UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 20-F



(Mark One)

| | £ | Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934                                  
| | - | --------------------------------------------------------------------------------------------------------------------------------
| | S | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012
| | £ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                        
| | £ | Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                     



Commission File Number 001-34077








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)








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









|Title of Each Class                                                       |  | Name of Each Exchange on Which Registered              
|------------------------------------------------------------------------- |  | -------------------------------------------------------
|Common 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, 2012, there were
76,661,451 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 £ No S



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



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 S No £



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



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 £	     Accelerated filer S	     Non-accelerated
filer £



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



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



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



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









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                                                   | 24  
|          |                                                                              |     
|ITEM 4A.  | UNRESOLVED STAFF COMMENTS                                                    | 41  
|          |                                                                              |     
|ITEM 5.   | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 | 41  
|          |                                                                              |     
|ITEM 6.   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   | 60  
|          |                                                                              |     
|ITEM 7.   | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 65  
|          |                                                                              |     
|ITEM 8.   | FINANCIAL INFORMATION                                                        | 71  
|          |                                                                              |     
|ITEM 9.   | THE OFFER AND LISTING                                                        | 72  
|          |                                                                              |     
|ITEM 10.  | ADDITIONAL INFORMATION                                                       | 73  
|          |                                                                              |     
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 87  
|          |                                                                              |     
|ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 89  
|          |                                                                              |     
|ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 89  
|          |                                                                              |     
|ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 89  
|          |                                                                              |     
|ITEM 15.  | CONTROLS AND PROCEDURES                                                      | 89  
|          |                                                                              |     
|ITEM 16.  | [RESERVED]                                                                   | 92  
|          |                                                                              |     
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 92  
|          |                                                                              |     
|ITEM 16B. | CODE OF ETHICS                                                               | 92  

i





|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                 | 92
|--------- | ---------------------------------------------------------------------- | --
|          |                                                                        |   
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES             | 93
|          |                                                                        |   
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 93
|          |                                                                        |   
|ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                           | 93
|          |                                                                        |   
|ITEM 16G. | CORPORATE GOVERNANCE                                                   | 93
|          |                                                                        |   
|ITEM 16H. | MINE SAFETY DISCLOSURE                                                 | 94
|          |                                                                        |   
|ITEM 17.  | FINANCIAL STATEMENTS                                                   | 94
|          |                                                                        |   
|ITEM 18.  | FINANCIAL STATEMENTS                                                   | 94
|          |                                                                        |   
|ITEM 19.  | EXHIBITS                                                               | 94



ii





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;                                                                                                                            



iii





| | · | 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;                                     
| |   |                                                                                                                                                               
| | · | 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.

iv





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 consolidated
financial and other data of Safe Bulkers, Inc. for each of the five years in the five year period ended December 31, 2012. The
table should be read together with “Item 5. Operating and Financial Review and Prospects.” The selected consolidated
financial data of Safe Bulkers, Inc. is a summary of, is derived from, and is qualified by reference to, our audited 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,
shareholders’ equity and cash flows for the years ended December 31, 2010, 2011 and 2012 and the consolidated balance sheets
at December 31, 2011 and 2012, together with the notes thereto, are included in “Item 18. Financial Statements” and
should be read in their entirety.



|                                                                 |  | Year Ended December 31,                          |           
|---------------------------------------------------------------- |  | ------------------------------------------------ | ----------
|                                                                 |  |                                                  |           
|                                                                 |  | 2008                                             |           
|                                                                 |  |                                                  |           
|                                                                 |  | (In thousands of U.S. dollars except share data) |           
|STATEMENT OF INCOME                                              |  |                                                  |           
|Revenues                                                         |  | $                                                | 208,411   
|Commissions                                                      |  |                                                  | (7,639    
|                                                                 |  |                                                  |           
|Net revenues                                                     |  |                                                  | 200,772   
|                                                                 |  |                                                  |           
|Voyage expenses                                                  |  |                                                  | (273      
|Vessel operating expenses                                        |  |                                                  | (17,615   
|Depreciation                                                     |  |                                                  | (10,614   
|General and administrative expenses                              |  |                                                  |           
|Management fee to related party                                  |  |                                                  | (4,420    
|Third party expenses                                             |  |                                                  | (3,625    
|Early redelivery (cost)/income                                   |  |                                                  | (565      
|Loss on asset purchase cancellations                             |  |                                                  | —         
|Gain on sale of assets                                           |  |                                                  | —         
|                                                                 |  |                                                  |           
|Operating income                                                 |  |                                                  | 163,660   
|                                                                 |  |                                                  |           
|Interest expense                                                 |  |                                                  | (16,392   
|Other finance costs                                              |  |                                                  | (408      
|Interest income                                                  |  |                                                  | 1,492     
|Loss on derivatives                                              |  |                                                  | (19,509   
|Foreign currency (loss)/gain                                     |  |                                                  | (9,501    
|Amortization and write-off of deferred finance charges           |  |                                                  | (131      
|                                                                 |  |                                                  |           
|Net income                                                       |  | $                                                | 119,211   
|                                                                 |  |                                                  |           
|Earnings per share, basic and diluted                            |  | $                                                | 2.19      
|Cash dividends declared per share                                |  | $                                                | 3.83      
|Weighted average number of shares outstanding, basic and diluted |  |                                                  | 54,500,889

1





|                                                     |  | Year Ended December 31,                          |         
|---------------------------------------------------- |  | ------------------------------------------------ | --------
|                                                     |  |                                                  |         
|                                                     |  | 2008                                             |         
|                                                     |  |                                                  |         
|                                                     |  | (In thousands of U.S. dollars except share data) |         
|OTHER FINANCIAL DATA                                 |  |                                                  |         
|Net cash provided by operating activities            |  | $                                                | 259,597 
|Net cash (used in) investing activities              |  |                                                  | (148,223
|Net cash (used in)/provided by financing activities  |  |                                                  | (83,672 
|Net increase/(decrease) in cash and cash equivalents |  |                                                  | 27,702  



|                                           |  | Year Ended December 31,                          |        
|------------------------------------------ |  | ------------------------------------------------ | -------
|                                           |  |                                                  |        
|                                           |  | 2008                                             |        
|                                           |  |                                                  |        
|                                           |  | (In thousands of U.S. dollars except share data) |        
|BALANCE SHEET DATA                         |  |                                                  |        
|Total current assets                       |  | $                                                | 88,086 
|Total fixed assets                         |  |                                                  | 387,296
|Other non-current assets                   |  |                                                  | 6,900  
|Total assets                               |  |                                                  | 482,282
|Total current liabilities                  |  |                                                  | 70,863 
|Derivative liabilities—Long-term           |  |                                                  | 21,716 
|Long-term debt, net of current portion     |  |                                                  | 413,483
|Unearned revenue—Long-term                 |  |                                                  | 11,765 
|Total shareholders’ (deficit)/equity       |  |                                                  | (35,545
|Total liabilities and shareholders’ equity |  |                                                  | 482,282



|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, INCLUDING THE TAX CONSEQUENCES OF OWNERSHIP OF OUR COMMON STOCK. THE OCCURRENCE OF ANY OF THE EVENTS DESCRIBED IN THIS SECTION
COULD SIGNIFICANTLY AND NEGATIVELY AFFECT



2





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 are significantly lower than 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,
and we expect that the number of vessels in our fleet that we charter pursuant to short-term time charters will increase during
2013 as period time charters contracted during past periods expire, we are exposed to changes in spot 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. The spot market is highly competitive and volatile, while period time charter contracts of longer duration provide income
at pre-determined rates over more extended periods of time. We may be unable to keep our vessels fully employed in these short-term
markets. Charter rates available in the spot market may be insufficient to enable our vessels to be operated profitably. A significant
decrease in charter rates would affect asset values and adversely affect our profitability, cash flows and ability to pay dividends.



During 2012, the Baltic Dry Index, or “BDI,” remained
volatile, reaching a high of 1,624 on January 3, 2012 and a low of 647 on February 3, 2012.



As of February 15, 2013, 17 of our 25 drybulk vessels were deployed
or scheduled to be deployed on period time charters of more than three months term. In addition, we have contracted to acquire
seven vessels comprised of six newbuilds and one secondhand vessel, scheduled to be delivered through 2015, six of which do not
currently have contracted charters. As more vessels become available for employment, we may have difficulty entering into additional
multi-year, fixed-rate time charters for our vessels, and as a result, our cash flows may be subject to instability in the long-term.
We may be required to enter into additional variable rate charters, as opposed to contracts based on fixed rates, which could result
in a decrease in our cash flows and net income in periods when the market for drybulk shipping is depressed. 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.



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.  

3





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, 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.



A negative change in global economic or regulatory conditions,
especially in 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 or regulatory 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. If
economic growth declines in China, Japan, India and other major countries in the Asian region, or if the regulatory environment
in these countries changes adversely for our industry, we may face decreases in such drybulk trade and demand. Moreover, a slowdown
in the United States economy or the economies of countries within the European Union will likely adversely affect economic growth
in China, Japan, India and other major countries in the Asian region. Such an economic downturn in any of these countries could
have a material adverse effect on our business, financial condition and results of operations.



The ongoing uncertainty and volatility in the financial
markets related to the European sovereign debt crisis, and the state of the global economic recovery may adversely affect our operating
results.



The world has recently experienced a global macroeconomic downturn,
and if economic and financial market conditions in the United States or other key markets, including Europe, remain uncertain,
persist or deteriorate further, our customers may respond by suspending, delaying or reducing their operations, which may adversely
affect our business, operating results, and financial condition. The uncertain financial climate in Greece could also result in
further changes to tax and other laws to which we may be subject.



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

4





The market supply of drybulk vessels has been increasing, and
the number of drybulk vessels on order as of December 31, 2012, was approximately 29.9% for Panamax class vessels, 15.7% for Post-Panamax
class vessels and 12.5% 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 2013. 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 and secondhand vessels, 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. Eight vessels in our current fleet will be available for employment in the first half of 2013. Additionally we
have not yet arranged charters for our newbuild vessel and our secondhand vessel scheduled to be delivered to us during 2013. 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 a steady
decrease. 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;
| | - | -----------------------------------------------------------------------
| |   |                                                                        
| | · | 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,
2011 and December 31, 2012. If the market value of our vessels or newbuilds declines upon their delivery to us, 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 loan and credit facilities. As a result of cross-default provisions contained in our loan and credit facility
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.

5





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.
There is a limited supply of well-qualified crew. We generally bear crewing costs under our 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 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.

6





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 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, the Gulf of Aden and parts of Indian Ocean and West Africa. 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

7





(“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 general, we do not carry loss of hire insurance. Occasionally,
we may decide to carry loss of hire insurance when 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 may arrest both the vessel
which is subject to the claimant’s maritime lien and any

8





“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.



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 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 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 or may default on their obligations.
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 on their obligations. In recent years the industry has experienced
numerous incidents of charterers renegotiating their charters or defaulting on their obligations thereunder. We



9





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,
to the extent commercially reasonable, 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, loan and credit facility covenants 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, 2012, approximately 62.9% of our revenues were derived from two
charterers, namely Daiichi Chuo Kisen Kaisha (“Daiichi”) 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.



Daiichi accounted for 46.5% of our revenues in 2012, and as
of the date hereof, six of our vessels are chartered to Daiichi, all at charter rates that are higher than rates currently available
in the spot market. Recently, Daiichi announced plans to reduce the number of vessels it operates, both newbuilds and chartered
in vessels and to pare its fleet to weather a decline in drybulk shipping rates due in part to expanding capacity, slowing demand
and higher fuel prices. Given the importance of this charterer to our business, any deterioration of Daiichi’s business or
of its ability or willingness to perform its obligations under its charters with us could have an adverse effect on our business,
financial condition and results of operations.



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



We intend to grow our business through the acquisition of our
six contracted newbuilds and one contracted secondhand vessel scheduled to be delivered through 2015. We may contract additional
newbuild vessels or make selective acquisitions of additional secondhand vessels. Our future growth will primarily depend on our



10





ability to locate and acquire suitable vessels, enlarge our
customer base, operate and supervise any newbuilds we may order and obtain required debt or equity financing on acceptable terms.



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                                                                                                  
| |   |                                                                                                                                                                     
| | · | shortages of or delays in the receipt of necessary construction materials, such as steel, or equipment, such as main engines, electricity generators and propellers.



A third-party seller could fail to deliver a secondhand vessel
on time or at all because of:



| | · | bankruptcy or other financial crisis of the third-party seller;                              
| | - | ---------------------------------------------------------------------------------------------
| |   |                                                                                              
| | · | quality or engineering problems;                                                             
| |   |                                                                                              
| | · | disputes between the Company and the third-party seller regarding contractual obligations; or
| |   |                                                                                              
| | · | weather interference or catastrophic events, such as major earthquakes or fires.             



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



11





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 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 15, 2013, the vessels in our current fleet had
an average age of 4.8 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 six newbuilds and our one secondhand vessel was $198.8 million as of February 15, 2013. We anticipate
that our primary sources of funds to satisfy these commitments will be from existing cash and time deposits, operating cash surplus
and available borrowings under our existing credit facilities and our floating rate note facility. As of February 15, 2013, the
company has two existing vessels unencumbered and a $50 million long-term floating rate note facility against which additional
loan and credit facilities can be drawn, as well as $73.7 million in cash and short-term time deposits and restricted cash, and
$68.9 million available under existing revolving credit facilities. 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. 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 or the third-party seller with
respect to the contracted newbuild or secondhand vessel and a write-off of expenses capitalized. In addition, we may also be liable
for other damages for breach of contract. Examples of such liabilities could include payments to the shipyard or the third-party
seller for the difference between the forfeited advance and the amount that remains to be paid by us if the shipyard or the third-party
seller cannot locate a third-party buyer that is willing to pay an amount equal to



12





the difference or compensatory payments by us
to charter parties with whom we have entered into charters with respect to such vessels. Such events, if they occurred, would adversely
affect our business, financial condition and results of operation.



The aging of our fleet and our acquisitions of secondhand
vessels 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 15, 2013, the average age of the vessels in our current fleet was
4.8 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.



In 2012, we took delivery of one 2003 built, secondhand Panamax
class vessel, and in January 2013, we took delivery of another 2003 built, secondhand Panamax class vessel. In January 2013, we
contracted to acquire a third secondhand 2008 built Kamsarmax class vessel, scheduled to be delivered to us in March 2013. We may
encounter higher operating and maintenance costs due to the age and condition of those vessels. Secondhand vessels may also develop
unexpected mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. We cannot
obtain the same knowledge about the condition of a secondhand vessel compared to a newbuild through the performed inspection prior
to the purchase of such secondhand vessel nor about the cost of any required (or anticipated) repairs that we would have had if
this vessel had been built for and operated exclusively by us. We will have the benefit of warranties on newly constructed vessels;
we may not receive the benefit of warranties on secondhand vessels.



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 2012 we incurred approximately 26.42% of our vessel operating expenses in currencies other than the U.S. dollar, of which
64.25% was denominated in euro amounts. Although as of December 31, 2012, 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.

13





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.



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 100% 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.                                                                                                                                                                                                                                                                 

14





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 80% or 85% (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 or the ratio of our aggregate debt after deducting cash to EBITDA must not at any time exceed 8.5:1 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, 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 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, (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 be reduced or 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;                                                               



15





| | · | 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, 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, cash and cash equivalents and long-term investment held by us. 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,



16





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 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.



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

17





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 fixed
fee of $700 per day per vessel for providing commercial, technical and administrative services and a variable 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 60.55% 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 26 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



18





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 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
and economic sanctions, 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 2,327 calls on worldwide ports. From January 1, 2012 through December 31, 2012,
vessels in our fleet have not made any calls to ports in Iran or to ports in Syria. 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. On January 2, 2013, President Obama signed the National
Defense Authorization Act for Fiscal Year 2013 (the “NDAA”), which, among other things, expands U.S. sanctions
on non-U.S. business with Iran. In particular, Section 1244 of the NDAA targets, among other businesses, those determined,
after July 1, 2013, to be part of the shipping sector of Iran and those providing goods or services in support of any
activity or transaction on behalf of or for the benefit of, among others, persons determined to be part of the shipping
sector of Iran or certain Iranian persons designated by the U.S. Department of the Treasury, Office of Foreign Assets Control
(“OFAC”). Section 1244 also includes a humanitarian exception that prohibits the imposition of sanctions with respect to any
person for conducting or facilitating a transaction for the sale of agricultural commodities, food, medicine, or medical
devices to Iran or the provision of humanitarian assistance to the people of Iran.



Our policy going forward is for our vessels to avoid making
calls to ports in Iran or Syria unless the charterer provides information certifying that its cargo is licensed by OFAC.

19





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 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 Manager’s 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.



We are involved in an ongoing arbitration dispute, which,
if determined adversely to us, could cause us to incur a significant financial loss, harm our reputation and/or have a material
effect on us.



We are involved in an ongoing arbitration dispute in London,
England, with Zhoushan Jinhaiwan Shipyard Co., Ltd. (the “Shipyard”). We had entered into an agreement with the Shipyard
for the construction, sale and delivery by the Shipyard to us of one 180,000 DWT Capesize class newbuild vessel (Hull No. J0131)
in exchange for USD $53 million. In December 2012, after having paid $31.8 million in advances during construction, we exercised
our termination right under the agreement due to the Shipyard’s excessive construction delays and delivered demands to each
of the Shipyard and the refund guarantor, The Export Import Bank of China (a bank rated Aa3 by Moody’s
Investor Services), pursuant to the agreement and the refund guarantees, respectively, for a refund of the full amount of
advances paid, with interest. In response, in January 2013, the Company received a notice of arbitration, and arbitration proceedings
with the shipyard were initiated in London, England. The Shipyard alleges that our termination constitutes a breach of the agreement
and argues that we are not entitled to a refund of any of the advances paid or interest. Arbitration is inherently uncertain, and
an award against us would require us to record the related liability and incur the cost thereof,



20





which includes the amount of advances
already paid, the capitalized expenses recorded and any further damages to the Shipyard without receipt of the vessel.



We are not otherwise 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 other 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 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.



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 60.55% 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.

21





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.



In March 2010, 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, 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 March 2012, we issued and sold 5,750,000 shares of common stock in a public offering. The gross proceeds
of the March 2012 public offering were approximately $37.4 million.



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 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. 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;



22





|• | 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.       



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 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 preferential tax rates otherwise applicable to qualified dividends.



23





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 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 constitute a PFIC for a 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.



|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 18 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 42 drybulk newbuilds and three drybulk secondhand vessels. 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 887,900 deadweight
tons prior to our initial public offering in May 28, 2008 to 2,282,400 dwt currently. The quality and size of our current fleet,
together with our long-term relationships with 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 41 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 26 years. In June 2008, we completed an initial public offering of our common stock in the
United States and our common stock began



24





trading on the New York Stock Exchange. We maintain our offices at 30-32 Avenue Karamanli,
P.O. Box 70837, 16673 Voula, Athens, Greece. Our telephone number at that address is +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 15, 2013, we had a fleet of 25 drybulk vessels, with
an aggregate carrying capacity of 2,282,400 dwt and an average age of 4.8 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 2015 as the result of the
delivery of six further contracted newbuilds and one secondhand vessel, comprised of three Panamax class vessels, one secondhand
Kamsarmax class vessel, 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 32 vessels, having an aggregate carrying capacity of 2,943,300 dwt.



We employ our vessels on both period time charters and spot
time 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 maintain our flexibility in low charter market conditions.



General



As of February 15, 2013 our fleet comprised 25 vessels, of which
seven are Panamax class vessels, six are Kamsarmax class vessels, ten are Post-Panamax class vessels and two are Capesize class
vessels, with an aggregate carrying capacity of 2,282,400 dwt and an average age of 4.8 years. Assuming delivery of the last of
our contracted vessels in 2015, our fleet will be comprised of ten Panamax class vessels, seven Kamsarmax class vessels, 12 Post-Panamax
class vessels and three Capesize class vessels, and the aggregate carrying capacity of our 32 vessels will be 2,943,300 dwt. As
of February 15, 2013, the average remaining duration of the charters for our existing fleet was 1.82 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 15, 2013.



25







|Vessel
    Name        |  | Dwt       |  | YearBuilt (1) |  | Country
    of Construction |  | Charter
    Type |   | CharterRate (2) |  | Commiss-ions (3) |  | Charter
    Period (4)    |  | SisterShip(5)
|---------------------- |  | --------- |  | ------------- |  | --------------------------- |  | ---------------- | - | --------------- |  | ---------------- |  | ------------------------- |  | -------------
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|CURRENT
    FLEET      |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Panamax                |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Maria                  |  | 76,000    |  | 2003          |  | Japan                       |  | Spot             | $ | 6,250           |  | 5.00%            |  | Feb. 2013
    – Mar 2013  |  | A            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Koulitsa               |  | 76,900    |  | 2003          |  | Japan                       |  | Period           | $ | 8,500           |  | 4.75%            |  | Dec. 2012
    – Feb. 2014 |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Paraskevi              |  | 74,300    |  | 2003          |  | Japan                       |  | Spot             | $ | 8,000           |  | 5.00%            |  | Jan. 2013
    – Apr. 2013 |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Vassos                 |  | 76,000    |  | 2004          |  | Japan                       |  | Period           | $ | 29,000          |  | 1.25%            |  | Nov. 2008
    – Oct. 2013 |  | A            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Katerina               |  | 76,000    |  | 2004          |  | Japan                       |  | Period           | $ | 20,000          |  | 3.375%           |  | Feb. 2011
    – Feb. 2014 |  | A            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Maritsa                |  | 76,000    |  | 2005          |  | Japan                       |  | Period           | $ | 8,000           |  | 1.25%            |  | Jan. 2013
    – Dec. 2014 |  | A            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Efrossini              |  | 75,000    |  | 2012          |  | Japan                       |  | Spot             | $ | 9,500           |  | 4.75%            |  | Mar. 2013
    – May. 2013 |  | B            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Kamsarmax              |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pedhoulas
    Merchant |  | 82,300    |  | 2006          |  | Japan                       |  | Period           | $ | 18,350          |  | 3.50%            |  | Aug. 2011
    – Jul. 2013 |  | C            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pedhoulas Trader       |  | 82,300    |  | 2006          |  | Japan                       |  | Period (6)       | $ | 20,000          |  | 1.00%            |  | Aug. 2011 – Jul. 2013     |  | C            
|                       |  |           |  |               |  |                             |  | Period
    (7)   |   | BPI + 6.5%      |  | 3.50%            |  | Aug. 2013
    – Jul. 2015 |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pedhoulas
    Leader   |  | 82,300    |  | 2007          |  | Japan                       |  | Period           | $ | 13,250          |  | 4.75%            |  | Jun. 2012
    – May 2014  |  | C            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pedhoulas
    Builder  |  | 81,600    |  | 2012          |  | China                       |  | Period           | $ | 8,450           |  | 4.75%            |  | Oct. 2012
    – Nov. 2013 |  | D            
|                       |  |           |  |               |  |                             |  |                  |   | (BPI + 4%) -    |  |                  |  |                           |  |              
|Pedhoulas
    Fighter  |  | 81,600    |  | 2012          |  | China                       |  | Period
    (8)   | $ | 1,000           |  | 5.00%            |  | Aug. 2012
    – Sep. 2013 |  | D            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pedhoulas
    Farmer   |  | 81,600    |  | 2012          |  | China                       |  | Period           | $ | 8,000           |  | 4.75%            |  | Sep. 2012 – Sep. 2013     |  | D            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Post-Panamax           |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Stalo                  |  | 87,000    |  | 2006          |  | Japan                       |  | Period           | $ | 34,160          |  | 1.25%            |  | Mar. 2010
    – Feb. 2015 |  | E            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Marina                 |  | 87,000    |  | 2006          |  | Japan                       |  | Period           | $ | 19,500          |  | 1.25%            |  | Dec. 2011
    – Dec. 2013 |  | E            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Sophia                 |  | 87,000    |  | 2007          |  | Japan                       |  | Period           | $ | 34,720          |  | 1.25%            |  | Oct. 2008 – Sep. 2013     |  | E            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Eleni                  |  | 87,000    |  | 2008          |  | Japan                       |  | Period           | $ | 34,160          |  | 1.25%            |  | Apr. 2010
    – Mar. 2015 |  | E            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Martine                |  | 87,000    |  | 2009          |  | Japan                       |  | Period           | $ | 8,500           |  | 3.75%            |  | Jan. 2013
    – Mar. 2013 |  | E            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Andreas
    K          |  | 92,000    |  | 2009          |  | South
    Korea             |  | Period           | $ | 10,000          |  | 5.00%            |  | Dec. 2012
    – Feb. 2014 |  | F            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Panayiota
    K        |  | 92,000    |  | 2010          |  | South
    Korea             |  | Spot             | $ | 6,000           |  | 5.00%            |  | Dec. 2012
    – Feb. 2013 |  | F            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Venus
    Heritage     |  | 95,800    |  | 2010          |  | Japan                       |  | Spot             | $ | 7,200           |  | 5.00%            |  | Feb. 2013
    – Mar. 2013 |  | G            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Venus
    History      |  | 95,800    |  | 2011          |  | Japan                       |  | Spot             | $ | 12,000          |  | 5.00%            |  | Sep. 2012
    – Jan. 2013 |  | G            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Venus
    Horizon      |  | 95,800    |  | 2012          |  | Japan                       |  | Spot             | $ | 9,500           |  | 5.00%            |  | Feb. 2013
    – Apr.2013  |  | G            
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Capesize               |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Kanaris                |  | 178,100   |  | 2010          |  | China                       |  | Period           | $ | 25,928          |  | 2.50%            |  | Sep. 2011
    – Jun. 2031 |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Pelopidas              |  | 176,000   |  | 2011          |  | China                       |  | Period           | $ | 38,000          |  | 1.00%            |  | Feb. 2012
    – Dec. 2021 |  |              
|                       |  |           |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              
|Subtotal               |  | 2,282,400 |  |               |  |                             |  |                  |   |                 |  |                  |  |                           |  |              



26







|NEW
    BUILDS              |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|--------------------------- |  | --------- |  | ------------- |  | ----- |  | ---------- | ------ | ------ | ----- | ----- | ------------------------ | --------------------- |  | -
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Panamax                     |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No.
    814            |  | 75,000    |  | 2H 2013       |  | Japan |  |            |        |        |       |       |                          |                       |  | B
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No.
    1659           |  | 76,600    |  | 1H 2014       |  | Japan |  |            |        |        |       |       |                          |                       |  | H
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No.
    1660           |  | 76,600    |  | 1H 2014       |  | Japan |  |            |        |        |       |       |                          |                       |  | H
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Post-Panamax                |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No.
    2396           |  | 84,000    |  | 2H 2015       |  | Japan |  |            |        |        |       |       |                          |                       |  | I
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No.
    2397           |  | 84,000    |  | 1H 2015       |  | Japan |  |            |        |        |       |       |                          |                       |  | I
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Capesize                    |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Hull No. 8126               |  | 181,000   |  | 1H 2014       |  | Japan |  | Period (9) | $      | 23,100 |       | 1.25% |                          | Jan. 2014 – Jul. 2016 |  |  
|                            |  |           |  |               |  |       |  | $          | 24,810 |        | 1.25% |       | Jul. 2016
    – Jan.2024 |                       | 
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|SECONDHAND                  |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Kamsarmax                   |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|TBN Pedhoulas
    Commander |  | 83,700    |  | 2008
    (10) |  | Japan |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|Subtotal                    |  | 660,900   |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|                            |  |           |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  
|TOTAL                       |  | 2,943,300 |  |               |  |       |  |            |        |        |       |       |                          |                       |  |  








|(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. Charter agreements may provide for additional payments, namely ballast bonus, to compensate for vessel repositioning.                                         
|    |                                                                                                                                                                                                                                                                                                                                     
|(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 15, 2013, 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) | Fifth year charter rate of a five year charter agreement which provided for variable charter rates.                                                                                                                                                                                                                                 



27







|(7)  | A period time charter with a forward delivery date in August of 2013 at a gross daily charter rate linked to the Baltic Panamax Index (“BPI”) plus a premium of 6.5%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(8)  | A period time charter at a gross daily charter rate linked to the BPI plus a premium of 4%. Net daily charter rate payable is being reduced by an amount equal to $1,000 per day.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(9)  | 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. The Company holds a right of first refusal to buy back the vessel in the event that the charterer exercises its option to purchase the vessel and subsequently offers to sell such vessel to a third party.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(10) | Vessel is scheduled to be delivered to us in March 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



From the beginning of 1995 through February 15, 2013, we have
taken delivery of 33 newbuilds and two secondhand vessels. As of February 15, 2013, we were contracted to take delivery of six
Japanese-built newbuilds and one Japanese-built secondhand vessel, comprised of three Panamax class vessels, one Kamsarmax class
vessel, two Post-Panamax class vessels and one Capesize class vessel. As of February 15, 2013, our remaining capital expenditure
requirements were $198.8 million, of which $69.7 million is payable in 2013, $76.1 million in 2014 and $53.0 million in 2015.



Chartering of Our Fleet



Our vessels are used to transport bulk cargoes, particularly
coal, grain and iron ore, along worldwide shipping routes. We may employ our vessels in time charters or in voyage charters.



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, where the vessel performs one or more voyages
between load port(s) and discharge port(s). Based on the duration of vessel’s employment, a time charter can be either a
long-term, or period, time charter with duration of more than three months, or a short-term, or spot, time charter with duration
of up to three months. 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, tonnage
taxes, drydocking and intermediate and special surveys. During 2012, all of our vessels were employed under time charter contracts.



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. Voyage charters together with spot time charterers are referred to in our industry
as employement in the spot market.



We intend to employ our vessels on both period time charters
and spot time 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 maintain our flexibility in low charter market
conditions.



28







Our Customers



Since 2005 our customers have included over 30 national, regional
and international companies, including Bunge, Cargill, Daiichi, Intermare Transport G.m.b.H., Eastern Energy Pte. Ltd., NYK, NS
United Kaiun Kaisha, Kawasaki Kisen Kaisha, Oldendorff Carriers or their affiliates. During 2012, two of our charterers accounted
for 62.9% of our revenues, namely Daiichi and Kawasaki Kisen Kaisha, with each one accounting for more than 10% of total revenues.
During 2011, two of our charterers accounted for 66.1% of our revenues, namely Daiichi 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, Kawasaki Kisen Kaisha and Cargill, with each one accounting for more than 10% of total revenues. 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
fixed management fee of $700 per day per vessel. In return for chartering services rendered to us, our Manager also receives a
variable fee of 1.25% on all freight, charter hire, ballast bonus and demurrage for each vessel. Our Manager also receives a sales
fee of 1.0% based on the contract price of any vessel sold by it on our behalf, and an acquisition fee of 1.0% based on the contract
price of any vessel bought by it on our behalf, including the acquisition of each of our contracted newbuilds. We also pay our
Manager a 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.



29







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 15, 2013 our fleet had an average age of
4.8 years compared to an industry average of approximately ten years. Upon delivery of our contracted newbuilds and secondhand
vessel, 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, 2012, approximately 506 people served on board the vessels in our fleet, and our Manager employed approximately
48 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 involves 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, the risk of piracy 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,



30





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 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.



31







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 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, subject to certain
conditions. In the event that an “in water survey” notation is assigned as part of a particular intermediate survey,
drydocking would be required for the following special survey thereby generally achieving a higher utilization for the relevant
vessel. Drydocking can be undertaken as part of a special survey if the drydocking occurs within 15 months prior to the



32





special
survey deadline. 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:



|Vessel
Name        |  | Drydocking     |  | Special
Survey
|------------------ |  | -------------- |  | --------------
|Maria              |  | January 2016   |  | April 2013    
|Vassos             |  | November 2013  |  | February 2014 
|Katerina           |  | May 2014       |  | May 2014      
|Maritsa            |  | January 2015   |  | January 2015  
|Efrossini          |  | February 2016  |  | February 2017 
|Koulitsa           |  | April 2013     |  | April 2013    
|Paraskevi          |  | January 2016   |  | January 2018  
|Pedhoulas Merchant |  | October 2015   |  | March 2016    
|Pedhoulas Trader   |  | October 2015   |  | May 2016      
|Pedhoulas Leader   |  | November 2015  |  | February 2017 
|Pedhoulas Builder  |  | May 2016       |  | May 2017      
|Pedhoulas Fighter  |  | August 2016    |  | August 2017   
|Pedhoulas Farmer   |  | September 2016 |  | September 2017
|Stalo              |  | September 2015 |  | January 2016  
|Marina             |  | August 2015    |  | January 2016  
|Sophia             |  | June 2016      |  | June 2017     
|Eleni              |  | November 2013  |  | November 2013 
|Martine            |  | February 2014  |  | 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
|Venus Horizon      |  | February 2016  |  | February 2017 
|Pelopidas          |  | November 2015  |  | November 2016 










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, the American Bureau of Shipping or Nippon Kaiji Kyokai, each of which is a member
of IACS.



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



33





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 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 might be unable to hire another party to perform these and other services for the present fee structure
and related costs. 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.



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 could 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



34





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 took 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
took effect in January 2013. The requirements 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.



The IMO adopted new guidelines in 2012 under the revised Annex
V to MARPOL, which prohibit discharge of garbage into the open sea, with certain exceptions, and require vessels to dispose of
garbage at port garbage reception facilities. These guidelines became effective in January 2013. 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.



The operation of our vessels is also affected by the requirements
set forth in the IMO’s International Safety Management (“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.



35





Although all our vessels are currently ISM Code-certified,
such certification may not be maintained by all our vessels at all times. Non compliance 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 Maritime Labour Convention



TheInternational Labour Organization’s
Maritime Labour Conventionwas adopted in 2006 (“MLC 2006”).The basic aims of the
MLC 2006 are to ensure comprehensive worldwide protection of the rights of seafarers (the Convention is sometimes called the Seafarers’
Bill of Rights) and, to establish a level playing field for countries and ship owners committed to providing decent working and
living conditions for seafarers, protecting them from unfair competition on the part of substandard ships. The
Convention was ratified on August 20, 2012, and all vessels need to be certified by August 20, 2013.We do not expect that
the MLC 2006 requirements to have a material effect on our operations.



The U.S. Oil Pollution Act of 1990



The 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 these requirements 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.



36





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 that had 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 exceed 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, and on 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 National Pollutant Discharge Elimination System (“NPDES”)
Vessel General Permit, or “VGP,” to



37





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 anticipate incurring 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.



The EPA recently proposed a draft of the 2013 VGP, which is
expected to be finalized in March 2013 and become effective in December 2013. The 2013 VGP would require most vessels to meet numeric
ballast water discharge limits based on a staggered schedule based on the first dry docking after January 1, 2014, or January 1,
2016 (depending on vessel ballast capacity). The 2013 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 2013 VGP could also require vessel modifications, the installation of ballast treatment equipment, or otherwise
increase the costs of operating in the relevant waters.



U.S. Air Emission Requirements



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, some individual states, including California, have attempted to regulate vessel emissions within state
waters. The California Air Resources Board recently adopted Ocean-Going Vessel (“OGV”) fuel content regulations that
would apply to all vessels sailing within 24 nautical miles off the California coast and whose itineraries call for them to enter
California ports, terminal facilities or estuarine waters. Changes to the OGV rule in 2012 included more stringent sulfur limits
on marine gas oil used by commercial vessels in California waters. We do not expect current U.S. requirements to have a material
effect on our operations, and the OGV requirements are not expected to be applicable because 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 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



38





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. In 2012, the U.S. Coast Guard finalized amendments to its ballast water management regulations
that impose stricter discharge limits for allowable concentrations of various invasive species and include approval process requirements
for ballast water management systems. The regulations require ships calling at U.S. ports to treat ballast water, and regularly
remove hull fouling. In particular, it is required for existing vessels to be equipped with approved ballast water treatment systems
by their first dry-docking after January 2016 and for newbuilds with a keel laying date after December 2013 to be equipped upon
their delivery. These regulations will require modifications and installation of ballast water treatment equipment to our current
vessels that call in U.S. ports, resulting in significant capital expenditures and an increase in our operational costs to call
in U.S. ports.



Several U.S. states, including Michigan and California, adopted
legislation or regulations relating to the permitting and management of ballast water discharges. These requirements do not currently
impact our operational costs, because our vessels typically do not enter California or Michigan ports. However, 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 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 October 2012, the BWM Convention had been adopted by 36 states, representing approximately 29% 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 additional 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



39





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 2007 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 result in financial impacts on our operations that we cannot predict with
certainty at this time.



Vessel security regulations



Several 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.



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 35 subsidiaries,
25 of which are incorporated in Liberia, nine in the Republic of The Marshall Islands and one in the Republic of Cyprus. Our subsidiaries
are wholly-owned by us. A list of our subsidiaries as of February 15, 2013 is set forth in Exhibit 8.1 to this annual report.



40





|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 15, 2013 our fleet consisted of 25
drybulk vessels, and we had contracts for an additional six newbuild vessels and one secondhand vessel with an aggregate capacity
of 2,943,300 dwt. We deploy our vessels on a mix of period time and spot time 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 time 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 15, 2013, 17 out of 25 vessels in our fleet were employed on period time charters and the remainder on spot time charters.
We believe our customers, some of which have been chartering our vessels for over 23 years, enter into period time and spot time
charters with us because of the quality of our young and modern vessels and our record of safe and efficient operations.



The average number of vessels in our fleet for the years ended
December 31, 2010, 2011 and 2012 was 14.6, 16.4 and 21.1 respectively.



After delivery of our contracted newbuilds and secondhand vessel,
our drybulk fleet will consist of 32 vessels and will have an aggregate carrying capacity of 2,943,300 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



41





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, 2012, 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 spot 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 spot 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.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | The following table reflects our time charter
revenues, commissions, voyage expenses, time charter equivalent revenue, available days and time charter equivalent rate for the
periods indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        





| |  |                                 |  | Year Ended December 31,                                                               |        
| |  | ------------------------------- |  | ------------------------------------------------------------------------------------- | -------
| |  |                                 |  |                                                                                       |        
| |  |                                 |  | 2010                                                                                  |        
| |  |                                 |  |                                                                                       |        
| |  |                                 |  | (In thousands of U.S. dollars except available days and time charter equivalent rate) |        
| |  | Time charter revenues           |  | $                                                                                     | 159,698
| |  | Less commissions                |  |                                                                                       | 2,678  
| |  | Less voyage expenses            |  |                                                                                       | 610    
| |  |                                 |  |                                                                                       |        
| |  | Time charter equivalent revenue |  | $                                                                                     | 156,410
| |  |                                 |  |                                                                                       |        
| |  | Available days                  |  |                                                                                       | 5,296  
| |  |                                 |  |                                                                                       |        
| |  | Time charter equivalent rate    |  | $                                                                                     | 29,534 



42







| | · | 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, tonnage taxes 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Daily general and administrative expenses. We define daily general and administrative
    expenses to include daily management fees, defined below, and the costs payable to third parties in relation to our operation
    as public company. Daily vessel general and administrative expenses are calculated by dividing general and administrative
    expenses by ownership days for the relevant period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Daily management fees. We define daily management fees to include
    the fixed and the variable fees payable to our Manager. Daily management fees are calculated by dividing management fees by
    ownership days for the relevant period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   | The following table reflects our ownership days, available days,
operating days, fleet utilization, TCE rates, daily vessel operating expenses, daily general and administrative expenses and daily
management fees for the periods indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         





|                                              |  | Year Ended December 31, |       
|--------------------------------------------- |  | ----------------------- | ------
|                                              |  |                         |       
|                                              |  |                         | 2010  
|                                              |  |                         |       
|Ownership days                                |  |                         | 5,326 
|Available days                                |  |                         | 5,296 
|Operating days                                |  |                         | 5,269 
|Fleet utilization                             |  |                         | 98.93 
|TCE rates                                     |  | $                       | 29,534
|Daily vessel operating expenses               |  | $                       | 4,342 
|Daily general and administrative expenses (1) |  | $                       | 1,318 
|Daily management fees                         |  | $                       | 916   










|(1) | Includes daily management fees.
|--- | -------------------------------



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:



43







| | · | 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 either as unearned revenue or accrued revenue (see “—Unearned Revenue / Accrued
Revenue” below). Commissions (address and brokerage), regardless of charter type, are always charged to 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 99.5%, 92.0%
and 88.1% respectively, of our charter revenues for the years ended December 31, 2010, 2011 and 2012. The revenues from our spot
time charters comprised 0.5%, 8.0% and 11.9%, respectively, of our charter revenues for the years ended December 31, 2010, 2011
and 2012.



Unearned Revenue / Accrued Revenue



Unearned revenue as of December 31, 2012 includes: (i) cash
received prior to the balance sheet date relating to services to be rendered after the balance sheet date amounting to $3.9 million
as of December 31, 2012 and (ii) deferred revenue resulting from straight-line revenue recognition in respect of charter agreements
that provide for variable charter rates amounting to $17.7 million, all of which will be recognized as revenue during the period
from January 1, 2013 until March 1, 2015.



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 variable charter rates amounting to $36.9 million, all of which would be recognized as revenue during the period
from January 1, 2012 until March 1, 2015.



Accrued revenue as of December 31, 2012 of $0.6 million represents
revenue earned prior to cash being received in respect of charter agreements that provide for variable charter rates. No accrued
revenue was recognized during the year ended December 31, 2011.



Commissions



We pay commissions currently ranging up to 5.0% on our period
time and spot time charters, to unaffiliated ship brokers, other brokers associated with our charterers and to our charterers.
These commissions are directly



44





related to our revenues, from which they are deducted. The amount of our total commissions to unaffiliated
ship brokers and other brokers associated with our charterers and to our charterers might grow, as revenues increase due to improving
market conditions and delivery of our six remaining contracted newbuilds and one secondhand vessel, or decrease as a result of
deteriorating market conditions. 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 spot 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 or for vessel repositioning, postage
and other minor miscellaneous expenses related to the voyage. As our past period time charter contracts expire we expect that our
voyage expenses will continue to increase in the future due to the increased number of vessels operated in the spot market, which
involves increased vessel repositioning costs. 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 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, tonnage taxes and other minor miscellaneous items. We expect that our vessel operating expenses will continue
to increase in the future as our fleet grows. Additionally, our crewing costs, which are a significant part of our vessel operating
expenses, are expected to continue to increase in the future due to the limited supply and increase in demand for well-qualified
crew. Furthermore, we expect that insurance costs, drydocking and maintenance costs will increase as our vessels age. A portion
of our vessel operating expenses and 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 is equal to the product of its lightweight tonnage and estimated scrap rate, which is estimated 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.



45





For the years ended December 31, 2011 and 2012, we capitalized
interest amounting to $1,471,785 and $966,161 respectively.



Under our Management Agreement with our Manager, for purchases
of vessels including with respect to each of our six remaining contracted newbuilds and our one secondhand contracted vessel, we
will pay our Manager an acquisition fee 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, according to an agreement
between us and our Manager, we pay our Manager a supervision fee in respect of each 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.
As of May 28, 2008 the supervision fee was $0.375 million, and as of May 29, 2011 the supervision fee was readjusted to $0.550
million. These amounts charged by 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; the fixed fee at $575 per day per vessel and the
variable fee at 1.0% on gross freight, charter hire, ballast 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 variable 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 fixed fee was readjusted to $700 per day
per vessel from $575 per day. As of May 29, 2012, no increase has been made to any of the fees paid by us to our Manager under
the Management Agreement.



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



Although we have not, within the past eight 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 six contracted newbuilds and our one contracted secondhand vessel and as a result of potential fleet expansion in the future.



Interest Expense and Other Finance Costs



We incur interest expense on outstanding indebtedness under
our existing loan and 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.



46







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 sales fee of 1.0% of the sale price of the vessel. Under our Management Agreement, we are
required to pay our Manager a sales fee 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, reduce
our third party risk or maintain the opportunity to re-employ the vessel either in the spot market or in the period time charter
market at adequate levels.



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 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



47





redelivered on November 12,
2010, and was subsequently fixed in the spot market at a gross daily charter rate of $21,750.



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.



On December 15, 2012, we took early redelivery of the Martine,
instead of the contracted earliest redelivery date of January 21, 2014. In connection with this early redelivery, we recognized
early redelivery income of $8.5 million, comprising cash compensation paid by the relevant charterer of $8.6 million, net of commissions,
less accrued revenue of $0.1 million. 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 $9,500.



On December 19, 2012, we took early redelivery of the Maria,
instead of the contracted earliest redelivery date of February 24, 2014. In connection with this early redelivery, we recognized
early redelivery income of $3.2 million, comprising cash compensation paid by the relevant charterer of $3.4 million, net of commissions,
less accrued revenue of $0.2 million. 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 $6,250.



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.



48





The carrying values of our vessels may not represent their
fair market value at any point in time since the market prices of secondhand 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 drybulk
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.



Our analysis of the impairment test performed for the year ended
December 31, 2011, indicated a variance of plus 12% for the first twelve months, between actual net receipts during 2012 and net
receipts forecasted by the company for the same period. Our analysis of the impairment test performed for the year ended December
31, 2012, 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 36% 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, 2012 compared to year ended
December 31, 2011



During the year ended December 31, 2012, we had an average
of 21.1 drybulk vessels in our fleet. 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, 2012, we acquired
the vessels Efrossini, a Panamax class vessel, Venus Horizon, a Post-Panamax class vessel, and Pedhoulas Builder,
Pedhoulas Fighter,andPedhoulas Farmer, all Kamsarmax class vessels. Additionally, during November 2012 we acquired
the Koulitsa, a secondhand Panamax class vessel.



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



Revenues



49





Revenues increased by 9.1%, or $15.6 million, to $187.6
million during the year ended December 31, 2012 from $172.0 million during the year ended December 31, 2011, as result of the
net effect of the following factors: (i) a decrease in the TCE rate for 2012 by 17.7% to $22,979, compared to $27,932 for 2011
due to the decrease in prevailing charter rates and (ii) an increase in operating days for the year ended December 31, 2012 by
28.4% to 7,654 days, compared to 5,962 days for the year ended December 31, 2011, due to deliveries of the vessels Efrossiniand Venus Horizon in February 2012, Pedhoulas Builderin May 2012, Pedhoulas Fighterin August 2012,
Pedhoulas Farmerin September 2012 and Koulitsain November 2012.



Commissions



Commissions to unaffiliated ship brokers, other brokers
associated with our charterers and our charterers during the year ended December 31, 2012 amounted to $3.3 million, an increase
of $0.2 million, or 6.5%, compared to $3.1 million during the year ended December 31, 2011, due to the increase in our revenues
and a decrease in our lower average contracted commissions, which were reduced to 1.74% from 1.81% for the years ended December
31, 2012 and 2011, respectively.



Vessel operating expenses



Vessel operating expenses increased by 32.7% to $34.5
million during the year ended December 31, 2012 from $26.0 million during the year ended December 31, 2011. This increase is due
to the following main factors:



(i) the increase of ownership days by 28.8% from 5,992
in 2011 to 7,716 in 2012;



(ii) the increase of crewing cost by 30.3% to $17.2 million
in 2012, compared to $13.2 million in 2011, primarily due to the increased number of ownership days;



(iii) the increase of cost for spares, stores and provisions
by 68.3% to $6.9 million in 2012, compared to $4.1 million in 2011, attributed to increased use of spares for repairs and increased
number of initial supplies for six vessels delivered in 2012 compared to two delivered in 2011;



(iv) the increase of cost for lubricants by 6.5% to $3.3
million in 2012, compared to $3.1 million in 2011 as a net effect of increased number of ownership days and lower costs for lubricants
in 2012 compared to 2011;



(v) the increase of cost for insurances by 21.7% to $2.8
million, compared to $2.3 million mainly due to increased number of ownership days; and



(vi) the increase of repairs and dry-docking costs by
9.5% to $2.3 million in 2012, compared to $2.1 million in 2011, as a net effect of increased repairs costs and reduced dry-docking
costs of vessels in 2012 compared to 2011.



Consequently, daily operating expenses, which is defined
as the operating expenses per vessel per ownership day, increased by 2.9% to $4,476 during the year ended December 31, 2012 from
$4,350 during the year ended December 31, 2011.



Depreciation



Depreciation expense increased by 36.9% to $32.3 million
during the year ended December 31, 2012, compared to $23.6 million during the year ended December 31, 2011, due to the increase
in the average number of vessels from 16.4 during the year ended December 31, 2011 to 21.1 during the year ended December 31, 2012.



General and administrative expenses



General and administrative expenses increased by 16.5%
to $9.9 million during the year ended December 31, 2012, compared to $8.5 million during the year ended December 31, 2011. The
increase of $1.4 million is due



50





to the net effect of: (i) the increase in the management fees charged by our Manager to $7.7 million
in 2012 from $6.0 million in 2011 as a result of the increased ownership days of 7,716 in 2012, from 5,992 in 2011; and (ii) the
decrease in expenses charged by third parties of $2.2 million in 2012, from $2.5 million in 2011.



Daily general and administrative expenses decreased by
9.0% to $1,289, during the year ended December 31, 2012 from $1,417, during the year ended December 31, 2011.



Daily management fees, which are the part of daily general
and administrative expenses payable to our Manager, decreased by 0.5% to $1,001 during the year ended December 31, 2012, from $1,006
during the year ended December 31, 2011.



Interest expense



Interest expense increased by 71.7% to $9.1 million during
the year ended December 31, 2012, from $5.3 million during the year ended December 31, 2011. The $3.8 million increase in interest
expense was mainly attributable to: (i) the average loans outstanding of $533.7 million during the year ended December 31, 2012,
compared to the average loans outstanding of $460.4 million during the year ended December 31, 2011; (ii) the weighted average
interest rate of our outstanding indebtedness of 1.850% per annum (“p.a.”) for the year ended December 31, 2012 compared
to the weighted average interest rate of our outstanding indebtedness of 1.439% p.a. for the year ended December 31, 2011, due
to higher margins incurred on certain new loans drawn during the year ended December 31, 2012 and higher prevailing LIBOR rates;
and (iii) lower capitalized interest expenses of $1.0 million during the year ended December 31, 2012 compared to $1.5 million
during the year ended December 31, 2011. The total principal amount of loans outstanding as of December 31, 2012 was $615.7 million,
compared to $484.3 million as of December 31, 2011.



Loss on derivatives



Loss on derivatives decreased by $7.1 million to $5.4
million during the year ended December 31, 2012 from $12.5 million during the year ended December 31, 2011. The decrease of $7.1
million reflects mainly a decrease in losses of $7.0 million from interest rate derivatives as a result of the realized loss and
the mark-to-market valuation of interest rate swap transactions to $5.4 million for the year ended December 31, 2012 compared to
$12.5 million for the year ended December 31, 2011.



As of December 31, 2012, the aggregate notional amount
of interest rate swap transactions outstanding was $505.8 million, compared to $547.1 million as of December 31, 2011. An aggregate
notional amount of $53.7 million of interest rate swap transactions outstanding as of December 31, 2012 will become effective during
the year ending December 31, 2013, upon the expiration of the existing interest rate swap transactions relating to such loans.
These swaps economically hedged the interest rate exposure of 83% of the Company’s aggregate loans outstanding as of December
31, 2012 that bear interest at LIBOR. 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 zero millions during the year
ended December 31, 2012, compared to a gain of $0.8 million during the year ended December 31, 2011. Foreign currency exchange
gains or losses result primarily from currency translation or currency conversion of advances for vessel acquisitions and vessels
under construction denominated in foreign currencies or from currency payments of supplies or services denominated in foreign currencies.



Early redelivery income, net



51





During the year ended December 31, 2012, we recorded
early redelivery income, relating to the early termination of period time charters of our vessels, of $11.7 million compared to
$0.2 million early redelivery income during the year ended December 31, 2011. Early redelivery income during the year ended December
31, 2012 is analyzed as follows: (i) On December 15, 2012, we took early redelivery of the Martine, instead of on January
21, 2014, and in connection with this early redelivery, we recognized early redelivery income of $8.5 million, comprising cash
compensation paid by the relevant charterer of $8.6 million, net of commissions, less accrued revenue of $0.1 million;(ii)on December 19, 2012, we took early redelivery of
the Maria, instead of on February 24, 2014, and in connection with this early redelivery, we recognized early redelivery
income of $3.2 million, comprising cash compensation paid by the relevant charterer of $3.4 million, net of commissions, less
accrued revenue of $0.2 million.



Voyage expenses



During the year ended December 31, 2012, we recorded
voyage expenses of $7.3 million, compared to $2.0 million during the year ended December 31, 2012, as a result of increased vessel
repositioning expenses.



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



52





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.



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 fixed daily fee per vessel to $700 from $575.



Daily general and administrative expenses increased by
7.5% to $1,417, during the year ended December 31, 2011 from $1,318, during the year ended December 31, 2010.



Daily management fees, which are the part of daily general
and administrative expenses payable to our Manager, increased by 9.8% to $1,006 during the year ended December 31, 2011, from $916
during the year ended December 31, 2011.



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% 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



53





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 108% of the Company’s aggregate loans outstanding as of December 31, 2011 that bear interest at
LIBOR. 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



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.



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



As of December 31, 2012, we had $129.4 million in cash and restricted
cash, of which $102.7 million consisted of cash and cash equivalents, $22.8 million consisted of short-term restricted cash and
$3.9 million was long-term restricted cash. In addition, as of December 31, 2012, we had $50.0 million in a long-term floating
rate note investment (for more information, please see Note 9 to our financial statements included at the end of this annual report).



As of February 15, 2013, we had $73.7
million in cash, time deposits and restricted cash of which $46.4 million consisted of cash and cash equivalents, $0.6 million consisted
of short-term time deposits, $22.8 million was short-term restricted cash and $3.9 million was long-term restricted cash.
In addition, as of February 15, 2013, we had $50.0 million in a long-term floating rate note
investment.



As of December 31, 2012, we had aggregate debt outstanding of
$615.7 million, of which $19.2 million was payable within the next 12 months. As of December 31, 2012, we had an aggregate additional
borrowing capacity of $8.1 million available under existing revolving credit facilities. Additionally, we had one existing vessel
unencumbered and under certain conditions we could borrow up to $40.0 million in cash against our long-term floating rate note
investment.



As of February 15, 2013, we had an
aggregate additional borrowing capacity $68.9 million available under existing revolving credit facilities. Additionally,
we had two existing vessels unencumbered and under certain conditions we could borrow up to $40.0 million in cash against our long-term
floating rate note investment.



As of December 31, 2012, our commitments for vessel acquisitions
were $192.9 million, consisting of $80.8 million, payable in 2013, $59.1 million, payable in 2014, and $53.0 million, payable in
2015. As of December 31, 2012 the existing fleet consisted of 24 vessels and we had contracted to aqcuire six newbuilds and one
secondhand vessel, three of which were scheduled to be delivered in 2013, two in 2014 and two in 2015.



As of February 15, 2013, our commitments for vessel acquisitions
were $198.8 million, consisting of $69.7 million payable in 2013, $76.1 million payable in 2014, and $53.0 million payable in
2015. As of February 15, 2012,



54







the existing fleet consisted of 25 vessels and we had contracted to aqcuire six newbuilds and one secondhand vessel,
two of which were scheduled to be delivered in 2013, three in 2014 and two in 2015.

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, 2012 of $102.7 million, short-term restricted cash of $22.8
million, borrowings of $40 million against our long term floating rate note investment, additional undrawn borrowing capacity
of $8.1 million, cash from operations and possibly, additional indebtedness to be raised against our two existing unencumbered
vessels and against our six unencumbered newbuild vessels and the one contracted secondhand vessel upon their delivery to us,
and equity financing.



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 six newbuild
vessels and one secondhand vessel which are currently unencumbered, will be sufficient to fund the operations of our fleet, including
our working capital requirements, and the capital expenditure requirements through the end of 2013. However, during 2013 or 2014,
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 two existing vessels, our six newbuild vessels and one contracted secondhand
vessel upon their delivery to us, which are all 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 and secondhand vessels. A failure to fulfill our commitment would
generally result in a forfeiture of the advances we paid to the shipyard or the third party sellers with respect to the contracted
newbuilds and secondhand vessel. In addition, we may also be liable for other damages for breach of contract. Examples of such
liabilities could include payments to the shipyard or the third party seller for the difference between the forfeited advance
and the amount that remains to be paid by us if the shipyard or the third party seller 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 $37.5 million over
three consecutive quarterly dividends, each in the amount of $0.15 per share, followed by one consecutive quarterly dividend in
the amount of $0.05 per share, paid during 2012. We also declared a dividend of $0.05 per share, payable on or about March 8,
2013, to our shareholders of record on March 4, 2013. 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 be
reduced or not be paid in the future.

55





Cash Flows



Cash and cash equivalents increased
to $102.7 million as of December 31, 2012, compared to $28.1 million as of December 31, 2011. 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 $105.1 million in 2012, consisting of net income after non-cash items of $126.9 million less an increase
in working capital of $21.8 million.



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 Used in Investing
Activities



Net cash flows used in investing
activities were $158.1 million for the year ended December 31, 2012 compared to net cash flows used in investing activities of
$125.9 million for the year ended December 31, 2011. The increase in cash flows used in investing activities of $32.2 million
from 2011 is mainly attributable to the net effect of the following factors: (i) no change in our net bank time deposits during
the year ended December 31, 2012, compared to a decrease of $35.0 million during the same period in 2011; (ii) a decrease of $24.1
million in payments for vessel acquisitions and advances for vessels under construction during the year ended December 31, 2012,
due to the net effect of the cancellation of newbuild Hull JO131 of $32.4 million and an increase of $8.3 million in advances
paid; and (iii) net increase in restricted cash of $21.3 million during the year ended December 31, 2012, due to an increase in
the restricted cash used as loan and credit facilities collaterals, compared to no change during the year ended December 31, 2011.



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; (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
and Venus Heritage in December; 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 Provided by/(Used
in)Financing Activities



Net cash flows provided by financing
activities were $127.7 million for the year ended December 31, 2012, compared to net cash flows used in financing activities of
$18.5 million for the year ended December 31, 2011. This increase of $146.2 million, compared to the year ended December 31, 2011,
is largely attributable to an increase of $86.8 million in long-term debt principal payments, offset by an increase in long-term
debt proceeds of $228.6 million, a decrease in dividends paid of $4.3 million, a decrease in payments of deferred financing costs
of $4.4 million and a decrease of $4.4 million in proceeds from the issuance of common stock.



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

56





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.



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. In 2012, six of our subsidiaries entered into a new credit facility
which was used to fully refinance the outstanding balances under six individual credit facilities that had been previously entered
into with the same bank. The durations until maturity of our 17 credit facilities outstanding on December 31, 2012, ranged from
two to 12 years, and they are generally repaid by semi-annual principal installments and a balloon payment due on maturity, for
13 of them, and by semi-annual principal installments for four of them. We generally pay interest on these facilities at LIBOR
plus a margin, except for four 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 2012, we drew down loans
totaling $312.6 million and we repaid $181.3 million of our indebtedness. As of December 31, 2012, we had 17 outstanding credit
facilities with a combined outstanding balance of $615.7 million. These debt facilities have maturity dates between 2014 and 2024.
For a description of our debt facilities as of December 31, 2012, please see Note 8 to our financial statements included at the
end of this annual report. During 2013, we are scheduled to repay approximately $19.2 million of our long-term debt outstanding
as of December 31, 2012. During 2012, we entered into a new loan facility in the amount of $34.0 million for Efrossini,
a new credit facility in the amount of $18.0 million for Pedhoulas Farmerand a new loan facility in the amount of $17.9
million for Pedhoulas Builder.



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;                                                                                                                                                          



57







| | · | 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 100% 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:



| | · | our
                                                                                                       total consolidated liabilities
                                                                                                       with the relevant bank
                                                                                                       divided by our total consolidated
                                                                                                       assets must not exceed
                                                                                                       80% or 85% 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 or the ratio of our aggregate debt after
                                                                   deducting cash to EBITDA must not at any time exceed 8.5:1 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;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | · | 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, 2012, the
Company was in compliance with all debt covenants with respect to its loan and credit facilities.

58





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. On February 3, 2012, the BDI reached a low of 647, due to a combination
of weak demand and further growth in vessel supply. As of February 15, 2013, the BDI was 753.



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.



In response to the volatile market
conditions, we seek to strengthen our charter coverage. Currently, 17 of our 25 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, 2012, we did
not have any off-balance sheet arrangements.



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



Our contractual obligations as
of December 31, 2012 were:

59







|                                |  | Total |                                                                                       |  | Less
    than 1 year (2013) |   |         | 1-3
    years (2014-2015) |  |   | 3-5
    years (2016-2017) |  |  | More
    than 5 years (After January 1, 2018) |        
|------------------------------- |  | ----- | ------------------------------------------------------------------------------------- |  | --------------------------- | - | ------- | ------------------------- |  | - | ------------------------- |  |  | --------------------------------------------- | -------
|                                |  |       |                                                                                       |  |                             |   |         |                           |  |   |                           |  |  |                                               |        
|                                |  |       | (Dollars
                                                               in thousands) |  |                             |   |         |                           |  |   |                           |  |  |                                               |        
|Long-term debt
    obligations  |  | $     | 615,667                                                                               |  |                             | $ | 19,199  |                           |  | $ | 122,448                   |  |  | $                                             | 120,291
|                                |  |       |                                                                                       |  |                             |   |         |                           |  |   |                           |  |  |                                               |        
|Interest payments (1)           |  | $     | 71,499                                                                                |  |                             | $ | 16,743  |                           |  | $ | 25,568                    |  |  | $                                             | 16,979 
|Payments to our Manager
    (2) |  | $     | 16,032                                                                                |  |                             | $ | 10,050  |                           |  | $ | 5,982                     |  |  |                                               | —      
|Newbuild
    contracts          |  | $     | 187,309                                                                               |  |                             | $ | 78,376  |                           |  | $ | 108,933                   |  |  |                                               | —      
|                                |  |       |                                                                                       |  |                             |   |         |                           |  |   |                           |  |  |                                               |        
|Total                           |  | $     | 890,507                                                                               |  |                             | $ | 124,368 |                           |  | $ | 262,931                   |  |  | $                                             | 137,270








| | 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 0.5083% (the six-month LIBOR rate as of December
                                                      31, 2012), plus the relevant margin of the applicable credit facility and
                                                      the estimated net settlement of our interest rate swaps. See “Item
                                                      5. Operating and Financial Review and Prospects — B. Liquidity and
                                                      Capital Resources—Interest Rate Swaps.”                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 2. | Represents the fixed fee of $700 per vessel
                                                      per day and the variable fee of 1.25% of estimated charter hire based on
                                                      charter agreements in place as of December 31, 2012, based on the management
                                                      fees effective as of May 29, 2012. In addition, it includes amounts payable
                                                      to our Manager under the Management Agreement in respect of the acquisition
                                                      fees for each of the six newbuilds and one contracted secondhand vessel
                                                      and the supervision fees for each of the six newbuilds, which are described
                                                      elsewhere herein. 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 15, 2013, information regarding our directors and executive officers.



|Name                     |  | Age |  | Position                                                           
|------------------------ |  | --- |  | -------------------------------------------------------------------
|                         |  |     |  |                                                                    
|Polys Hajioannou         |  | 46  |  | Chief Executive Officer, Chairman of the Board and Class I Director
|Dr. Loukas Barmparis     |  | 50  |  | President, Secretary and Class II Director                         
|Konstantinos Adamopoulos |  | 50  |  | Chief Financial Officer and Class III Director                     
|Ioannis Foteinos         |  | 54  |  | Chief Operating Officer and Class I Director                       
|John Gaffney             |  | 52  |  | Class II Director                                                  
|Frank Sica               |  | 62  |  | Class III Director                                                 
|Ole Wikborg              |  | 57  |  | Class I Director                                                   



Certain biographical information
about each of these individuals is set forth below. The term of our Class I directors expires in 2015, 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

60





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
(“M.B.A.”) 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 M.B.A. 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 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,

61





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.
Prior 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. Mr. Gaffney is a graduate of The George Washington
University, where he received a B.A degree, and of New York University, where he received his J.D. and M.B.A. degrees.



|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, 2012, 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. Information regarding the period
which each director served and the date of expiration of each director’s current term is available in “Item 6. Directors,
Senior Management and Employees—A. Directors and Senior Management.”



During the fiscal year ended
December 31, 2012, the full board of directors held four meetings. Each director attended all of the meetings of committees of
which the director was a member in person or electronically. 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

62





Exchange and the SEC. 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, 16673,
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, 16673, 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;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

63





| | · | discussing
                                                                                                               policies with respect
                                                                                                               to risk assessment
                                                                                                               and risk management;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | · | 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.                                                                                                                                                                                                                                                                                    



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, 2012, approximately
506 people served on board the vessels in our fleet, and our Manager employed approximately 48 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.

64





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.



|ITEM7. | 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 15, 2013 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 15, 2013 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 76,670,460 shares of common stock outstanding as of February 15, 2013.
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)                                    |  |                                        | 46,426,015 |  |                            | 
|Officers and Directors:                                     |  |                                        |            |  |                            | 
|Polys Hajioannou (2)                                        |  |                                        | 46,426,015 |  |                            | 
|Dr. Loukas Barmparis                                        |  |                                        | —          |  |                            | 
|Konstantinos Adamopoulos                                    |  |                                        | —          |  |                            | 
|Ioannis Foteinos                                            |  |                                        | —          |  |                            | 
|Frank Sica                                                  |  |                                        | 9,281      |  |                            | 
|Ole Wikborg                                                 |  |                                        | 13,954     |  |                            | 
|John Gaffney                                                |  |                                        | 13,954     |  |                            | 
|All executive officers and directors as a group (7 persons) |  |                                        | 46,463,204 |  |                            | 












|*   | Less than 1%                                                          
|--- | ----------------------------------------------------------------------
|(1) | Vorini Holdings Inc. is controlled by Polys Hajioannou and his family.



65





|(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 15, 2013, we had five stockholders of record, three of these stockholders of record were located in the United
States and held an aggregate 31,156,506 shares of common stock, representing approximately 40.6% 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 31,133,271 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
60.55% 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, commercial and certain other 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 commercial and certain other 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.

66





Commercial Services



These services include chartering
the vessels that 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 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 fixed 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 variable 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 an acquisition fee of 1.0% based on the
contract price of any vessel bought and a sales fee of 1.0% based on the contract price of any vessel sold by it on our behalf,
including each of our contracted newbuilds. We also pay our Manager a 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 variable fee on gross freight, charter hire,
ballast bonus and demurrage was readjusted to 1.25% from 1.0%. On May 29, 2011, the fixed fee per vessel was readjusted to $700
from $575 per day, and the supervision fee per newbuild was readjusted to $550,000 from $375,000, while all other management fees
remained constant. Since then all management fees have 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,
| | - | ----------------------------------------------



67





| | · | 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, tonnage taxes 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.



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 three one-year periods, expiring May 28, 2013. 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



68







| | · | 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



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

69





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;                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                
|(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.

70





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 45,500,000 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 are involved in an ongoing
arbitration dispute in London, England, with the Shipyard. We had entered into an agreement with the Shipyard for the construction,
sale and delivery by the Shipyard to us of one 180,000 DWT Capesize class newbuild vessel (Hull No. J0131) in exchange
for USD $53 million. In December 2012, after having paid $31.8 million in advances during construction, we exercised our termination
right under the agreement due to the Shipyard’s excessive construction delays and delivered demands to each of the Shipyard
and the refund guarantor, The Export Import Bank of China (a bank rated Aa3 by Moody’s Investor
Services), pursuant to the agreement and the refund guarantees, respectively, for a refund of the full amount of advances
paid, with interest. In response, in January 2013, the Company received a notice of arbitration, and arbitration proceedings with
the shipyard were initiated in London, England. The Shipyard alleges that our termination constitutes a breach of the agreement
and argues that we are not entitled to a refund of any of the advances paid or interest. We are vigorously pursuing the arbitration
and believe that the merits in this dispute rest in our favor. However, arbitration is inherently uncertain and we cannot provide
assurance that we will prevail because it is not possible to predict what the final outcome will be of any legal proceeding. An
award against us would require us to record the related liability and incur the cost thereof, which includes the amount of advances
already paid, the capitalized expenses recorded and any further damages to the Shipyard without receipt of the vessel.



We are not otherwise 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 other proceedings that are pending or threatened which may have a significant effect on
our business, financial position, results of operations or liquidity.

71





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 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, $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, November 2011, February 2012, May 2012 and August 2012, and $0.05 per share in November 2012. We also declared
a dividend of $0.05 per share on February 18, 2013, for the shareholders of record on March 4, 2013, payable on or about March
8, 2013.



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 be reduced or 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.



|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 sales prices for our common stock during the indicated periods.



72









|                    |  | Price Range |      
|------------------- |  | ----------- | -----
|                    |  |             | High 
|2008 (1)            |  | $           | 19.23
|2009                |  |             | 9.64 
|2010                |  |             | 9.18 
|2011                |  |             | 9.78 
|2012                |  |             | 7.73 
|                    |  |             |      
|First Quarter 2011  |  |             | 9.69 
|Second Quarter 2011 |  |             | 9.78 
|Third Quarter 2011  |  |             | 7.93 
|Fourth Quarter 2011 |  |             | 7.02 
|First Quarter 2012  |  |             | 7.73 
|Second Quarter 2012 |  |             | 7.00 
|Third Quarter 2012  |  |             | 6.66 
|Fourth Quarter 2012 |  |             | 5.96 
|                    |  |             |      
|August 2012         |  |             | 6.66 
|September 2012      |  |             | 6.21 
|October 2012        |  |             | 5.96 
|November 2012       |  |             | 5.69 
|December 2012       |  |             | 3.54 
|January 2013        |  |             | 4.22 
|February 2013(2)    |  |             | 4.10 












|(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 15, 2013.                                                                                                      





|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, 2012 and February 15, 2013, 76,661,451 and 76,670,460 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, 2012 and February 15, 2013, 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 10 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
|-- | --------------------------------------





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

73





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.



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

74





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

75





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



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



Until the rights distribution
date:



| | · | our common stock certificates will evidence the rights, and the rights will be transferable only with those certificates; and                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                         
| | · | any new 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

76





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 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

77





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 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.

78





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 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.

79





|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 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, any United States federal tax other than federal
income tax or the tax on net investment income imposed by Section 1411 of the Code. This discussion does not purport to address
the tax consequences of owning our common stock to all categories of investors, some of which (such as financial institutions,
regulated investment companies, real estate investment trusts, tax-exempt

80





organizations, insurance companies,
United States expatriates, persons holding our common stock as part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, persons liable for alternative minimum tax, pass-through entities and investors therein, persons who
own, actually or under applicable constructive ownership rules, 10% or more of our common stock, traders or dealers in securities
or currencies and United States holders whose functional currency is not the United States dollar) may be subject to special rules.
This discussion only addresses holders that hold the common stock as a capital asset. You are encouraged to consult your own tax
advisors concerning the overall tax consequences of the ownership of our common stock arising in your own particular situation
under United States federal, state, local or foreign law.



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.



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 (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 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

81





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 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.

82





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 preferential rates,
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 preferential rates. Dividends you receive from us that are not eligible for any preferential
rate will be taxed at the ordinary income rates.



Sale, Exchange or other
Disposition of Common Stock



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



83





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 earn, 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 time 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.

84





Taxation of United States
Holders That Make a Timely QEF Election



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                                                                                        



85





| | (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.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

86





| | (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 certain information with respect to an interest
in our common stock, including our name, address and such information as is necessary to identify the class or issue of which
the shares of common stock 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) held by the United States holder (and, as applicable by his or her spouse)
does not exceed a specified minimum amount.



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
|-------- | ----------------------------------------------------------



87







|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, 2012, compared to the same number of interest
rate swap agreements as of December 31, 2011, 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, 2012 was $505.8 million, of which $452.1 million was effective as of December 31, 2012
and $53.7 million becomes effective during 2013. The swaps have specified rates and durations. Refer to the table in Note 14 of
our financial statements included at the end of this annual report which summarizes the interest rate swaps in place as of December
31, 2012 and December 31, 2011. In January 2013, we entered into an interest rate transaction with a bank in respect of one of
our loan facilities for an initial notional amount of $14 million and duration of five years. For more information, refer to Note
23 of our financial statements included at the end of this annual report.



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 83.0% of our loans outstanding as of December 31, 2012, which bear interest
at LIBOR.



The following table sets forth
the sensitivity of our existing loans as of December 31, 2012 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       | 
|---- |  | ------------ | 
|2013 |  | $1.9 million | 
|2014 |  | $2.6 million | 
|2015 |  | $3.1 million | 
|2016 |  | $3.1 million | 
|2017 |  | $2.9 million | 



Foreign Currency
Exchange Risk



We generate all of our revenues
in U.S. dollars, but for the year ended December 31, 2012 we incurred approximately 26.42% of our vessel operating expenses in
currencies other than the U.S. dollar. As of December 31, 2012, approximately 28.02% of our outstanding accounts payable were
denominated in

88





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, 2012, would have increased
our vessel operating expenses by approximately $912,372 and the fair value of our outstanding accounts payable by approximately
$85,919.



As of December 31, 2012 a portion
of our remaining capital expenditures related to the agreements for the purchase of newbuilds was denominated in Japanese yen,
equivalent to $2.3 million. A hypothetical 10% immediate adverse move in the Japanese yen exchange rate from the rate in effect
as of December 31, 2012, would have increased our remaining capital expenditures by approximately $258,759. 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 2012 and 2011.



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



Not applicable.



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, 2012. 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 without limitations 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

89





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, 2012.



|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 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 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.



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, 2012, 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, 2012, 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, 2012 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 Shareholders of Safe Bulkers, Inc.,

Majuro, Republic of The Marshall Islands,

90







We have audited the internal control over financial reporting
of Safe Bulkers, Inc., and its subsidiaries (the “Company”) as of December 31, 2012, based on criteria established
inInternal Control — Integrated Framework issued 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 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, 2012, based on the criteria established inInternal Control
— Integrated Framework issued 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, 2012 of the Company and our report dated February 28, 2013 expressed an unqualified opinion on those financial statements.



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



Athens, Greece

91







February 28, 2013



|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, 2012.



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



Aggregate fees billed to the Company for the fiscal years ended
December 31, 2012 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:



|           |  | 2011           |     |  | 2012 |  
|---------- |  | -------------- | --- |  | ---- | -
|           |  | (In Thousands) |    
|Audit fees |  | $              | 509 |  |      | $
|Total fees |  | $              | 509 |  |      | $



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

92





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. No shares were purchased during
2012 pursuant to the program. In December 2012, Vorini Holdings Inc. purchased 600,000 shares of the Company at a price of $3.00
per share in a block trade completed through a broker-dealer. As of February 15, 2013, the Company had 76,670,460 shares of common
stock outstanding. Approximately 46,426,015 of those shares, or 60.55% of common stock outstanding, were held by the Company’s
affiliates, according to information provided to the Company by such affiliates. The remaining 30,244,445 shares, or 39.45% of
common stock outstanding, represented the public float.



|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.

93







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.



|ITEM 16H.       | MINE SAFETY DISCLOSURE
|--------------- | ----------------------
|                |                       
|Not applicable.
|                |                       
|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***                                                      



94





|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










|*   | 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 and hereby incorporated by reference to such Form 6-K.                                           
|    |                                                                                                                                                                                                 
|*** | Previously filed as an exhibit to the Company’s Form 20-F filed with the SEC on February 29, 2012 and hereby incorporated by reference to such Form 20-F.                                       



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 28, 2013



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

95





INDEX TO FINANCIAL STATEMENTS



|                                                                                                     |  | Page | 
|---------------------------------------------------------------------------------------------------- |  | ---- | 
|                                                                                                     |  |      | 
|Report of Independent Registered Public Accounting Firm                                              |  | F-2  | 
|                                                                                                     |  |      | 
|Consolidated Balance Sheets as of December 31, 2011 and 2012                                         |  | F-3  | 
|                                                                                                     |  |      | 
|Consolidated Statements of Income for the Years Ended December 31, 2010, 2011 and 2012               |  | F-4  | 
|                                                                                                     |  |      | 
|Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2011 and 2012 |  | F-5  | 
|                                                                                                     |  |      | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2011 and 2012           |  | 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, 2011 and 2012, and the related
consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December
31, 2012. 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, 2011 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December
31, 2012, 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, 2012, 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 28, 2013 expressed an unqualified
opinion on the Company’s internal control over financial reporting.



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



February 28, 2013

Athens, Greece

F-2





SAFE
BULKERS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND 2012
(In thousands of U.S. Dollars, except for share and per share data)



|                                                                                                                                                     |  |       |    |  | December
    31, | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | -- |  | ---------------- | 
|                                                                                                                                                     |  | Notes |    |  | 2011             | 
|ASSETS                                                                                                                                               |  |       |    |  |                  | 
|CURRENT ASSETS:                                                                                                                                      |  |       |    |  |                  | 
|Cash and cash equivalents                                                                                                                            |  |       |    |  |                  | 
|Accounts receivable                                                                                                                                  |  |       | 4  |  |                  | 
|Due from Manager                                                                                                                                     |  |       | 3  |  |                  | 
|Inventories                                                                                                                                          |  |       |    |  |                  | 
|Accrued revenue                                                                                                                                      |  |       | 19 |  |                  | 
|Restricted cash                                                                                                                                      |  |       |    |  |                  | 
|Prepaid expenses and other current assets                                                                                                            |  |       |    |  |                  | 
|Total current assets                                                                                                                                 |  |       |    |  |                  | 
|FIXED ASSETS:                                                                                                                                        |  |       |    |  |                  | 
|Vessels, net                                                                                                                                         |  |       | 5  |  |                  | 
|Advances for vessel acquisition and vessels under construction                                                                                       |  |       | 6  |  |                  | 
|Total fixed assets                                                                                                                                   |  |       |    |  |                  | 
|OTHER NON CURRENT ASSETS:                                                                                                                            |  |       |    |  |                  | 
|Deferred finance charges, net                                                                                                                        |  |       | 7  |  |                  | 
|Restricted cash                                                                                                                                      |  |       |    |  |                  | 
|Accrued revenue                                                                                                                                      |  |       | 19 |  |                  | 
|Long-term investment                                                                                                                                 |  |       | 9  |  |                  | 
|Total assets                                                                                                                                         |  |       |    |  |                  | 
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                 |  |       |    |  |                  | 
|CURRENT LIABILITIES:                                                                                                                                 |  |       |    |  |                  | 
|Current portion of long-term debt                                                                                                                    |  |       | 8  |  |                  | 
|Unearned revenue                                                                                                                                     |  |       | 19 |  |                  | 
|Trade accounts payable                                                                                                                               |  |       |    |  |                  | 
|Accrued liabilities                                                                                                                                  |  |       | 15 |  |                  | 
|Derivative liabilities                                                                                                                               |  |       | 14 |  |                  | 
|Due to Manager                                                                                                                                       |  |       | 3  |  |                  | 
|Total current liabilities                                                                                                                            |  |       |    |  |                  | 
|Derivative liabilities                                                                                                                               |  |       | 14 |  |                  | 
|Long-term debt, net of current portion                                                                                                               |  |       | 8  |  |                  | 
|Unearned revenue – Long-term                                                                                                                         |  |       | 19 |  |                  | 
|Total liabilities                                                                                                                                    |  |       |    |  |                  | 
|COMMITMENTS AND CONTINGENCIES                                                                                                                        |  |       | 11 |  |                  | 
|SHAREHOLDERS’ EQUITY:                                                                                                                                |  |       |    |  |                  | 
|Shareholders’ equity:                                                                                                                                |  |       |    |  |                  | 
|Common stock, $0.001 par value; 200,000,000 authorized, 70,891,916 and 76,661,451 issued and outstanding at December 31, 2011 and 2012, respectively |  |       | 10 |  |                  | 
|Preferred stock, $0.01 par value; 20,000,000 authorized, none issued or outstanding                                                                  |  |       |    |  |                  | 
|Additional paid in capital                                                                                                                           |  |       |    |  |                  | 
|Retained earnings                                                                                                                                    |  |       |    |  |                  | 
|Total shareholders’ equity                                                                                                                           |  |       |    |  |                  | 
|Total liabilities and shareholders’ equity                                                                                                           |  |       |    |  |                  | 



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, 2010, 2011 AND 2012
(In thousands of U.S. Dollars, except for share and per share data)





|                                                       |  | Year
    Ended December 31, |     
|------------------------------------------------------ |  | --------------------------- | ----
|                                                       |  | Notes                       |     
|REVENUES:                                              |  |                             |     
|Revenues                                               |  |                             | 12  
|Commissions                                            |  |                             |     
|Net revenues                                           |  |                             |     
|                                                       |  |                             |     
|EXPENSES:                                              |  |                             |     
|Voyage expenses                                        |  |                             |     
|Vessel operating expenses                              |  |                             | 13  
|Depreciation                                           |  |                             | 5   
|General and administrative expenses                    |  |                             |     
|-Management fee to related party                       |  |                             | 3,18
|-Third party expenses                                  |  |                             | 18  
|Early redelivery income, net                           |  |                             | 16  
|Gain on sale of assets                                 |  |                             | 20  
|Operating income                                       |  |                             |     
|                                                       |  |                             |     
|OTHER (EXPENSE)/INCOME:                                |  |                             |     
|Interest expense                                       |  |                             | 8   
|Other finance costs                                    |  |                             |     
|Interest income                                        |  |                             |     
|Loss on derivatives                                    |  |                             | 14  
|Foreign currency gain/(loss)                           |  |                             |     
|Amortization and write-off of deferred finance charges |  |                             | 7   
|Net income                                             |  |                             |     
|                                                       |  |                             |     
|Earnings per share in U.S. Dollars, basic and diluted  |  |                             | 22  
|Weighted average number of shares, basic and diluted   |  |                             |     



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, 2010, 2011 AND 2012
(In thousands of U.S. Dollars, except for per share data)





|                                |  |                  |    |  | Additional          |  |         | Retained |  |  |         |  
|------------------------------- |  | ---------------- | -- |  | ------------------- |  | ------- | -------- |  |  | ------- | -
|                                |  | Common
    Stock |    |  | Paid
    in Capital |  |         | Earnings |  |  | Total   |  
|Balance as of January 1, 2010   |  |                  | 55 |  |                     |  | 90      |          |  |  | 97,074  |  
|Net income                      |  |                  | —  |  |                     |  | —       |          |  |  | 109,647 |  
|Issuance of common stock        |  |                  | 11 |  |                     |  | 74,956  |          |  |  | —       |  
|Share based compensation        |  |                  | —  |  |                     |  | 120     |          |  |  | —       |  
|Dividends ($0.60 per share)     |  |                  | —  |  |                     |  | —       |          |  |  | (37,820 | )
|Balance as of December 31, 2010 |  |                  | 66 |  |                     |  | 75,166  |          |  |  | 168,901 |  
|                                |  |                  |    |  |                     |  |         |          |  |  |         |  
|Net income                      |  |                  | —  |  |                     |  | —       |          |  |  | 89,734  |  
|Issuance of common stock        |  |                  | 5  |  |                     |  | 39,632  |          |  |  | —       |  
|Share based compensation        |  |                  | —  |  |                     |  | 120     |          |  |  | —       |  
|Dividends ($0.60 per share)     |  |                  | —  |  |                     |  | —       |          |  |  | (41,782 | )
|Balance as of December 31, 2011 |  |                  | 71 |  |                     |  | 114,918 |          |  |  | 216,853 |  
|                                |  |                  |    |  |                     |  |         |          |  |  |         |  
|Net income                      |  |                  | —  |  |                     |  | —       |          |  |  | 96,120  |  
|Issuance of common stock        |  |                  | 6  |  |                     |  | 35,231  |          |  |  | —       |  
|Share based compensation        |  |                  | —  |  |                     |  | 120     |          |  |  | —       |  
|Dividends ($0.50 per share)     |  |                  | —  |  |                     |  | —       |          |  |  | (37,463 | )
|Balance as of December 31, 2012 |  |                  | 77 |  |                     |  | 150,269 |          |  |  | 275,510 |  



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, 2010, 2011 AND 2012
(In thousands of U.S. Dollars)



|                                                                                                                        |  | December
    31, |         
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------
|                                                                                                                        |  | 2010             |         
|Cash Flows from Operating Activities:                                                                                   |  |                  |         
|Net income                                                                                                              |  |                  | 109,647 
|Adjustments to reconcile net income to net cash provided by operating activities:                                       |  |                  |         
|Depreciation                                                                                                            |  |                  | 19,673  
|Gain on sale of assets                                                                                                  |  |                  | (15,199 
|Amortization and write-off of deferred finance charges                                                                  |  |                  | 266     
|Unrealized foreign exchange (gain)                                                                                      |  |                  | (326    
|Unrealized (gain)/loss on derivatives                                                                                   |  |                  | (4,508  
|Share based compensation                                                                                                |  |                  | 120     
|Change in:                                                                                                              |  |                  |         
|Accounts receivable trade                                                                                               |  |                  | 620     
|Due from Manager                                                                                                        |  |                  | —       
|Inventories                                                                                                             |  |                  | (172    
|Accrued revenue                                                                                                         |  |                  | 1,693   
|Prepaid expenses and other current assets                                                                               |  |                  | (37     
|Due to Manager                                                                                                          |  |                  | 430     
|Trade accounts payable                                                                                                  |  |                  | (1,198  
|Accrued liabilities                                                                                                     |  |                  | (1,523  
|Unearned revenue                                                                                                        |  |                  | 8,661   
|Net Cash Provided by Operating Activities                                                                               |  |                  | 118,147 
|                                                                                                                        |  |                  |         
|Cash Flows from Investing Activities:                                                                                   |  |                  |         
|Vessel acquisitions including advances for vessels under construction                                                   |  |                  | (192,418
|Proceeds from sale of assets                                                                                            |  |                  | 32,168  
|Increase in restricted cash                                                                                             |  |                  | (650    
|Restricted cash released                                                                                                |  |                  | 6,382   
|Increase in bank time deposits                                                                                          |  |                  | (86,548 
|Maturity of bank time deposits                                                                                          |  |                  | 109,357 
|Net Cash Used in Investing Activities                                                                                   |  |                  | (131,709
|                                                                                                                        |  |                  |         
|Cash Flows from Financing Activities:                                                                                   |  |                  |         
|Proceeds from long-term debt                                                                                            |  |                  | 74,500  
|Principal payments of long-term debt                                                                                    |  |                  | (50,992 
|Dividends paid                                                                                                          |  |                  | (37,820 
|Payment of deferred financing costs                                                                                     |  |                  | (519    
|Proceeds on issuance of common stock (net)                                                                              |  |                  | 74,967  
|Net Cash Provided by/(Used in) Financing Activities                                                                     |  |                  | 60,136  
|                                                                                                                        |  |                  |         
|Net increase/(decrease) in cash and cash equivalents                                                                    |  |                  | 46,574  
|Effect of exchange rate changes on cash                                                                                 |  |                  | 326     
|Cash and cash equivalents at beginning of year                                                                          |  |                  | 18,435  
|Cash and cash equivalents at end of year                                                                                |  |                  | 65,335  
|                                                                                                                        |  |                  |         
|Supplemental cash flow information:                                                                                     |  |                  |         
|Cash paid for interest (excluding capitalized interest):                                                                |  |                  | 6,414   
|Non
        cash Investing activities (represent advances and capitalized interest
        for newbuild Hull No. J0131) |  |                  | —       



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 or was scheduled to acquire a newbuild drybulk vessel, all of which were under the common control
of Polys Hajioannou and his family. The shares of the 19 companies were contributed to Safe Bulkers by Vorini Holdings, Inc. (“Vorini
Holdings”), a Marshall Islands corporation controlled by Polys Hajioannou and his family. Safe Bulkers became the owner of
100% of each of the 19 companies, and Vorini Holdings became the sole shareholder of Safe Bulkers.



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.” Following the IPO, Vorini Holdings became the controlling shareholder of Safe Bulkers.



Since its IPO Safe Bulkers successfully completed three additional
public offerings. Vorini Holdings continues to be the controlling shareholder of Safe Bulkers, and, accordingly, can control the
outcome of matters on which shareholders are entitled to vote, including the election of the entire board of directors and other
significant corporate actions



As of December 31, 2012, Safe Bulkers held 35 wholly-owned companies
which are referred to herein as “Subsidiaries”, and which together owned and operated a fleet of 24 drybulk vessels,
and were scheduled to acquire an additional six newbuilds (the “Newbuilds”) and one second-hand vessel.



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.



The accompanying consolidated financial statements include the
operations, assets and liabilities of the Company, 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    
|Maxeikosiexi Shipping Corporation (“Maxeikosiexi”)(1)         |  | Koulitsa           |  | 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 (“Maxeikositessera”)(1) |  | Efrossini          |  | Panamax      |  | February 2012 
|Pemer Shipping Ltd. (“Pemer”)(1)                              |  | Pedhoulas Merchant |  | Kamsarmax    |  | March 2006    
|Petra Shipping Ltd. (“Petra”)(1)                              |  | Pedhoulas Trader   |  | Kamsarmax    |  | May 2006      
|Pelea Shipping Ltd. (“Pelea”)(1)                              |  | Pedhoulas Leader   |  | Kamsarmax    |  | March 2007    
|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

F-7





|Maxdekatria Shipping Corporation (“Maxdekatria”)(1)          |  | Panayiota K                                     |  | Post-Panamax |  | April 2010      
|------------------------------------------------------------ |  | ----------------------------------------------- |  | ------------ |  | ----------------
|Maxdeka Shipping Corporation (“Maxdeka”)(3)                  |  | Venus Heritage                                  |  | Post-Panamax |  | December 2010   
|Shikoku Friendship Shipping Company (“Shikoku”)(3)           |  | Venus History                                   |  | Post-Panamax |  | September 2011  
|Maxenteka Shipping Corporation (“Maxenteka”)(3)              |  | Venus Horizon                                   |  | 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)              |  | Pedhoulas Builder                               |  | Kamsarmax    |  | May 2012        
|Maxeikositria Shipping Corporation (“Maxeikositria”)(1)      |  | Pedhoulas Fighter                               |  | Kamsarmax    |  | August 2012     
|Maxeikosiena Shipping Corporation (“Maxeikosiena”)(1)        |  | Pedhoulas Farmer                                |  | Kamsarmax    |  | September 2012  
|Glovertwo Shipping Corporation (“Glovertwo”)(3)              |  | TBN - H 814                                     |  | Panamax      |  | 2H 2013(4)      
|Shikokutessera Shipping Inc. (“Shikokutessera”)(3)(5)        |  | TBN - H 1659                                    |  | Panamax      |  | 2H 2013 (4)     
|Shikokupente Shipping Inc. (“Shikokupente”)(3)               |  | TBN - H 1660                                    |  | Panamax      |  | 1H 2014 (4)     
|Maxtessera Shipping Corporation (“Maxtessera”)(3)            |  | TBN - H 8126                                    |  | Capesize     |  | 1H 2014(4)      
|Shikokuexi Shipping Inc. (“Shikokuexi”)(3)                   |  | TBN - H 2396                                    |  | Post-Panamax |  | 2H 2015 (4)     
|Shikokuepta Shipping Inc. (“Shikokuepta”)(3)                 |  | TBN - H 2397                                    |  | Post-Panamax |  | 2H 2015(4)      
|Maxeikosipente Shipping Corporation (“Maxeikosipente”)(1)(6) |  | —                                               |  | —            |  | —               
|Maxeikosiepta Shipping Corporation (“Maxeikosiepta”)(1)(2)   |  | —                                               |  | —            |  | —               
|Vassone Shipping Corporation (“Vassone”)(1)(2)               |  | —                                               |  | —            |  | —               
|Efragel Shipping Corporation (“Efragel”)(1)(7)               |  | —                                               |  | —            |  | —               
|-//-                                                         |  | Efrossini (hereinafter called‘‘Old Efrossini’’) |  | Panamax      |  | February 2003(8)
|S.B. Sea Venture Company Ltd(9)                              |  | —                                               |  | —            |  | —               








(1) Incorporated under the laws of the Republic of
Liberia.

(2) Second-hand vessel acquisitions. Refer to Note
23.

(3) Incorporated under the laws of the Republic of
The Marshall Islands.

(4) Estimated completion date for newbuild vessels.

(5) New estimated completion date for newbuild vessel.
Refer to Note 23.

(6) Cancellation of Newbuild. Refer to Notes 4 and
11.

(7) Company dissolved in October 2012.

(8) Vessel sold in January 2010. Refer to Note 20.

(9) Incorporated under the laws of the Republic of
Cyprus.



For the years ended December 31, 2010, 2011 and 2012, the following
charterers individually accounted for more than 10% of the Company’s charter revenues as follows:



|                          |  | December
    31, |      
|------------------------- |  | ---------------- | -----
|                          |  | 2010             |      
|Daiichi Chuo Kisen Kaisha |  |                  | 44.92
|Kawasaki Kisen Kaisha     |  |                  | 18.78
|Cargill International S.A |  |                  | 12.67
|                          |  |                  |      

2. Significant Accounting Policies:

F-8







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 at the time
of purchase and which are not restricted for use or withdrawal.



Time Deposits: Time deposits are held with banks
with original maturities longer than three months at the time of purchase. In the event original maturities are shorter than twelve
months at the time of purchase, 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: Accounts receivable reflects
trade receivables from time or voyage charters and other receivables from operational activities, 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.



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

F-9







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, 2010, 2011 and 2012.



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. There were no assets held for sale as at December 31, 2012.



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 8 and 14). 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, 2010, 2011 and 2012, no derivatives were accounted for as accounting hedges.



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 8 .The Company manages its interest rate risk by entering
into interest rate derivative instruments which are described in Note 14.



(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.

F-10





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.



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. As of January 1, 2013, each vessel managed in Greece is subject to tonnage tax, under the laws of the Republic
of Greece, 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 declared 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 as 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:There are no recent accounting pronouncements the adoption of which would have a material effect on the Company’s
consolidated financial statements in the current period.



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 per vessel calculated proportionally to the number of ownership days, (the “Fixed fee”), plus a variable
fee calculated on gross freight, charter hire, ballast bonus and demurrage (the “Variable fee”). Fixed

F-11







fees and Variable
fees are recorded in General and Administrative Expenses (refer to Note 18). In addition, under the Supervision Agreements, the
Manager receives a supervision fee in exchange for on-site supervision services with respect to all 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
(the “Supervision fee”). Supervision fees are recorded in Advances for vessel acquisition and vessels under construction
(refer to Note 6). Furthermore under the Management Agreement, the Manager receives a sales fee calculated on the contract price
for each vessel sold, (the “Sales fee”) payable upon the conclusion of the vessel sale, and an acquisition fee calculated
on the contract price of each vessel constructed or purchased, (the “Acquisition fee”) payable upon the conclusion
of the vessel acquisition, in exchange for services provided in relation to a sale or an acquisition of a vessel respectively.
Sales fees are recorded in Gain on sale of assets (refer to Note 20). Acquisition fees are recorded in Advances for vessel acquisition
and vessels under construction (refer to Note 6).



The management
  fees can be adjusted annually effective May 29 of each year, the anniversary
  of our entry into the Management Agreement. On May 29, 2011, the Fixed fee
  was readjusted to $0.700 from $0.575 per day, and the Supervision fee was readjusted
  to $550 from $375, while all other management fees remained constant.
No readjustment has been made since then on any of the fees.



Fees pursuant to the Management Agreement, the Shipmanagement
Agreements and the Supervision Agreements were as follows:



|                |  | For
    the Years Ended May 29, (In thousands of U.S. Dollars, except of Variable, Sales and Acquisition fees) |      
|--------------- |  | -------------------------------------------------------------------------------------------------------------- | -----
|                |  | 2010                                                                                                           |      
|Fixed fee       |  | $                                                                                                              | 0.575
|Variable fee    |  |                                                                                                                | 1.00 
|Supervision fee |  | $                                                                                                              | 375  
|Sales fee       |  |                                                                                                                | 1.00 
|Acquisition fee |  |                                                                                                                | 1.00 



Fees pursuant to the Management Agreement, the Shipmanagement
Agreements and the Supervision Agreements are comprised of the following:





|                        |  | Year
    Ended December 31, (In thousands of U.S. Dollars) |      
|----------------------- |  | ---------------------------------------------------------- | -----
|                        |  | 2010                                                       |      
|Fixed and Variable fees |  | $                                                          | 4,880
|Supervision fees        |  |                                                            | 938  
|Sales fees              |  |                                                            | 330  
|Acquisition fees        |  |                                                            | 1,840



4.	Accounts receivable



Accounts receivable trade are comprised of the following:

F-12







|                  |  | December 31, |      
|----------------- |  | ------------ | -----
|                  |  | 2011         |      
|Trade receivables |  | $            | 5,550
|Other receivables |  |              | —    
|Total             |  | $            | 5,550
|                  |  |              |      

Trade receivables reflect the current receivables from time
or voyage charters.



Other receivables amounting to $31,800
as of December 31, 2012, reflect the receivables related to the cancellation of the acquisition agreement of newbuild Hull No.
J0131. The Company had entered into a shipbuilding contract with Zhoushan Jinhaiwan Shipyard Co., (the “Shipyard”)
for the construction, sale and delivery by the Shipyard to it of one 180,000 DWT Capesize class newbuild
vessel (Hull No. J0131) in exchange for USD $53 million. In December 2012, after having paid $31.8 million in advances during
construction, the Company exercised its termination right under the agreement due to the Shipyard’s excessive construction
delays and delivered demands to each of the Shipyard and the refund guarantor, The Export Import Bank of China (a bank rated Aa3
by Moody’s Investor Services), pursuant to the shipbuilding contract and the refund guarantees, respectively, for a refund
of the full amount of advances paid, with interest. In response, in January 2013, the Company received a notice of arbitration,
and arbitration proceedings with the shipyard were initiated in London, England. The Shipyard alleges that the Company’s
termination constitutes a breach of the agreement and argues that the Company is not entitled to a refund of any of the
advances paid or interest. Under the terms of the shipbuilding contract and the relevant refund guarantees, the Company is entitled
to receive interest on the advances paid, the accrued amount of which as of December 31, 2012, was $2,541, (refer to Note 11c).
The capitalized expenses in relation to newbuild Hull No. J0131until the time of the contract cancellation amounted to
$612, and the accrued legal expenses amounted to $6, as of December 31, 2012, (refer to Note 11c). If the Company wins the arbitration
claim, the Company will be entitled to a full refund of the $31.8 million paid in advances, of interest on advances paid and of
arbitration expenses. On the basis of legal advice received, the Company believes that the advances paid, as well as the interest
on these, are recoverable under both the shipbuilding contract and the refund guarantees. However, arbitration is inherently uncertain
and the Company cannot provide assurance that it will prevail because it is not possible to predict what the final outcome will
be of any legal proceeding. The Company is and will continue vigorously pursuing the arbitration and believes that the merits in
this dispute rest in the Company’s favor. An award against the Company would require the Company to incur the cost thereof,
which includes the amount of advances already paid, the capitalized expenses recorded and any further damages to the Shipyard without
receipt of the vessel.



5. 	Vessels, Net



Vessels, net, are comprised of the following:



|                                                                              |  | Vessel
     Cost |         |  | Accumulated
    Depreciation |   |          | Net
    Book  Value | 
|----------------------------------------------------------------------------- |  | ---------------- | ------- |  | ---------------------------- | - | -------- | ------------------- | 
|Balance, January 1, 2011                                                      |  |                  | 605,367 |  |                              |   | (64,123  | )                   | 
|Transfer from Advances for vessel acquisitions and vessels under construction |  |                  | 137,749 |  |                              |   | —        |                     | 
|Depreciation expense                                                          |  |                  | —       |  |                              |   | (23,637  | )                   | 
|Balance, December 31, 2011                                                    |  | $                | 743,116 |  |                              | $ | (87,760  | )                   | 
|Transfer from Advances for vessel acquisitions and vessels under construction |  |                  | 186,895 |  |                              |   | —        |                     | 
|Depreciation expense                                                          |  |                  | —       |  |                              |   | (32,250  | )                   | 
|Balance, December 31, 2012                                                    |  | $                | 930,011 |  |                              | $ | (120,010 | )                   | 





Transfer from Advances for vessel acquisitions and
vessels under construction represents advances paid in respect of the acquisition of second hand vessels and newbuild 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, 2011: Venus History and Pelopidas; and                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                       
| | • | During the year ended December 31, 2012: Efrossini, Venus Horizon, Pedhoulas Builder, Pedhoulas Fighter, Pedhoulas
Farmerand Koulitsa.



As of December 31, 2012, vessels with a carrying value of $795,966
have been provided as collateral to secure the Company’s bank loans as discussed in Note 8.

F-13





6. Advances for Vessel Acquisition and Vessels under Construction



|Advances for vessel acquisition and vessels under construction are comprised of the following: |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | - | -------- | -
|Balance, January 1, 2011                                                                       |  | $ | 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, including capitalized expenses and interest                                     |  |   | 136,902  |  
|Asset purchase cancellation                                                                    |  |   | (32,412  | )
|Transferred to vessel cost                                                                     |  |   | (186,895 | )
|Balance, December 31, 2012                                                                     |  | $ | 39,902   |  



Advances Paid for vessel acquisitions and vessels under construction
comprise payments of installments that were due to the respective shipyard or third-party sellers, capitalized interest and certain
capitalized expenses. During 2011 and 2012 such payments were made for the following vessels:



| | • | During the year ended December 31, 2011: Venus
        History, Pelopidas, Venus Horizon, Efrossini, Hull No. J0131,
        Hull 1659, Hull 1660 and Hull 2396; and                                                                                                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                             
| | • | During the year ended December 31, 2012: Venus Horizon, Efrossini,
        Pedhoulas Builder, Pedhoulas Fighter, Pedhoulas Farmer, Koulitsa,
        Paraskevi (refer to Note 23), Hull No. J0131, Hull 814, Hull 1659,
        Hull 1660, Hull 2396,Hull 2397and Hull 8126.



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, 2011: Venus History and Pelopidas; and                                | 
| | - | -------------------------------------------------------------------------------------------------------- | 
| |   |                                                                                                          | 
| | • | During the year ended December 31, 2012: Efrossini, Venus Horizon, Pedhoulas Builder, Pedhoulas Fighter, | 
| |   | Pedhoulas FarmerandKoulitsa.                                                                             | 



Asset purchase
  cancellation relates to the cancellation of the acquisition of Hull No.
  J0131 during
  the year ended December 31, 2012, discussed in Note 4.



7. Deferred Finance Charges, Net



|Deferred finance charges are comprised of the following: |  |   |        |  
|-------------------------------------------------------- |  | - | ------ | -
|Balance, January 1, 2011                                 |  | $ | 930    |  
|Additions                                                |  |   | 5,949  |  
|Write-off                                                |  |   | (60    | )
|Amortization expense                                     |  |   | (593   | )
|Balance, December 31, 2011                               |  | $ | 6,226  |  
|Additions                                                |  |   | 1,467  |  
|Amortization expense                                     |  |   | (1,226 | )
|Balance, December 31, 2012                               |  | $ | 6,467  |  



F-14





8. Bank Debt



Bank debt is comprised of the following secured borrowings:





|                  |  |              |                |  |          |  |               | December 31, | 
|----------------- |  | ------------ | -------------- |  | -------- |  | ------------- | ------------ | 
|Borrower          |  | Commencement |                |  | Maturity |  |               | 2011         | 
|Pelea             |  |              | June 2007      |  |          |  | December 2012 |              | 
|Marindou          |  |              | January 2008   |  |          |  | December 2012 |              | 
|Avstes            |  |              | April 2008     |  |          |  | December 2012 |              | 
|Eniadefhi         |  |              | February 2009  |  |          |  | December 2012 |              | 
|Eniaprohi         |  |              | November 2008  |  |          |  | December 2012 |              | 
|Maxdodeka         |  |              | February 2010  |  |          |  | December 2012 |              | 
|Maxeikosi         |  |              | August 2012    |  |          |  | August 2014   |              | 
|Maxpente          |  |              | July 2010      |  |          |  | January 2015  |              | 
|Maxdodeka         |  |              | December 2012  |  |          |  | February 2016 |              | 
|Marathassa        |  |              | February 2005  |  |          |  | February 2017 |              | 
|Marindou          |  |              | December 2012  |  |          |  | January 2018  |              | 
|Marinouki         |  |              | March 2006     |  |          |  | March 2018    |              | 
|Avstes            |  |              | December 2012  |  |          |  | April 2018    |              | 
|Eniaprohi         |  |              | December 2012  |  |          |  | November 2018 |              | 
|Petra             |  |              | January 2007   |  |          |  | January 2019  |              | 
|Eniadefhi         |  |              | December 2012  |  |          |  | February 2019 |              | 
|Pemer             |  |              | March 2007     |  |          |  | March 2019    |              | 
|Eptaprohi         |  |              | April 2012     |  |          |  | April 2019    |              | 
|Pelea             |  |              | December 2012  |  |          |  | June 2019     |              | 
|Maxeikosiena      |  |              | October 2012   |  |          |  | October 2019  |              | 
|Soffive           |  |              | November 2007  |  |          |  | November 2019 |              | 
|Kerasies          |  |              | December 2007  |  |          |  | December 2019 |              | 
|Maxdekatria       |  |              | March 2012     |  |          |  | March 2020    |              | 
|Maxdeka           |  |              | August 2011    |  |          |  | December 2022 |              | 
|Staloudi          |  |              | July 2008      |  |          |  | July 2023     |              | 
|Shikoku           |  |              | October 2011   |  |          |  | August 2023   |              | 
|Maxeikositessera  |  |              | September 2012 |  |          |  | February 2024 |              | 
|Maxenteka         |  |              | April 2012     |  |          |  | April 2024    |              | 
|Total             |  |              |                |  |          |  |               |              | 
|                  |  |              |                |  |          |  |               |              | 
|Current portion   |  |              |                |  |          |  |               |              | 
|Long-term portion |  |              |                |  |          |  |               |              | 

The above
  loans and credit facilities generally bear interest at LIBOR plus a margin,
  except for a portion of the principal amounts of Maxdeka, Shikoku, Maxenteka
  and Maxeikositessera loan facilities, which bear interest at the Commercial
  Interest Reference Rate (“CIRR”)
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, Shikoku, Maxenteka and
  Maxeikositessera loan facilities, which are repayable in semi-annual installments.
  The fair value of the long term debt outstanding on December 31, 2012 amounted
  to $620,405 when valuing the  respective portions of the Maxdeka, Shikoku,
  Maxenteka and Maxeikositessera loan facilities on the basis of the relevant
  CIRR applicable on  December 31, 2012.



As of December 31, 2012, an aggregate amount of $8,077, 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, 2012, based on the loan and credit facility agreements as amended, are as follows:



|To
    December 31, |       |  | 
|------------------- | ----- |  | 
|                    | 2013  |  | 
|                    | 2014  |  | 
|                    | 2015  |  | 
|                    | 2016  |  | 
|                    | 2017  |  | 
|                    | 2018  |  | 
|                    | Total |  | 



F-15







Total interest incurred on long-term debt for the years ended
December 31, 2010, 2011 and 2012 amounted to $6,738, $6,722, and $10,038, respectively, which includes interest capitalized of
$315, $1,472 and $966 for the years ended December 31, 2010, 2011 and 2012, respectively. The average interest rate (including
the margin) for all loan and credit facilities during the years 2010, 2011 and 2012 was 1.394% p.a., 1.439% p.a., and 1.850% p.a.,
respectively.



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 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, 2011 and 2012 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;                            
| |   |                                                                                                         
| | • | Agreement for second priority mortgage over the Kanaris as security for the Marinouki and Soffive loans;
| |   |                                                                                                         
| | • | Second priority mortgage over the Pedhoulas Merchantas security for the Petra loan;                     
| |   |                                                                                                         
| | • | Second priority mortgage over the Pedhoulas Traderas security for the Pemer loan; and                   
| |   |                                                                                                         
| | • | 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.



F-16







One of the loan and facility agreements requires the respective
borrowers to maintain at all times a minimum balance of $150 per vessel in the respective vessel operating accounts. One of the
loan and facility agreements requires the respective borrower to maintain at all times a minimum balance of $500 in the vessel
operating account.



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 80% or 85% 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 (as defined in the loan agreement) must not at any time exceed 5.5:1 on a trailing 12 months’ basis or as the case may be the ratio of its aggregate debt after deducting cash to EBITDA must not at any time exceed 8.5:1 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;                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                              
| | • | 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, 2012, the Company was in compliance with
all debt covenants with respect to its loans and credit facilities.



9. 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, 2012 was approximately $49,500, which was equal to the exit price the Company
would receive from the relevant bank, based on an indicative bid price received from the relevant bank. Subject to
certain conditions, the Company may borrow up to 80% of the Floating Rate Note amount.



10. 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 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 at a price of $7 per share, 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 at a price of $8.4 per share. The net proceeds of
the public offering were $39,637, net of underwriting discount of $2,100 and offering expenses of $263.



In March 2012, the Company successfully completed a public offering,
whereby 5,750,000 shares of common stock of Safe Bulkers were issued and sold at a price of $6.5 per share. The net proceeds of
the public offering were $35,237, net of underwriting discount of $1,869 and offering expenses of $268.



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

F-17





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, 2011 and 2012, 7,705 shares
and 9,767 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 years ended December 31, 2011 and 2012, 7,704 shares and 9,768 shares,
respectively were issued to the independent directors of the Company other than the audit committee chairman.



11. Commitments and Contingencies



(a) Commitments under Shipbuilding Contracts and Memorandums
of Agreement (“MoAs”)



As of December 31, 2012 the Company had commitments under
one shipbuilding contract and six MoAs for the acquisition of six newbuilds and one second hand vessel. The Company expects
to settle these commitments as follows:



|                        |       |  | Due to Shipyards / |   |         | Due to  |  |   |       | 
|----------------------- | ----- |  | ------------------ | - | ------- | ------- |  | - | ----- | 
|Year Ending December 31 |       |  | Sellers            |   |         | Manager |  |   | Total | 
|                        | 2013  |  |                    | $ | 78,376  |         |  | $ | 2,432 | 
|                        | 2014  |  |                    |   | 57,700  |         |  |   | 1,376 | 
|                        | 2015  |  |                    |   | 51,233  |         |  |   | 1,790 | 
|                        | Total |  |                    | $ | 187,309 |         |  | $ | 5,598 | 



| | (b) | Other contingent liabilities
| | --- | ----------------------------



The Subsidiaries
  have not been involved in any legal proceedings other than an arbitration legal
  proceeding in relation to the cancellation of the acquisition of newbuild Hull
  No. J0131, as discussed
in Note 4, 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.



| | (c) | Contingent gain
| | --- | ---------------



In relation
  to the cancellation of the acquisition of newbuild
Hull No. J0131discussed in Note 4, the Company expects, based on the
facts and circumstances surrounding the cancellation of the construction of the
vessel due to delays in the construction process and on
the basis of legal advice received from legal counsel, to record a contingent
gain of $1,923, on successful settlement of the legal case, which represents
accrued interest income of $2,541 on the advances paid to the shipyard, net of
capitalized expenses of $612, related to vessel’s
construction and of accrued legal expenses related to the cancellation of $6.

F-18







12. Revenues



Revenues are comprised of the following:





|                     |  | Year Ended  December 31, |        
|-------------------- |  | ------------------------ | -------
|                     |  | 2010                     |        
|Time charter revenue |  | $                        | 157,663
|Ballast bonus        |  |                          | —      
|Other income         |  |                          | 2,035  
|Total                |  | $                        | 159,698





13. Vessel Operating Expenses



Vessel operating expenses are comprised of the following:





|                                          |  | Year
    Ended  December 31, |       
|----------------------------------------- |  | ---------------------------- | ------
|                                          |  | 2010                         |       
|Crew wages and related costs              |  | $                            | 11,441
|Insurance                                 |  |                              | 1,880 
|Repairs, maintenance and drydocking costs |  |                              | 1,764 
|Spares, stores and provisions             |  |                              | 3,947 
|Lubricants                                |  |                              | 2,808 
|Taxes                                     |  |                              | 178   
|Miscellaneous                             |  |                              | 1,110 
|Total                                     |  | $                            | 23,128



14. 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 Notes 8 and 9, 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, 2011 and 2012, 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-19







Derivatives not designated as hedging instruments







|                 |  |                                                  |  | Asset
    Derivatives  Fair Values |   |  | Liability
    Derivatives  Fair Values |  
|---------------- |  | ------------------------------------------------ |  | ---------------------------------- | - |  | -------------------------------------- | -
|Type of Contract |  | Balance sheet
    location                       |  | December
    31,  2011             |   |  | December
    31,  2012                 |  
|Interest Rate    |  | Derivative liabilities / Current liabilities     |  |                                    | — |  |                                        |  
|Interest Rate    |  | Derivative liabilities / Non-current liabilities |  |                                    | — |  |                                        |  
|                 |  | Total Derivatives                                |  | $                                  | — |  |                                        | $
|                 |  |                                                  |  |                                    |   |  |                                        |  





|                                   |  | Amount
    of (Loss) Recognized on Derivatives |        
|---------------------------------- |  | ---------------------------------------------- | -------
|                                   |  | Year
    ended December 31,                    |        
|                                   |  | 2011                                           |        
|Foreign Exchange Forward Contracts |  | $                                              | (155   
|Interest Rate Contracts            |  |                                                | (12,336
|Net (Loss) Recognized              |  | $                                              | (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, 2011 and 2012.







|                                            |  | Significant Other Observable Inputs (Level 2) |       
|------------------------------------------- |  | --------------------------------------------- | ------
|                                            |  | December 31,                                  |       
|                                            |  | 2011                                          |       
|Derivative instruments – liability position |  |                                               | 12,367



As of December 31, 2011 and 2012, 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, 2011 and 2012 are presented in the table below:



F-20





|                             |  |           |                    |  |        |  |                    |                 |  |  | Notional
    amount    |  
|---------------------------- |  | --------- | ------------------ |  | ------ |  | ------------------ | --------------- |  |  | ---------------------- | -
|Loan or Credit
     Facility |  | Inception |                    |  | Expiry |  |                    | Fixed
     Rate |  |  | December
    31,  2011 |  
|Marindou (1)                 |  |           | January 14, 2008   |  |        |  | January 14, 2013   |                 |  |  | 3.9500                 | %
|Petra (1)                    |  |           | February 19, 2008  |  |        |  | January 18, 2013   |                 |  |  | 2.8850                 | %
|Pemer (1)                    |  |           | March 07, 2008     |  |        |  | March 07, 2013     |                 |  |  | 2.7450                 | %
|Marinouki (1)                |  |           | March 19, 2008     |  |        |  | March 05, 2013     |                 |  |  | 2.7300                 | %
|Avstes (1)                   |  |           | April 25, 2008     |  |        |  | April 18, 2013     |                 |  |  | 3.8900                 | %
|Staloudi (1)                 |  |           | January 07, 2009   |  |        |  | January 07, 2012   |                 |  |  | 3.3850                 | %
|Eniadefhi (1)                |  |           | April 01, 2009     |  |        |  | February 12, 2014  |                 |  |  | 3.3500                 | %
|Marathassa (2)               |  |           | November 23, 2009  |  |        |  | November 23, 2012  |                 |  |  | 1.6500                 | %
|Maxdodeka (2)                |  |           | February 01, 2010  |  |        |  | February 01, 2013  |                 |  |  | 3.9100                 | %
|Kerasies (2)                 |  |           | December 14, 2010  |  |        |  | December 14, 2015  |                 |  |  | 1.6500                 | %
|Maxpente (2)                 |  |           | January 31, 2011   |  |        |  | January 31, 2015   |                 |  |  | 1.2200                 | %
|Eniaprohi (2)                |  |           | November 14, 2011  |  |        |  | November 14, 2014  |                 |  |  | 1.4000                 | %
|Soffive (2)                  |  |           | November 20, 2011  |  |        |  | November 20, 2014  |                 |  |  | 1.3500                 | %
|Pelea (2)                    |  |           | December 15, 2011  |  |        |  | December 15, 2016  |                 |  |  | 2.0500                 | %
|Marathassa (2)               |  |           | November 23, 2012  |  |        |  | November 21, 2015  |                 |  |  | 1.9500                 | %
|Staloudi (2)                 |  |           | January 09, 2012   |  |        |  | January 07, 2015   |                 |  |  | 1.4500                 | %
|Maxdekatria (2)              |  |           | September 28, 2012 |  |        |  | September 28, 2017 |                 |  |  | 0.9000                 | %
|Marindou (2)                 |  |           | January 14, 2013   |  |        |  | January 16, 2018   |                 |  |  | 1.6000                 | %
|Marinouki (2)                |  |           | March 05, 2013     |  |        |  | March 05, 2018     |                 |  |  | 1.4800                 | %
|                             |  |           |                    |  |        |  |                    |                 |  |  |                        |  
|Total                        |  |           |                    |  |        |  |                    |                 |  |  |                        |  





| | (1) | Under these swap transactions, the bank effects semi-annual floating-rate payments to the Company for the relevant amount based on the six-month U.S. dollar LIBOR, and the Company effects semi-annual 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 had 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 were not exercised.



15. Accrued Liabilities



Accrued liabilities are comprised of the following:



|                                                   |  | December
    31, |      
|-------------------------------------------------- |  | ---------------- | -----
|                                                   |  | 2011             |      
|Interest on long-term debt                         |  | $                | 1,214
|Vessels’ operating and voyage expenses             |  |                  | 1,365
|Commissions                                        |  |                  | 65   
|Interest on derivatives and other finance expenses |  |                  | 3,571
|General and administrative expenses                |  |                  | 341  
|Total                                              |  | $                | 6,556



16. 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



F-21







collection of the related compensation
is reasonably assured. If at the time of concluding the early redelivery agreement, a replacement charter contract had been secured,
any costs incurred or income recognized would have been amortized over the term of the replacement charter contract





|                               |     |      | Year
    Ended December 31,
|------------------------------ | --- | ---- | ---------------------------
|Company                        |     | Date |                            
|Kerasies                       | (a) |      | March 25, 2010             
|Pemer                          | (b) |      | April 13, 2010             
|Pelea                          | (c) |      | April 28, 2010             
|Marindou                       | (d) |      | December 15, 2012          
|Eniadefhi                      | (e) |      | December 21, 2012          
|Other minor early redeliveries |     |      | Various                    
|Total                          |     |      |                            





Details of the transactions presented in the above table are
as follows:



(a) On March 25, 2010, Kerasies agreed with the charterers of
the Katerinato 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.



(b) 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.



(c) On April 28, 2010, Pelea agreed with the charterers of the
Pedhoulas Leaderto 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.



(d) On December 15, 2012, Eniadefhi took early redelivery of
the Martine,instead of on January 21, 2014. In connection with this early redelivery, we recognized early redelivery income
of $8,475, comprising cash compensation paid by the relevant charterer of $8,644, net of commissions, less accrued revenue of $169.



(e) On December 19, 2012, Marindou took early redelivery of
the Maria,instead of on February 24, 2014. In connection with this early redelivery, we recognized early redelivery income
of $3,202, comprising cash compensation paid by the relevant charterer of $3,375, net of commissions, less accrued revenue of $173.



In all the cases presented above, no replacement charter contract
had been secured at the time of the termination of the respective early redelivery agreement.



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, 2012, is as follows:



|December 31, |  |   |        
|------------ |  | - | -------
|2013         |  | $ | 118,918
|2014         |  |   | 57,960 
|2015         |  |   | 27,446 
|2016         |  |   | 22,056 
|2017         |  |   | 22,958 
|Thereafter   |  |   | 175,652
|Total        |  | $ | 424,990

F-22





Future minimum time charter revenue excludes the future acquisitions
of the vessels discussed in Note 11, 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, 2010, 2011 and 2012 were as follows:



|                                         |  | December
    31, |      
|---------------------------------------- |  | ---------------- | -----
|                                         |  | 2010             |      
|Management fees - related party          |  | $                | 4,880
|Professional fees (legal and accounting) |  |                  | 810  
|Director fees                            |  |                  | 240  
|Listing fees and expenses                |  |                  | 63   
|Miscellaneous                            |  |                  | 1,025
|Total                                    |  | $                | 7,018



19. Unearned Revenue /Accrued Revenue



Unearned Revenue represents cash received in advance of it being
earned, whereas Accrued Revenue represents revenue earned prior to cash being received. 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 /Accrued Revenue during the periods presented are as follows:



|                                                                    |  | December
    31, |       
|------------------------------------------------------------------- |  | ---------------- | ------
|                                                                    |  | 2011             |       
|Unearned Revenue                                                    |  |                  |       
|Revenue received in advance of service provided – Current liability |  | $                | 4,131 
|Deferred revenue resulting from varying charter rates               |  |                  |       
|Current liability                                                   |  |                  | 19,080
|Non-current liability                                               |  |                  | 17,821
|Total Unearned Revenue                                              |  | $                | 41,032
|                                                                    |  |                  |       
|Accrued Revenue                                                     |  |                  |       
|Resulting from varying charter rates – Current asset                |  | $                | —     
|Resulting from varying charter rates –Non Current asset             |  |                  | —     
|Total Accrued Revenue                                               |  | $                | —     



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.



There were no sales of vessels in 2011 and 2012.



21. Dividends



F-23





During 2012, the Company declared and paid three consecutive
quarterly dividends of $0.15 per share followed by one quarterly dividend of $0.05 per share, totaling $37,463.



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) | Interest Rate Derivative:In January 2013, the Company entered into an interest rate transaction with a bank in respect of the Petra loan for an initial notional amount of $14,000 and duration of five years at a fixed rate of 0.98%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(b) | Second Hand Vessel Acquisitions:In January 2013, Maxeikosiepta took delivery of Paraskevi, a 74,300 dwt, Japanese built second-hand Panamax class vessel. The relevant MoA had been signed in December 2012 and provided for a purchase price of $13,850, of which $2,770 was paid on signing of the MoA and the remaining $11,080 was paid on vessel’s delivery to the Company in January 2013. In January 2013, Vassone entered into a MoA for the acquisition of a 83,700 dwt Japanese built secondhand Kamsarmax class vessel, to be named Pedhoulas Commander. The MoA provides for purchase price of $19,400, of which $1,940 was paid on signing of the MoA and the remaining $17,460 will be paid on vessel’s delivery to the Company scheduled in March 2013.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(c) | Formation of subsidiary:In January 2013, the Company formed the subsidiary Vasstwo Shipping Corporation, incorporated under the laws of the Republic of Liberia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(d) | Addendum of MoA:In January 2013, the Company agreed to a new scheduled delivery of Hull 1659, to be in the first half of 2014, instead of the initial scheduled delivery in the second half of 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(e) | Early redelivery: On December 28, 2012, the Company agreed with the charterer of the Maritsa the early termination of a charter party of which the contracted earliest redelivery date was January 29, 2015. The vessel was redelivered to the Company in January 2013, whereupon the Company received cash compensation of $13,060. The vessel has subsequently been chartered with the same charterer for a minimum period of 22 months at a gross daily charter rate of $8.                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(f) | Dividend declaration:On February 18, 2013, the Board of Directors declared a dividend of $0.05 per common share, totaling $3,834, payable to all shareholders of record as of March 4, 2013, on March 8, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-24