingly, into a corresponding LIBOR interest rate, will
always be at the prevailing foreign currency exchange rate (spot rate) and
prevailing interest rate at the time of the conversion. Furthermore, both the
Company and the bank did not ascribe value to the currency conversion options
as no consideration was sought by the bank and no value was paid by the
Company, as noted above.

As of December
31, 2010 and 2011 all loans were denominated in US Dollars.

The foregoing
loans and credit facilities are secured as follows:

| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First priority mortgages over the vessels owned by the respective borrowers;                                                                                       
| |   |                                                                                                                                                                    
| |  | First
priority assignment of all insurances and earnings of the mortgaged vessels;                                                                                 
| |   |                                                                                                                                                                    
| |  | Second
priority mortgage over the Maritsa
as security for the Kerasies loan;                                                                                       
| |   |                                                                                                                                                                    
| |  | Second
priority mortgage over the Pedhoulas
Merchantas security for the Petra loan;                                                                                
| |   |                                                                                                                                                                    
| |  | Second
priority mortgage over the Pedhoulas
Traderas security for the Pemer loan;                                                                                  
| |   |                                                                                                                                                                    
| |  | Second
priority mortgage over the Elenias
security for the Marindou loan;                                                                                          
| |   |                                                                                                                                                                    
| |  | Second
priority mortgage over the Elenias
security for the Pelea loan;                                                                                             
| |   |                                                                                                                                                                    
| |  | Cross
corporate guarantees issued by each of Maxdodeka, Pelea, Avstes, Marindou,
Eniaprohi and Eniadefhi as security for the credit facility of each
guarantor; and

F-17

---



| |   |                                       
| | - | --------------------------------------
| |  | Corporate
guarantee from Safe Bulkers.

The loan and
credit facility agreements, as amended, contain debt covenants including
restrictions as to changes in management and ownership of the vessels,
additional indebtedness and mortgaging of vessels without the respective
lenders prior consent, minimum vessel insurance cover ratio requirements, as
well as minimum fair vessel value ratio to outstanding loan principal
requirements; the fair vessel value being determined according to the
provisions of the individual loan or credit facility agreements with the
relevant bank (the Minimum Value Covenant). The borrowers are permitted to
pay dividends to their owners as long as no event of default under the
respective loan has occurred or has not been remedied.

Six of the
loan agreements require the respective borrower to maintain at all times a
minimum balance of $150 in the vessel operating account. In one of the loan and
credit facility agreements the borrower must maintain a cash collateral deposit
of $2,000 with the lender.

In addition,
the corporate guarantees, as amended, of Safe Bulkers include the following
financial covenants:

| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | its total
consolidated liabilities divided by its total consolidated assets must not at
any time exceed 70% or 80% as the case may be (Consolidated Leverage
Covenant). The total consolidated assets are based on the fair market value
of its vessels and the book values of all other assets, on an adjusted basis
as set out in the relevant guarantee;
| |   |                                                                                                                                                                                                                                                                                                                                                              
| |  | the ratio of
its aggregate debt to EBITDA must not at any time exceed 5.5:1 on a trailing
12 months basis (EBITDA Covenant);                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                              
| |  | its
consolidated net worth (total consolidated assets less total consolidated
liabilities) (Consolidated Net Worth Covenant) must not at any time be less
than $150,000, $175,000 or $200,000 (as the case may be) with the relevant
bank;                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                              
| |  | payment of
dividends is subject to no event of default having occurred;                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                              
| |  | maintenance
of minimum free liquidity of $500 is required on deposit with a relevant
lender on a per vessel basis for five vessels; and                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                              
| |  | a minimum of
51% of its shares shall remain directly or indirectly beneficially owned by
the Hajioannou family for the duration of the relevant credit facilities.                                                                                                                                                                                           

As of December
31, 2011, the Company was in compliance with all debt covenants with respect to
its loans and credit facilities.

|   |                     
|-- | --------------------
|8. | Long-term Investment

During the
year ended December 31, 2009, the Company invested $50,000 in a five-year
Floating Rate Note issued by HSBC Bank Middle East Limited, which is recorded
in the consolidated balance sheet at amortized cost as the Company intends to
hold the investment until its maturity on October 14, 2014. The Company
receives interest on a quarterly basis, based on the three-month U.S. dollar
LIBOR plus a margin of 1.5%. The fair market value of the Floating Rate Note as
of December 31, 2011 was approximately $49,290 based on an indicative bid price
from the relevant bank. Subject to certain conditions, the Company may borrow
up to 80% of the Floating Rate Note amount.

|   |              
|-- | -------------
|9. | Share Capital

The Company
was incorporated on December 11, 2007 with authorized share capital of 500
shares of common stock with a par value of $0.001 per share. On May 9, 2008,
the Companys Articles of Incorporation were amended. Under the amended
Articles of Incorporation, the Companys authorized capital stock consists of
200,000,000 shares of common stock with a par value of $0.001 per share, of
which 54,500,000 shares were issued prior to the listing of the Companys
common stock on the NYSE, which was completed on June 3, 2008, and 20,000,000
shares

F-18

---



of preferred
stock with a par value of $0.01 per share, none of which has been issued and is
outstanding. In connection with the IPO process, Vorini Holdings sold
10,000,000 shares of common stock of the Company of a par value of $0.001 per
share at a price of $19 per share. No proceeds were paid to the Company.

In March 2010,
the Company successfully completed a public offering, whereby 10,350,000 shares
of common stock of Safe Bulkers were issued and sold, and a private placement,
whereby 1,000,000 shares of common stock of Safe Bulkers were issued and sold
to Vorini Holdings. The net proceeds of the public offering and the private
placement were $74,967, net of underwriting discount of $3,150 and offering
expenses of $861.

In April 2011, the Company successfully
completed a public offering, whereby 5,000,000 shares of common stock of Safe
Bulkers were issued and sold. The net proceeds of the public offering were
$39,637, net of underwriting discount of $2,100 and offering expenses of $263.

Pursuant to an
arrangement approved by the Companys shareholders and the corporate
governance, nominating and compensation committee effective July 1, 2008, the
audit committee chairman receives the equivalent of $15 every quarter, payable
in arrears in the form of newly issued common stock of the Company as part
compensation for services rendered as audit committee chairman. The number of
shares to be issued is determined based on the closing price of the Companys common
stock on the last trading day prior to the end of each quarter in which
services were provided and are issued as soon as practicable following the end
of the quarter. During the years ended December 31, 2010 and 2011, 7,644 shares
and 7,705 shares, respectively, were issued to the audit committee chairman.

Pursuant to an
arrangement approved by the Companys shareholders and the corporate
governance, nominating and compensation committee, effective January 1, 2010,
the independent directors of the Company other than the audit committee
chairman each receive the equivalent of $7.5 every quarter, payable in arrears
in the form of newly issued common stock of the Company as part compensation
for services rendered as independent directors. The number of shares to be
issued is determined as noted above. During the year ended December 31, 2010
and 2011, 5,932 shares and 7,704 shares, respectively were issued to the
independent directors of the Company other than the audit committee chairman.

|    |                                                                               
|--- | ------------------------------------------------------------------------------
|10. | Commitments and Contingencies                                                 
|    |                                                                               
|(a) | Commitments under Shipbuilding Contracts
and Memorandums of Agreement (MoAs)

As of December
31, 2011 the Company had commitments under six shipbuilding contracts and four
MoAs for the acquisition of ten newbuilds. The Company expects to settle
these commitments as follows:

|                         |  |                          |         |               |   |       |  |   |         | 
|------------------------ |  | ------------------------ | ------- | ------------- | - | ----- |  | - | ------- | 
|Year Ending December 31, |  | Due toShipyards/
Sellers |         | Due toManager |   | Total | 
|                         |  |                          |         |               |   |       | 
|2012                     |  | $                        | 146,515 |               | $ | 4,349 |  | $ | 150,864 | 
|2013                     |  |                          | 37,026  |               |   | 1,180 |  |   | 38,206  | 
|2014                     |  |                          | 68,296  |               |   | 2,332 |  |   | 70,628  | 
|                         |  |                          |         |               |   |       |  |   |         | 
|Total                    |  | $                        | 251,837 |               | $ | 7,861 |  | $ | 259,698 | 
|                         |  |                          |         |               |   |       |  |   |         | 

|    |                  
|--- | -----------------
|(b) | Credit facilities

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. | In November
2010, the Company concluded the documentation of a loan facility for up to
$24,000, which will be used to refinance part of the purchase price paid for
the acquisition by Maxdekatria of the vessel Panayiota K (the
Maxdekatria loan). The Maxdekatria loan is available for drawing until June
30, 2012 and is repayable over eight years in 16 semi-annual consecutive
installments commencing six months after the loan drawdown and a balloon
payment payable with the final installment and will be secured by a first
priority mortgage over the vessel Panayiota K and other usual maritime

F-19

---



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | securities
and a corporate guarantee by Safe Bulkers, which provides for the financial
covenants described in Note 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ii.  | In June
2011, the Company concluded the documentation for a loan facility for up to
$52,800, which will be used to refinance part of the purchase price paid for
the acquisition by Eptaprohi of the vessel Pelopidas (the Eptaprohi
credit facility). The Eptaprohi credit facility will be made available upon
commencement of the long-term contracted employment of the vessel Pelopidas.
The Eptaprohi credit facility is repayable over seven years in 14 semi-annual
consecutive installments commencing six months after the loan drawdown and a
balloon payment payable with the final installment and will be secured by a
first priority mortgage over the vessel Pelopidas and other usual maritime
securities and a corporate guarantee by Safe Bulkers, which provides for the
financial covenants described in Note 7.                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | iii. | In May 2011, the Company concluded the
documentation for a loan facility for up to $38,400, which will be used to
finance part of the purchase price of Venus Horizon (ex. Hull 1594) (the Maxenteka
credit facility). The Maxenteka credit facility will be made available
upon delivery by the sellers of Venus Horizon (ex. Hull 1594). The Maxenteka credit
facility is repayable over twelve years in 24 semi-annual consecutive
installments commencing six months after scheduled delivery of the vessel by
the sellers and will be secured by a first priority mortgage over Venus Horizon (ex. Hull 1594),
a first priority mortgage over the vessel Venus
Heritage, a first priority mortgage over the vessel Venus
History and other usual maritime securities and a corporate
guarantee by Safe Bulkers, which provides for the financial covenants
described in Note 7.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | iv.  | In September
2011, the Company accepted a commitment letter from a bank for a loan
facility for the lesser of $20,000, or 65% of the fair market value of Hull 616which
will be used to finance part of the purchase price of Hull 616 (the Maxeikosi
credit facility). The Maxeikosi credit facility will be made available upon
delivery by the shipyard of Hull 616. The Maxeikosi credit facility
is repayable over two years in 4 semi-annual consecutive installments
commencing six months after loan drawdown and a balloon payment payable with
the final installment and will be secured by a first priority mortgage over Hull 616
and other usual maritime securities and a corporate guarantee by Safe
Bulkers, which provides for the financial covenants described in Note 7. The
documentation was executed in February 2012.                                       

|    |                             
|--- | ----------------------------
|(c) | Other contingent liabilities

The
Subsidiaries have not been involved in any legal proceedings that may have, or
have had, a significant effect on their business, financial position, results
of operations or liquidity, nor is the Company aware of any proceedings that are
pending or threatened that may have a significant effect on its business,
financial position, results of operations or liquidity. From time to time
various claims, suits and complaints, including those involving government
regulations and product liability, arise in the ordinary course of the shipping
business. In addition, losses may arise from disputes with charterers, agents,
shipyards, insurance providers and other claims relating to the operation of
the Companys vessels. Management is not aware of any material claims or
contingent liabilities which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial statements.

The Company
accrues for the cost of environmental liabilities when management becomes aware
that a liability is probable and is able to reasonably estimate the probable
exposure. 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. A maximum of $1,000,000 of
the liabilities associated with the individual vessel actions, mainly for sea
pollution, is covered by P&I Club insurance.

F-20

---



|    |         
|--- | --------
|11. | Revenues

Revenues are
comprised of the following:

|                     |  |              |         |      |   |         |  |   |         | 
|-------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | ------- | 
|                     |  | Year Ended   |        
|                     |  |              |        
|                     |  | December 31, |        
|                     |  |              |        
|                     |  | 2009         |         | 2010 |   | 2011    | 
|                     |  |              |         |      |   |         | 
|Time charter
revenue |  | $            | 165,604 |      | $ | 157,663 |  | $ | 167,759 | 
|Ballast
bonus        |  |              | 980     |      |   |        |  |   | 2,382   | 
|Other income         |  |              | 1,816   |      |   | 2,035   |  |   | 1,895   | 
|                     |  |              |         |      |   |         |  |   |         | 
|Total                |  | $            | 168,400 |      | $ | 159,698 |  | $ | 172,036 | 
|                     |  |              |         |      |   |         |  |   |         | 

|    |                          
|--- | -------------------------
|12. | Vessel Operating Expenses

Vessel operating expenses are comprised of the following:

|                                          |  |              |        |      |   |        |  |   |        | 
|----------------------------------------- |  | ------------ | ------ | ---- | - | ------ |  | - | ------ | 
|                                          |  | Year Ended   |       
|                                          |  |              |       
|                                          |  | December 31, |       
|                                          |  |              |       
|                                          |  | 2009         |        | 2010 |   | 2011   | 
|                                          |  |              |        |      |   |        | 
|Crew wages
and related costs              |  | $            | 10,055 |      | $ | 11,441 |  | $ | 13,196 | 
|Insurance                                 |  |              | 2,112  |      |   | 1,880  |  |   | 2,260  | 
|Repairs,
maintenance and drydocking costs |  |              | 994    |      |   | 1,764  |  |   | 2,108  | 
|Spares,
stores and provisions             |  |              | 2,845  |      |   | 3,947  |  |   | 4,055  | 
|Lubricants                                |  |              | 2,451  |      |   | 2,808  |  |   | 3,059  | 
|Taxes                                     |  |              | 140    |      |   | 178    |  |   | 212    | 
|Miscellaneous                             |  |              | 1,031  |      |   | 1,110  |  |   | 1,176  | 
|                                          |  |              |        |      |   |        |  |   |        | 
|Total                                     |  | $            | 19,628 |      | $ | 23,128 |  | $ | 26,066 | 
|                                          |  |              |        |      |   |        |  |   |        | 

|    |                                                                
|--- | ---------------------------------------------------------------
|13. | Fair Value of Financial Instruments and Derivatives Instruments

Over-the-counter
foreign exchange forward contracts and interest rate derivatives are recorded
at fair value. The carrying values of the current financial assets and current
financial liabilities are reasonable estimates of their fair value due to the
short-term nature of these financial instruments. The fair values of the
variable interest long-term debt approximate the recorded values, due to their
variable interest rates. The fair value of the fixed interest long term debt is
estimated using prevailing market rates as of the period end. The fair values
of the long term debt and long term investment (the floating rate note) are
disclosed in Note 7 and 8, respectively.

Derivative instruments

The Company
enters into interest rate swap transactions to manage interest costs and the
risk associated with changing interest rates with respect to its variable
interest rate loans and credit facilities. The Company from time to time may
also enter into foreign exchange forward contracts to create economic hedges
for its exposure to currency exchange risk on payments relating to acquisition
of vessels and on certain loan obligations or for trading purposes. Foreign
exchange forward contracts are agreements entered into with a bank to exchange,
at a specified future date, currencies of different countries at a specific
rate. As of December 31, 2010 and 2011, the Company had no outstanding
derivative instruments relating to currency exchange contracts.

The Companys
interest rate swaps and foreign exchange forward contracts did not qualify for
hedge accounting. The Company marks to market the fair market value of the
interest rate swaps and foreign exchange forward contracts at the end of every
period and accordingly records the resulting unrealized loss/gain during the
period in the consolidated statement of income. Information on the location and
amounts of derivative fair values in the consolidated balance sheets and
derivative gains/losses in the consolidated statements of income are shown
below:

F-21

---



Derivatives not designated as hedging instruments

|                  |  |                                                   |  |                               |       |                                    |   |                    |  |                    |        |  |   |        | 
|----------------- |  | ------------------------------------------------- |  | ----------------------------- | ----- | ---------------------------------- | - | ------------------ |  | ------------------ | ------ |  | - | ------ | 
|                  |  |                                                   |  | Asset Derivatives
 Fair Value |       | Liability Derivatives
 Fair Values |  
|                  |  |                                                   |  |                               |       |                                    |  
|Type of
 Contract |  | Balance sheet location                            |  | December 31,
 2010            |       | December 31,
 2011                 |   | December 31,
 2010 |  | December 31,
 2011 |       
|                  |  |                                                   |  |                               |       |                                    |   |                    |  |                    |       
|Interest
 Rate    |  | Derivative
 assets / Non Current assets           |  | $                             | 4,485 |                                    | $ |                   |  | $                  |       |  | $ |       | 
|Interest
 Rate    |  | Derivative
 liabilities / Current liabilities     |  |                               |      |                                    |   |                   |  |                    | 6,802  |  |   | 2,237  | 
|Interest
 Rate    |  | Derivative
 liabilities / Non-current liabilities |  |                               |      |                                    |   |                   |  |                    | 9,787  |  |   | 10,130 | 
|                  |  |                                                   |  |                               |       |                                    |   |                    |  |                    |        |  |   |        | 
|                  |  | Total Derivatives                                 |  | $                             | 4,485 |                                    | $ |                   |  | $                  | 16,589 |  | $ | 12,367 | 
|                  |  |                                                   |  |                               |       |                                    |   |                    |  |                    |        |  |   |        | 

|                                    |  |                                            |        |      |   |         |  
|----------------------------------- |  | ------------------------------------------ | ------ | ---- | - | ------- | -
|                                    |  | Amount of (Loss) Recognized on Derivatives |       
|                                    |  |                                            |       
|                                    |  | Year ended December 31,                    |       
|                                    |  |                                            |       
|                                    |  | 2010                                       |        | 2011 |  
|                                    |  |                                            |        |      |  
|Foreign
 Exchange Forward Contracts |  | $                                          | (198   | )    | $ | (155    | )
|Interest
 Rate Contracts            |  |                                            | (7,966 | )    |   | (12,336 | )
|                                    |  |                                            |        |      |   |         |  
|Net (Loss) Recognized               |  | $                                          | (8,164 | )    | $ | (12,491 | )
|                                    |  |                                            |        |      |   |         |  

The gain or
loss is recognized in the consolidated statement of income and is presented in
Other (Expense)/Income  Loss on Derivatives.

The Companys
interest rate derivative instruments are pay-fixed, receive-variable interest
rate swaps based on the USD LIBOR swap rate. The fair value of the interest
rate swaps is determined using a discounted cash flow approach based on
market-based LIBOR swap yield curves. LIBOR swap rates are observable at
commonly quoted intervals for the full terms of the swaps and therefore are
considered Level 2 items in accordance with the fair value hierarchy. The
following table summarizes the valuation of the Companys financial instruments
as of December 31, 2010 and 2011.

|                                             |  |                                                |        |      |   |        | 
|-------------------------------------------- |  | ---------------------------------------------- | ------ | ---- | - | ------ | 
|                                             |  | Significant Other Observable Inputs
 (Level 2) |       
|                                             |  |                                                |       
|                                             |  | December 31,                                   |       
|                                             |  |                                                |       
|                                             |  | 2010                                           |        | 2011 |  
|                                             |  |                                                |        |      |  
|Derivative
 instruments  asset position     |  | $                                              | 4,485  |      | $ |       | 
|Derivative
 instruments  liability position |  |                                                | 16,589 |      |   | 12,367 | 

As of December
31, 2010 and 2011, no fair value measurements for assets or liabilities under
Level 1 or Level 3 were recognized in the Companys consolidated balance sheet.

Interest Rate Derivatives

Details of
interest rate swap transactions entered into with certain banks in respect of
certain loans and credit facilities as of December 31, 2010 and 2011 are
presented in the table below:

F-22

---



|                         |  |                    |  |                    |  |            |   |                    |         |                    |   |         | 
|------------------------ |  | ------------------ |  | ------------------ |  | ---------- | - | ------------------ | ------- | ------------------ | - | ------- | 
|                         |  |                    |  |                    |  |            |   | Notional amount    |        
|                         |  |                    |  |                    |  |            |   |                    |        
|Loan or Credit
 Facility |  | Inception          |  | Expiry             |  | Fixed Rate |   | December 31,
 2010 |         | December 31,
 2011 |  
|                         |  |                    |  |                    |  |            |   |                    |         |                    |  
|Marindou (1)             |  | January 14,
 2008  |  | January 14,
 2013  |  | 3.9500     | % | $                  | 28,000  |                    | $ | 27,253  | 
|Petra (1)                |  | February 19,
 2008 |  | January 18,
 2013  |  | 2.8850     | % |                    | 32,671  |                    |   | 30,471  | 
|Pemer (1)                |  | March 07,
 2008    |  | March 07,
 2013    |  | 2.7450     | % |                    | 32,668  |                    |   | 30,468  | 
|Marinouki
 (1)           |  | March 19,
 2008    |  | March 05,
 2013    |  | 2.7300     | % |                    | 29,229  |                    |   | 27,695  | 
|Avstes (1)               |  | April 25,
 2008    |  | April 18,
 2013    |  | 3.8900     | % |                    | 29,000  |                    |   | 27,342  | 
|Pelea (1)                |  | December 15,
 2008 |  | December 15,
 2011 |  | 3.7000     | % |                    | 36,000  |                    |   |        | 
|Soffive (1)              |  | November 20,
 2008 |  | November 20,
 2011 |  | 3.5500     | % |                    | 39,600  |                    |   |        | 
|Eniaprohi
 (1)           |  | November 13,
 2008 |  | November 14,
 2011 |  | 3.1500     | % |                    | 40,000  |                    |   |        | 
|Staloudi (1)             |  | January 07,
 2009  |  | January 07,
 2012  |  | 3.3850     | % |                    | 49,320  |                    |   | 45,680  | 
|Eniadefhi
 (1)           |  | April 01,
 2009    |  | February 12,
 2014 |  | 3.3500     | % |                    | 40,000  |                    |   | 39,375  | 
|Marathassa
 (2)          |  | November 23,
 2009 |  | November 23,
 2012 |  | 1.6500     | % |                    | 18,195  |                    |   | 16,565  | 
|Maxdodeka
 (2)           |  | February 01,
 2010 |  | February 01,
 2013 |  | 3.9100     | % |                    | 33,750  |                    |   | 32,250  | 
|Kerasies (2)             |  | December 14,
 2010 |  | December 14,
 2015 |  | 1.6500     | % |                    | 35,200  |                    |   | 33,066  | 
|Maxpente (2)             |  | January 31,
 2011  |  | January 31,
 2015  |  | 1.2200     | % |                    | 39,100  |                    |   | 38,200  | 
|Eniaprohi
 (2)           |  | November 14,
 2011 |  | November 14,
 2014 |  | 1.4000     | % |                    | 37,776  |                    |   | 37,776  | 
|Soffive (2)              |  | November 20,
 2011 |  | November 20,
 2014 |  | 1.3500     | % |                    | 37,200  |                    |   | 37,200  | 
|Pelea (2)                |  | December 15,
 2011 |  | December 15,
 2016 |  | 2.0500     | % |                    | 36,461  |                    |   | 36,461  | 
|Marathassa
 (2)          |  | November 23,
 2012 |  | November 21,
 2015 |  | 1.9500     | % |                    |        |                    |   | 14,935  | 
|Staloudi (2)             |  | January 09,
 2012  |  | January 07,
 2015  |  | 1.4500     | % |                    | 43,860  |                    |   | 43,860  | 
|Marindou (2)             |  | January 14,
 2013  |  | January 16,
 2018  |  | 1.6000     | % |                    |        |                    |   | 28,500  | 
|                         |  |                    |  |                    |  |            |   |                    |         |                    |   |         | 
|Total                    |  |                    |  |                    |  |            |   | $                  | 638,030 |                    | $ | 547,097 | 
|                         |  |                    |  |                    |  |            |   |                    |         |                    |   |         | 

|    |                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under these
 swap transactions, the bank effects semiannual floating-rate payments to the
 Company for the relevant amount based on the six-month U.S. dollar LIBOR, and
 the Company effects semiannual payments to the bank on the relevant amount at
 the respective fixed rates.
|(2) | Under these
 swap transactions, the bank effects quarterly floating-rate payments to the
 Company for the relevant amount based on the three-month U.S. dollar LIBOR,
 and the Company effects quarterly payments to the bank on the relevant amount
 at the respective fixed rates.

The notional
amounts of the above transactions are reduced during the term of the swap
transactions based on the expected principal outstanding under the respective
facility. In the Petra, Pemer and Marinouki transactions, the respective bank
has the right to cancel each swap on January 18, 2011, March 5, 2011 and March
7, 2011, respectively, and at six-month intervals thereafter, which
cancellation rights have not been exercised to date.

|    |                    
|--- | -------------------
|14. | Accrued Liabilities

Accrued liabilities are comprised of the following:

|                                                    |  |              |       |      |   |       | 
|--------------------------------------------------- |  | ------------ | ----- | ---- | - | ----- | 
|                                                    |  | December 31, |      
|                                                    |  |              |      
|                                                    |  | 2010         |       | 2011 |  
|                                                    |  |              |       |      |  
|Interest on
 long-term debt                         |  | $            | 1,014 |      | $ | 1,214 | 
|Vessels
 operating and voyage expenses             |  |              | 1,245 |      |   | 1,365 | 
|Commissions                                         |  |              | 35    |      |   | 65    | 
|Interest on
 derivatives and other finance expenses |  |              | 3,345 |      |   | 3,571 | 
|General and
 administrative expenses                |  |              | 264   |      |   | 341   | 
|                                                    |  |              |       |      |   |       | 
|Total                                               |  | $            | 5,903 |      | $ | 6,556 | 
|                                                    |  |              |       |      |   |       | 

|    |                             
|--- | ----------------------------
|15. | Early Redelivery Income, Net

From time to
time, the Company enters into arrangements for early redelivery of its vessels
from charterers and may continue to do so in the future, depending on market
conditions. Early redelivery costs are incurred where the contracted daily
fixed charter rates are substantially lower than the daily charter rates the vessels
could potentially earn in the current market. Income is recognized in
connection with early termination of a period time charter, resulting from a
request of the respective vessel charterers for early redelivery and agreement
to compensate the Company. Early redelivery costs for the periods presented
represent costs incurred in connection with early termination of charters for
which no replacement charter contract for the relevant vessel has been secured
at the time of concluding the charter termination agreement, and are recognized
at the time the charter termination agreement is concluded. Early redelivery
income is recognized when a charter termination agreement exists, the vessel is
redelivered to the Company and collection of the related compensation is
reasonably assured.

F-23

---



|                                |     |  |                |  |                         |        |      |   |        |   |   |     | 
|------------------------------- | --- |  | -------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | --- | 
|                                |     |  |                |  | Year Ended December 31, |       
|                                |     |  |                |  |                         |       
|Company                         |     |  | Date           |  | 2009                    |        | 2010 |   | 2011   |  
|                                |     |  |                |  |                         |        |      |   |        |  
|Efragel                         | (a) |  | March 15, 2009 |  | $                       | 29,096 |      | $ |       |   | $ |    | 
|Kerasies                        | (b) |  | June 26, 2009  |  |                         | 22,331 |      |   |       |   |   |    | 
|Marindou                        | (c) |  | June 28, 2009  |  |                         | 20,046 |      |   |       |   |   |    | 
|Pelea                           | (d) |  | July 19, 2009  |  |                         | 2,653  |      |   |       |   |   |    | 
|Kerasies                        | (e) |  | March 25, 2010 |  |                         |       |      |   | (1,520 | ) |   |    | 
|Pemer                           | (f) |  | April 13, 2010 |  |                         |       |      |   | 3,581  |   |   |    | 
|Pelea                           | (g) |  | April 28, 2010 |  |                         |       |      |   | (1,765 | ) |   |    | 
|Other minor
 early redeliveries |     |  | Various        |  |                         | 825    |      |   | (164   | ) |   | 207 | 
|                                |     |  |                |  |                         |        |      |   |        |   |   |     | 
|Total                           |     |  |                |  | $                       | 74,951 |      | $ | 132    |   | $ | 207 | 
|                                |     |  |                |  |                         |        |      |   |        |   |   |     | 

|                                                                          |                                                                                                                                                                                                                                                                                                                                                       | 
|------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                          |                                                                                                                                                                                                                                                                                                                                                      
|Details of
 the transactions presented in the above table are as follows:
|(a)                                                                       | On March 15,
 2009, Efragel took early redelivery of the Old
 Efrossini, instead of on January 8, 2011. The respective charterer
 paid cash compensation of $25,480, net of commissions. An amount of $3,616
 representing the unearned revenue from the terminated period time charter
 contract was recorded as additional early redelivery income.
|(b)                                                                       | On June 26,
 2009, Kerasies took early redelivery of the Katerina,
 instead of on November 26, 2010. The respective charterer paid cash
 compensation of $21,463, net of commissions. An amount of $868 representing
 the unearned revenue from the terminated period time charter contract was recorded
 as additional early redelivery income.     
|(c)                                                                       | On June 28,
 2009, Marindou took early redelivery of the Maria,instead of on January 2, 2011. The respective charterer paid cash
 compensation of $15,516, net of commissions. An amount of $4,530 representing
 the unearned revenue from the terminated period time charter contract was
 recorded as additional early redelivery income.          
|(d)                                                                       | On July 19,
 2009, Pelea took early redelivery of the Pedhoulas
 Leader,instead of on November 22, 2009. The respective charterer
 paid cash compensation of $2,653, net of commissions.                                                                                                                                                             
|(e)                                                                       | On March 25,
 2010, Kerasies agreed with the charterers of the Katerina to terminate the $15.5 daily fixed rate time
 charter which had commenced on June 26, 2009, and was due to expire by September
 15, 2011. As compensation for early redelivery, Kerasies agreed to pay the
 charterers $1,520, net of commissions.                           
|(f)                                                                       | On April 13,
 2010, Pemer took early redelivery of the Pedhoulas
 Merchant,instead of on November 5, 2010. In connection with this early redelivery,
 we recognized early redelivery income of $3,581, comprising cash compensation
 paid by the relevant charterer of $4,799, net of commissions, less accrued
 revenue of $1,218.                  
|(g)                                                                       | On April 28,
 2010, Pelea agreed with the charterers of the Pedhoulas Leader to terminate the $18.50 daily fixed rate
 time charter which had commenced on July 19, 2009, and was due to expire by
 September 30, 2011. As compensation for early redelivery, Pelea agreed to pay
 the charterers an amount of $1,765, net of commissions.           

In all the
cases presented above, no replacement charter contract had been secured at the
time of the conclusion of the respective early redelivery agreement.


|    |                                     
|--- | ------------------------------------
|16. | Loss on Asset Purchase Cancellations

In April 2009, each of Maxdeka and Maxenteka
signed an agreement with a third party seller, whereby each agreed to cancel
its contract for the acquisition of Hull 2054 and Hull 2055, respectively, and
each agreed to forfeit the advance deposit paid of $7,212 per newbuild.

In June 2009,
Maxpente entered into an agreement pursuant to which the shipbuilding contract
for the acquisition of Hull 1075 was canceled, at a cancellation
cost of $5,950, excluding commissions, which was forfeited from an advance
payment. The remaining balance of the advance payment of $10,050 was used to
settle the second advance payment for the acquisition of Pelopidas.

F-24

---



Loss on asset
purchase cancellations during the year ended December 31, 2009 represents
losses incurred on cancellation of the contracts discussed above, consisting of
advances forfeited totaling $20,395 plus expenses net of interest earned of
$304 related to the cancellations, and comprise the following:

| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Loss on
 cancellation of acquisition of Hull 2054
 of $6,849, net of interest earned on the advance deposits;                                                    
| |   |                                                                                                                                                                  
| |  | Loss on
 cancellation of acquisition of Hull 2055
 of $6,850, net of interest earned on the advance deposits; and                                                
| |   |                                                                                                                                                                  
| |  | Loss on
 cancellation of acquisition of Hull 1075of
 $7,000, inclusive of brokerage commissions, of which $5,950 represented the
 forfeiture of advance deposits.

No
cancellations were concluded during the years ended December 31, 2010 and 2011.

|    |                                
|--- | -------------------------------
|17. | Lease ArrangementsCharters-out

The future
minimum time charter revenue, net of commissions, based on vessels committed to
non-cancelable time charter contracts (including fixture recaps) as of December
31, 2011, is as follows:

|              |  |   |         | 
|------------- |  | - | ------- | 
|December
 31, |  |   |         | 
|              |  |   |         | 
|2012          |  | $ | 136,001 | 
|2013          |  |   | 134,169 | 
|2014          |  |   | 70,057  | 
|2015          |  |   | 31,978  | 
|2016          |  |   | 22,958  | 
|Thereafter    |  |   | 202,361 | 
|              |  |   |         | 
|Total         |  | $ | 597,524 | 
|              |  |   |         | 

Future minimum
time charter revenue excludes the future acquisitions of the vessels discussed
in Note 10, since estimated delivery dates are not confirmed. Revenues from
time charters are not generally received when a vessel is off-hire, including
time required for normal periodic maintenance of the vessel. In arriving at the
minimum future charter revenues, an estimated off-hire time of 12 days to
perform any scheduled drydocking on each vessel has been deducted, and it has
been assumed that no additional off-hire time is incurred, although such
estimate may not be reflective of the actual off-hire in the future.

|    |                                    
|--- | -----------------------------------
|18. | General and Administrative Expenses

General and
administrative expenses for the years ended December 31, 2009, 2010 and 2011
were as follows:

|                                          |  |              |       |      |   |       |  |   |       | 
|----------------------------------------- |  | ------------ | ----- | ---- | - | ----- |  | - | ----- | 
|                                          |  | December 31, |      
|                                          |  |              |      
|                                          |  | 2009         |       | 2010 |   | 2011  | 
|                                          |  |              |       |      |   |       | 
|Management fees - related
 party          |  | $            | 4,436 |      | $ | 4,880 |  | $ | 6,026 | 
|Professional fees (legal
 and accounting) |  |              | 1,586 |      |   | 810   |  |   | 839   | 
|Director fees                             |  |              | 180   |      |   | 240   |  |   | 240   | 
|Listing fees and expenses                 |  |              | 69    |      |   | 63    |  |   | 58    | 
|Miscellaneous                             |  |              | 775   |      |   | 1,025 |  |   | 1,326 | 
|                                          |  |              |       |      |   |       |  |   |       | 
|Total                                     |  | $            | 7,046 |      | $ | 7,018 |  | $ | 8,489 | 
|                                          |  |              |       |      |   |       |  |   |       | 

|    |                 
|--- | ----------------
|19. | Unearned Revenue

Unearned
Revenue represents cash received in advance of it being earned. Revenue is
recognized as earned on a straight-line basis at their average rates where
charter agreements provide for varying annual charter rates over their term.
Total Unearned Revenue during the periods presented is as follows:

F-25

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|                                                                    |  |              |        |      |   |        | 
|------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | 
|                                                                    |  | December 31, |       
|                                                                    |  |              |       
|                                                                    |  | 2010         |        | 2011 |  
|                                                                    |  |              |        |      |  
|Unearned Revenue                                                    |  |              |        |      |   |        | 
|Revenue received in advance of service provided  Current liability |  | $            | 4,675  |      | $ | 4,131  | 
|Deferred revenue resulting from varying charter rates               |  |              |        |      |   |        | 
|Current liability                                                   |  |              | 6,010  |      |   | 19,080 | 
|Non-current liability                                               |  |              | 31,399 |      |   | 17,821 | 
|                                                                    |  |              |        |      |   |        | 
|Total Unearned Revenue                                              |  | $            | 42,084 |      | $ | 41,032 | 
|                                                                    |  |              |        |      |   |        | 

|    |                       
|--- | ----------------------
|20. | Gain on Sale of Assets

During the
year ended December 31, 2010, the Company concluded the sale of the vessel Old
Efrossini to an unrelated third
party for gross consideration of $33,000. The sale realized a net gain of
$15,199 after taking into account commissions and other directly related
expenses amounting to $832 for the vessel.

No sales of
vessels were concluded during the other periods presented.

|    |          
|--- | ---------
|21. | Dividends

During 2011,
the Company declared and paid four consecutive quarterly dividends of $0.15 per
share, totaling $41,782.

|    |                   
|--- | ------------------
|22. | Earnings Per Share

The
computation of basic earnings per share is based on the weighted average number
of common shares outstanding during the year and includes the shares issuable
to the audit committee chairman and the independent directors at the end of the
year for services rendered. Diluted earnings per share are the same as basic
earnings per share. There are no other potentially dilutive shares.

|    |                  
|--- | -----------------
|23. | Subsequent Events

(a) Dividend
declaration:

On February
14, 2012, the Board of Directors declared a dividend of $0.15 per common share,
totaling $10,635, payable to all shareholders of record as of February 24,
2012, on February 29, 2012.

(b) Credit facility:

In February
2012, the Company accepted a commitment letter from a bank for a reducing
revolving credit facility for up to
$18,000, which will be used to finance part of the purchase price of Hull 631
(the Maxeikositria credit facility). The Maxeikositria credit facility will be
made available upon delivery by the shipyard of Hull 631. The Maxeikositria
credit facility is repayable over seven years in 14 semi-annual consecutive installments
commencing six months after loan drawdown and a balloon payment payable with
the final installment and will be secured by a first priority mortgage overHull 631
and other usual maritime securities and a corporate guarantee by Safe Bulkers,
which provides for the financial covenants described in Note 7.

(c) Shipbuilding
contract:

In February 2012, Shikokuepta
entered into a shipbuilding contract for the acquisition of a Post-Panamax
class newbuild vessel, scheduled to be delivered in the second half of 2014.

F-26

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