UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20092010

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from                     to                     

Commission file number 1-32591

SEASPAN CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Republic of The Marshall Islands

(Jurisdiction of Incorporation or Organization)

Unit 2, 7th Floor, Bupa Centre

141 Connaught Road West

Hong Kong

China

(Address of Principal Executive Offices)

Sai W. Chu

Unit 2, 7th Floor, Bupa Centre

141 Connaught Road West

Hong Kong

China

Telephone: +852 (2540) 1686

Facsimile: +852 (2540) 1689

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

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

 

Title of Each Class

 

Name of Each Exchange on which Registered

Class A Common Shares, par value of $0.01 per share New York Stock Exchange

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

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

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

67,734,81168,601,240 Class A Common Shares, par value of $0.01 per share

100 Class C Common Shares, par value of $0.01 per share

200,000 Series A Preferred Shares, par value of $0.01 per share

260,000 Series B Preferred Shares, par value of $0.01 per share

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

    Yes  ¨    No  x

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

    Yes  ¨    No  x

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

    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

    Yes  ¨    No  ¨

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

Large accelerated filer  ¨    Accelerated filer  x    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  x  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  x

 


SEASPAN CORPORATION

INDEX TO REPORT ON FORM 20-F

 

Part I

  1

Item 1.

  

Identity of Directors, Senior Management and Advisors

  43

Item 2.

  

Offer Statistics and Expected Timetable

  43

Item 3.

  

Key Information

  4
3  

A.

Selected Financial Data

4

B.

Capitalization and Indebtedness

6

C.

Reasons for the Offer and Use of Proceeds

6

D.

Risk Factors

6

Item 4.

  

Information on the Company

  32
31  

A.

History and Development of the Company

32

B.

Business Overview

33

C.

Organizational Structure

70

D.

Property, Plants and Equipment

70

Item 5.

  

Operating and Financial Review and Prospects

  75
53  

A.

Results of Operations

75

B.

Liquidity and Capital Resources

87

C.

Research and Development

92

D.

Trend Information

92

E.

Off-Balance Sheet Arrangements

93

F.

Contractual Obligations

93

Item 6.

  

Directors, Senior Management and Employees

  94
79  

A.

Directors and Senior Management

94

B.

Compensation

97

C.

Board Practices

99

D.

Employees

101

E.

Share Ownership

101

Item 7.

  

Major Shareholders and Related Party Transactions

  103
87  

A.

Major Shareholders

103

B.

Related Party Transactions

103

Item 8.

  

Financial Information

  105
104  

A.

Financial Statements and Other Financial Information

105

B.

Significant Changes

107

Item 9.

  

The Offer and ListingListing.

  108107

Item 10.

  

Additional Information

  108
107  

A.

Share Capital

108

B.

Memorandum and Articles of Association

109

C.

Material Contracts

109

D.

Exchange Controls

112

E.

Taxation

112

F.

Dividends and Paying Agents

121

G.

Statements by Experts

121

H.

Documents on Display

121

Item 11.

  

Quantitative and Qualitative Disclosures About Market Risk

  121117

Item 12.

  

Description of Securities Other than Equity Securities

  123118

Part II

  124119

Item 13.

  

Defaults, Dividend Arrearages and Delinquencies

  124119

Item 14.

  

Material Modifications to the Rights of Security Holders and Use of Proceeds

  124119

Item 15.

  

Controls and Procedures

  124119

Item 16A.

  

Audit Committee Financial Expert

  125


121

Item 16B.

  

Code of Ethics

  125121

Item 16C.

  

Principal Accountant Fees and Services

  126121

Item 16D.

  

Exemptions from the Listing Standards for Audit Committees

  126122

Item 16E.

  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

  126122

Item 16F.

  

Change in Registrants’ Certifying Accountant

  126122

Item 16G.

  

Corporate Governance

  126122

Part III

  128123

Item 17.

  

Financial Statements

  128123

Item 18.

  

Financial Statements

  128123

Item 19.

  

Exhibits

  129124

ii


PART I

ThisOur disclosure and analysis in this Annual Report should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.

This Annual Report on Form 20-F for the year ended December 31, 2009 contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act) concerning future events and our operations, performancecash flows, and financial condition,position, including, in particular, the likelihood of our success in developing and expanding our business.business, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “forecasts,” “will,” “may,” “potential,” “should,” and similar expressions are forward-looking statements. Although these statements are based upon assumptions we believe to be reasonable based upon available information, including projections of revenues, operating margins, earnings, cash flow, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully in this Annual Report in the section titled “Risk Factors.” These forward-looking statements reflect management’s current viewsrepresent 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. As a result, you are cautioned not to rely on any forward-looking statements. Forward-looking statements appear in a number of places in this Annual Report. Although these statements are based upon assumptions we believe to be reasonable based upon available information, including operating margins, earnings, cash flow, working capital and capital expenditures, they are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to:among others:

 

future operating or financial results;

future growth prospects;

our business strategy and other plans and objectives for future operations;

 

our expectations relating to dividend payments and our ability to make such payments;

 

pendingpotential acquisitions, business strategyvessel financing arrangements and other investments, and our expected capital spending;benefits from such transactions, including any acquisition opportunities, vessel financing arrangements and related benefits relating to our venture with Greater China Intermodal Investments LLC;

the negotiation and completion, if at all, of definitive documentation relating to the newbuilding order letter of intent;

the potential acquisition of our Manager and change in management fees;

 

operating expenses, availability of crew, number of off-hire days, dry-docking requirements and insurance costs;

 

general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;

 

our financial condition and liquidity, including our ability to borrow funds under our credit facilities and to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

 

estimated future capital expenditures needed to preserve our capital base;

 

our expectations about the availability of shipsvessels to purchase, the time that it may take to construct new ships,vessels, the delivery dates of new vessels, the commencement of service of new vessels under long-term time charter contracts or the useful lives of our ships;vessels;

 

our continued ability to enter into primarily long-term, fixed-rate time charters with our customers;

 

our ability to leverage to our advantage our Manager’s relationships and reputation in the containership industry;

 

changes in governmental rules and regulations or actions taken by regulatory authorities;

 

the financial condition of our shipyards, charterers,shipbuilders, customers, lenders, refund guarantors and other counterparties and their ability to perform their obligations under their agreements with us;

 

the recent economic downturn and crisis in the global financial markets and potential negative effects of any reoccurrence of such disruptions on our customers’ ability to charter our vessels and pay for our services;

taxation of our company and of distributions to our shareholders;

potential liability from future litigation; and

 

other factors detaileddiscussed in this Annual Report and from timethe section titled “Risk Factors.”

We expressly disclaim any obligation to time in our periodic reports.

Forward-looking statements in this Annual Report are estimates reflecting the judgmentupdate or revise any of senior management and involve known and unknown risks and uncertainties. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed

or implied by such forward-looking statements. Accordingly, these forward-looking statements, should be considered in lightwhether because of various important factors, including those set forth in this Annual Report under the heading “Risk Factors.”

We do not intend to revise any forward-looking statements in order to reflect anyfuture events, new information, a change in our views or expectations, or events or circumstances that may subsequently arise.otherwise. We make no prediction or statement about the performance of our common shares. You should carefully review and consider the various disclosures included in this Annual Report and in our other filings made with the Securities and Exchange Commission, or the SEC, that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.securities.

Unless we otherwise specify, when used in this Annual Report, the terms “Seaspan,” the “Company,” “we,” “our” and “us” refer to Seaspan Corporation and its wholly-owned subsidiaries and, for periods before our initial public offering, our predecessor, Seaspan Container Lines Limited or SCLL.subsidiaries. References to our Manager are to Seaspan Management Services Limited and its wholly-ownedwholly owned subsidiaries, thatwhich provide us with all of our technical, administrative and strategic services. References to SSML are to Seaspan Ship Management Ltd., our Manager’s ship management affiliate. References to SCML are to Seaspan Crew Management Ltd., our Manager’s crew management affiliate.

Shipbuilders. References to Samsung are to Samsung Heavy Industries Co., Ltd. References to HHI are to Hyundai Heavy Industries Co., Ltd. References to HSHI are to Hyundai Samho Heavy Industries Co., Ltd., a subsidiary of HHI. References to Jiangsu are to Jiangsu Yangzijiang Shipbuilding Co., Ltd. References to New Jiangsu are to Jiangsu New Yangzi Shipbuilding Co., Ltd. References to Zhejiang are to Zhejiang Shipbuilding Co. Ltd. References to Odense-Lindo are to Odense-Lindo Shipyard Ltd. Samsung, HHI, HSHI, Jiangsu, New Jiangsu, Zhejiang and Odense-Lindo are commonly referred to as our shipbuilders.

Customers. References to CSCL Asia are to China Shipping Container Lines (Asia) Co., Ltd., a subsidiary of China Shipping Container Lines Co., Ltd., or CSCL. References to APM are to A.P. Møller-Mærsk A/S. References to HL USA are to Hapag-Lloyd USA, LLC, a subsidiary of Hapag-Lloyd, AG, or Hapag-Lloyd. References to COSCON are to COSCO Container Lines Co., Ltd., a subsidiary of China COSCO Holdings Company Limited. References to K-Line are to Kawasaki Kisen Kaisha Ltd. References to MOL are to Mitsui O.S.K. Lines, Ltd. References to CSAV are to Compañia Sud Americana De Vapores S.A.

We use the term “twenty foot equivalent unit,” or “TEU,” the international standard measure of containers, in describing the capacity of our containerships, which References to UASC are also commonly referred to as vessels. The following table sets forth the actual capacities of the vessels in our fleet by class and shipbuilder.

Vessel Class (TEU)

  

Shipbuilder

  

Actual Capacity (TEU)

13100

  HHI and HSHI  13,092(1)  

9600

  Samsung  9,572    

8500

  Samsung  8,468    

8500

  HHI  8,495(1)

5100

  HHI  5,087    

4800

  Odense-Lindo  4,809    

4500

  Samsung  4,520(1)

4250

  Samsung  4,253    

4250

  New Jiangsu  4,256    

3500

  Zhejiang  3,596    

2500

  Jiangsu  2,546    

(1)The actual capacities listed for the vessels that have not yet been delivered to us are based on the technical specifications provided in the shipbuilding contracts for such vessels.

RECENT DEVELOPMENTS

Since December 31, 2009, we have accepted delivery of three containerships that we agreed to acquire: on January 8, 2010, the MOL Empire, a 5100 TEU vessel built by HHI and chartered by MOL; on March 5, 2010, the COSCO Japan, a 8500 TEU vessel built by HHI and chartered by COSCON; and, on March 5, 2010, the Guayaquil Bridge, a 2500 TEU vessel built by Jiangsu and chartered by K-Line.United Arab Shipping Company (S.A.G.).

Item 1.Identity of Directors, Senior Management and Advisors

Not applicable.

 

Item 2.Item 2.Offer Statistics and Expected Timetable

Not applicable.

 

Item 3.Key Information

A.    Selected Financial Data

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles, or GAAP.

 

 Year Ended December 31, August 12 to
December 31,
2005
  January 1 to
August 11,
2005(1)
  Year Ended December 31, 
 2009 2008 2007 2006  2010 2009 2008 2007 2006 

Statements of operations data (period ended, in thousands of dollars):

      

Statements of operations data (year ended, in thousands of dollars):

     

Revenue

 $285,594   $229,405   $199,235   $118,489   $34,803   $40,157   $407,211   $285,594   $229,405   $199,235   $118,489  

Operating expenses:

           

Ship operating

  80,162    54,416    46,174    27,869    7,832    7,733    108,098    80,162    54,416    46,174    27,869  

Depreciation

  69,996    57,448    50,162    26,878    7,186    9,904    99,653    69,996    57,448    50,162    26,878  

General and administrative (2)

  7,968    8,895    6,006    4,911    1,694    218    9,612    7,968    8,895    6,006    4,911  
                                 

Operating earnings

  127,468    108,646    96,893    58,831    18,091    22,302    189,848    127,468    108,646    96,893    58,831  

Other expenses (income):

           

Interest expense

  21,194    33,035    34,062    17,594    1,699    14,563    28,801    21,194    33,035    34,062    17,594  

Change in fair value of financial instruments(3)(1)

  (46,450  268,575    72,365    908    —      (7,308  241,033    (46,450  268,575    72,365    908  

Interest income

  (311  (694  (4,074  (1,542  (124  —      (60  (311  (694  (4,074  (1,542

Write-off on debt refinancing

  —      —      635    —      —      —      —      —      —      635    —    

Undrawn credit facility fee

  4,641    5,251    3,057    2,803    1,041    —      4,515    4,641    5,251    3,057    2,803  

Amortization of deferred charges

  2,042    1,825    1,256    1,980    726    450    3,306    2,042    1,825    1,256    1,980  

Other

  1,100    —      —      —      —      (17  —      1,100    —      —      —    
                                 

Net earnings (loss)

 $145,252   $(199,346 $(10,408 $37,088   $14,749   $14,614   $(87,747 $145,252   $(199,346 $(10,408 $37,088  
                                 

Common shares outstanding (at period end):

  67,734,811    66,800,141    57,541,933    47,522,350    35,991,600   

Common shares outstanding (at��period end):

  68,601,240    67,734,811    66,800,141    57,541,933    47,522,350  

Per share data (in dollars):

           

Basic earnings (loss) per class A and B common share

 $1.94   $(3.12 $(0.20 $0.98   $0.41    N/A  

Diluted earnings (loss) per class A and B common share

 $1.58   $(3.12 $(0.20 $0.98   $0.41    N/A  

Dividends paid per class A and B common share

 $0.775   $1.90   $1.785   $1.70   $0.23    N/A  

Basic and diluted earnings (loss) per class C common share

 $—     $—     $—     $—     $—      N/A  

Dividends paid per class C common share

 $—     $—     $—     $—     $—      N/A  

Basic earnings (loss) per Class A and B common share

 $(1.70 $1.94   $(3.12 $(0.20 $0.98  

Diluted earnings (loss) per Class A and B common share (2)

 $(1.70 $1.75   $(3.12 $(0.20 $0.98  

Dividends paid per Class A and B common share (3)

 $0.450   $0.775   $1.90   $1.785   $1.70  

Basic and diluted earnings (loss) per Class C common share

 $—     $—     $—     $—     $—    

Dividends paid per Class C common share

 $—     $—     $—     $—     $—    

Statements of cash flows data
(period ended, in thousands of dollars):

     

Cash flows provided by (used in):

     

Operating activities

 $153,587   $94,576   $124,752   $113,168   $71,363  

Investing activities

  (782,448  (409,520  (634,782  (1,104,704  (605,652

Financing activities

  529,680    312,059    523,181    1,022,443    610,798  

   Year Ended December 31,  August 12 to
December 31,
2005
  January 1 to
August 11,
2005(1)
 
   2009  2008  2007  2006   

Statements of cash flows data (period ended, in thousands of dollars):

       

Cash flows provided by (used in):

       

Operating activities

  $94,576   $124,752   $113,168   $71,363   $24,115   $19,289  

Investing activities

   (409,520  (634,782  (1,104,704  (605,652  (826,253  (20,939

Financing activities

   312,059    523,181    1,022,443    610,798    817,856    793  

Selected balance sheet data (at period end, in thousands of dollars):

       

Cash and cash equivalents

  $133,400   $136,285   $123,134   $92,227   $15,718   $3,209  

Current assets

   146,053    141,711    130,318    96,655    18,070    22,316  

Vessels

   3,485,350    3,126,489    2,424,253    1,198,782    621,163    466,112  

Fair value of financial instruments, asset(3)

   —      —      —      10,711    4,799    —    

Deferred charges

   21,667    20,306    17,240    7,879    6,526    8,548  

Total assets

   3,664,447    3,296,872    2,576,901    1,317,216    650,558    496,976  

Current liabilities (excluding current portion of long-term debt)

   30,692    23,654    15,716    11,167    4,226    5,357  

Current portion of long-term debt (4)

   —      —      —      —      —      26,203  

Long-term debt(4)

   1,883,146    1,721,158    1,339,438    563,203    122,893    405,495  

Due to related party

   —      —      —      —      —      43,393  

Fair value of financial instruments, liability(3)

   280,445    414,769    135,617    15,831    —      11,552  

Owner’s equity

   —      —      —      —      —      4,976  

Share capital

   679    668    575    475    360    —    

Total shareholders’ equity

   1,059,566    746,360    862,326    725,015    523,439    —    

Other data:

       

Number of vessels in operation at period end

   42    35    29    23    13    10  

TEU capacity at period end

   187,456    158,483    143,207    108,473    63,719    50,960  

Fleet utilization(5)

   99.7  99.3  99.0  99.0  100.0  99.8
  Year Ended December 31, 
  2010  2009  2008  2007  2006 

Selected balance sheet data (at period end, in thousands of dollars):

     

Cash and cash equivalents

 $34,219   $133,400   $136,285   $123,134   $92,227  

Current assets

  46,764    146,053    141,711    130,318    96,655  

Vessels(4)

  4,210,872    3,485,350    3,126,489    2,424,253    1,198,782  

Fair value of financial instruments, asset

  —      —      —      —      10,711  

Deferred charges

  37,607    21,667    20,306    17,240    7,879  

Other assets

  81,985    11,377    8,366    5,090    3,189  

Total assets

  4,377,228    3,664,447    3,296,872    2,576,901    1,317,216  

Current liabilities (excluding current portion of other long-term liabilities)

  39,090    30,692    23,654    15,716    11,167  

Current portion of other long-term liabilities

  31,281    —      —      —      —    

Long-term debt

  2,396,771    1,883,146    1,721,158    1,339,438    563,203  

Other long-term liability

  512,531    410,598    390,931    223,804    —    

Fair value of financial instruments, liability

  407,819    280,445    414,769    135,617    15,831  

Share capital

  691    679    668    575    475  

Total shareholders’ equity

  989,736    1,059,566    746,360    862,326    725,015  

Other data:

     

Number of vessels in operation at period end

  55    42    35    29    23  

TEU capacity at period end

  265,300    187,456    158,483    143,207    108,473  

Fleet utilization (5)

  98.7  99.7  99.3  99.0  99.0

 

(1)Represents selected financial data for the predecessor for the period priorSubsequent to our initial public offering.

(2)The predecessor combined financial statements include the general and administrative expenses incurred by the predecessor related to its operations. Subsequent to the completion of the initial public offering and the acquisition of the initial ten container ships, we have incurred additional administrative expenses, including legal, accounting, treasury, premises, securities regulatory compliance and other costs normally incurred by a listed public entity. Accordingly, general and administrative expenses incurred by and allocated to the predecessor do not purport to be indicative of our current expenses.

(3)

The predecessor entered into interest rate swap agreements to reduce its exposure to market risks from changing interest rates. These derivative instruments have been recognized on the predecessor combined balance sheet at their fair value. As the predecessor did not designate the interest rate swap agreements as hedging instruments in accordance with the requirements in accounting literature, changes in the fair value of the interest rate swaps have been recognized in earnings. These changes occur due to changes in market interest rates for debt with substantially similar credit risk and payment terms. These interest rate swaps, together with the underlying debt, were settled by the predecessor and not assumed by us on completion of the initial public offering and the acquisition of the initial fleet. Subsequent to the initial public offering, we entered into interest rate swap agreements to reduce our exposure to market risks from changing interest rates. The swap agreements fix LIBOR at 4.6325% to 5.8700% based on expected drawdowns and outstanding debt until at least February 2014. Interest rate swap agreements are recorded on the balance sheet at their respective fair values. For the interest rate swap

agreements that were designated as hedging instruments in accordance with the requirements in the accounting literature, the changes in the fair value of these interest rate swap agreements were reported in accumulated other comprehensive income. The fair value will change as market interest rates change. For designated swaps, amounts payable or receivable under the interest rate swaps are included in earnings when and where the designated interest payments are included. The ineffective portion of the interest rate swaps are recognized immediately in net income. Other interest rate swap agreements and derivative instruments that are not designated as hedging instruments are marked to market and are recorded on the balance sheet at fair value. The changes in the fair value of these instruments are recorded in earnings. On January 31, 2008, we de-designated two of our interest swaps for which we were obtaining hedge accounting. On September 30, 2008, we elected to prospectively de-designate all interest rate swaps for which we were obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all of our interest rate swap agreements and the swaption agreement are marked to market subsequent to this date and the changes in the fair value of these instruments are recorded in earnings.

 

(4)(2)All predecessor long-term debt was settledDiluted earnings per share for the year ended December 31, 2009 has been revised primarily to correctly record the impact of the convertible Series A Preferred Shares on the completiondenominator for only the period they were outstanding during the year. Diluted earnings per share for the year ended December 31, 2009 has been revised by an immaterial amount from $1.58 per share (as previously reported) to $1.75 per share.

(3)Effective October 1, 2008, the subordination period for our 7,145,000 Class B common shares, owned by the members of the initial public offeringWashington family, or trusts set up on their behalf, an entity owned by our chief executive officer and was not assumedco-chairman of our board of directors, Gerry Wang, and an entity owned by us.Graham Porter, our director and a director of our Manager, ended and the rights and privileges of our Class B common shares became the same as our Class A common shares.

(4)Vessel amounts include the net book value of vessels in operation and deposits on vessels under construction.

 

(5)We calculate fleetFleet utilization by dividing theis based on number of our operating days during a perioddivided by the number of our ownership days during the period. We use fleet utilization to measure our efficiency in operating our vessels and the amount of days that our vessels are off-hire. 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, including unforeseen circumstances. We use operating days to measure the aggregate number of days in a period during which our vessels actually generate revenues. 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 affects the amount of vessel operating expenses that we incur.

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 to our business in general. Other risks relate principally to the securities market and to ownership of our common shares. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results and ability to pay dividends or cash available for distributionsredeem our Series C Preferred Shares, or the trading price of our common shares.

Risks Inherent in Our Business

We may not have sufficient cash from our operations to enable us to pay dividends on our shares or redeem our Series C Preferred Shares following the payment of expenses and the establishment of any reserves.

Our policy since our initial public offering has been toWe will pay quarterly dividends.dividends on our shares from funds legally available for such purpose when, as and if declared by our board of directors. We may not however, have sufficient cash available each quarter to pay dividends in the future.dividends. In addition, we may have insufficient cash available to redeem our Series C Preferred Shares. The amount of dividends we can pay or the amount we can use to redeem the Series C Preferred Shares depends upon the amount of cash we generate from our operations, which may fluctuate based on, among other things:

 

the rates we obtain from our charters or recharters and the ability of our chartererscustomers to perform their obligations under their respective time charters;

 

the level of our operating costs;

 

the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled dry-docking of our containerships;

delays in the delivery of new vessels and the beginning of payments under charters relating to those ships;

 

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;

 

changes in the basis of taxation of our activities in various jurisdictions;

 

our ability to service our current and future indebtedness;

 

our ability to raise additional equity to satisfy our capital needs; and

 

our ability to draw on our existing credit facilities and the ability of our lenders and lessors to perform their obligations under their agreements with us.

In addition, before we can determine the amount of cash available for the payment of dividends or to redeem our Series C Preferred Shares, we must pay fees to our Manager for the technical, commercial, administrative

and strategic services. We are also required to reimburse our Manager for certain extraordinary costs and capital expenditures as provided for in our management agreements. For information about fees we pay to our Manager, please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Our Management Agreements.”

The amount of cash we have available for dividends on our shares or to redeem our Series C Preferred Shares will not depend solely on our profitability.

The actual amount of cash we will have available for dividends alsoor to redeem our Series C Preferred Shares will depend on many factors, including the following:

 

changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;

 

the charter rates on new vessels and those obtained upon the expiration ofrestrictions under our existing charters;

modification or revocation of our dividend policy by our board of directors;

future credit and lease facilities or any future debt securities, including existing restrictions under our credit facilities or lease arrangements or any future credit agreements or debt securities;

the amount of any cash reserves established by our board of directors; and

restrictions under Marshall Islands law.

In addition, before we can determine the amount of cash available for the payment of dividends, we must pay fees to our Manager for the technical management of our vessels, and a monthly administrative services fee not to exceed a total of $6,000 per month and reimburse our Manager for all reasonable costs in providing us with administrative and strategic services. We will also be required to reimburse our Manager for certain extraordinary costs and capital expenditures as provided for in our management agreements.

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 would reduce or eliminate the cash available for distribution as dividends. Our credit facilities and lease arrangements also restrictfacilities on our declaration and payment ofability to declare or pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default. In addition,default;

the amount of any cash reserves established by our board of directors; and

restrictions under Marshall Islands law, which generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend,dividend.

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, and any such dividend may be discontinued at the discretion of our board of directors. In addition, if our quarterly cash dividend exceeds $0.485 per common share, our Manager will sharedirectors in incremental dividends through the incentive shares based upon specified sharing ratios, which will reduce the cash available for dividends on our common shares.its discretion may elect not to declare any 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. On January 22, 2010, we announced a quarterly cash dividend of $0.10 per common share for the three months ended December 31, 2009.

The continuation of the recent state of global financial markets and economic conditions may adversely impact our ability to obtain financing on acceptable terms which may hinder or prevent us from meeting our future capital needs.

Global financial markets and economic conditions have been, and may continue to be, disrupted and volatile. The debt and equity capital markets have been exceedingly distressed. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the continuation of weak economic conditions have made, and will likely continue to make, it difficult to obtain financing.

In particular, the cost of raising money in the equity capital markets has increased substantially while the availability of funds from those markets has diminished significantly. Although we have debt financing in place, after taking into consideration the $200 million proceeds from the sale of our Series A 12% Cumulative Preferred Shares, par value $0.01 per share, or our Series A Preferred Shares, we will require in the range of approximately $180 to $240 million in common or other equity capital and or other forms of capital to fund the remaining portion of the purchase price of the vessels we have contracted to purchase. We must raise this capital starting in approximately the fourth quarter of 2010 or first quarter of 2011 and ending in approximately second quarter of 2012. These amounts are based on a quarterly dividend of $0.10 per common share. The continuation of the recent state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all.

Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Although we have committed credit facilities in place to satisfy our short, medium and long-term debt needs and have not experienced any difficulties drawing on those facilities to date, we may be unable to obtain adequate funding under our current credit facilities in the future because our lenders may be unwilling or unable to meet their funding obligations or we may not be able to obtain funds at the interest rate agreed in our credit facilities due to market disruption events or increased costs.

In addition, these economic conditions could limit our ability to borrow funds under one of our credit facilities by causing a reduction in the market values of our vessels. While our credit facilities do not contain traditional vessel market value covenants that require us to repay our facilities solely because the market value of our vessels declines below a specified level, a decline in the market value of certain vessels has impaired our ability to draw the full amount available under our $1.3 Billion Credit Facility, which contains a loan to market value ratio requirement that must be met before we can borrow funds under that facility. We are able to draw down funds under that facility so long as the loan to market value ratio, being the ratio of the outstanding principal amount of the loan immediately after a drawing to the market value of the vessels that are provided as collateral under that facility, calculated on a without charter basis does not exceed 70%. As of December 31, 2009, we have drawn approximately $1.0 billion of our $1.3 Billion Credit Facility. However, based on a valuation of the vessels financed under the $1.3 Billion Credit Facility that was obtained in December of 2009 (which was on a without charter basis as required by our credit facility), we are currently unable to borrow the remaining approximately $267 million available under this facility.

Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our results of operations, financial condition and ability to pay dividends.

The business and activity levels of many of our charterers, shipbuilders and related parties and their respective ability to fulfill their obligations under agreements with us, including payments for the charter of our vessels, may be impacted by the recent deterioration in the credit markets.

All of our vessels that are currently chartered and those that we will acquire will be chartered to customers under long-term time charters. Payments to us under those charters are and will be our sole source of operating cash flow. Many of our charterers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. Recently, there has been a significant decline in the credit markets and the availability of credit. Additionally, the equity value of many of our charterers has substantially declined. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us.

During 2009, we received requests from certain of our charterers to re-negotiate the terms under certain of our time charters. We have not and do not currently intend to renegotiate hire rates or other material terms of our charter parties. If any of our charterers are unable to make charter payments to us in the future or if worsening economic conditions force us to accept material changes to the terms of our charters, our results of operations, financial condition and ability to pay dividends may be materially and adversely affected. If any of our charterers are in default of their respective charter parties, we may not be able to recharter the relevant vessels at rates equal to the rates in our current charters or at all.

Similarly, the shipbuilders with whom we have contracted may be affected by the instability of the financial markets and other market conditions, including with respect to the fluctuating price of commodities and currency exchange rates. As well, the refund guarantors under our shipbuilding contracts, which are banks, financial institutions and other credit agencies, may also be affected by financial market conditions in the same manner as our lenders and, as a result, may be unable or unwilling to meet their obligations under their refund guarantees due to their own financial condition. If our shipbuilders or refund guarantors are unable or unwilling to meet their obligations to us, this will impact our acquisition of vessels and may materially and adversely affect our operations and our obligations under our credit facilities.

Our ability to obtain additional debt financing for future acquisitions of vessels may be dependent ondepend upon the performance of our then existing charters and the creditworthiness of our charterers.customers.

The actual or perceived credit quality of our charterers,customers, and any defaults by them, may materially affect our ability to obtain the additional capital resources thatfunds we willmay require to purchase additional vessels in the future or may significantly increase our costs of obtaining such capital.funds. Our inability to obtain additional financing at all or at attractive costs, may materially affectif at all, could harm our business, results of operations, financial condition and ability to pay dividends.

We will be required to make substantial capital expenditures to complete the acquisition of our fleet thatnewbuilding containerships and any additional vessels we have contracted to purchase over approximatelyacquire in the next two years,future, which may causeresult in increased financial leverage, dilution of our equity holders’ interests or our decreased ability to pay dividends on our shares or to be diminished,redeem our financial leverage to increase, or our common shares to be diluted.Series C Preferred Shares.

We have agreed to acquire an additional 2611 newbuilding containerships over approximately the next 30 months.with scheduled delivery dates through April 2012. We have entered into contracts to purchase 21seven of those containerships and aslease financing arrangements, under which we are the lessee, for four vessels. As of December 31, 2009,March 25, 2011, the total purchase price of the 21seven vessels remaining to be paid was estimated to be approximately $2.6 billion.$701.8 million. Our obligation to purchase the 21seven vessels is not conditional upon our ability to obtain financing for such purchases. We will lease the remaining five of the 26 vessels from Peony Leasing Limited, or Peony, an affiliate of Bank of Scotland plc and Lloyds Banking Group. Under the terms of our lease financing arrangements with Peony,for the remaining four vessels, we have the ability tomay purchase the five vessels from Peonyat the end of their respective lease terms at a price approximately equal to their fair market value at the end of their relevantsuch lease terms.terms for two of the vessels and at a fixed price per vessel for the remaining two vessels. Although we currently intend to purchase all fivefour vessels, we cannot assure you that we willmay not be able to purchase them on terms favorable to us or at all.

We intend to significantly expand the size of our fleet beyond our existing contracted newbuilding program. The acquisition of additional newbuilding or existing vessels or businesses will require significant additional capital expenditures.

To fund the remaining portion of theseother and otherfuture capital expenditures, we willintend to use cash from operations, incur borrowings, or raise capital through the sale of additional securities.securities, enter into other sale-leaseback or financing arrangements, or use a combination of these methods. Use of cash from operations may

reduce cash available for dividends to our shareholders. 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 and the covenants in our existing debt agreements, as well as by adverse market conditions resulting from, among other things, poor economic conditions and contingencies and uncertainties that are beyond our control.

To fund the remaining portion of the price of the vessels we have contracted to purchase, we need to raise in the range of approximately $180 million to $240 million in common or other equity and or other forms of capital beginning no later than approximately the fourth quarter of 2010 or first quarter of 2011 and ending in approximately the second quarter of 2012. This amount of capital is based on a quarterly dividend of $0.10 per common share. The amount of capital required decreased from a range of approximately $500 million to $600 million because of the decision of our board of directors to reduce the quarterly dividend from $0.475 to $0.10 per share as announced on April 28, 2009. Due to the uncertainties associated with the global recession and the capital markets, our board of directors cannot determine how long this reduction will be in effect. The reduction will enable Seaspan to retain an approximate additional amount of $100 million per year that can be redeployed to fund its newbuilding program.

The continuation of the recent state of global financial markets and economic conditions might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all. In addition, our credit facilities contain “gearing” covenants, which prohibit us from incurring total borrowings in an amount greater than 65% of our total assets. Also, our $1.3 Billion Credit Agreement contains a loan to market value ratio requirement that must be met before we can borrow additional funds under that facility. Based on a valuation obtained in December of 2009 (which was on a without charter basis as required by our credit facility), the market decline in the value of the vessels securing that credit facility has impacted our ability to draw under this facility. We are currently unable to borrow the remaining approximately $267 million available under the facility. Further, even if we are not in breach of the gearing covenants and the market value of our vessels has not declined, lenders under our credit facilities may be unable to meet their funding obligations or may refuse to do so because of poor market conditions or because of their own financial condition. As a result, we may not be able to borrow funds with which to complete the acquisition of the remaining vessels in our contracted fleet or to further expand the size of our fleet.

Our failure to obtain the funds for necessary future capital expenditures would likely have a material adverse effect on our business, results of operations, financial condition and ability to pay dividends. Even if we are successful in obtaining the necessary funds, the terms of such financings could limit our ability to pay dividends to our shareholders. In addition, incurringIncurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant shareholder dilution, which, subject to the relative priority of our equity securities, could negatively affect our ability to pay dividends. Our ability to obtain or access bank financing or to access the capital markets for future debt or equity financings may be limited by our financial condition at the time of any such financing or offering and would increase the aggregate amountcovenants in our credit facilities, as well as by adverse market conditions. Our failure to obtain funds for our capital expenditures at attractive rates, if at all, could harm our business, results of cash required to distribute a consistent level of dividends from earnings to our shareholders, which could have a material adverse effect on ouroperations, financial condition and ability to pay dividends.

Over the long-term,long term, we will be required to make substantial capital expenditures to preserve the operating capacity of our fleet, which could result in a reduction or elimination ofnegatively affect our ability to pay dividends.dividends on our shares or redeem our Series C Preferred Shares.

We must make substantial capital expenditures over the long-term to preserve the operating capacity of our fleet. If, however, we do not retain funds in our business in amounts necessary to preserve the operating capacity of our capital base,fleet, over the long-term we will not be able to continue to refinance our indebtedness or maintain our payment of dividends. At some time in the future, we will likely need to retain additional funds, on an annual basis, to provide reasonable assurance of maintaining the operating capacity of our capital basefleet over the long-term. There are a number ofseveral factors that will not be determinable for a number of years, but that will be considered bywhich our board of directors will consider in future decisions regardingabout the amount of funds to be retained in our business to preserve our capital base. UnlessTo the extent we are successful in making accretive acquisitions with outside sourcesuse or retain available funds to make capital expenditures to preserve the operating capacity of financing that add a material amount to our cash available for retention in our business or unless our board of directors concludes that we will likely be able to recharter our fleet, whenthere will be less funds available to pay dividends on our current charters expire at rates higher than the rates inshares or to redeem our current charters, our

board of directors will likely determine at some future date to reduce, or possibly eliminate, our dividend in order to be able to have reasonable assurance that it is retaining the funds necessary to preserve our capital base. When we refer to accretive acquisitions, we mean acquisitions that will increase our distributable cash flow per share.Series C Preferred Shares.

Unless we set aside reserves or are able to borrow funds for vessel replacement at the end of a vessel’s useful life, our revenue will decline.

Unless we maintain reserves andor are able to borrow or otherwise raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income are dependent ondepend upon the revenues earned by the chartering of our vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our results of operations, financial condition and ability to pay dividends will be materially and adversely affected.harmed. Additionally, any reserves set aside for vessel replacement would not be available for dividends.dividends or to redeem our Series C Preferred Shares.

We cannot assure you that we will be able to borrow amounts under our credit facilities, and restrictiveRestrictive covenants in our credit facilities and lease arrangementsfacilities impose financial and other restrictions on us, includingwhich may limit, among other things, our ability to borrow funds under such facilities and our ability to pay dividends.

Prior to each drawdownTo borrow funds under our credit facilities, each of our credit facilities requires us,we must, among other things, to meet specified financial ratios and other requirements. Specifically,covenants. For example, we are prohibited under eachcertain of our existing credit facilities from incurring total borrowings in an amount greater than 65% of our total assets. Total borrowings and total assets are terms defined in our credit facilities and differ from those used in preparing our consolidated financial statements, which are prepared in accordance with GAAP. In addition, although our credit facilities do not contain traditional vessel market value covenants that require us to repay our facilities solely because the market value of our vessels declines below a certain level, our $1.3 Billion Credit Agreementbillion credit agreement contains a loan to market valueloan-to-market-value ratio requirement that must be met before we can borrow funds under that facility. The lastBased on a semi-annual valuation we obtained was in December of 20092010 (which was on a without charterwithout-charter basis as required by our credit facility), and the decline

in lightthe market value of the vessels as a result of the recent economic environment, vessel valuations inslowdown continues to limit our ability to borrow under the marketplace have declined significantly since 2008. As a result, wefacility. We are currently unable to borrow the remaining approximately $267 million otherwise available under the $1.3 Billion Credit Facility. facility. In addition, under this facility, there are certain circumstances that could require us to prepay a portion of the outstanding loan or provide additional acceptable security in order to meet the borrowing base ratio requirement. One of these circumstances includes the termination or expiration of a specified percentage of charters if we do not find suitable charterers or negotiate charter terms acceptable to our lenders. During 2011, we could trigger the borrowing base ratio requirement if, upon the expiration of certain charters for four of our vessels, we are unable to extend or replace the charters for at least three such vessels with charters acceptable to our lenders.

To the extent that we are not able to satisfy the requirements in our credit facilities, we may not be able to draw downborrow additional funds under our creditthe facilities, and to the extentif we exceed theare not in compliance with specified financial ratios andor other requirements, we willmay be in breach of our credit facilities.the facilities, which could require us to repay outstanding amounts. We may also be required to prepay amounts borrowed under our credit facilities if we, or in certain circumstances, our charterers,customers, experience a change of control.

Our credit facilities and lease arrangements alsofacilities impose operating and financial restrictions on us and require us to comply with certain financial covenants. These restrictions and covenants limit our ability to, among other things:

 

except in the case of the lease arrangements,facilities, pay dividends if an event of default has occurred and is continuing under one of our credit facilities or if the payment of the dividend would result in an event of default;

 

incur additional indebtedness under the credit facilities or otherwise, including through the issuance of guarantees;

 

change the flag, class or management of our vessels;

 

create liens on our assets;

 

sell our vessels without replacing such vessels or prepaying a portion of our loan;

 

conduct material transactions with our affiliates except on an arm’s-length basis;

 

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

change our business.

Therefore,Accordingly, we may need to seek permissionconsent from our lenders or lessors in order to engage in some corporate actions. The interests of our lenders or lessors may be different from ours, and we cannot guarantee that we willmay be ableunable to obtain our lenders’ or lessors’ consent when and if needed. If we do not comply with the restrictions and covenants in our credit agreements or lease arrangements,agreements, our results of operations, financial condition and ability to pay dividends will be materially adversely affected.harmed.

We cannot assure you that we willmay not be able to timely repay or be able to refinance any future indebtedness incurred under our credit facilities.

We intend to substantially finance our future fleet expansion program partially with secured indebtedness drawn under our credit facilitiesexisting or future credit or lease facilities. We have significant repayment obligations under our credit and lease facilities, both prior to and at maturity. The earliest maturity date of our current credit facilities is 2015, and while we intend to refinance amounts drawn under our credit facilitiesexisting or future credit facilities with replacement facilities, the net proceeds of future debt or equity offerings, we cannot assure you that we will be able to do so at an interest rate or on terms that are acceptable to us or at all.a combination thereof. If we are not able to refinance these amounts with the net proceeds of debt or equity offeringsoutstanding indebtedness at an interest rate or on terms acceptable to us, or at all, we will have to dedicate a significant portion of our cash flow from operations to pay the principal and interest of thisrepay such indebtedness. If we are not able to satisfy these obligations (whether or not refinanced) under our credit or lease facilities with cash flow from operations, we may have to undertakeseek alternative financing plans. The actualplans, which may not be available on terms attractive to us or perceived credit quality of our charterers, any defaults by them, and the market value of our fleet, among other things, may materially affect our ability to obtain alternative financing arrangements. In addition, debt service payments under our credit facilities, future credit facilities, future issuance of debt securities or alternative financing arrangements may limit funds otherwise available for working capital, capital expenditures and other purposes.at all. If we

are unable to meet our debt obligations, or if we otherwise default under our credit facilities, future credit facilities, future debt securities or an alternative financing arrangements, our lenders could declare the debt, together with accrued interest and fees,all outstanding indebtedness to be immediately due and payable and foreclose on the vessels insecuring such indebtedness. The market value of our fleet,vessels, which could result influctuates with market conditions, will also affect our ability to obtain financing or refinancing as vessels serve as collateral for loans. Lower vessel values at the accelerationtime of other indebtedness thatany financing or refinancing may reduce the amounts of funds we may have at such time and the commencement of similar foreclosure proceedings by other lenders.borrow.

Our substantial debt levels and vessel lease obligations may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

FollowingAs of March 25, 2011, we had approximately $2.4 billion outstanding on our credit facilities and lease obligations of approximately $556.1 million. These amounts outstanding under our credit facilities and our lease obligations will increase further following the completion of our acquisition of the remaining 2611 newbuilding containerships that we have contracted to purchase or lease, as the case may be, we will have substantial indebtedness.and lease. Our level of debt and vessel lease obligations could have important consequences to us, including the following:

 

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

we may need to use a substantial portion of our cash from operations to make principal and interest payments on our debt or make our lease payments, reducing the funds that would otherwise be available for operations, future business opportunities and dividends to our shareholders;

 

our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

 

our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and vessel lease obligations will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness and vessel lease obligations, we will be forced to take actions such as reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

Future disruptions in global financial markets and economic conditions or changes in lending practices may harm our ability to obtain financing on acceptable terms, which could hinder or prevent us from meeting our capital needs.

Global financial markets and economic conditions in recent years were disrupted and volatile. The debt and equity capital markets were exceedingly distressed, and it was difficult generally to obtain financing and the cost of any available financing increased significantly. If global financial markets and economic conditions significantly deteriorate in the future, we may be unable to obtain adequate funding under our current credit facilities because our lenders may be unwilling or unable to meet their funding obligations or we may not be able to obtain funds at the interest rate agreed in our credit facilities due to market disruption events or increased costs. Such deterioration may also cause lenders to be unwilling to provide us with new financing to the extent needed to fund our ongoing operations and growth. In addition, in recent years, the number of lenders for shipping companies has decreased and ship-funding lenders have generally lowered their loan-to-value ratios and shortened loan terms and accelerated repayment schedules. These factors may hinder our ability to access financing.

If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to implement our growth strategy, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could harm our business, results of operations, financial condition and ability to pay dividends.

The business and activity levels of many of our customers, shipbuilders and related parties and their respective abilities to fulfill their obligations under agreements with us, including payments for the charter of our vessels, may be hindered by any deterioration in the credit markets.

Our current vessels are, and those that we will acquire will be, primarily chartered to customers under long-term time charters. Payments to us under those charters are and will be our sole source of operating cash flow. Many of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. During the recent financial and economic crises, there occurred a significant decline in the credit markets and the availability of credit. Additionally, the equity value of many of our customers substantially declined during that period. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing potentially reduced the ability of our customers to make charter payments to us. Any recurrence of the significant financial and economic disruption of the last few years could result in similar effects on our customers or other third parties with which we do business, which in turn could harm our business, results of operations, financial condition and ability to pay dividends.

Similarly, the shipbuilders with whom we have contracted may be affected by future instability of the financial markets and other market conditions, including with respect to the fluctuating price of commodities and currency exchange rates. In addition, the refund guarantors under our shipbuilding contracts (which are banks, financial institutions and other credit agencies that guarantee, under certain circumstances, the repayment of installment payments we make to the shipbuilders), may also be negatively affected by adverse financial market conditions in the same manner as our lenders and, as a result, be unable or unwilling to meet their obligations to us due to their own financial condition. If our shipbuilders or refund guarantors are unable or unwilling to meet their obligations to us, this will harm our fleet expansion and may harm our business, results of operations, financial condition and ability to pay dividends.

We will be paying all costs for the 21seven newbuilding vessels that we have contracted to purchase and have incurred borrowings to fund, in part, through installment payments under the relevant shipbuilding contracts. If any of these vessels are not delivered as contemplated, we may be required to refund all or a portion of the amounts we borrowed.

The construction period currently required for a newbuilding containership similar to those we have ordered is approximately one year. For each of the newbuilding vessels that we have agreed to purchase, we are required to make certain payment installments, each ranging from approximately 5% to 20% of the total contracted purchase price for each vessel, as well as a final installment payment, generally equal to approximately 50% of the total vessel purchase price. We have entered into long-term credit facilities to partially fund the construction of these vessels. We are required to make these payments to the shipbuilder and to pay the debt service cost under the credit facilities in advance of receiving any revenue under the time charters for the vessels, which commences following delivery of the vessels.

If a shipbuilder is unable to deliver a vessel or if we reject a vessel, we may in certain circumstances be required to pay back a portionor one of the outstanding balance of the relevant credit facility. Further, if a chartererour customers rejects a vessel, we may in certain circumstances be required to pay backrepay a portion of the outstanding balance of the relevant credit facility. Such an outcome could have a material adverse effect onharm our results of operations, financial condition and ability to pay dividends.

We are relying on Peony, subject to the aggregate cap of $400.0 million agreed in the leases,lessors under finance leasing arrangements to pay all costsan aggregate amount of up to approximately $450 million of the construction cost for the five 4500 TEUfour newbuilding vessels that we have agreed to lease from Peony upon delivery of the vessels. If Peonya lessor fails to make suchits payments under these arrangements, we may havebe required to finance the construction of these vessels before they begin generating revenue.

WeIn 2007 we entered into vessel construction contracts in November and December 2007 to purchase five 4500 TEU newbuilding vessels from Samsung. We subsequently novated thoseSamsung, one of which was delivered in October 2010 and two of which were delivered in January 2011. Also in

2007, we entered into vessel construction contracts to Peony in connection with the lease financingpurchase two 13100 TEU vessels from HHI. The construction costs of the 4500 TEU vessels. Pursuant to the terms of the novation and lease agreements for thefour vessels Peony is responsible for all costs relating to the construction and delivery of the five 4500 TEU vessels that we have contracted to lease, but have not yet been delivered up to a maximum aggregate amountare financed through three sale-leaseback transactions. If the lessor under any of $400.0 million.

If Peonythese agreements becomes insolvent or otherwise fails to continue to make construction payments for the 4500 TEUany of these four vessels, Samsung has the right to further novate the contracts back to us and we may need to finance the containershipssuch vessel through alternative arrangements before they beginit begins operating and generating revenue,revenue. In such a case, we cannot assure you that we would be able to enter into alternative arrangements on terms favorable to us, if at all, which could adversely affectharm our results of operations, financial condition or ability to pay dividends. Please read “Information on the Company—“Item 5. Operating and Financial Review and Prospects—B. Business Overview—Liquidity and Capital Resources—Financing Facilities—Our $400.0 Million UK Lease Facility” in this Annual Report.Facilities.”

We currently derive the substantial majority of our revenue from six charterers,a limited number of customers, and the loss of certain or a combinationany of charterers could result in a significant loss ofsuch customers would harm our revenue and cash flow.

Customers for our current operating fleet are: CSCL Asia, HL USA, COSCON, APM, MOL and CSAV.

The following table shows the number of vessels in our currentoperating fleet that are chartered to our six chartererseight current customers and the percentage of our total containership revenue attributable to each chartererthe charters for the year ended December 31, 2009:2010:

 

Charterer

  Number of Vessels in our
Current Fleet Chartered to such
Charterer
  Percentage of Total
Containership Revenue in 2009
   Number of Vessels in our
Current Fleet Chartered to  such
Charterer
   Percentage of Total
Containership Revenue in 2010
 

CSCL Asia

  22  54.0   22     38.8

HL USA

  9  20.7   9     14.3

APM

  4  11.9

COSCON

   8     17.1

MOL

   4     10.3

Other

  7  13.4   12     19.5
               

Total

  42  100.0   55     100.0

All of our vessels are chartered to charterers under long-term time charters, and these charterers’customer payments to us are our primary source of operating cash flow. At any given time in the future, cash reserves of the charterers may be diminished or exhausted, and we cannot assure you that the charterers will be able to make charter payments to us in a timely manner or at all. The loss of any of these charters or any material decrease in payments thereunder could materially and adversely affectharm our business, results of operations, financial condition and ability to pay dividends.

Under some circumstances, we could lose a charterertime charter or payments under the benefits of a time charter if:

 

the charterercustomer fails to make charter payments because of its financial inability, disagreements with us, defaults on a payment or otherwise;

 

at the time of delivery, the vessel subject to the time charter differs in its specifications from those agreed upon under the shipbuilding contract with each of the relevant shipbuilders; or

the charterercustomer exercises certain specific limited rights to terminate the charter;

upon a change of control of the Company, the charterer fails to consent to such change of control; or

the charterer terminates the charter, becauseincluding (a) if the ship fails to meet certain guaranteed speed and fuel consumption requirements and we are unable to rectify the situation or otherwise reach a mutually acceptable settlement.settlement and (b) under some charters, if we undertake a change of control to which the customer does not consent and if the vessel is unavailable for operation for certain reasons for a specified period of time, or if delivery of a newbuilding is delayed for a prolonged period.

Any recurrence of the significant financial and economic disruption of the last few years could result in our customers being unable to make charter payments to us in the future or seeking to amend the terms of our charters. Any such event could harm our business, results of operations, financial condition and ability to pay dividends.

Our growth depends upon continued growth in demand for containerships.

Our growth will generally depend on continued growth in world and regional demand for containership chartering. The ocean-going shipping container industry is both cyclical and volatile in terms of charter hire rates and profitability. Containership charter rates peaked in 2005 and generally stayed strong until the middle of 2008,

when the effects of the recent economic crisis began to affect global container trade. Rates fell significantly in 2009 into early 2010 to levels below those in 2001. Rates rose throughout 2010, albeit to levels below historical averages. Rates have continued to rise in 2011.In the future, rates may moderate or continue to fluctuate. Fluctuations in containership charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major products internationally transported by containerships. The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.

Factors that influence demand for containership capacity include, among others:

supply and demand for products suitable for shipping in containers;

changes in global production of products transported by containerships;

seaborne and other transportation patterns, including the distances over which container cargoes are transported and changes in such patterns and distances;

the globalization of manufacturing;

global and regional economic and political conditions;

developments in international trade;

environmental and other regulatory developments;

currency exchange rates; and

weather.

Factors that influence the supply of containership capacity include, among others:

the number of newbuilding orders and deliveries;

the extent of newbuilding vessel deferrals;

the scrapping rate of older containerships;

containership owner access to capital to finance the construction of newbuildings;

charter rates and the price of steel and other raw materials;

changes in environmental and other regulations that may limit the useful life of containerships;

the number of containerships that are slow-steaming or extra slow-steaming to conserve fuel;

the number of containerships that are out of service, idle or laid out of service; and

port congestion and canal closures.

Our ability to recharter our containerships upon the expiration or termination of their current time charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the then current state of the containership market. The existing time charters for ten of our vessels will expire (excluding options to extend) before 2013. If charter rates are low when our existing time charters expire, we may be required to recharter our vessels at reduced rates or even possibly a rate whereby we incur a loss, which would harm our operating results. The same issues will exist if we acquire additional vessels and seek to charter them under long-term time charter arrangements as part of our growth strategy.

Forty of the vessels in our current or contracted fleet are or will be chartered to Chinese customers. The legal system in China is not fully developed and has inherent uncertainties that could limit the legal protections available to us, and the geopolitical risks associated with chartering vessels to Chinese customers could have a material adverse impact onharm our results of operations, financial condition and ability to pay dividends.

Twenty-twoAs of March 25, 2011, 22 of the 6869 vessels in our current or contracted fleet are or will be chartered to CSCL Asia, and 18 vessels are or will be chartered to COSCON. CSCL Asia and COSCON are subsidiaries of Chinese

companies. Our vessels that are chartered to Chinese customers are subject to various risks as a result of uncertainties in Chinese law, including (i)(a) the risk of loss of revenues, property or equipment as a result of expropriation, nationalization, changes in laws, exchange controls, war, insurrection, civil unrest, strikes or other political risks and (ii)(b) being subject to foreign laws and legal systems and the exclusive jurisdiction of Chinese courts and tribunals.

The Chinese legal system is based on written statutes and their legal interpretation by the standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive system of laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties.

If we are required to commence legal proceedings against a bank, a charterercustomer or a charter guarantor based in China with respect to the provisions of a credit facility, a time charter or a time charter guarantee, we may have difficulties in enforcing any judgment obtained in such proceedings in China. Similarly, our shipbuilders based in China provide warranties against certain defects for the vessels that they will construct for us and refund guarantees from a Chinese financial institution for the installment payments that we will make to them. Although the shipbuilding contracts and refund guarantees are governed by English law, if we are required to commence legal proceedings against these shipbuilders with respect to the provisions of the shipbuilding contracts or the warranties, or against the refund guarantor, for a refund of our installment payments, we may have difficulties enforcing in China any judgment obtained in such proceeding in China.proceeding.

A decrease in the level of China’s export of goods or an increase in trade protectionism will have a material adverse impact onharm our charterers’customers’ business and, in turn, affectharm our business, results of operations and ability to pay dividends.

China exports considerably more goods than it imports. Most of our charterers’ container shippingcustomers’ containership business revenue is derived from the shipment of goods from the Asia Pacific region, primarily China, to various overseas export markets, including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could have a material adverse effect onnegatively affect the growth rate of China’s exports and on our charterers’customers’ business. For instance, the government of China has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may have the effect of reducingreduce the supply of goods available for export and may, in turn, result in a decrease of demand for shipping.in shipping demand.

Our international operations expose us to the risk that increased trade protectionism will adversely affectharm our business. If the global economic crisis continues,challenges exist, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping.shipping demand. Specifically, increasing trade protectionism in the markets that our chartererscustomers serve has caused and may continue to cause an increase in: (i)in (a) the

cost of goods exported from China, (ii)(b) the length of time required to deliver goods from China and (iii)(c) the risks associated with exporting goods from China. Such increases may also affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs.

Any increased trade barriers or restrictions on trade, especially trade with China and Asia, would have an adverse impact onharm our charterers’customers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have an adverse impact onharm our results of operations, financial condition and ability to pay dividends.

The continuation of recentFuture adverse economic conditions throughout the world,globally, and especially in the Asia Pacific region, the European Union or the United States, could have a material adverse effect onharm our business, financial condition, and results of operations.operations and ability to pay dividends.

The global economy recently experienced disruption and volatility following adverse changes in global capital markets. The deterioration in the global economy has caused, and any renewed deterioration may continue to cause, a

decrease in worldwide demand for certain goods and thus, shipping. Continuing economicEconomic instability in the future could have a material adverse effect onharm our business, financial condition, results of operations and ability to pay dividends.

In particular, because a significant number of the port calls made by our vessels involves the loading or discharging of containerships in ports in the Asia Pacific region, continued economic turmoil in that region especially in Japan and China, may exacerbate the effect on the recentof any economic slowdown on us. In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, which has increased the demand for shipping. Like the rest of the world, however, China and Japan have recently experienced slowed or negative economic growth and this trend could continue. Moreover, the recent economic slowdown in the United States, the European Union and other Asian countries may further adversely affect demand for shipping.return. Our financial condition,business, results of operations, financial condition and ability to pay dividends will likely be materially and adversely affectedharmed by a continuing or worseningany significant economic downturn in any of these countries.the Asia Pacific region, including China, or in the European Union or the United States.

Our growth and our ability to recharter our vessels depends on our ability to expand relationships with existing chartererscustomers and obtaindevelop relationships with new charterers,customers, for which we will face substantial competition.

One of our principal objectives isWe intend to acquire additional containerships over the mid to long-term and as market conditions allow in conjunction with entering primarily into additional long-term, fixed-rate time charters for such ships.ships, and to recharter our existing vessels following the expiration of their current long-term time charters to the extent we retain those vessels in our fleet. The existing time charters for ten of our vessels will expire (excluding options to extend) before 2013. The charterer has exercised its option to extend for two of these vessels. For nine other vessels, the charterer may elect to terminate the charters with two years’ prior written notice upon payment of a termination fee. The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Container shippingContainership charters are awarded based upon a variety of factors relating to the vessel operator, including:including, among others:

 

shipping industry relationships and reputation for customer service and safety;

 

container shippingcontainership experience and quality of ship operations, (includingincluding cost effectiveness);effectiveness;

 

quality and experience of seafaring crew;

 

the ability to finance containerships at competitive rates and the ship owner’s financial stability generally;

 

relationships with shipyards and the ability to get suitable berths;

 

construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;

 

willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

 

competitiveness of the bid in terms of overall price.

We expect substantial competitionCompetition for providing new containership servicecontainerships for chartering purposes comes from a number of experienced shipping companies, including direct competition from other independent charter owners and indirect competition from state-sponsored and other major entities and major shipping companies. Manywith their own fleets. Some of theseour competitors have significantly greater financial resources than we do and can therefore operate larger fleets and may be able to

offer better charter rates. An increasing number of marine transportation companies have entered the containership sector, including many with strong reputations and extensive resources and experience in the marine transportation industry. This increased competition may cause greater price competition for time charters. In addition, the recent deterioration in the global economy has caused and may continue to cause a decrease in demand for shipping. As a result of this decreased demand, containership owners may face increased competition to secure time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or obtainto develop relationships with new customers on a profitable basis, if at all, which would have a material adverse effect onharm our business, results of operations, financial condition and ability to pay dividends.

If a more active short-term or spot container shippingcontainership market develops, we may have more difficulty entering into long-term, fixed-rate time charters and our existing customers may begin to pressure us to reduce our charter rates.

One of our principal strategies is to enter into long-term, fixed-rate time charters. As more vessels become available for the spot or short-term market, we may have difficulty entering into additional long-term, fixed-rate time charters for our vessels due to the increased supply of vessels and possibly cheaperlower rates in the spot market and, asmarket. As a result, our cash flow may be subject to instability in the long-term.long term. A more active short-term or spot market may require us to enter into charters based on changing market prices, as opposed to contracts based on a fixed-rate,fixed rate, which could result in a decrease in our cash flow in periods when the market price for container shippingcontainerships is depressed or insufficient funds are available to cover our financing costs for related vessels. In addition, the development of an active short-term or spot container shippingcontainership market could affect rates under our existing time charters as our current customers may begin to pressure us to reduce our rates.

We may be unable to make or realize expected benefits from acquisitions or investments, and implementing our growth strategy through acquisitions of existing businesses or vessels or investments in other containership businesses may harm our business, results of operations, financial condition and ability to pay dividends.

Our growth strategy includes selectively acquiring new containerships, existing containerships, containership-related assets and containership business as market conditions allow. We may also invest in other containership businesses. Factors that may limit the number of acquisition or investment opportunities in the containership industry include the ability to access capital to fund such transactions, the overall economic environment and the status of global trade and the ability to secure long-term, fixed-rate charters.

Any acquisition of or investment in a vessel or business may not be profitable to us at or after the time we acquire or make it and may not generate cash flow sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:

fail to realize anticipated benefits, such as new customer relationships, cost savings or cash flow enhancements;

be unable, through our Manager, to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;

decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions or investments;

incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or

not be able to service our debt obligations or pay dividends.

Our four 4800 TEU vessels were acquired secondhand and we may acquire other existing vessels. The purchase of existing, secondhand vessels has inherent risks that are not present when purchasing newbuilding vessels. Unlike newbuildings, existing containerships typically do not carry warranties as to their condition. While we would inspect existing containerships prior to purchase, such an inspection would normally not provide us with as much knowledge of a containership’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could harm our business, operating results, financial condition and ability to pay dividends.

Our ability to grow may be reduced by the introduction of new accounting rules for leasing.

International and U.S. accounting standard-setting organizations have proposed the elimination of operating leases. The proposals are expected to be finalized in 2011 and implemented in 2013 or later. If the proposals are enacted, they would have the effect of bringing most off-balance sheet leases onto a lessee’s balance sheet as liabilities. This proposed change could affect our customers and potential customers and may cause them to breach certain financial covenants. This may make them less likely to enter into time charters for our containerships, which could reduce our growth opportunities.

Under the time charters for certainsome of our vessels, if a vessel is off-hire for an extended period, the charterercustomer has a right to terminate the charter agreement for that vessel.

Pursuant toUnder most of our time charter agreements, if a vessel is not available for service, or off hire,off-hire, for an extended period, the charterercustomer has a right to terminate the charter agreement for that vessel. If a time charter is terminated early, we may be unable to re-deploy the related vessel on terms as favorable to us.us, if at all. In the worst case, we may not receive any revenuesrevenue from that vessel, but may be required to continue to pay financing costs for the vessel and expenses necessary to maintain the vessel in proper operating condition. Please see “Informationread “Item 4. Information on the Company—B. Business Overview—Time Charters.”

Risks inherent in the operation of ocean-going vessels could affectharm our business and reputation, which could adversely affect our results of operations, financial condition and ability to pay dividends.reputation.

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

 

marine disaster;

 

environmental accidents;

 

grounding, fire, explosions and collisions;

 

cargo and property losses or damage;

 

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

 

piracy.

Such occurrences could result in death or injury to persons, loss of property or environmental damage, delays in the delivery of cargo, loss of revenue 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. Any of these circumstances or events could increase our costs or lower our revenue, which could result in reduction in the market price of our securities and materially affect our results of operations, business condition and ability to pay dividends. The involvement of our vessels in an environmental disaster maycould harm our reputation as a safe and reliable vessel owner and operator. Any of these circumstances or events could harm our business, results of operations, financial condition and ability to pay dividends.

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

Piracy is an inherent risk in the operation of ocean-going vessels and has historically affected vessels trading in regions of the world, such asincluding, among other areas, the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and 2009, theThe frequency of piracy incidents against commercial shipping vessels has increased significantly in recent years, particularly in the Gulf of Aden off the coast of Somalia.Aden. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect onharm our results of operations, financial condition and ability to pay dividends. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. Any of these events, or the loss of use of a vessel due to piracy, may materially adversely affectharm our charterers,customers, impairing their ability to make payments to us under our charters.

Terrorist attacks and international hostilities could affectharm our results of operations, financial condition and ability to pay dividends.

Terrorist attacks such as the attacks on the United States on September 11, 2001, and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial marketsmarkets. Conflicts in Afghanistan and may affectother nations and tensions between North and South Korea (where many of our results of operations, financial condition and ability to pay dividends. The continuing conflicts in Iraq and Afghanistanshipbuilders are located) may lead to additional acts of terrorism, regional conflict and other armed conflict around the world, which may contribute to further economic instability in the global financial markets.markets or in regions where our customers do business or, in the case of South Korea, affect our access to new vessels. These uncertainties or events could also adversely affectharm our business, results of operations and financial condition, including our ability to obtain additional financing on terms acceptable to us or at all.

Terroristall, and our ability to pay dividends. In addition, terrorist attacks targeted at sea vessels such as the October 2002 attack in Yemen on theVLCC Limburg, a ship not related to us, may in the future also negatively affect our operations and financial condition and directly impactaffect our containerships or our customers. Future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession affecting the United States or the entire world. Any of these occurrences could have a material adverse impact on our operating results, revenue and costs.

Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered could affect us. HostilitiesAny hostilities in South Korea could constitute a force majeure event under our contracts with Samsung, HHI and HSHI and could impactnegatively affect the construction of our newbuildings or result in theirthe shipyards’ inability to perform under the contracts. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affectharm our business, operations results, financial condition and performance.ability to pay dividends.

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations due to the inherent operational risks of the shipping industry.

We maintain insurance for our fleet against risks commonly insured against by vessel owners and operators. Our insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We can give no assurance that we willmay not be adequately insured against all risks or thatand our insurers willmay not pay a particular claim. Even if our insurance coverage is adequate to cover our losses,any vessel loss, we may not be able to timely obtain timely a replacement vessel in the event of a loss. Under the terms of ourvessel. Our credit facilities and lease agreements we will be subject to restrictions on therestrict our use of any proceeds we may receive from claims under our insurance policies. Furthermore,In addition, in the future we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to supplementary or additional 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, as an industry group, through which we receive indemnity insurance coverage for statutory, contractual and tort liability, due to the sharing and reinsurance arrangements stated in the insurance rules. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless directly or indirectly increase our costs.

In addition, we do not carry loss-of-hire insurance, which covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled dry-docking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or extended vessel off-hire, due to an accident or otherwise, could have a material adverse effect onharm our business, results of operations, financial condition and ability to pay dividends.

Increased inspection procedures, tighter import and export controls and new security regulations could cause disruption of theour business.

International container shippingcontainership traffic is subject to security and customs inspection and related procedures or inspection procedures, in countries of origin, destination and trans-shipment points. These inspection proceduresinspections can result in cargo seizure, delays in the loading, offloading, trans-shipment or delivery of containers and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, charterers.customers.

Since the events of September 11, 2001, U.S. and Canadian authorities have increased container inspection rates. Government investment in non-intrusive container scanning technology has grown and there is interest in electronic monitoring technology, including so-called “e-seals” and “smart” containers, that would enable

remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation.

It is unclear what changes, if any, to the existing inspection procedures will ultimately be proposed or implemented, or how any such changes will affect the industry. It is possible that suchSuch changes couldmay impose additional financial and legal obligations including additional responsibility for inspecting and recording the contents of containers. Changes to the inspection procedures and container security could result in additional costs and obligations on carriers and may in certain cases, render the shipment of certain types of goods by container uneconomical or impractical. Additional costs that may arise from current inspection procedures or future proposalsinspection procedures may not be fully recoverable from customers through higher rates or security surcharges.

Governments Any of these effects could requisition our containerships during a period of war or emergency, resulting in loss of earnings.

The government of a ship’s registry could requisition for title or seize our containerships. Requisition for title occurs when a government takes control of a ship and becomes the owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our containerships may negatively impact our revenue.

Our growth depends upon continued growth in demand for containerships, and the recent global economic slowdown may impede our ability to continue to grow our business.

Our articles of incorporation limitharm our business, to the chartering or rechartering of containerships to othersoperating results and any other lawful act or activity customarily conducted in conjunction with the chartering or rechartering of containerships to others, although our business purpose may be modified by our board of directors subject to the approval of the holders of a majority of our Series A Preferred Shares and, for as long as the management agreements with our Manager are in effect, the approval of the holders of our incentive shares. Our growth will generally depend on continued growth in world and regional demand for chartering marine container shipping, and the recent global economic slowdown may impede our ability to continue to grow our business.

The ocean-going shipping container industry is both cyclical and volatile in terms of charter hire rates and profitability. Containership charter rates peaked in 2005 and generally stayed strong until the middle of 2008, when the effects of the recent economic crisis began to affect global container trade. Rates have fallen significantly and are now estimated to be lower than late 2001 levels, with the possibility for further pressure

through at least 2010. In the future, rates may continue to decline. Fluctuations in charter rates result from changes in the supply and demand for ship capacity and changes in the supply and demand for the major products internationally transported by containerships. The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.

The factors that influence demand for containership capacity include:

supply and demand for products suitable for shipping in containers;

changes in global production of products transported by containerships;

the distance container cargo products are to be moved by sea;

the globalization of manufacturing;

global and regional economic and political conditions;

developments in international trade;

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

environmental and other regulatory developments;

currency exchange rates; and

weather.

The factors that influence the supply of containership capacity include:

the number of newbuilding deliveries;

the extent of newbuilding vessel deferrals;

the scrapping rate of older containerships;

containership owner access to capital to finance the construction of newbuildings;

the price of steel and other raw materials;

changes in environmental and other regulations that may limit the useful life of containerships;

the number of containerships that are slow-steaming or extra slow-steaming to conserve fuel;

the number of containerships that are out of service, idle or laid out of service; and

port congestion and canal closures.

Our ability to recharter our containerships upon the expiration or termination of their current time charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the then current state of the containership market. If the containership market is in a period of depression when our ships’ charters expire, we may be forced to recharter our ships at reduced rates or even possibly a rate whereby we incur a loss, which may reduce our earnings or make our earnings volatile. The same issues will exist if we acquire additional vessels and attempt to subject them to a long-term time charter arrangement as part of our acquisition and financing plan.financial results.

An over-supply of containership capacity may lead to reductions in charter hire rates and profitability.

While the size of the containership orderbook has declined over the last 12 months, newbuilding containerships with an aggregate capacity of 4.84.0 million TEUs, representing approximately 35%28% of the total fleet capacity as of December 31, 2009,March 1, 2011, were under construction.construction as of that date. The size of the orderbook is large relative to

historical levels and will result in the increase in the size of the world containership fleet over the next few years. An over-supply of containership capacity, combined with astability or any decline in the demand for containerships, may result in a further reduction of charter hire rates. If such a reduction occurs when we seek to charter newbuilding vessels, our growth opportunities may be diminished. If such a reduction occurs upon the expiration or termination of our containerships’ current time charters, we may only be able to recharter our containerships for reduced rates or unprofitable rates or we may not be able to recharter our containerships at all.

Over time, containership values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a containership, we may incur a loss or we may not be able to dispose of such containership at all.

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

 

prevailing economic conditions in the market in which the containership trades;

 

a substantial or extended decline in world trade;

 

increases in the supply of containership capacity; and

 

the cost of retrofitting or modifying existing ships, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.

If a charter terminates, we may be unable to re-deploy the vessel at attractive rates and, rather than continue to incur costs to maintain and finance the vessel, may seek to dispose of it. Our inability to dispose of the containership at a reasonable price, or at all, could result in a loss on its sale and adversely affectharm our results of operations, financial condition and ability to pay dividends.

Maritime claimants could arrest 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 that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or moreage of our 4800 TEU secondhand vessels could interrupt our cash flow and require us to pay large sums of funds to have the arrest lifted.

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

Thegeneral aging of our fleet may result in increased operating costs in the future, which could adversely affectharm our earnings.operating results.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. AsOur fleet includes four 4800 TEU secondhand vessels that had an average age of approximately 22 years as of March 25, 2011. For these vessels, and as the rest of our fleet ages, and to the extent we acquire any older existing vessels, we will incur increased costs. Oldercosts as older vessels are typically more costly to maintain than more recently constructednewer vessels. CargoIn addition, cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.customers. Governmental regulations and safety or other equipment standards related to the age of vessels may

also require expenditures for alterations, or the addition of new equipment, to ourolder vessels and may restrict the type of activities in which ourthese vessels may engage. Increased costs or restrictions on the operation of our older vessels may prevent us from operating them profitably during the remainder of their useful lives and may harm our business, operating results, financial condition and ability to pay dividends.

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

Our business and the operationsoperation of our containerships are materially affected by environmental regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in

which our containerships operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, water discharges and ballast water management. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost or effect of complying with such requirements or the impacteffect thereof on the resale price or useful life of our containerships. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business, and which may materially adversely affectharm our operations. We are required by various governmentalbusiness, operating results, financial condition and quasi-governmental agenciesability to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. Many environmental requirements are designed to reduce the risk of pollution, such as oil spills, and our compliance with these requirements can be costly.pay dividends.

Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in substantial penalties, fines or other sanctions, including 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 natural resource damages, in the event thatif there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous materials associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of our vessels.

The operation of our containerships is also affected by the requirements set forth in the International Maritime Organization’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Failure to comply with the ISM Code may subject us to increased liability, may decrease available insurance coverage for the affected ships and may result in denial of access to, or detention in, certain ports.

In addition, in complying with existing environmental laws and regulations and those that may be adopted, we may incur significant costs in meeting new maintenance and inspection requirements and new restrictions on air emissions from our containerships, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. Substantial violations of applicable requirements or a catastrophic release of bunker fuel from one of our containerships could have a material adverse impact onharm our business, operating results, financial condition and results of operations.ability to pay dividends.

Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may adversely affectharm our business.

The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.

All of our currently operating vessels have been awarded certification under the ISM Code and we expect that each of the vessels to be delivered in the future will be awarded certification under the ISM Code upon delivery.

A vessel must undergo annual surveys, intermediate surveys and special surveys.surveys to maintain classification society certification. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle under which the machinery would beis surveyed

periodically over a five-year period. Each of the operating vessels in our fleet is on a special survey cycle for hull inspection and a continuous survey cycle for machinery inspection. These vessels have qualified within their respective classification societies for dry-docking once every five years for inspection of the underwater parts of such vessel.

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 could be in violation of certain covenants in our loan agreementscredit facilities and our lease agreements for the 4500 TEU vessels.agreements. This could negatively impactharm our business, results of operations, financial condition and ability to pay dividends.

Delays in deliveries of our newly builtnewbuilding containerships could harm our business and operating results.

We are currently under contract to purchase 21seven and lease fivefour additional newbuilding containerships, which are scheduled to be delivered at various times over approximately the next 30 months.through April 2012. These vessels are being built by Jiangsu, New Jiangsu, HHI, HSHI and Samsung (individually, the “Shipbuilder” and collectively, the “Shipbuilders”).shipyards. The delivery of these vessels, or any other newbuildings we may order, could be delayed, which would delay our receipt of revenue under the time charters for the containerships and, therefore adversely affectif the delay is prolonged, could permit our customers to terminate the newbuilding time charter. Any of such events could harm our results of operations, financial condition and ability to pay dividends.

The delivery of the newbuildings could be delayed because of:

 

work stoppages, or other labor disturbances or other events that disrupt any of the Shipbuilders’shipyards’ operations;

 

quality or engineering problems;

 

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

 

lack of raw materials;

bankruptcy or other financial crisis of any of the Shipbuilders;shipyards;

 

a backlog of orders at any of the Shipbuilders;shipyards;

 

hostilities, or political or economic disturbances in South Korea, or China, where the containerships are being built;

 

weather interference or a catastrophic event, such as a major earthquake, fire or fire;tsunami, such as the events recently affecting Japan;

 

our requests for changes to the original containership specifications;

 

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

 

our inability to obtain requisite permits or approvals;

 

a dispute with any of the Shipbuilders;shipyards; or

 

the failure of our banks to provide debt financing.

In addition, each of the shipbuilding contracts for the additional 2611 newbuilding vessels containcontains “force majeure” provisions whereby the occurrence of certain events could delay delivery or possibly result in termination of the contract. If delivery of a containership is materially delayed or if a shipbuilding contract is terminated, it could adversely affectharm our results of operations, financial condition and ability to pay dividends.

Due to our lack of diversification, adverse developments in our containership transportation business could have an adverse effect onharm our results of operations, financial condition and ability to pay dividends.

Our articles of incorporation currently limit our business to the chartering or rechartering of containerships to others and other related activities, unless otherwise approved by our board or directors, the holders of a majority of our Series A Preferred Shares and, for as long as the management agreements with our Manager are in effect, the approval of the holders of our Class C common shares.

We rely exclusively on the cash flow generated from our charters that operate in the containership transportation business. Due to our lack of diversification, an adverse development in the container shippingcontainership industry may have amore significantly greater impact onharm our financial condition, results of operations, financial condition and ability to pay dividends than if we maintained more diverse assets or lines of business.

The age of our 4800 TEU secondhand vessels will result in increased operating costs, which could adversely affect our results of operations, financial condition or ability to pay dividends.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. Our 4800 TEU secondhand vessels have an average age of approximately 21 years as of December 31, 2009. Older vessels are typically more costly to maintain than more recently constructed vessels. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment to these 4800 TEU secondhand vessels and may restrict the type of activities in which these vessels may engage. The increased costs associated with these vessels may prevent us from operating them profitably during the remainder of their useful lives and may adversely affect our results of operations, financial condition and ability to pay dividends.

Our charter revenue from the four 4800 TEU secondhand vessels will decrease if APM exercises its options to extend its charters beyond the initial charter period of five years, and if APM does not exercise its options to extend, we may not be able to recharter these vessels at favorable rates or at all.

We purchased theour four 4800 TEU secondhand vessels from APM in 2006. Simultaneously with the delivery of the four 4800 TEU vessels, we entered into five-year charter agreements for each of these vessels with APM at

a daily hire rate of $23,450. Upon the expiration of the initial five-year time charter term for each of the four 4800 TEU vessels in 2011, APM will have two consecutive one-year options to charter each vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter each vessel at $20,400 per day. Our Manager will operate the four 4800 TEU vessels purchased from APM for a fixed fee of $7,848 per day through December 31, 2011. The daily fixed fee thereafter will be subject to renegotiation every three years. If APM exercises its options, our charter revenue from the four 4800 TEU secondhand vessels will decrease during the option years. In addition, the 4800 TEU vessels are approximately 2122 years old, which is relatively old for containerships. If APM does not exercise its options to extend these time charters, the age of these vessels may prevent us from rechartering them at rates favorable to us or at all. If we are unable to recharter our 4800 TEU vessels, we may attempt to sell them. The age of the 4800 TEU vessels may prevent us from being able to sell them at a profit or at all.

EachBecause each existing and newbuilding vessel in our contracted fleet is built or will be built in accordance with standard designs and uniform in all material respect to all other vessels in its TEU class, thus any material design defect in one vessellikely will likely affect all of our other vessels in such class.

Each existing and newbuilding vessel in our fleet is built or will be built in accordance with standard designs and uniform in all material respects to all other vessels in its class. As a result, any latent design defect discovered in one of our vessels will likely affect all of our other vessels in that class. Any disruptions in the operation of our vessels resulting from these defects could adversely affectharm our receipt of revenue under time charters for the vessels affected.business, operating results, financial condition and ability to pay dividends.

There aremay be greater than normal operational risks with respect to theour 9600 TEU vessels that we have purchased.vessels.

The two 9600 TEU vessels that we have purchased are some of the first vessels of this type to be built. AlthoughThere is one other company before us has built, serviced orthat operated similar vessels built by Samsung, and there are unknown and possiblymay exist greater than normal operational risks associated with these vessels. Problems with operation ofAny operational risks arising from these vessels could be encountered, which would adversely affect our reputation, the receipt of revenue under time charters for or the operating cost of these vessels, as well asand their future resale value.

There are greater than normal construction, delivery and operational risks with respect to theour 13100 TEU newbuilding vessels and any newbuilding New Panamax 10000 TEU vessels that we have agreed to purchase.may order.

The eight 13100 TEU newbuilding vessels that we have purchasedare under construction are some of the first vessels of this type to be built. In addition, we have entered into a letter of intent to order a significant number of New Panamax 10000 TEU vessels. If this order is completed, these will be the first vessels constructed using this new design and the first vessels constructed of this size at the particular shipyard. As such, there are unknown and possiblymay exist greater than normal construction, delivery and operational risks associated

with these vessels. Deliveries of these vessels could be delayed and problems with operation of these vessels could be encountered, either of which wouldcould adversely affect our reputation, the receipt of revenue under time charters for or the operating cost of these vessels, as well asand their future resale value.

Increased competitiontechnological innovation in technological innovationcompeting vessels could reduce our charter hire income and the value of our vessels.

The charter hire rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to be loaded and unloaded quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new containerships are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect the amount of charter hire payments we receive for our vessels once their initial charters are terminatedend and the resale value of our vessels. As a result, our operating results and financial condition could be harmed.

Maritime claimants could arrest our vessels, which could interrupt our cash availableflow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against the applicable vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. In addition, in some jurisdictions, such as South Africa, under the service“sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our debt obligationsships. The arrest or attachment of one or more of our vessels could interrupt our business and cash flow and require us to pay significant amounts to have the paymentarrest lifted.

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

The government of a ship’s registry could be adversely affected.requisition for title or seize our containerships. Requisition for title occurs when a government takes control of a ship and becomes the owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our containerships could harm our business, operating results, financial condition and ability to pay dividends.

We depend on our Manager to operate our business, and if our Manager fails to satisfactorily perform its management services, our business, results of operations, financial condition and ability to pay dividends may be harmed.

We were incorporated in May 2005, and we do not currently have any employees. Pursuant to our management agreements, our Manager and certain of its affiliates will provide us with certainall of our officersemployees (other than our chief executive officer) and with all of our services, including technical, commercial, administrative and strategic services (including vessel maintenance, crewing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance and financial services). Our operational success and our ability to grow will depend significantly upon our Manager’s satisfactory performance of these services. Our business will be harmed if our Manager fails to perform these services satisfactorily. In addition, if any of the management agreements were to be terminated or if their terms were to be altered,amended, our business could be adversely affected asharmed if we maycould not be able to immediately replace suchtimely find adequate replacement services, or even if replacement services are immediately available, the terms offered may be less favorable than the ones currently offered by our Manager.

Our ability to compete for and to enter into new charters and expand our relationships with our charterers will depend largely oncustomers depends upon 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:to, among other things:

 

renew existing charters upon their expiration;

 

obtain new charters;

 

successfully interact with shipyards;

 

obtain financing on commercially acceptable terms;

 

maintain satisfactory relationships with our customers and suppliers; or

 

grow our business.

If our ability to do any of the things described above is impaired, it could have a material adverse effect onharm our business, results of operations, financial condition and ability to pay dividends.

As we expand our business or if our Manager provides services to third parties, our Manager may need to improve its operating and financial systems, and expand ourits commercial and technical management staff, and it will need to recruit suitable employees and crew for our vessels.

Since our initial public offering in 2005, we have increased the size of our existing and contracted fleet to 68, which is approximately triple the size of our contracted fleet at the time of our initial public offering.from 23 to 69 vessels. Our Manager’s

current operating and financial systems may not be adequate if we further expand the size of our fleet or if our Manager provides services to third parties and attempts to improve those systems may be ineffective. In March 2011, our Manager agreed to provide technical, commercial and certain administrative services for vessels to Greater China Intermodal Investments LLC, an investment vehicle, or the Vehicle, and to affiliates of Dennis R. Washington for vessels that they may acquire. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Greater China Intermodal Investments LLC Agreement—Services Agreements.” In addition, if we expand our fleet, or as our Manager provides services to third parties, our Manager will need to recruit suitable additional administrative and management personnel. We cannot guarantee that ourOur Manager willmay not be able to continue to hire suitable employees as we expand our fleet. In the event ofin such circumstances. If there exists a shortage of experienced labor or if our Manager encounters business or financial difficulties, our Manager may not be able to adequately staff our vessels. If we expand our fleet, or our as Manager provides services to third parties and our Manager is unable to grow its financial and operating systems or to recruit suitable employees, our business, results of operations, financial condition and customer relationshipsability to pay dividends may be adversely affected.harmed.

The fixed fees that we pay our Manager for its technical management of our ships have increased since our initial public offering and may continue to increase over time.increase. Additional increases in our technical management or other existing fees, wouldor the introduction of new fees, could significantly increase our operating costs and could have a material adverse effect onharm our results of operations, financial condition and ability to pay dividends.

Under the management agreements for all our vessels, we currently pay our Manager a fixed fee for its technical management of such vessels. The fixed fees that we pay our Manager for itsthe technical management of our fleetvessels. These fixed fees have increased and may continue to increase in the future. Pursuant to theour management agreements, the current technical fee structure is effective until December 31, 2011, at which time we will need to renegotiate the fee structure. Based on the technical management fees and thereafter, weadditional fees under the management agreement between our Manager and the Vehicle, and disclosure by other public containership companies and third-party management companies, the owners of our Manager are requiredproposing increases to renegotiateexisting fees and the inclusion of additional new fees every three years. If we andunder our Manager are unable to agree on new fees, the management agreements, require that an arbitrator determines a fairwhich they believe reflect current market fee.practice. Any increase in thesethe technical management fees willwe pay our Manager and any additional new fees could be substantial and would increase our operating costs and could have a material adverse effect onimpact our results of operations, financial condition and ability to pay dividends. In addition, we are in discussions with our Manager about potentially acquiring all or a significant portion of our Manager, and any increases or anticipated increases in the fee arrangements under the management agreements could result in an increase to the purchase price of our Manager. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Potential Transactions—Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees.”

Our Manager and its affiliates have conflicts of interest and limited fiduciary and contractual duties, which may permit them to favor their own interests to your detriment and ours.

Conflicts of interest may arise between our Manager and its affiliates, on the one hand, and us and holders of our securities, on the other hand. As a result of these conflicts, our Manager may favor its own interests and the interests of its affiliates over the interests of the holders of our securities. These conflicts include, among others, the following situations:

 

the asset purchase agreement, our management agreements, the omnibus agreement and other contractual agreements we have with our Manager and its affiliates were not the result of arm’s-length negotiations, and the negotiation of these agreements may have resulted in prices and other terms that are less favorable to us than terms we might have obtained in arm’s-length negotiations with unaffiliated third parties for similar services;

these agreements may have resulted in prices and other terms that are less favorable to us than terms we might have obtained in arm’s-length negotiations with unaffiliated third parties for similar services;

 

our chief executive officer and certain of our directors also serve as executive officers or directors of our Manager and our chief financial officer serves as an executive officer of certain of our Manager’s affiliates;

 

our Manager advises our board of directors about the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional securities and reserves, each of which can affect the amount of cash that is available for dividends to our shareholders and the payment of dividends on our outstanding Class C common shares, or the incentive shares;shares, which are currently held by an affiliate of the Manager;

 

our Manager may recommend that we borrow funds in order to permit the payment of cash dividends;

 

our officers, including our chief executive officer and our chief financial officer, do not spend all of their time on matters related to our business; and

 

our Manager advises us of costs incurred by it and its affiliates that it believes are reimbursable by us.

Even if our board of directors or our shareholders are dissatisfied with our Manager, there are limited circumstances under which the management agreements governing the management of our vessels can be terminated by us. On the other hand, our Manager has substantial rights to terminate the management agreements and, under certain circumstances, could receive very substantial sums in connection with such termination.

Under the management agreements governing our vessels, our Manager currently has the right after five years from our initial public offering to terminate the management agreements on twelve12 months’ notice, although the covenant limiting our Manager’s ability to compete with us continues for two years following such termination.termination, and we can elect for our Manager to continue to provide services to us for such two-year period as long as the Manager continues to be in the business of providing services to third parties for similar types of vessels. Our Manager also has the right to terminate the management agreements after a dispute resolution if we have materially breached any of the management agreements, in which case none of the covenants would continue to apply to our Manager.

The management agreements will each terminate upon the sale of substantially all of our assets to a third party, upon our liquidation or after any change of control of our company occurs. If the management agreements are terminatedterminate as a result of an asset sale, our liquidation or change of control, then our Manager may be paid the fair market value of the incentive shares as determined by an appraisal process. Any such payment could be substantial.

In addition, our rights to terminate the management agreements are limited. Even if we are not satisfied with the Manager’s efforts in managing our business, unless our Manager materially breaches one of the agreements, we may not be able to terminate any of the management agreements until 2020. This early termination right requires a2020, and only with the approval of two-thirds approval of our independent directors, anddirectors. Even if we elect to do so or if we elect to terminate the management agreements then or at the end of their initial terms in 2025 or a subsequent renewal term, our Manager will continue to receive dividends on the incentive shares for a five-year period from the date of termination.termination, if available.

Our Manager could receive substantial sums based on its ownership of the incentive shares if our quarterly dividends to our shareholders are increased, reducing the amount of cash that would otherwise have been available for increased dividends to our shareholders.

Our Manager shares in incremental dividends, based on specified sharing ratios, on its incentive shares if and to the extent that the available cash from operating surplus paid by us exceeds specified target dividend levels. Because these incentive dividends are taken from the total pool of dividends payable to holders of common shares, such dividends will reduce the amount of cash which would otherwise have been available to increase the amount to

be paid as dividends to our shareholders. Please read “Information on the Company—“Item 7. Major Shareholders and Related Party Transactions—B. Business Overview—Related Party Transactions—Our Management Agreements—Compensation of Our Manager.”

Our Manager is a privately held company and there is little or no publicly available information about it.

The ability of our Manager to continue providing services for our benefit depends in part on its own financial strength. Circumstances beyond our control could impair our Manager’s financial strength, and because it is a privately held company, information about its financial strength is not generally available. As a result, an investor in our securities might have little advance warning of problems affecting our Manager, even though these problems could have a material adverse effect on us.harm our business, operating results, financial condition and ability to pay dividends. As part of our reporting obligations as a public company, we disclose information regarding our Manager that has a material impact on us to the extent that we become aware of such information.

Our Manager will engage in other businesses and may compete with us.

Pursuant to an omnibus agreement entered into in connection with our initial public offering, our Manager, Seaspan Marine Corporation (formerly known as Seaspan International Ltd.), or Seaspan International,SIL, and Norsk Pacific Steamship Company Limited, or Norsk, generally agreed to, and agreed to cause their controlled affiliates (which does not include us), not to engage in the business of chartering or rechartering containerships to others during the term of our Initial Management Agreement (as defined below in “Information on the

Company—management agreement with our Manager. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Business Overview—Related Party Transactions—Our Management Agreements.”) The omnibus agreement, however, contains significant exceptions that may allow these entities to compete with us. For instance, in certain circumstances these entities are permitted to acquire and operate containerships to the extent that such containership assets were part of an acquired business, provided that (i)(a) a majority of the fair market value of the total assets of the acquired business is not attributable to the containership business and (ii)(b) such entity has offered to sell to us the containership assets of the acquired business. In addition, in March 2011, in connection with our participation in the Vehicle, we amended the omnibus agreement to permit our Manager and the other parties to the agreement to provide certain technical, commercial and administrative services to the Vehicle and certain affiliates of it and Dennis R. Washington. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Omnibus Agreement.”

Our officers do not devote all of their time to our business.

Our Manager and its affiliates as well as certain of our officers are involved in other business activities that may result in their spending less time than is appropriate or necessary in order to manage our business successfully. Pursuant to the recent employment agreement ofbetween us and our chief executive officer, Gerry Wang, Mr. Wang is permitted to devote substantially all of his timeprovide services to us and our Manager, on our businessTiger Management Limited and affairs.Greater China Intermodal Investments LLC and certain of their respective affiliates, in addition to the services that he provides to us. In addition, Mr. Wang’s employment contract will expire in 2013 unless itWang is renewed.the chairman of the board of managers of Greater China Intermodal Investments LLC. Our chief financial officer is also employed by our Manager and he also devoteswill devote substantially all of his time to us and our Manager. Other officers appointed by our Manager may spend a material portion of their time providing services to our Manager and its affiliates on matters unrelated to us. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Certain Relationships and Transactions.”

Our business depends upon certain employees who may not necessarily continue to work for us.

Our future success depends to a significant extent upon our chief executive officer and co-chairman of our board of directors, Gerry Wang, and certain members of our senior management and that of our Manager. Mr. Wang has substantial experience and relationships in the container shippingcontainership industry and has worked with our Manager for many years. Mr. Wang has been instrumental in developing our relationships with our customers. Mr. Wang and others employed by our Manager are crucial to the development of our business strategy and to the growth and development of our business. If they, and Mr. Wang in particular, were no longer to be affiliated

with our Manager, or if we otherwise cease to receive advisory services from them, we may fail to recruit other employees with equivalent talent, experience and experience,relationships, and our business, operating results and financial condition may sufferbe significantly harmed as a result. Although Mr. Wang has an employment agreement with our Manager, he does not have anus through January 1, 2013, Mr. Wang could terminate his employment agreement with us. In addition, Mr. Wang’s employment agreement is due to expire at the end of 2013 unless it is renewed.any time. As such, it is possible that Mr. Wang will no longer provide services to us and that our business may be adversely affectedharmed by the loss of such services.

We may not achieve expected benefits from our participation in the Carlyle investment vehicle.

In March 2011, we agreed to participate in the Vehicle, an investment vehicle established by an affiliate of global alternative asset manager The Carlyle Group, or Carlyle, which will invest in containership assets, primarily newbuilding vessels strategic to the People’s Republic of China, Taiwan, Hong Kong and Macau, or Greater China. We believe that the combined scale of our business and the Vehicle, together with current excess capacity at shipyards, will allow us to realize volume discounts for newbuilding orders and to negotiate fuel-efficient design improvements from shipyards that will be attractive to our customers. To the extent excess shipyard capacity decreases, we may be unable to make or realize expected benefits from acquisitions,achieve these benefits. In addition, we may be unable to obtain more attractive vessel financing through the Vehicle than otherwise available to us on our own.

The Vehicle intends to compete in our markets, and implementing our growth strategy through acquisitions of existing businesses or vesselsits entry into the containership market may harm our business, operating results, of operations, financial conditionposition and ability to pay dividends.

OurCarlyle is a leading global alternative asset manager with nearly $100 billion of assets under management. The Vehicle intends to invest up to $900 million of equity capital in containership assets, primarily newbuilding vessels strategic to Greater China, which is similar to our growth strategy includes selectively acquiring newof investing in primarily newbuilding vessels strategic to Greater China. The involvement of Carlyle in the Vehicle and the amount of funds that the Vehicle may invest in containerships existingcould result in the Vehicle becoming the owner of a significant fleet of containerships, containership related assets and container shipping business over the midwhich could compete with us for growth opportunities, subject to long term and as market conditions allow. Factorscertain rights of first refusal in our favor that may continue up to March 31, 2015, subject to earlier termination. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and First Offer Agreements.” Our business, operating results, financial condition and ability to pay dividends could be harmed to the extent the Vehicle successfully competes against us for containership opportunities.

We have reduced the fiduciary duties of Gerry Wang and Graham Porter in relation to certain growth opportunities that become subject to our right of first refusal with the Vehicle, which may limit our rights in such growth opportunities to our rights under the numberright of first refusal.

Pursuant to agreements between us and each of our chief executive officer and co-chairman of our board of directors, Gerry Wang, and our director Graham Porter, we have reduced the fiduciary duties of Mr. Wang and Mr. Porter in relation to certain containership vessel and business opportunities to the extent such opportunities are subject to our right of first refusal with the Vehicle and (a) the conflicts committee of our board of directors has decided to reject such opportunity or we have failed to exercise our right of first refusal to pursue such opportunity, (b) we have exercised such right but failed to pursue such opportunity or (c) we do not have the right under our right of first refusal to pursue such opportunity. Our rights to such opportunities may be limited to our rights under our right of first refusal with the Vehicle, which would be more restrictive than the rights we otherwise would have relating to such opportunities.

In order to timely exercise our right of first refusal from the Vehicle, we may be required to enter into containership construction contracts without financing arrangements or charter contracts then being in place, which may result in financing on less than favorable terms or employment of the vessels other than on long-term, fixed-rate charters, if at all.

Under our right of first refusal with the Vehicle relating to containership acquisition opportunities, inwe generally must exercise our right of first refusal within 12 business days of receiving a notice from the containership industry includeVehicle of the ability to access capital to fund such acquisitions, the overall economic environment and the status of global trade and the ability to secure long-term, fixed-rate charters.

Any acquisition of a vessel or business may not be profitable to us at or afteropportunity. At the time we must exercise our right of first refusal, there may be no financing

arrangement or charter commitment relating to the newbuilding or existing containership to be acquired. If we elect to acquire it andthe vessel without a financing arrangement or charter commitment then in place, we may not generatebe unable subsequently to obtain financing or charter the vessel on a long-term, fixed-rate basis, on terms that will result in positive cash flow sufficient to justifyus from operation of the vessel, or at all. Accordingly, our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business,operating results, financial condition and operating results,ability to pay dividends may be harmed.

Certain of our officers and directors or their affiliates will have separate interests in the Vehicle, which may result in conflicts of interest between their interests and those of us and our shareholders relative to the Vehicle.

Our director Graham Porter, through his interest in Tiger Management Limited, is an indirect investor in Greater China Industrial Investments LLC, the member with the largest capital commitment in the Vehicle. An affiliate of Dennis R. Washington, who controls entities that together represent our largest shareholder, has an indirect interest in Tiger Management Limited. As a result, Mr. Porter and the affiliate of Mr. Washington will have an indirect interest in incentive distributions received by Greater China Industrial Investments LLC from the Vehicle. These incentive distributions will range between 20% and 30% after a cumulative compounded rate of return of 12% has been generated on all member capital contributions. Gerry Wang, co-chairman of our board of directors and our chief executive officer, may become an indirect investor in Greater China Industrial Investments LLC. Messrs. Wang and Porter are members of the Vehicle’s transaction committee, which will be primarily responsible for approving the purchase, newbuild contracting, chartering, financing and technical management of new and existing investments for the Vehicle. Kyle R. Washington, co-chairman of our board of directors, is a non-voting member of the Vehicle’s transaction committee. Mr. Wang is also chairman of the Vehicle’s board of managers. In addition, affiliates of Messrs. Wang and Porter will provide certain transactional and financing services to the Vehicle, for which they will receive compensation. The affiliate of Mr. Washington has a right of first refusal on containership acquisition opportunities available to the Vehicle, which right is subordinate to our right of first refusal.

As a result of these interests relating to the Vehicle, the interests of Messrs. Wang, Porter and Kyle R. Washington may conflict with those of us or our shareholders relative to the Vehicle.

The return on our investment in the Vehicle will be reduced by various fees and preferential returns.

We have committed to invest up to $100 million in the Vehicle over a five year period. The return on any investment we are required to make in the Vehicle will be reduced by the amount of technical ship management, financing, transaction and other fees payable by the Vehicle under services agreements, including risks thatagreements with affiliates of the Vehicle, and by the payment of preferential incentive distributions ranging between 20% and 30% after a cumulative compounded rate of return of 12% has been generated on all member capital contributions.

Compensation payable under new employment or services agreements with Gerry Wang, Graham Porter or their affiliates will increase our expenses and may dilute the interests of our equity holders.

In connection with our investment in the Vehicle, we may:

failentered into an employment agreement with Gerry Wang, our chief executive officer and co-chairman of our board of directors, and transaction services and financial services agreements with Mr. Wang and an affiliate of our director Graham Porter, respectively. Mr. Wang’s compensation as our chief executive officer was increased significantly under the employment agreement, which included, among other things, for the payment of transactional fees of 1.25% of the value of certain containership orders, sales or acquisitions we may enter into. The transaction services agreement provides for similar fees following termination of Mr. Wang’s employment with us and through the duration of our right of first refusal with the Vehicle but with the amount of the fee increased to realize anticipated benefits, such as new customer relationships, cost savings1.5%. The financial services agreement with Mr. Porter provides for fees of 0.8% or cash flow enhancements;

be unable, through our Manager, to hire, train0.4% of the aggregate value of certain debt and lease financing provided by Greater China or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;

decrease our liquidity by using a significantnon-Greater China banks, respectively. A portion of amount payable under the employment agreement and the services agreements may be paid in our available cash or borrowing capacity to finance acquisitions;common shares, at our election.

significantlyCompensation payable under these agreements will increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;

incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or

not be able to service our debt obligations or pay dividends.

Our four 4800 TEU vessels were acquired secondhand. The purchase of existing, secondhand vessels has inherent risks that are not present when purchasing newbuilding vessels. Unlike newbuildings, existing containerships typically do not carry warranties as to their condition. While we would inspect existing containerships prior to purchase, such an inspection would normally not provide us with as much knowledge of a containership’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flowexpenses and reduce our liquidity.operating results. To the extent we issue common shares as partial compensation under these agreements, the interests of our equity holders will be diluted.

Anti-takeover provisions in our organizational documents could make it difficult for our shareholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our securities.

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

These provisions include:

 

authorizing our board of directors to issue “blank check” preferred shares without shareholder approval;

 

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

 

prohibiting cumulative voting in the election of directors;

 

authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote for those directors;

 

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

 

limiting the persons who may call special meetings of shareholders;

 

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

 

restricting business combinations with interested shareholders.

In addition, upon a change of control, our Manager may elect to have us purchase the incentive shares, which could result in a substantial payment to our Manager and discourage a change of control that might otherwise be beneficial to shareholders.

We have also adopted a shareholder 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 board’s prior approval of our board of directors.approval.

In addition, as a result of our recent offering of our Series A Preferred Shares, holders of our Series A Preferred Shares were grantedhave the power to vote as a single class to approve certain major corporate changes, including any merger, consolidation, asset sale or other disposition of all or substantially all of our assets. These shareholders could exercise this power to block a change of control that might otherwise be beneficial to holders of our common shares. PleaseFor more information, please read “Information on the Company—B. Business Overview—“Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Equity Offerings—Our Series A Preferred Share Offering” in this Annual Report.Offerings.”

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

Substantial future sales of our common shares in the public market could cause the price of our common shares to fall.

The market price of our common stock could decline due to sales of a large number of shares in the market, including sales of shares by our large shareholders, or the perception that these sales could occur. These sales

could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common stock. In connection with our initial public offering, our Series A Preferred Share Offering and our entry into employment or services agreements with our chief executive officer, Gerry Wang, and an affiliate of our director, Graham Porter, we have granted registration rights to the holders of certain of our Series A Preferred Shares.securities, including common shares or securities convertible into common shares. These shareholders have the right, subject to certain conditions, to require us to file registration statements covering the sale by them of such common shares that are issuable upon the conversion of the Series A Preferred Shares. In addition, in connection with our initial public offering, the holders of our class B common shares were granted similar registration rights with respect to the class A common shares issuable upon their conversion. The class B common shares converted into class A common shares in 2008.shares. Following their sale under an applicable registration statement, those securitiesany such common shares will become freely tradable. By exercising their registration rights and selling a large number of common shares, these shareholders could cause the price of our common shares to decline.

We are incorporated in the Republic of the Marshall Islands, which does not have a well developed body of corporate law.

Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number ofsome 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. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are organized under the laws of the Marshall Islands, and all of our assets are located outside of the United States. Our principal executive offices are located in Hong Kong.Kong and a majority of our directors and officers are residents outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against our directors or our management in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or our directors and officers.

Our ability to pay dividends on our shares and to redeem our Series C Preferred Shares is limited by the requirements of Marshall Islands law.

Marshall Islands law provides that we may pay dividends on our shares and redeem our Series C Preferred Shares only to the extent that assets are legally available for such purposes. Legally available assets generally are limited to our surplus, which essentially represents our retained earnings and the excess of consideration received by us for the sale of shares above the par value of the shares. In addition, under Marshall Islands law we may not pay dividends on our shares or redeem our Series C Preferred Shares if we are insolvent or would be rendered insolvent by the payment of such a dividend or the making of such redemption.

Tax Risks

In addition to the following risk factors, you should read “Item 4. Information on the Company—B. Business Overview—Taxation of the Company,” and “Item 10. Additional Information—E. Taxation”Taxation,” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common shares.

We, or any of our vessel-owning subsidiaries, may become subject to U.S. federal income taxation on our U.S. source income, which would reduce our earnings.

Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source transportation income. Such income generally is subject to a 4% U.S. federal income tax without allowance for deduction or, if such income is effectively connected with the conduct of a trade or business in the United States, U.S. federal corporate income tax (the highest statutory rate presently is 35%) as well as a branch profits tax (presently imposed at a 30% rate on effectively connected earnings), unless the corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder, or the Section 883 Exemption.

We believe that we and each of our subsidiaries qualified for the Section 883 Exemption for the year ended December 31, 2009, or our 2009 Year, and we will take this position for U.S. federal income tax return reporting purposes. However, there are legal uncertainties involved in this determination, and therefore, no assurance can be given that the Internal Revenue Service, or the IRS, will accept our position. Further, we can give no assurance regarding our continued qualification for the Section 883 Exemption due to the factual nature of determining whether the exemption applies for any taxable year. If we or our subsidiaries are not entitled to the Section 883 Exemption for a taxable year, we or our subsidiaries generally would be subject to a 4% U.S. federal gross income tax on our U.S. source transportation income for such year. The imposition of this taxation would result in decreased earnings available for distribution to our shareholders and could have a negative effect on our business. Please refer to “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of the Company” for additional information related to the Section 883 Exemption.

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

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or a PFIC, for such purposes in any taxable year for which either (i) at least 75% of its gross income consists of certain types of “passive income” or (ii) 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 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) andbut does not include income derived from the performance of services.

Based on the current and expected composition of our assets and income (and that of our subsidiaries), we believe that we were not a PFIC for our 2009 Year, and we do not expect to become a PFIC with respect to any other taxable year. However, thereThere are legal uncertainties involved in this determination,determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services, including the decision inTidewater Inc. v. United States, 565 F.3d 299 (5th(5th Cir. 2009), in which the United States Court of Appeals for the Fifth Circuit concludedheld that income derived from certain time charters were appropriately characterizedchartering activities should be treated as leasesrental income rather than service agreementsservices income for purposes of thea foreign sales corporation provisionsprovision of the Internal Revenue Code of 1986, as amended, or the Code. WhileHowever, the court’s conclusion was contraryIRS stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the position ofway that the U.S. Internal Revenue Service, or IRS,rental versus services framework was applied to the facts in theTidewater decision, and in its discussion stated that the time charters shouldat issue inTidewater would be treated as producing services agreements,income for PFIC purposes. The IRS’s statement with respect toTidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the Tidewater decision may heightenabsence of any binding legal authority specifically relating to the risk of a challenge regarding our status and the status of shipping companies that engage in time chartering operations generally. Therefore, no assurance can be given that the IRS will accept our position. Further, our PFIC status for

any taxable year will not be determinable until after the end of such taxable year, and accordingly,statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow theTidewater decision in interpreting the PFIC provisions of the Code. Nevertheless, based on the current composition of our assets and operations (and that of our subsidiaries), we willintend to take the position that we are not now and have never been a PFIC. No assurance can be treated asgiven, however, that we would not constitute a PFIC for any future taxable year. 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 U.S. shareholders would face adverse tax consequences. For a more comprehensive discussion regarding our status as a PFIC and the tax consequences to U.S. shareholders if we are treated as a PFIC, please read “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Shareholders—Holders—PFIC Status and Significant Tax Consequences.”

The preferential tax rates applicable to qualified dividend income are temporary.

Certain of our distributions may be treated as qualified dividend income eligible for preferential rates of U.S. federal income tax to individual U.S. shareholders (and certain other U.S. shareholders). In the absence of legislation extending the term for these preferential tax rates, all dividends received by such U.S. shareholders in tax years beginning on January 1, 2011after December 31, 2012 or later will be taxed at graduated tax rates applicable to ordinary income.

We, may become a resident of Canada and have to pay tax in Canada on our worldwide income, which could reduce our earnings, and shareholders could then become taxable in Canada in respect of their ownership of our shares. Moreover, as a non-resident of Canada we may have to pay tax in Canada on our Canadian source income, which could reduce our earnings.

Under the Income Tax Act (Canada), or the Canada Tax Act, a corporation that is resident in Canada is subject to tax in Canada on its worldwide income, and shareholders of a corporation resident in Canada may be subject to Canadian capital gains tax on a disposition of its shares and to Canadian withholding tax on dividends paid in respect of such shares.

Our place of residence, under Canadian law, would generally be determined on the basis of where our central management and control are, in fact, exercised. It is not our current intention that our central management and control be exercised in Canada but, even if it were, there is a specific statutory exemption under the Canada Tax Act that provides that a corporation incorporated, or otherwise formed, under the laws of a country other than Canada will not be resident in Canada in a taxation year if its principal business is the operation of ships that are used primarily in transporting passengers or goods in international traffic, all or substantially all of its gross revenue for the year consists of gross revenue from the operation of ships in transporting passengers or goods in that international traffic, and it was not granted articles of continuance in Canada before the end of the year.

Based on our operations, we do not believe that we are, nor do we expect to be, resident in Canada for purposes of the Canada Tax Act, and we intend that our affairs will be conducted and operated in a manner such that we do not become a resident of Canada under the Canada Tax Act. However, if we were or become resident in Canada, we would be or become subject under the Canada Tax Act to Canadian income tax on our worldwide income. Further, shareholders who are non-residents of Canada may be or become subject under the Canada Tax Act to tax in Canada on any gains realized on the disposition of our shares and would be or become subject to Canadian withholding tax on dividends paid or deemed to be paid by us, subject to any relief that may be available under a tax treaty or convention.

Generally, a corporation that is not resident in Canada will be taxable in Canada on income it earns from carrying on a business in Canada and on gains from the disposition of property used in a business carried on in Canada. However, there are specific statutory exemptions under the Canada Tax Act that provide that income earned in Canada by a non-resident corporation from the operation of a ship in international traffic, and gains realized from the disposition of ships used principally in international traffic, are not included in a non-resident corporation’s income for Canadian tax purposes where the corporation’s country of residence grants substantially similar relief to a Canadian resident. A Canadian resident corporation that carries on an international shipping business, as described in the previous sentence, in the Republic of the Marshall Islands is exempt from income tax under the current laws of the Republic of the Marshall Islands.

We expect that we will qualify for these statutory exemptions under the Canada Tax Act. Based on our operations, we do not believe that we are, nor do we expect to be, carrying on a business in Canada for purposes of the Canada Tax Act other than a business that would provide us with these statutory exemptions from Canadian income tax. However, these statutory exemptions are contingent upon reciprocal treatment being provided under the laws of the Republic of the Marshall Islands. If in the future as a non-resident of Canada, we are carrying on a business in Canada that is not exempt from Canadian income tax, or these statutory exemptions are not accessible due to changes in the laws of the Republic of the Marshall Islands or otherwise, we would be subject to Canadian income tax on our non-exempt income earned in Canada which could reduce our earnings available for distribution to shareholders.

Please read “Additional Information—E. Taxation—Canadian Federal Income Tax Consequences” for a discussion of expected material Canadian federal income tax consequences of owning and disposing of our common shares.

We, or any of our subsidiaries, may become subject to income tax in onejurisdictions in which we are organized or more non-U.S. jurisdictions,operate, including the United States, Canada and Hong Kong, which would reduce our earnings if under the laws of any such jurisdiction, we or such subsidiary is consideredand potentially cause certain shareholders to be carrying on a trade or businesssubject to tax in such jurisdiction or earn income that is considered to be sourced in such jurisdiction and we do not or such subsidiary does not qualify for an exemption.jurisdictions.

We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income taxes imposed upon us and our subsidiaries. However, there is a risk that we will be subject to income tax in one or more jurisdictions, including the United States, Canada and Hong Kong, if under the laws of any such jurisdiction, we or such subsidiary is considered to be carrying on a trade or business there or earn income that is considered to be sourced there and we do not or such subsidiary does not qualify for an exemption.

The question Please read “Item 4. Information on the Company—B. Business Overview—Taxation of whetherthe Company.” In addition, while we or our subsidiaries will be treated as carrying on a trade or business, or generating income that is sourced, in any particular jurisdiction, including Hong Kong, will be largely a question of fact to be determined based upon an analysis of our contractual arrangements and the way we conduct business or operations, all of which may change over time. Furthermore, the laws of Hong Kong or any other jurisdiction may change in a manner that causes that jurisdiction’s taxing authorities to determinedo not believe that we are, carrying onnor do we expect to be, resident in Canada, in the

event that we were treated as a traderesident of Canada, shareholders who are non-residents of Canada may be or business in, or generating income that is sourced in, such jurisdiction and arebecome subject to its taxation laws. Any taxes imposedtax in Canada. Please read “Item 4. Information on us or our subsidiaries will reduce our earnings.the Company—B. Business Overview—Taxation of the Company —Canadian Taxation” and “Item 10. Additional Information—E. Taxation—Canadian Federal Income Tax Consequences.”

 

Item 4.Information on the Company

A.    History and Development of the Company

We are Seaspan Corporation, awere incorporated in the Republic of the Marshall Islands corporation that was incorporated onin May 3,2005 to acquire all of the containership business of Seaspan Container Lines Limited, or SCLL. In August 2005, we completed our initial public offering of 28,570,000 Class A Common Shares at a price of $21 per share, and the underwriters subsequently exercised their over-allotment option for an additional 276,500 Class A Common Shares in September 2005. We areFrom an owner of containerships and we charter them pursuant to long-term, fixed-rate time charters to major container liner companies. As of December 31, 2009, we owned and operated ainitial operating fleet of 42 containerships10 vessels, as of March 25, 2011, we have grown to an operating fleet of 58 vessels (including three leased vessels) and have entered into contracts for theto purchase of an additional 21seven containerships and contracts to lease an additional fivefour containerships. Customers for our current operating fleet are CSCL Asia, HL USA, APM, COSCON, CSAV and MOL. Customers for the additional 26 vessels will include MOL, Kawasaki Kisen Kaisha Ltd., or K-Line, CSAV, and COSCON. Our primary objective is to continue to grow our business through accretive acquisitions over the mid to long-term and as market conditions allow.

We deploy all our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters. As of December 31, 2009, the charters on the 42 vessels in our operating fleet had an average remaining term of 7.1 years plus certain options.

We maintain our principal executive offices at Unit 2, 7th Floor, Bupa Centre, 141 Connaught Road West, Hong Kong, China. Our telephone number is (852) 2540-1686.

B.    Business Overview

General

Our business is to ownWe are a leading independent charter owner of containerships, which we charter themprimarily pursuant to long-term, fixed-rate charters andtime charters. We seek additional accretive vessel acquisitions over the mid to long-term and as market conditions allow. We primarily deploy all our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters.

As of December 31, 2009March 25, 2011 we owned and operated a fleet of 4258 containerships (including three leased vessels) and have entered into contracts to purchase an additional 21seven containerships and to lease an additional fivefour containerships. The average age of the 4258 vessels in our fleet was 4.9approximately five years as of December 31, 2009. Please read “Information on the Company—D. Property, Plants and Equipment—Our Fleet” for more information.

March 25, 2011. Our customer selection process is targeted at well-established container liner companies that charter-in vessels on a long-term basis as part of their fleet expansion strategy. Currently, 22 containerships inCustomers for our operating fleet are under time charters with CSCL Asia. CSCL Asia, a British Virgin Islands company, is a subsidiary of CSCL. Nine containerships in our current fleet are under time charters with HL USA, an affiliate of TUI AG, or TUI. APM, COSCON, CSAV, MOL, K-Line and UASC. Customers for the additional 11 vessels will include K-Line and COSCON. Please read “—Our four 4800 TEU vessels are chartered to APM. Our two 3500 TEU vessels are under time charters with COSCON. Two of our 4250 TEU vessels are under time charters with CSAV. Our three 5100 TEU vessels are under time charters with MOL. The 26 containerships that we have contracted to purchase or lease, as the case may be, will similarly be chartered on a long-term basis to well established container liner companies.Fleet” for more information.

Most of our charterers’ container shippingcustomers’ containership business revenues are derived from the shipment of goods from the Asia Pacific region, primarily China, to various overseas export markets in the United States and in Europe.

Our Manager and certain of its wholly-ownedwholly owned subsidiaries provide all of our employees, other than our chief executive officer, and all of the technical, administrative and strategic services necessary to support our business. Our Manager provides a variety of ship management services,business, including purchasing supplies, crewing, vessel maintenance, insurance procurement and claims handling, inspections, and ensuring compliance with flag, class and other statutory requirements. For more information about the agreements with our Manager that govern the provision of management services for our fleet, please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Our Management Agreements.”

In additionMarch 2011, we agreed to participate in the Vehicle, an investment vehicle established by an affiliate of global alternative asset manager Carlyle. The Vehicle will invest up to $900 million equity capital in containership assets, primarily newbuilding vessels strategic to the ship management services providedPeople’s Republic of China, Taiwan, Hong Kong and Macau, or Greater China. The amount of equity capital will be reduced to us,the extent that the Carlyle affiliate member of the Vehicle separately invests in non-containership assets. Please read “Item 5. Operating and

Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—2011 Recent Developments—Investment in Carlyle Containership-Focused Investment Vehicle” for more information.

In February 2011, we also signed a letter of intent to purchase a significant number of newbuilding containerships to be constructed by a leading Chinese shipyard. This is our Manager also provides limited ship management servicesfirst newbuilding order since 2007. There exists only a letter of intent for this order at this time, and there is no assurance that definitive agreements relating to Dennis R. Washington’s personal vessel owning companies.this order will be entered into or that the orders will be completed. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—2011 Recent Developments—Newbuilding Order” for more information.

Our Fleet

Our Operating Fleet

The following table summarizes key facts regarding our vessels as of March 25, 2011:

Vessel Name

  Vessel
Class
(TEU)
  Year
Built
  Charter
Start Date
  Charterer Length of Time Charter Daily Charter Rate
(in thousands)
 

CSCL Zeebrugge

  9600  2007  3/15/07  CSCL Asia 12 years $34.0 (1) 

CSCL Long Beach

  9600  2007  7/6/07  CSCL Asia 12 years  34.0 (1) 

CSCL Oceania

  8500  2004  12/4/04  CSCL Asia 12 years + one 3-year option  29.8 (2) 

CSCL Africa

  8500  2005  1/24/05  CSCL Asia 12 years + one 3-year option  29.8 (2) 

COSCO Japan

  8500  2010  3/9/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Korea

  8500  2010  4/5/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Philippines

  8500  2010  4/24/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Malaysia

  8500  2010  5/19/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Indonesia

  8500  2010  7/5/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Thailand

  8500  2010  10/20/10  COSCON 12 years + three one-year options  42.9 (3) 

COSCO Prince Rupert

  8500  2011  3/21/11  COSCON 12 years + three one-year options  42.9 (3) 

MOL Emerald

  5100  2009  4/30/09  MOL 12 years  28.9  

MOL Eminence

  5100  2009  8/31/09  MOL 12 years  28.9  

MOL Emissary

  5100  2009  11/20/09  MOL 12 years  28.9  

MOL Empire

  5100  2010  1/8/10  MOL 12 years  28.9  

Maersk Merritt(4)

  4800  1989  11/6/06  APM 5 years + two 1-year options +
one 2-year option
  23.5 (5) 

Cap Victor

  4800  1988  11/20/06  APM 5 years + two 1-year options +
one 2-year option
  23.5 (5) 

Cap York

  4800  1989  12/6/06  APM 5 years + two 1-year options +
one 2-year option
  23.5 (5) 

Maersk Moncton(6)

  4800  1989  12/22/06  APM 5 years + two 1-year options +
one 2-year option
  23.5 (5) 

Brotonne Bridge(7)

  4500  2010  10/25/10  K-Line 12 years + two 3-year options  34.3 (8) 

Brevik Bridge(7)

  4500  2011  1/25/11  K-Line 12 years + two 3-year options  34.3 (8) 

Bilbao Bridge(7)

  4500  2011  1/28/11  K-Line 12 years + two 3-year options  34.3 (8) 

CSAV Licanten(9)

  4250  2001  7/3/01  CSCL Asia 10 years + one 2-year option  18.3 (10) 

CSCL Chiwan

  4250  2001  9/20/01  CSCL Asia 10 years + one 2-year option  18.3 (10) 

CSCL Ningbo

  4250  2002  6/15/02  CSCL Asia 10 years + one 2-year option  19.7 (11) 

CSCL Dalian

  4250  2002  9/4/02  CSCL Asia 10 years + one 2-year option  19.7 (11) 

CSCL Felixstowe

  4250  2002  10/15/02  CSCL Asia 10 years + one 2-year option  19.7 (11) 

CSCL Vancouver

  4250  2005  2/16/05  CSCL Asia 12 years  17.0  

CSCL Sydney

  4250  2005  4/19/05  CSCL Asia 12 years  17.0  

CSCL New York

  4250  2005  5/26/05  CSCL Asia 12 years  17.0  

CSCL Melbourne

  4250  2005  8/17/05  CSCL Asia 12 years  17.0  

CSCL Brisbane

  4250  2005  9/15/05  CSCL Asia 12 years  17.0  

Vessel Name

 Vessel
Class
(TEU)
 Year
Built
 Charter
Start Date
 Charterer Length of Time Charter Daily Charter Rate
(in thousands)
 

New Delhi Express

 4250 2005 10/19/05 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Dubai Express

 4250 2006 1/3/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Jakarta Express

 4250 2006 2/21/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Saigon Express

 4250 2006 4/6/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Lahore Express

 4250 2006 7/11/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Rio Grande Express

 4250 2006 10/20/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Santos Express

 4250 2006 11/13/06 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Rio de Janeiro Express

 4250 2007 3/28/07 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

Manila Express

 4250 2007 5/23/07 HL USA 3 years + seven 1-year extensions
+ two 1-year options
(12)
  18.0 (13) 

CSAV Loncomilla

 4250 2009 4/28/09 CSAV 6 years  25.9  

CSAV Lumaco

 4250 2009 5/14/09 CSAV 6 years  25.9  

CSAV Lingue

 4250 2010 5/17/10 CSAV 6 years  25.9  

CSAV Lebu

 4250 2010 6/7/10 CSAV 6 years  25.9  

UASC Madinah

 4250 2009 7/1/10 UASC 2 years  20.5 (14) 

COSCO Fuzhou

 3500 2007 3/27/07 COSCON 12 years  19.0  

COSCO Yingkou

 3500 2007 7/5/07 COSCON 12 years  19.0  

CSCL Panama

 2500 2008 5/14/08 CSCL Asia 12 years  16.8 (15) 

CSCL São Paulo

 2500 2008 8/11/08 CSCL Asia 12 years  16.8 (15) 

CSCL Montevideo

 2500 2008 9/6/08 CSCL Asia 12 years  16.8 (15) 

CSCL Lima

 2500 2008 10/15/08 CSCL Asia 12 years  16.8 (15) 

CSCL Santiago

 2500 2008 11/8/08 CSCL Asia 12 years  16.8 (15) 

CSCL San Jose

 2500 2008 12/1/08 CSCL Asia 12 years  16.8 (15) 

CSCL Callao

 2500 2009 4/10/09 CSCL Asia 12 years  16.8 (15) 

CSCL Manzanillo

 2500 2009 9/21/09 CSCL Asia 12 years  16.8 (15) 

Guayaquil Bridge

 2500 2010 3/8/10 K-Line 10 years  17.9  

Calicanto Bridge

 2500 2010 5/30/10 K-Line 10 years  17.9  

(1)CSCL Asia has a charter of 12 years with a charter rate of $34,000 per day, increasing to $34,500 per day after six years.

(2)CSCL Asia has an initial charter of 12 years with a charter rate of $29,500 per day for the first six years, $29,800 per day for the second six years, and $30,000 per day during the three-year option.

(3)COSCON has an initial charter of 12 years with a charter rate of $42,900 per day for the initial term and $43,400 per day for the three one-year options.

(4)The name of the MSC Sweden was changed to Maersk Merritt in May 2010 in connection with the termination of a sub-charter from APM to Mediterranean Shipping Company S.A.

(5)APM has an initial charter of five years at $23,450 per day, two consecutive one-year options to charter the vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter the vessel at $20,400 per day.

(6)The name of the MSC Ancona was changed to Maersk Moncton in August 2010 in connection with the termination of a sub-charter of the vessel from APM to Mediterranean Shipping Company S.A.

(7)This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

(8)K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

(9)The name of the CSCL Hamburg was changed to CSAV Licanten in November 2010, in connection with a sub-charter from CSCL to CSAV.

(10)CSCL Asia has an initial charter of ten years with a charter rate of $18,000 per day for the first five years, $18,300 per day for the second five years, and $19,000 per day for the two-year option. CSCL Asia has exercised its options on the CSAV Licanten and the CSCL Chiwan.

(11)CSCL Asia has an initial charter of ten years with a charter rate of $19,933 per day for the first five years, $19,733 per day for the second five years, and $20,500 per day for the two-year option.

(12)For these charters, the initial term was three years, which automatically extends for up to an additional seven years in successive one-year extensions, unless HL USA elects to terminate the charters with two years’ prior written notice. HL USA would have been required to pay a termination fee of approximately $8.0 million to terminate a charter at the end of the initial term. The termination fee declines by $1.0 million per year per vessel in years four through nine. The initial terms of the charters for these vessels have expired, and these charters have automatically extended pursuant to their terms.

(13)HL USA had an initial charter of three years that automatically extends for up to an additional seven years with a charter rate of $18,000 per day, and $18,500 per day for the two one-year options.

(14)UASC has a charter of two years with a charter rate of $20,500 per day for the first year, increasing to $20,850 per day for the second year. In addition, we pay a 1.25% commission to a broker on all hire payments for this charter.

(15)CSCL Asia has a charter of 12 years with a charter rate of $16,750 per day for the first six years, increasing to $16,900 per day for the second six years.

New Vessel Contracts

Our primary objective is to acquire additional containerships as market conditions allow, and to enter into additional long-term, fixed-rate time charters for such vessels.

As of December 31, 2009, our ManagerMarch 25, 2011, we had contracted to purchase seven additional containerships and its subsidiaries employed approximately 1,600 seagoing staffto lease an additional four, all of which are currently or will be under construction, and approximately 100 shore staff. We expect our Managerhave scheduled delivery dates through April 2012.

As of March 25, 2011, the seven newbuilding containerships that we have contracted to purchase and its subsidiaries will hire additional employees asthe four newbuilding containerships that we grow. We believe our Manager and its subsidiaries provide its seafarers competitive employment packages and comprehensive benefits and opportunities for career development.

We believe our Manager achieves high standardshave contracted to lease consist of technical ship management by pursuing risk reduction, operational reliability and safety. Our Manager achieves its standards by employing the following methods, among others:vessels:

 

developing a minimum competency standard for seagoing staff;

Vessel

 Vessel
Class
(TEU)
  Length of Time Charter (1) Charterer Daily
Charter Rate
  Scheduled
Delivery
Date
  Shipbuilder
         (in thousands)      

Hull No. S452

  13100   12 years COSCON $55.0    2012   HSHI

Hull No. 2177

  13100   12 years COSCON  55.0    2011   HHI

Hull No. S453

  13100   12 years COSCON  55.0    2011   HSHI

Hull No. 2178

  13100   12 years COSCON  55.0    2012   HHI

Hull No. S454

  13100   12 years COSCON  55.0    2012   HSHI

Hull No. 2179

  13100   12 years COSCON  55.0    2011   HHI

Hull No. 2180 (2)

  13100   12 years COSCON  55.0    2012   HHI

Hull No. 2181(2)

  13100   12 years COSCON  55.0    2011   HHI

COSCO Vietnam

  8500   12 years + three one-year options COSCON  42.9 (3)   2011   HHI

Berlin Bridge (2)

  4500   12 years + two three-year options K-Line  34.3 (4)   2011   Samsung

Budapest Bridge (2)

  4500   12 years + two three-year options K-Line  34.3 (4)   2011   Samsung

 

standardizing equipment used throughout the fleet, thus promoting efficiency and economies of scale;

(1)Each charter is scheduled to begin upon delivery of the vessel to the relevant charterer.

 

implementing a voluntary vessel condition and maintenance monitoring program (our Manager was the first in the world to achieve accreditation by Det Norske Veritas on its hull planned maintenance system);

(2)This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

 

recruiting officers and ratings through an affiliate based in India that has a record of employee loyalty and high retention rates among its employees;

implementing an incentive system to reward staff for the safe operation of vessels; and

initiating and developing a cadet training program.

(3)COSCON has an initial charter of 12 years with a charter rate of $42,900 per day and $43,400 per day for the three one-year options.

(4)K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

Our Manager’s personnel have experience in overseeing new vessel construction, vessel conversions and general marine engineering. The core management of our Manager has worked in various companies infollowing chart details the international ship management industry, including China Merchants Group, Neptune Orient Lines, Teekay Shipping, Safmarine Container Lines and Columbia Ship Management. Our Manager’s staff has skills in all aspects of ship management, including design and operations and marine engineering, among others. A number of senior officers also have sea-going experience, having served aboard vessels at a senior rank. Our crews are directly selected byin our Manager and hired by its crew management affiliate, SCML. In all training programs, our Manager places an emphasisfleet based on safety and regularly trains its crew members and other employees in order to ensure that our high standards can continuously be met. Shore-based personnel and crew members are trained to be prepared for, and are ready to respond to, emergencies related to life, property or the environment.scheduled delivery dates as of March 25, 2011:

Our Manager is required to perform its services in a commercially reasonable manner. Our Manager is responsible for and will indemnify us for damages resulting from its obligations or liabilities under the management agreements, breaches of the agreements, fraud, willful misconduct, recklessness or gross negligence of our Manager or certain agents (other than the crew) or affiliates of our Manager in the performance of its duties.

Our Manager has agreed not to dispose of those wholly-owned subsidiaries that provide services to us pursuant to the management agreements.

   Year Ending December 31, 
   Scheduled 
       2011           2012     

Deliveries

   7     4  

Operating Vessels

   65     69  

Approximate Total Capacity (TEU)

   352,700     405,100  

Time Charters

General

We charter our vessels primarily under long-term, fixed-rate time charters. A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. Under a time charter, the vessel owner provides crewing and other services related to the vessel’s operation, the cost of which is included in the daily rate; the charterer is responsible for substantially all of the vessel voyage costs.

Each of the vessels in our fleet is subject to a long-term time charter. Currently, 22 containerships in our fleet are subject to charters with CSCL Asia, a subsidiary of CSCL. Nine containerships are subject to charters with HL USA, a subsidiary of Hapag-Lloyd. Four vessels are subject to charters with APM,expenses, such as fuel (bunkers) cost, port expenses, agents’ fees, canal dues, extra war risk insurance and two vessels are subject to time charters with COSCON. Two of our 4250 TEU vessels are under time charters with CSAV. Our three 5100 TEU vessels are under time charters with MOL.

With respect to the vessels on charter to HL USA, CP Ships has provided a guarantee of the obligations and liabilities of HL USA under each time charter and Hapag-Lloyd AG has provided a guarantee of the obligations and liabilities of CP Ships under the original guarantee. For the vessels on charter to CSCL Asia, CSCL Hong Kong and CSCL have each provided a guarantee of the obligations and liabilities of CSCL Asia under each time charter.

Each of the 26 vessels that will be delivered over approximately the next 30 months is also subject to a long-term time charter. One containership is subject to a time charter with MOL, two are subject to charters with CSAV, seven are subject to charters with K-Line and the remaining 16 containerships are subject to charters with COSCON.

Initial Term; Extensionscommissions.

The initial term for a time charter commences on the vessel’s delivery to the charterer. Under all of our time charters, the charterer may also extend the term for periods in which the vessel is off-hire. APMThe current charter periods and any applicable extension options are included above under “—Our Fleet.”

The following table presents the number of vessels chartered by each of our customers as of March 25, 2011.

Charterer

  Number of vessels in
our current operating
fleet
   Number of vessels
scheduled to be
delivered
   Total vessels
upon all
deliveries
 

CSCL Asia

   22     —       22  

HL USA

   9     —       9  

COSCON

   9     9     18  

APM

   4     —       4  

CSAV

   4     —       4  

MOL

   4     —       4  

K-Line

   5     2     7  

UASC

   1     —       1  
               

Total

   58     11     69  

With respect to the vessels on charter to HL USA, CP Ships Limited has provided a very specific right to terminate its charters prior to expirationguarantee of the original term, as described in more detail below.

Theobligations and liabilities of HL USA under each time charter periodsand Hapag-Lloyd AG has provided a guarantee of the 22obligations and liabilities of CP Ships Limited under the original guarantee. For the vessels in our current fleet that are charteredon charter to CSCL Asia, are as follows. FiveCSCL Hong Kong and CSCL have each provided a guarantee of the charters for the 4250 TEU vessels have initial termsobligations and liabilities of ten years each with options, exercisable by the charterer, to extend the term of each charter for an additional two years. The two charters for the 8500 TEU vessels have initial terms of 12 years with options, in favor of the charterer, to extend the term of each charter for an additional three years. The two charters for the 9600 TEU vessels have terms of 12 years, the charters for the remaining five 4250 TEU vessels in our current fleet chartered to CSCL Asia and the eight 2500 TEU vessels in our current fleet that are chartered to CSCL Asia, are all subject to charters of 12 years.

The charter periods of the four 4800 TEU vessels in our current fleet that are chartered to APM have initial terms of five years, two consecutive one-year options and a final two-year option; however, APM had the option to reduce initial terms on one or two vessels by up to nine months from the five year term, so long as it increased an initial period which is correspondingly beyond five years for the same number of vessels. APM did not exercise this option.

The charter periods for the two 3500 TEU vessels in our current fleet that are chartered to COSCON are 12 years. The charter period forunder each of the eight 8500 TEU vessels that will be constructed and chartered to COSCON is 12 years with three one-year options. The charter period for each of the eight 13100 TEU vessels that will be constructed and chartered to COSCON is 12 years with no option to extend beyond the initial term.

The charter periods for the three 5100 TEU vessels in our current fleet and the remaining 5100 TEU vessel under construction that are chartered or will be chartered to MOL, as the case may be, are subject to 12 years charters. There is no option to extend beyond the initial term.

The initial term of each of the time charters with HL USA for nine of our 4250 TEU vessels is three years. HL USA has the right to extend each of the charters for up to an additional seven years in successive one-year extensions. Each one-year extension is automatic, unless HL USA provides written notice to the contrary to us not later than two years prior to the commencement of the respective extension period. If HL USA provides notice of its intention not to extend a time charter at the end of its initial three-year term, it must pay to us, at the end of the term, a termination fee of approximately $8.0 million per vessel. The termination fee declines by $1.0 million per vessel in years four through nine. If the term of a time charter is extended for the full ten years, HL USA has an option to extend the term for two additional one-year periods.

In the case of our charters with HL USA, while the initial term is only three years, we consider these charters to be long-term charters. This is because HL USA is required to pay a termination fee of approximately $8.0 million to terminate a charter at the end of the initial term and the charters automatically renew unless terminated upon two years prior notice. We have not received notice of termination from HL USA for the vessels whose initial term has expired.

The charter periods for the five 4500 TEU vessels that will be constructed and chartered to K-Line are 12 years with two three-year options. The charter periods for the two 2500 TEU vessels that are under construction and will be chartered to K-Line are 10 years.

The charter periods for the two 4250 TEU vessels in our current fleet and the remaining two 4250 TEU vessels that are under construction, which are chartered or will be chartered to CSAV, as the case may be, are six years. There is no option to extend beyond the initial term.

Recently, there have been a number of incidents in the shipping industry of customers attempting to renegotiate existing time charters down to lower rates. In April 2009, we received requests from CSAV to participate in their restructuring plan and renegotiate the payment terms of our charters with them. We declined to participate in the restructuring plan and related renegotiation. On July 30, 2009, we also received a request from Hapag-Lloyd related to the continuation of our charter parties with them on amended terms. We do not intend to renegotiate the main terms of our charter parties with HL USA. Although none of our other customers

have attempted to renegotiate our time charter rates, it is important to recognize this possibility. For more information on risks associated with customer renegotiation, please see “Risk Factors—Risks Inherent in Our Business—The business and activity levels of many of our charterers, shipbuilders and related parties and their respective ability to fulfill their obligations under agreements with us, including payments for the charter of our vessels, may be impacted by the current deterioration in the credit markets,” “—If a more active short-term or spot container shipping market develops, we may have more difficulty entering into long-term, fixed-rate time charters and our existing customers may begin to pressure us to reduce our charter rates” “—Our growth depends on our ability to expand relationships with existing charterers and obtain new charterers, for which we will face substantial competition” and “—Forty of the vessels in our current or contracted fleet are or will be chartered to Chinese customers. The legal system in China is not fully developed and has inherent uncertainties that could limit the legal protections available to us, and the geopolitical risks associated with chartering vessels to Chinese customers could have a material adverse impact on our results of operations, financial condition and ability to pay dividends.”charter.

Hire Rate

“Hire rate” refers to the basic payment from the charterer for the use of the vessel. Under all of our time charters, hire rate is payable, in advance, in U.S. dollars, as specified in the charter.

In the case of all of our time charters, if a vessel’s speed is reduced as a result of a defect or breakdown of the hull, machinery or equipment, hire rates under that particular time charter may be reduced by the cost of the time lost and extra fuel consumed for that particular incident. Historically, we have had no instances of hire rate reductions.

Under the time charters with CSCL Asia, the hire rate is payable in advance every 15 days at the applicable daily rate. Generally, the The hire rate is a fixed daily

amount that increases by a fixed amountmay increase, in some cases, at varying intervals during the term of the charter and/orand any extension to the term.

Under the time charters with HL USA, the hire rate is payable monthly in advance at the applicable daily rate. The hire rate consists of two general components: a fixed hire rate component and a fixed payment for services. Pursuant to the management services agreement entered into by certain of the 23 subsidiaries previously owned by SCLL, but which were subsequently sold to a third party, or the VesselCos., with our Manager and HL USA, HL USA agreed to make certain payments toward operating expenses directly to our Manager under the direction of the VesselCos. These rights were assigned to us on completion of our purchase of the vessel owned by each such VesselCo. Both components Payments generally are fixed for the first three years of the charters and for the seven extension years and increase for the two subsequent extension terms.

Similarly to the time charters with CSCL Asia, under the time charters with COSCON, the hire rate is payable in advance every 15 days at the applicable fixed daily rate.

The hire rate under the time charters with MOL is payable monthly in advance at the applicable fixed daily rate, the hire rate with K-Line is payable semi-monthly in advance at the applicable fixed daily rate and the hire rate with APM and CSAV is payablemade in advance on the 10th of each month at the applicable fixed daily rate. In each case, for any part of a payment period, the approximate amount of the hire rate is to be paid on the relevant due date with any outstanding balance to be paid day by day as it becomes due unless a bank guaranteemonthly or deposit is made by the relevant charterer.semi-monthly basis.

Operations and Expenses

Our Manager operates our vessels and is responsible for ship operating expenses, which include technical management, crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses and capital expenses, which includeincluding normally scheduled dry-docking of the vessels. Please read “Information on the

Company—“Item 7. Major Shareholders and Related Party Transactions—B. Business Overview—Related Party Transactions—Our Management Related Agreements” for a description of the material terms of the management agreements. The charterer generally pays the voyage expenses, which include all expenses relating to their particular voyages, including any bunker fuel expenses, port fees,costs, pilotage, tugs, all cargo loading and unloading expenses, canal tolls, agency fees and commissions.

Off-hire

Under all forms of our time charters, when theWhen a vessel is “off-hire,” or not available for service, the charterer generally is not required to pay the hire rate, and we are responsible for all costs, including the cost of fuel bunkers, unless the charterer is responsible for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off-hire ifwhen there is an occurrence preventing the full working of the vessel due to, among other things:

 

operational deficiencies not due to actions of the charterers;charterers or their agents;

 

dry-docking for repairs, maintenance or inspection;

 

equipment breakdowns;or machinery breakdowns, abnormal speed and consumption conditions;

 

delays due to accidents;accidents for which the vessel owner, operator or manager is responsible, and related repairs;

 

crewing strikes, labor boycotts caused by the vessel owner, operator or manager, certain vessel detentions or similar problems; or

 

our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

Under our time charters with HL USA, if a vessel is delayed, detained or arrested for 30 consecutive days due to engine or essential gear breakdown, strikes, labor stoppages, boycotts or blockades, or is requisitioned, or other causes affecting the vessel’s schedule, other than grounding, collision or similar causes, we mustare obligated to charter a substitute vessel and we mustto pay any difference in hire cost of the charter for the duration of the substitution. Under our time charters with COSCON for the 3500 TEU vessels, if a vessel is placed off-hire for 30 cumulative days in a 365 day period, COSCON mayhas a right to cancel the time charter with respect to that vessel. Under our time charters with COSCON for the 8500 TEU vessels and the 13100 TEU vessels, if a vessel is placed off-hire for 45 cumulative days in a 365 day period, COSCON mayhas a right to cancel the time charter with respect to that vessel. Under our time charters with MOL and APM, if a vessel is off-hire for more than 60 consecutive days, the charterer has a right to terminate the charter agreement for that vessel. Under our time charters with CSAV, if a vessel is off-hire for more than 15 days and if we estimate that such off-hire is to last longer than 45 days, CSAV has a right to terminate the time charter. Under our time charter with UASC, if the vessel is off-hire for more than 40 consecutive days, excluding time due to blockage, trapping, strikes, boycotts, war, war-like circumstances and port or canal constraints, UASC has a right to terminate the charter party.agreement with one month prior notice. If a vessel charteredon charter to K-Line is off-hire more than 50 consecutive days, K-Line has thean option to cancel the time charter. CSCL Asia does not have similar rights under its charters with us. The periods specified above exclude, in addition to any specific exclusions listed, off-hire for routine dry-dockings, and off-hire for breaches of charter provisions such as voyage under-speed, fuel over-consumption and non-compliance with regulatory obligations.

Ship Management and Maintenance

Under each of our time charters, we are responsible for the operation and management of each vessel, including maintaining the vessel, periodic dry-docking, cleaning and painting and performing work required by regulations. Our Manager provides these services to us pursuant to the management agreements between us.agreements. Please read “Information on the Company—“Item 7. Major Shareholders and Related Party Transactions—B. Business Overview—Related Party Transactions—Our Management Related Agreements” for a description of the material terms of the management agreements.

Termination and Suspension

We are generally entitled to withdraw thea vessel from service to the charterersa charterer if the charterer defaults in its payment obligations, without prejudice to other claims for hire against the charterers. Some of our charterers also have the right to terminate the time charters in circumstances other than extended periods of off-hire as noted above. Under our time charters with HL USA, if a vessel consistently fails to perform to a warrantedspecified speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a warrantedspecified amount, and we

are unable to rectify the situation within a reasonable period of time or otherwise reach a mutually acceptable settlement, HL USA has the right to terminate the time charter with respect tofor that vessel. Under our time charters with COSCON, if a vessel consistently fails to perform to a specified, mutually agreed speed, and we are unable to rectify the situation within a reasonable period of time or otherwise reach a mutually acceptable settlement, COSCON has the right to terminate the time charter with respect to that vessel. APM, MOL, CSCL Asia, CSAV, UASC and K-Line do not have similar rights under their charters with us.

Change of Control

Under our time charters with HL USA, HL USA’s prior consent is required to make any material change in our ownership or voting control. HL USA cannot unreasonably withhold such consent. None of CSCL Asia, APM, MOL, COSCON, CSAV or K-Line have similar rights under their charters with us. Under our time charter with UASC, we must give UASC notice two months prior to any material change in our ownership.

Sale of Vessels

Several of our time charters with CSCL Asia allow us to sell the time-chartered vessels under time charters to any party as long as the warranties and conditions under the time charters remain unaffected. The remaining time charters with CSCL Asia allow us to sell the vessels under the time charters to any party as long as we obtain the charterer’s prior consent.consent, which CSCL Asia cannot unreasonably withhold such consent.withhold.

In the eventIf we wishseek to sell one of the vessels under a time charter with HL USA, we must first notify HL USA and provide HL USA with an opportunity to purchase the vessel. If HL USA refusesdeclines to purchase the vessel or if we are unable to reach an agreement with HL USA within 14 days, we will be freemay sell the vessel to conclude a sale with another party subject to certain terms.

Under our time charter with UASC, we must give UASC notice two months prior to a sale of the vessel.

Our time charters with COSCON, MOL, K-Line and CSAV allow us to sell the vessels under time charters to any buyer suitable to fulfill the charter, but only when justified by circumstances and subject to the charterer’s consent, which cannot be unreasonably withheld. In addition, under our time charters with CSAV, we must give CSAV 50 days notice of our intent to transfer ownership.

There is no similar provision in theThe time charters with APM relating topermit the sale of the vessels subject to their prior approval, which cannot be unreasonably withheld.

Sub-charters do not affect our ability to sell our time-chartered vessels.

Charterers

The following information about our charterers is as of December 31, 2009:

Charterer

  Number of Vessels in
our current operating
fleet
  Number of Vessels
to be delivered
  Total vessels upon
all deliveries

CSCL Asia

  22  —    22

HL USA

  9  —    9

APM

  4  —    4

COSCON

  2  16  18

CSAV

  2  2  4

MOL

  3  1  4

K-Line

  —    7  7
         

Total

      42      26      68

Competition

We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters based upon price, customer relationships, operating expertise, professional reputation and size, age and condition of the vessel.

Competition for providing new containership servicecontainerships for chartering purposes comes from a number of experienced shipping companies.companies, including direct competition from other independent charter owners and indirect competition from state-sponsored and other major entities with their own fleets. Some of our competitors have significantly greater financial resources than we do and can therefore operate larger fleets and may be able to offer better charter rates. An increasing number of marine transportation companies have entered the containership sector, including many with strong reputations and extensive resources and experience. This increased competition may cause greater price competition for time charters. In addition, a potential oversupply of containerships, resulting from the relatively large number of newbuildings currently on order, coupled with a decrease in demand for containerships, resulting from the recent global economic downturn, may further increase the competition for time charters.

Seasonality

Our vessels primarily operate under long-term charters and are not subject to the effect of seasonal variations in demand.

Management Related Agreements

The following summary of the material terms of the management related agreements does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the management agreements, omnibus agreement, the employment agreement with Gerry Wang, as amended, the employment agreement with Graham Porter and the change of control plan. Capitalized words and expressions used herein and defined in the management agreements shall have the same meaning herein as therein defined. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read each of the management agreements, the entire omnibus agreement, the employment agreement with Gerry Wang, as amended, the employment agreement with Graham Porter and the change of control agreement, each of which is incorporated herein by reference.

Certain aspects of our operations, including the management of our fleet, are performed by our Manager under the supervision of our board of directors. Our chief executive officer and our chief financial officer have been made available to us by our Manager to manage our day-to-day operations and affairs. Our chief executive officer, our chief financial officer and others, including our Manager and its affiliated companies, report to our board of directors regarding strategic, administrative and technical management matters.

Our Manager, Seaspan Management Services Limited, is owned primarily by trusts established for members of the Washington family and an entity indirectly owned by Gerry Wang and Graham Porter. Mr. Wang is our chief executive officer and a member of our board of directors. Mr. Porter is a director and officer of both our Manager and SCLL.

Management Agreements

Substantially all of the management services for our vessels are provided by our Manager, the provision of which is currently governed by seven management agreements:

the amended and restated management agreement for our initial fleet chartered to CSCL Asia and HL USA and the 4800 TEU vessels chartered to APM, or the Initial Management Agreement;

the vessel management agreement for the 5100 TEU vessels chartered to MOL, or the 5100 Management Agreement;

the vessel management agreement for eight of ten 2500 TEU vessels, which are chartered to CSCL Asia, and the 3500 TEU vessels chartered to COSCON, or the 2500/3500 Management Agreement;

the vessel management agreement for two of ten 2500 TEU vessels, which are chartered to K-Line, the four 4250 TEU vessels chartered to CSAV and the eight 8500 TEU vessels chartered to COSCON, or the 2500/4250/8500 Management Agreement;

the vessel management agreement for two of our 13100 TEU vessels chartered to COSCON with hull numbers 2177 and S452, or the 2177/S452 Management Agreement;

the vessel management agreement for two of our 13100 TEU vessels chartered to COSCON with hull numbers 2178 and S453, or the 2178/S453 Management Agreement; and

the vessel management agreement for two of our 13100 TEU vessels chartered to COSCON with hull numbers 2179 and S454, or the 2179/S454 Management Agreement.

Under our management agreements, our Manager is responsible for providing us with certain services, in each case, at the direction of our board of directors, which include the following:

technical services, which include managing day-to-day vessel operations, arranging general vessel maintenance, ensuring regulatory compliance and compliance with the law of the flag of each vessel and of the places where the vessel trades, ensuring classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging for the training, transportation, compensation and insurance of the crew (including processing all claims), arranging normally scheduled dry-docking and general and routine repairs, arranging insurance for vessels (including marine hull and machinery insurance, protection and indemnity insurance and risks and crew insurance), purchasing stores, supplies, spares, lubricating oil and maintenance capital expenditures for vessels, appointing supervisors and technical consultants and providing technical support, shoreside support, and attending to all other technical matters necessary to run our business (provision of technical services and related costs are paid for by our Manager at its cost and in return for its technical services, our Manager receives fixed daily technical services fees);

administrative services, which include assistance with the maintenance of our corporate books and records, payroll services, the assistance with the preparation of our tax returns (and paying all vessel taxes) and financial statements, assistance with corporate and regulatory compliance matters not related to our vessels, procuring legal and accounting services (including the preparation of all necessary budgets for us for submission to our board of directors), assistance in complying with the U.S. and other relevant securities laws, human resources, 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 (including all annual, quarterly, current and other reports we are required to file with the SEC pursuant to the Exchange Act, assistance with office space, providing legal and financial compliance services, overseeing banking services (including the opening, closing, operation and management of all our accounts including making any deposits and withdrawals reasonably necessary for the management of our business and day-to-day operations), procuring general insurance and director and officer liability insurance, arranging for the licensing to us of the tradename “Seaspan” and associated logos, providing all administrative services required for subsequent debt and equity financings and attending to all other administrative matters necessary to ensure the professional management of our business; and

strategic services, which include chartering our vessels, managing our relationships with our charter parties, identifying and negotiating the purchase and sale of vessels and arranging for financing of such vessels, providing general strategic planning services and implementing corporate strategy, providing business development services, developing acquisition and divestiture strategies, working on the integration of any acquired business, providing pre-delivery services for vessels, including overseeing and supervising the plan approval and construction of new vessels and negotiating shipbuilding contracts and liaising with the shipbuilders, and providing such other strategic, corporate planning, business development and advisory services as we may reasonably identify from time to time.

Generally, our Manager is responsible for paying for all costs associated with the provision of technical services but is not responsible for certain “extraordinary costs and expenses,” which consist of repairs for accidents; non-routine dry-docking; any improvement, structural change, installation of new equipment imposed

by compulsory legislation; increase in crew employment and support expenses resulting from an introduction of new, or change in the interpretation of, applicable laws; or any other similar costs, liabilities and expenses that were not reasonably contemplated by us and our Manager as being encompassed by or a component of the technical services fee at the time the fee was determined. We carry insurance coverage consistent with industry standards for certain matters but we cannot assure you that our insurance will be adequate to cover all extraordinary costs and expenses. Notwithstanding the foregoing, if any extraordinary costs and expenses are caused by our Manager’s fraud, willful misconduct, recklessness or gross negligence, our Manager will be responsible for them. For vessels other than those in our initial contracted fleet, we will pay for the pre-delivery purchase of stores, spares, lubricating oils, supplies, equipment and services related to the delivery of the relevant vessels and for fees associated with the classification society or registration under the relevant flag.

Subject to certain termination rights, the initial term of the management agreements will expire on December 31, 2025. If not terminated, the management agreements shall automatically renew for a five-year period and shall thereafter be extended in additional five-year increments if we do not provide notice of termination in the fourth quarter of the fiscal year immediately preceding the end of the respective term.

Reporting Structure

Our chief executive officer and our chief financial officer have been made available to us by our Manager to manage our day-to-day operations and affairs. Pursuant to his employment agreement described below, our chief executive officer devotes substantially all of his time to us and our Manager on our business and affairs. Our chief financial officer also devotes substantially all of his business time to us and our Manager on our business and affairs. Our Manager reports to our board of directors through our chief executive officer and our chief financial officer and operates our business. Our board of directors and our chief executive officer and chief financial officer have responsibility for overall corporate strategy, acquisitions, financing and investor relations. Our chief executive officer and chief financial officer utilize the resources of our Manager to run our business.

Compensation of Our Manager

In return for its technical management of our ships, our Manager receives a daily fixed fee per vessel payable on a monthly basis once the vessels have been delivered. During 2008, in accordance with the terms of the management agreements, we negotiated with the Manager and agreed to the fixed fees for the three year period commencing January 1, 2009. Effective January 1, 2009, the fixed fees were as follows:

Vessel Class (TEU)

  

Shipbuilder

  

Charterer

  Daily Fixed Fee per
Vessel
 

13100

  HHI and HSHI  COSCON  $8,336  

9600

  Samsung  CSCL Asia  $7,406  

8500

  Samsung  CSCL Asia  $6,699  

8500

  HHI  COSCON  $7,410  

5100

  HHI  MOL  $6,482  

4800

  Odense-Lindo  APM  $7,848  

4500

  Samsung  K-Line  $6,916  

4250

  Samsung  CSCL Asia  $5,526 (1) 

4250

  Samsung  CSCL Asia and HL USA  $5,423 (2) 

4250

  New Jiangsu  CSAV  $5,411  

3500

  Zhejiang  COSCON  $5,242  

2500

  Jiangsu  K-Line  $5,187  

2500

  Jiangsu  CSCL Asia  $5,118  

(1)This rate applies to each of the 4250 TEU vessels constructed by Samsung and chartered to CSCL Asia with a hull number ranging from 1342 through 1349.

(2)This rate applies to each of the 4250 TEU vessels constructed by Samsung and chartered to CSCL Asia or HL USA with a hull number ranging from 1493 to 1552.

The fixed fees listed above are in effect through December 31, 2011 and thereafter will be subject to renegotiation every three years. We believe these are fair market fees.

With respect to fee renegotiation, if our Manager and the board of directors are unable to reach an agreement, an arbitrator will determine the fair market fee. In the event that we acquire an additional vessel, the technical services fee in respect of that vessel will be the same fee as is applicable to vessels of the same size. If there is a material difference in the operating costs associated with the new vessel, or if there are no vessels of a similar size already owned by us, we will negotiate a fair market fee with our Manager. If we are unable to reach an agreement, an arbitrator will determine the fair market fee.

In return for providing us with strategic and administrative services, our Manager is entitled to a service fee not exceeding a maximum of $6,000 per month, and, except for certain supervisory services, to reimbursement for all of the reasonable costs and expenses incurred by it and its affiliates in providing us with such services. With respect to the reimbursement of certain costs and expenses for the provision of certain services related to the supervision of construction of our vessels, the Manager is paid a fixed amount per vessel, which fee is based on vessel class and has been agreed upon with our Manager. Our Manager provides these supervisory services to us directly but may subcontract certain of these services to other entities, including its affiliates. The management agreements provide that we have the right to audit the costs and expenses billed to us and also provides for a third party to settle any billing disputes between us and our Manager.

In connection with providing us strategic services, our Manager’s affiliate acquired 100 incentive shares for $1,000 concurrently with our initial public offering. The incentive shares are entitled to a share of incremental dividends, based on specified sharing ratios, once dividends on our common shares reach certain specified targets, beginning with the first target of $0.485 per share, and the Company has an adequate operating surplus to pay such a dividend. On January 22, 2010, we announced a quarterly cash dividend of $0.10 per common share. Under the terms of the Initial Management Agreement, we have the right to reacquire the incentive shares from our Manager’s affiliate at a nominal price under specified circumstances and we have the obligation to reacquire them at a price determined by independent parties under other specified circumstances.

The following table further details this allocation among the common and incentive shares:

      Allocation of Incremental Operating
Surplus Paid—as a Dividend
 
  Quarterly Common Share
Dividend—Target Amount
  Common Shares  Incentive Shares 

Below First Target

  up to $0.485  100 0

First Target

  above $0.485 up to $0.550  90 10

Second Target

  above $0.550 up to $0.675  80 20

Third Target

  above $0.675  75 25

The table below illustrates the percentage allocations of operating surplus distributed between the common shares and the incentive shares as a result of certain quarterly dividend amounts per common share. The amounts presented below are intended to be illustrative of the way in which the incentive shares are entitled to an increasing share of dividends based on the target dividend levels described above as total dividends increase. This is not intended to represent a prediction of future performance.

Quarterly Dividend Per Common
Share

  

Common Share Dividend as
Percentage of Total Dividends

  

Incentive Share Dividend as
Percentage of Total Dividends

$0.485  100.00  0.00
$0.550  98.70  1.30
$0.675  94.61  5.39
$0.750  92.20  7.80
$1.000  87.20  12.80

Omnibus Agreement

We have entered into an agreement with our Manager, certain of our Manager’s subsidiaries that provide services to us, Norsk, a company within the Washington Marine Group, and Seaspan International, a company that owns substantially all of the Washington Companies’ marine transportation shipyards and ship management entities. The following discussion describes the provisions of the omnibus agreement.

Non-competition

Our Manager, Norsk, and Seaspan International have agreed, and have caused their controlled affiliates (other than us and our subsidiaries) to agree, directly or indirectly, not to engage in or otherwise acquire or invest in any business involved in the chartering or rechartering of containerships to others, hereinafter referred to as the “containership business,” during the term of our Initial Management Agreement, except as provided below. “Containerships” includes any ocean-going vessel that is intended primarily to transport containers or is being used primarily to transport containers. In the event that our Initial Management Agreement is terminated as a result of the breach thereof by our Manager or if our Manager elects to terminate our Initial Management Agreement pursuant to its optional termination right, the term of the non-competition agreement shall survive for two years from such date. The non-competition agreement does not prevent Seaspan International, Norsk, our Manager or any of their controlled affiliates (other than us and our subsidiaries) from:

acquiring and subsequently operating assets that are within the definition of containership business as part of a business if a majority of the fair market value of the acquisition is not attributable to the containership business. However, if at any time a party completes such an acquisition, it must offer to sell the assets that are attributable to the containership business to us for their fair market value plus any additional tax or other similar costs to the acquiring party that would be required to transfer such assets to us separately from the acquired business;

solely with respect to Seaspan International, acquiring and subsequently operating assets that are within the definition of containership business that relate to discussions, negotiations or agreements that occurred prior to the date of our initial public offering; provided, however, that Seaspan International must offer to sell the assets to us within one year from the acquisition date valued at their “fully built-up cost,” which represents the aggregate expenditures incurred by Seaspan International to acquire and bring such assets to the condition and location necessary for our intended use;

collectively with Gerry Wang, Graham Porter and the controlled affiliates of Seaspan International, Norsk and our Manager, acquiring up to a 9.9% equity ownership, voting or profit participation for investment purposes only in any publicly traded entity that is engaged in the containership business;

acquiring operating assets that are within the definition of containership business pursuant to the right of first offer after our Initial Management Agreement is terminated;

acquiring, and subsequently operating, containerships that we do not purchase pursuant to the terms of the asset purchase agreement;

acquiring, and subsequently operating, containerships with a capacity of less than 1000 TEU; or

providing technical ship management services relating to containerships.

Rights of First Offer on Containerships

Our Manager and Seaspan International and their controlled affiliates have granted us a 30-day right of first offer on any proposed sale, transfer or other disposition of any assets that fall within the definition of containership business they might own. This right of first offer does not apply to a sale, transfer or other disposition of vessels between any affiliates, or pursuant to the terms of any charter or other agreement with a charterer. Our right of first offer is in effect during the term of our Initial Management Agreement and, unless termination is for Company Breach or we terminate pursuant to our early termination right or optional termination right, shall extend for a two year period following its termination.

Prior to any disposition of assets that fall within the definition of containership business, Seaspan International, our Manager and their controlled affiliates, as appropriate, must deliver a written notice setting forth the material terms and conditions of any proposed sale, transfer or disposition of the assets. During the 30-day period after the delivery of such notice, we will negotiate in good faith with Seaspan International, our Manager or their controlled affiliates, as appropriate, to reach an agreement on the transaction. If an agreement is not reached within such 30-day period, Seaspan International or our Manager, as the case may be, will be able within the next 180 days to sell, transfer or dispose of such assets to a third party (or to agree in writing to undertake such transaction with a third party) on terms generally no less favorable to the selling party than those offered pursuant to the written notice.

Our Manager and Seaspan International have a similar 30-day right of first offer on any of our assets that fall within the definition of containership business for a period beginning on the date of the termination of our Initial Management Agreement and extending for a period of two years, unless such agreement is terminated as a result of the breach thereof by our Manager or if our Manager exercises its optional termination right, in which case such right of first offer shall not apply.

Employment Agreement with Gerry Wang

Our chief executive officer has entered into an employment agreement with SSML, a subsidiary of our Manager. In connection with our recent offering of Series A Preferred Shares, or our Series A Preferred Share Offering, Mr. Wang and SSML entered into an amended employment agreement to extend the initial term of his employment until December 31, 2013. The employment agreement, as amended, provides that Mr. Wang receive an annual base salary of $600,000, subject to increases at the discretion of the board of directors of our Manager, half of which is being reimbursed by us under the Initial Management Agreement. Pursuant to this agreement, Mr. Wang serves as the chief executive officer of SSML and as our chief executive officer. He devotes substantially all of his time to us and our Manager on our business and affairs. The initial term of the agreement expires on December 31, 2013. However, unless written notice is provided between 180 days and 210 days prior to the termination date, the agreement automatically renews on December 31, 2013, and each subsequent year for an additional one-year term. Except in the case of a termination for cause, our Manager cannot terminate the chief executive officer without our prior consent, which cannot be unreasonably withheld.

Mr. Wang has acknowledged in the agreement that by virtue of his employment, he owes fiduciary obligations to us and to SSML. In such case where our interests and those of SSML conflict, Mr. Wang will act in our best interests and such action or inaction in fulfilling his obligations in our respect will not be a breach of his employment agreement with SSML.

Mr. Wang has agreed to be bound by the terms of the omnibus agreement and not to engage in any activity that our Manager is prohibited from engaging in pursuant to the omnibus agreement.

Employment Agreement with Graham Porter

Graham Porter has entered into an employment agreement with Seaspan Advisory Services Limited, or Seaspan Advisory, a subsidiary of our Manager that provides us with strategic services pursuant to the Initial Management Agreement. The agreement provides that Mr. Porter receive an annual base salary of $200,000, subject to increases at the discretion of the board of directors of our Manager. We reimburse our Manager for one half of this amount under the Initial Management Agreement. Pursuant to this agreement, Mr. Porter serves as the chief executive officer of Seaspan Advisory. While the initial term of the agreement expired on December 31, 2008, the term has continued to automatically renew for a one year period and will continue to do so on December 31 of each subsequent year for an additional one-year term unless written notice of termination is provided between 180 days and 210 days prior to such date. No such termination notice has been provided to date.

Mr. Porter has agreed to be bound by the terms of the omnibus agreement and not to engage in any activity that our Manager is prohibited from engaging in pursuant to the omnibus agreement.

Change of Control Plan

We established a change of control severance plan, or the Change of Control Plan, for certain employees of our ship manager, SSML, effective as of January 1, 2009. We do not currently have any employees and we rely on the technical, administrative and strategic services provided by our Manager and its affiliates, including SSML. The purpose of the Change of Control Plan is to allow SSML to recruit qualified employees and limit the loss or distraction of such qualified employees that may result from the possibility of a change of control.

Under the terms of the Change of Control Plan, certain employees of SSML, or the Participants, are entitled to receive from us a severance benefit if their employment is terminated due to a qualifying termination. A qualifying termination means a termination by either SSML (if the Participant is terminated for reasons other than cause, death or disability) or by the Participant (if the Participant resigns for good reason, which includes a reduction in base salary or a material diminution in responsibilities, among other things) within a certain period of time following a change of control. A change of control includes:

the sale or other disposition of all or substantially all of our assets in certain circumstances;

a transaction where certain persons become the beneficial owner of more than a majority of our common shares;

a change in our directors after which a majority of our board are not continuing directors (as defined in the Change of Control Plan); or

the consolidation or merger of us with or into any person in certain circumstances.

A change of control does not include certain events involving certain of the original founders of SCLL including Dennis R. Washington, Kyle R. Washington, Kevin L. Washington, Gerry Wang or Graham Porter or any of their respective affiliates.

The time period during which a Participant will be entitled to any benefits under the Change of Control Plan following a change of control and the severance benefit to which he or she will be entitled on a qualifying termination is dependent on the tier in which the Participant is placed in the Change of Control Plan. The Change of Control Plan is composed of three tiers of Participants and the chief executive officer of SSML may add or remove Participants from the Change of Control Plan at any time with our prior written consent.

Tier 1 Participants are entitled to severance benefits on a qualifying termination for a two year period following a change of control and they will receive from us 30 months of their current base salary and bonuses. Tier 2 and Tier 3 Participants are entitled to severance benefits on a qualifying termination for a one year period following a change of control and will receive from us 18 months and 9 months, respectively, of their current base salary and bonus. All Participants will also become fully vested in all outstanding incentive awards in addition to receiving their severance benefits. Participants will also receive certain other benefits, including but not limited to health, dental and life insurance benefits for a three month period subject to the permission of the benefits carrier.

We will require any entity who is our successor to assume and agree to perform our obligations under the Change of Control Plan. The Participants will only be entitled to benefits under the Change of Control Plan upon providing us and SSML with a release and waiver.

Please read the above summary of our Change of Control Plan in conjunction with the Change of Control Plan itself, which is filed as an exhibit hereto.

Risk of Loss and Insurance

Hull &and Machinery, Loss of Hire and War Risks Insurance

We maintain marine hull and machinery and war risks insurance, which covers the risk of actual or constructive total loss and partial loss, for all of our vessels. Each of our vessels is covered up to at least fair market value with certain deductibles per vessel per claim. We achieve this overall coverage by maintaining nominal increased value coverage for each of our vessels. Under this increased valuevessels, under which coverage in the event of total loss of a vessel, we will be entitled to recover amounts not recoverable under our hull and machinery policy due to under-insurance. We have not obtained, and willdo not intend to obtain, loss-of-hire insurance covering the loss of revenue during extended off-hire periods. We believe that this type of coverage is not economical and is of limited value to us. However, we evaluate the need for such coverage on an ongoing basis, taking into account insurance market conditions and the employment of our vessels.

Protection and Indemnity Insurance

Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I associations, which insure our third-party and crew liabilities in connection with our shipping activities. This includes third-party liability, crew liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutualP&I associations. Subject to the “capping” discussed below, our coverage, except for pollution, is unlimited, but subject to the rules of the particular protection and indemnity insurer.

Our protection and indemnity insurance coverage for pollution is up to $1.0 billion per vessel per incident. The thirteen13 P&I associations that comprise the International Group insure approximately 90% of the world’s commercial blue-water tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. As a member of a mutual P&I association, which is a member or affiliate of the International Group, we are subject to calls payable to the associations based on the International Group’s claim records as well as the claim records of all other members of the individual associations.

Inspection by Classification Societies

Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,” signifying that the vessel has been built and maintained in accordance with the rules of

the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.

Each vessel is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every two to three years for intermediate surveys, and every five years for special surveys. Should any defects be found, the classification surveyor will issue a “condition of class” or a “requirement” for appropriate repairs that have to be made by the shipowner within the time limit prescribed. Vessels may be required, as part of the annual and intermediate survey process, to be dry-docked for inspection of the underwater portions of the vessel and for necessary repair stemming from the inspection. Special surveys always require dry-docking. The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.

Financing FacilitiesOur Manager

Our $1.3 Billion Credit Facility

The following summaryManager, Seaspan Management Services Limited, is owned primarily by trusts established for members of the material termsWashington family and an entity indirectly owned by Gerry Wang and Graham Porter. Mr. Wang is our chief executive officer and co-chairman our board of directors. Mr. Porter is a member of our $1.3 billion revolving credit facility, or the $1.3 Billion Credit Facility, does not purport to be completeboard of directors and is subject to,a director and qualified inofficer of both our Manager and SCLL. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Certain Relationships and Transactions.”

Our Manager and certain of its entirety by reference to,wholly owned subsidiaries provide all the provisions of the $1.3 Billion Credit Agreement as defined below. Because the following is only a summary, it does not containtechnical, administrative and strategic services necessary to support our business and all information that you may find useful. For more complete information, you should read the entire $1.3 Billion Credit Agreement listed as an exhibit to this Annual Report.

On August 8, 2005, we entered into a $1.0 billion secured loan facility agreement with certain lenders. This agreement was amended and restated on May 11, 2007. The amended and restated credit agreement, or the $1.3 Billion Credit Agreement, provides for a $1.3 billion single-tranche senior secured, seven year revolving credit facility. The borrowings of the facility may be used to finance vessel acquisitions, to refinance vessels already acquired by us and for general corporate purposes. The facility maturity date is May 11, 2015.

Our obligations under the $1.3 Billion Credit Agreement are secured by, among other things, first and second priority mortgages on the vessels of our initial fleet as well asemployees, other than our chief executive officer. Our Manager provides a variety of ship management services, including purchasing supplies, crewing, vessel maintenance, insurance procurement and claims handling, inspections, and ensuring compliance with flag, class and other statutory requirements. In addition to the 4800 TEU vessels. Also, the facility is secured by a first-priority assignment of earnings relatedship management services provided to these same vessels, including time-charter revenues, and a first-priority assignment of insurance proceeds.us, our Manager also provides limited ship management services to Dennis R. Washington’s personal vessel owning companies.

Until August 11, 2012, we will be able to borrow up to $1.3 billion without adding additional collateral so long as the total outstanding loan balance remains below 70% of the market value of the vessels, on a without charter basis as required by our credit facility, that are collateralized. In certain circumstances and for a certain period of time, even if our loan to value ratio exceeds 70%, we can borrow under the facility to purchase additional vessels so long as the loan to value ratio does not exceed 80%, or the Overadvance Loan. The vessels purchased will then become additional security under the facility. As of December 31, 2009,2010, our Manager and its subsidiaries employed approximately 2,000 seagoing staff and approximately 140 shore staff. We expect our Manager and its subsidiaries will hire additional employees as we have drawn approximately $1.0 billion ofgrow. We believe our $1.3 Billion Credit Facility. Based on a valuation of the vessels financed under the $1.3 Billion Credit Facility that was obtained in December of 2009 (which was on a without charter basis as required by our credit facility), we are currently unable to borrow the remaining approximately $267 million available under this facility.

Beginning on August 11, 2012, the maximum facility amount will be reduced by $32.5 million per quarter until May 11, 2014. In addition to the previous mentioned reductionManager and beginning on May 11, 2014, the maximum facility amount will be reduced by $65.0 million per quarter until May 11, 2015, when the outstanding loan balance will be dueits subsidiaries provide its seafarers competitive employment packages and payable. We have the right, subject to certain conditions, to add additional vessels to the collateral package to preserve access to the full amount of the facility.comprehensive benefits and opportunities for career development.

We may prepay all loans without penalty, other than breakage costs in certain circumstances. We are required to prepay a portionbelieve our Manager achieves high standards of technical ship management by pursuing risk reduction, operational reliability and safety. Our Manager achieves its standards by employing the outstanding loans under certain circumstances, including the sale or loss of a vessel where the ratio of the loan to market value of the remaining collateral vessels exceeds a certain percentage. Amounts prepaid in accordance with these provisions may be reborrowed, subject to certain conditions. Under the terms of the $1.3 Billion Credit Agreement, we must pay interest at a rate per annum, calculated as LIBOR plus 0.7% per annum. In the case of an Overadvance Loan, the interest rate is LIBOR plus 1.0% per annum. The $1.3 Billion Credit Agreement requires payment of a commitment fee of 0.2625% per annum calculated on the undrawn, uncancelled portion of the facility.

In addition to the security granted by us to secure the facility, we are also subject to other customary conditions before we may borrow under the facility, including but not limited to, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the $1.3 Billion Credit Agreement. In addition, the $1.3 Billion Credit Agreement contains various covenants limiting our ability to,following methods, among other things:others:

 

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;developing a minimum competency standard for seagoing staff;

 

conduct material transactions with affiliates; orstandardizing equipment used throughout the fleet, thus promoting efficiency and economies of scale;

 

changeimplementing a voluntary vessel condition and maintenance monitoring program (our Manager was the flag, class or management offirst in the collateral vessels.

The $1.3 Billion Credit Agreement also contains certain financial covenants including but not limitedworld to those that require Seaspan Corporation to maintain:

a tangible net worth in excess of $450,000,000;achieve accreditation by Det Norske Veritas on its hull planned maintenance system);

 

total borrowings at less than 65%recruiting officers and ratings through an affiliate based in India that has a record of the total assets;employee loyalty and high retention rates among its employees;

 

cash on hand and cash equivalentsimplementing an incentive system to reward staff for the safe operation of $25,000,000 if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of 2.50 to 1.00;vessels; and

 

an interestinitiating and principal coverage ratio greater than or equal to 1.1 to 1.0.developing a cadet training program.

The $1.3 Billion Credit Agreement contains customary events of default, including but not limited to non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Our $365.0 Million Credit Facility

The following summary of the material terms of our 11 to 13 year $365.0 million senior secured revolving credit facility, or the $365 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $365 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $365 Million Credit Agreement listed as an exhibit to this Annual Report.

On May 19, 2006, we entered into a senior secured, $365.0 million revolving credit facility agreement with certain lenders, or the $365 Million Credit Agreement.

The $365 Million Credit Facility is split into two separate tranches, one to partially fund the acquisition of our two 3500 TEU vessels and the second to partially fund the construction of eight of our ten 2500 TEU vessels. We are also able to use the facility for general corporate purposes in certain circumstances. Our obligations under the $365 Million Credit Facility are secured by first-priority mortgages on our two 3500 TEU container vessels and the eight 2500 TEU vessels. Also, the facility is secured by a first-priority assignment of our earnings related to the collateral vessels, including time-charter revenues, and any insurance proceeds and first priority assignments of shipbuilding contracts and related refund guarantees.

We may prepay all loans at any time without penalty, other than breakage costs in certain circumstances. Amounts that have been prepaid may be reborrowed. We are required to prepay a portion of the outstanding loans under certain circumstances, including the sale or loss of a vessel if we do not substitute another vessel. Beginning March 31, 2008, the total amounts available for borrowing under the first tranche were reduced and will continue to be reduced semiannually in accordance with the commitment reduction schedule until the maturity date, at which time the outstanding balance shall be repaid. Beginning March 18, 2010, the total amounts available for borrowing under the second tranche will be reduced semiannually in accordance with the commitment reduction schedule until the maturity date, at which time the outstanding balance shall be repaid.

Indebtedness under the $365 Million Credit Facility bears interest at a rate equal to LIBOR plus 0.850% until approximately July 5, 2013, for the first tranche, and August 31, 2015, for the second tranche, and LIBOR plus 0.925% thereafter for both tranches. We incur a commitment fee on the undrawn portion of the $365 Million Credit Facility at a rate of 0.30% per annum.

We are subject to other customary conditions before we may borrow under the $365 Million Credit Facility, including that no event of default is ongoingOur Manager’s personnel have experience in overseeing new vessel construction, vessel conversions and there having been no material adverse effect on our ability to perform our payment obligations under the facility. In addition, the $365 Million Credit Facility contains various covenants limiting our ability to:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with our affiliates except on an arm’s-length basis; and

change the flag, class, orgeneral marine engineering. The core management of our vessels.

The $365 Million Credit Facility contains certain financial covenantsManager previously has worked in various companies in the international ship management industry, including covenants requiringChina Merchants Group, Neptune Orient Lines, Teekay Corporation, Safmarine Container Lines and Columbia Ship Management. Our Manager’s staff has skills in all aspects of ship management, including design and operations and marine engineering, among others. A number of senior officers also have sea-going experience, having served aboard vessels at a senior rank. Our crews are directly selected by our Manager and hired by its crew management affiliate, Seaspan CorporationCrew Management Ltd., or SCML. In all training programs, our Manager places an emphasis on safety and regularly trains its crew members and other employees to maintainmeet our high standards. Shore-based personnel and crew members are trained to be prepared to respond to emergencies related to life, property or the environment.

Our Manager is required to perform its services in a minimum tangible net worth, maximum leveragecommercially reasonable manner. Our Manager is responsible for and minimum interest coverage and principal and interest coverage ratios similar to thosewill indemnify us for damages resulting from its obligations or liabilities under the management agreements, breaches of the $1.3 Billion Credit Agreement.

The $365 Million Credit Agreement contains customary events of default, including nonpayment of principalagreements, fraud, willful misconduct, recklessness or interest, breach of covenants or material inaccuracy of representations, default under other material indebtedness, bankruptcy and change of control.

Our $218.4 Million Credit Facility

The following summary of the material termsgross negligence of our $218.4 million term loan facility,Manager or the $218.4 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $218.4 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $218.4 Million Credit Agreement listed as an exhibit to this Annual Report.

On October 16, 2006, we entered into a $218.4 million credit facility agreement, or the $218.4 Million Credit Agreement. The funds drawn under this facility will be used to partially finance the construction of the four 5100 TEU vessels. The facility maturity date is December 23, 2021.

Our obligations under the $218.4 Million Credit Facility are secured by first-priority assignments of the shipbuilding contracts and refund guarantees, first-priority assignments of our earnings related to the 5100 TEU vessels, including time-charter revenues, and a first-priority assignment of the management agreement for the 5100 TEU vessels. Also, our obligations under the facility will be secured by first-priority mortgages on each of the vessels and a first-priority assignment of any insurance proceeds.

Beginning on June 23, 2013, the principal amount borrowed under the facility will be reduced in eighteen semi-annual payments by amounts ranging from 2.7% to 3.3% of the amount borrowed until the maturity date. A final repayment of approximately 45% of the amount borrowed is required upon the final maturity date.

We may prepay all loans without penalty, other than breakage costs in certain circumstances. We are required to prepay a portion of the outstanding loans under certain circumstances, including the sale or loss of a vessel if we do not substitute another vessel. The $218.4 Million Credit Facility requires payment of interest at a rate per annum, calculated as LIBOR plus 0.6% per annum, and payment of a commitment fee of 0.3% per annum calculated on the undrawn, uncancelled portion of the facility.

We are subject to other customary conditions before we may borrow under the facility, including that no event of default is ongoing and there having occurred no material adverse change on our ability to perform our payment obligations under the facility. In addition, the $218.4 Million Credit Facility contains various covenants limiting our ability to:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with our affiliates except on an arm’s-length basis; or

change the flag, class, or management of our vessels.

The $218.4 Million Credit Agreement also contains covenants, among others, requiring Seaspan Corporation to maintain:

a tangible net worth of $450,000,000;

total borrowings at less than 65% of the total assets;

cash on hand and cash equivalents of $25,000,000 if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of 2.5 to 1.0; and

an interest and principal coverage ratio of 1.1 to 1.0.

The $218.4 Million Credit Agreement contains customary events of default, including nonpayment of principal or interest, breach of covenants or material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Our $920.0 Million Credit Facility

The following summary of the material terms of our $920.0 million reducing revolving credit facility, or the $920 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $920 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $920 Million Credit Agreement listed as an exhibit to this Annual Report.

On August 8, 2007, we entered into a secured reducing revolving $920.0 million credit facility agreement with certain lenders, or the $920 Million Credit Agreement. The proceeds of this facility are available to partially finance the construction of two of the 2500 TEU vessels by Jiangsu, the four 4250 TEU vessels by New Jiangsu and the eight 8500 TEU vessels by HHI. After delivery of these vessels, we may use the facility for general corporate purposes.

The final maturity date for this facility is the earlier of the twelfth anniversary of the delivery date of the last vessel delivered and December 31, 2022. Our obligations under the $920 Million Credit Facility are or will be secured by, among other things, assignments of shipbuilding contracts and refund guarantees for the vessels, assignments of time charters, earnings and any charter guarantee for the vessels, assignments of insurances for the vessels, mortgages of the vessels and an assignment of a management agreement for the vessels.

Under the $920 Million Credit Facility, we may borrow up to the lesser of $920.0 million and 65% of the vessel delivered costs (as defined in the credit agreement) provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1,250,000 per vessel. The facility will be proportionately reduced to the extent that not all vessels are delivered by June 30, 2011. Commencing on the earlier of 36 months after the delivery date of the last vessel and June 30, 2014, the facility will reduce by eighteen consecutive semi-annual reductions in the amounts and on the dates set out in a schedule to the credit agreement, and on each such date that we must prepay the amount of the outstanding loan that exceeds the amount of the reduced facility. The outstanding loans under the facility must be paid in full by the final maturity date.

We may prepay all loans without penalty, other than breakage costs in certain circumstances. Amounts prepaid voluntarily may be re-borrowed up to the amount of the facility, subject to the required reductions in the

facility. We will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where we elect not to substitute another vessel within the time period and on the terms set out in the credit agreement. We may also remove a vessel from the facility upon prepayment of the relevant portion of the outstanding loans and substitute another vessel within the time period prescribed and on the terms set out in the credit agreement. Amounts prepaid in the circumstance of a sale, loss or removal of a vessel or cancellation of a shipbuilding contract may only be re-borrowed in certain limited circumstances.

The $920 Million Credit Agreement requires payment of interest on the outstanding loans at a rate calculated as LIBOR plus 0.5% per annum. The credit agreement also requires payment of a commitment fee of 0.20% per annum calculated on the undrawn, uncancelled portion of the facility. Prior to delivery of a vessel, interest and commitment fees associated with the loans for a vessel may be capitalized and added to the outstanding loans.

In addition to the security we have granted to secure the facility, we are also subject to other customary conditions precedent before we may borrow under the facility including, but not limited to, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the credit agreement. We are also subject to certain conditions subsequent to drawing including, but not limited to, registration of certain refund guarantees with applicable authorities in China. In addition, the $920 Million Credit Agreement contains various covenants limiting our ability to among other things:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with affiliates; or

change the flag, class or management of the collateral vessels.

The $920 Million Credit Agreement also contains certain financial covenants including, but not limited to, those that require Seaspan Corporation to maintain:

a tangible net worth in excess of $450,000,000;

total borrowings at less than 65% of the total assets;

cash on hand and cash equivalents of $25,000,000 if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of 2.50 to 1.00; and

an interest and principal coverage ratio greater than or equal to 1.1 to 1.0.

The $920 Million Credit Agreement contains customary events of default including, but not limited to, non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Our $150.0 Million Credit Facility

The following summary of the material terms of our $150.0 million reducing revolving credit facility, or the $150 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $150 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $150 Million Credit Agreement listed as an exhibit to this Annual Report.

On December 28, 2007, we entered into a secured reducing revolving $150.0 million credit facility agreement, as amended, or the $150 Million Credit Agreement, with two of our wholly-owned subsidiary

companies, Seaspan Finance II Co. Ltd. and Seaspan Finance III Co. Ltd., as borrowers. We guaranteed the obligations of our subsidiaries under the terms of the agreement. The proceeds of the facility are available to finance construction of two of our 13100 TEU vessels, one of which will be constructed by HHI and the other by HSHI. After delivery of these vessels, we may use the facility for general corporate purposes.

The final maturity date for this facility is the earlier of the twelfth anniversary of the delivery date of the last vessel delivered and October 17, 2023. Our obligations under the $150 Million Credit Facility are or will be secured by, among other things, pre-delivery assignments of the shipbuilding contracts and refund guarantees for the vessels, assignments of time charter and earnings, a pledge of shares in the borrowers by us, assignments of insurances for the vessels, mortgages of the vessels and an assignment of a management agreement for the vessels.

Under the $150 Million Credit Agreement, we may borrow for each vessel up to the lesser of $75 million and 65% of the vessel delivered costs (as defined in the credit agreement) for that vessel, provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $2,500,000 per vessel. The facility will be proportionately reduced to the extent that a vessel is not delivered by November 27, 2012. Commencing on the earlier of six months after the delivery date of the last vessel and October 27, 2012, the $150 Million Credit Facility will reduce by consecutive semi-annual reductions in the amounts and on the dates set out in a schedule to the credit agreement, and on each such date we must prepay the amount of the outstanding loan that exceeds the amount of the reduced facility. The outstanding loans under the facility must be paid in full by the final maturity date.

We may prepay all loans without penalty, other than breakage costs in certain circumstances. Amounts prepaid voluntarily may be re-borrowed up to the amount of the facility, subject to the required reductions in the facility. We will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where we elect not to substitute another vessel within the time period and on the terms set out in the credit agreement. We may also remove a vessel from the facility upon prepayment of the relevant portion of the outstanding loans and substitute another vessel within the time period prescribed and on the terms set out in the credit agreement. Amounts prepaid in the circumstance of a sale, loss or removal of a vessel or cancellation of a shipbuilding contract may only be re-borrowed in certain limited circumstances.

The $150 Million Credit Agreement requires payment of interest on the outstanding loans at a rate calculated as LIBOR plus 0.8% per annum. The credit agreement also requires payment of a commitment fee of 0.20% per annum calculated on the undrawn, uncancelled portion of the facility.

In addition to the security we have granted to secure the facility, we are also subject to other customary conditions precedent before borrowing under the facility including, but not limited to, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the credit agreement. In addition, the $150 Million Credit Agreement contains various covenants limiting our ability and the ability of the borrowers to, among other things:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with affiliates; or

change the flag, class or management of the collateral vessels.

The $150 Million Credit Agreement also contains certain financial covenants including, but not limited to, those that require Seaspan Corporation to maintain:

a tangible net worth in excess of $450,000,000;

total borrowings at less than 65% of the total assets;

cash on hand and cash equivalents of $25,000,000 if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of 2.50 to 1.00; and

an interest and principal coverage ratio greater than or equal to 1.1 to 1.0.

The $150 Million Credit Agreement contains customary events of default including, but not limited to, non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Our $291.2 Million Credit Facility

The following summary of the material terms of our $291.2 million term loan and credit facility, or the $291.2 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $291.2 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $291.2 Million Credit Agreement listed as an exhibit to this Annual Report.

On March 17, 2008, we entered into a $291.2 million credit facility agreement, or the $291.2 Million Credit Agreement. The facility has a term loan component, which is divided into two tranches, and a revolving loan component, which is divided into a senior revolver and junior revolver. The proceeds of this facility are available to partially finance the construction of two of our 13100 TEU vessels, one of which will be constructed by HHI and the other by HSHI. The term loans are available for drawing until a certain period of time following the scheduled delivery date of each vessel. After delivery of these vessels, we may use the revolving loan for general corporate purposes.

The final maturity date for the revolving loan is the earlier of the twelfth anniversary of the delivery date of the last vessel delivered and December 31, 2023 and the final maturity date for the term loans is the earlier of the twelfth anniversary of the delivery date of the vessels to which those term loans relate and December 31, 2023. The outstanding loans under the facility must be paid in full by the relevant final maturity date.

Our obligations under the $291.2 Million Credit Agreement are or will be secured by, among other things, assignments of shipbuilding contracts and refund guarantees for the vessels, assignments of time charters and earnings for the vessels, assignments of insurances for the vessels, mortgages of the vessels and an assignment of a management agreement for the vessels. One of the tranches of the term loan portion is guaranteed by the Export-Import Bank of Korea, or KEXIM.

Under the $291.2 Million Credit Facility, we may borrow up to the lesser of $291.2 million and 80% of the vessel delivered costs (as defined in the credit agreement) and on an individual vessel basis, the lesser of $145.6 million and 80% of the vessel delivered costs for that vessel, provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1,000,000 per vessel. Consistent with export-import bank financing under the applicable Organization for Economic Co-operation and Development rules, we must pay 20% of the vessel delivered costs on or prior to the delivery date.

We may prepay the term loans on a repayment date (as defined in the credit agreement) without penalty, other than breakage costs and opportunity costs in certain circumstances. We may prepay the revolving loan on the last day of any interest period except that we are not permitted to prepay the junior revolving loan during the pre-delivery period. Amounts of the revolving loan that are prepaid voluntarily may be re-borrowed up to the amount of the revolving loan. We will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel, the cancellation of a shipbuilding contract or if the guarantee

provided by KEXIM ceases to be valid for certain reasons and KEXIM determines that there has been or could be a material adverse effect on our ability to perform our payment obligations. We may also remove a vessel from the facility upon prepayment of the relevant portion of the outstanding loans.

The $291.2 Million Credit Agreement requires payment of interest on the outstanding revolving loan at a rate calculated as LIBOR plus 0.85% per annum and payment of interest on the outstanding term loans at a rate calculated as the commercial interest reference rate of KEXIM plus 0.65% per annum for the first tranche, LIBOR plus 0.35% for the second tranche. The credit agreement also requires payment of a commitment fee of 0.30% per annum calculated on the undrawn, uncancelled portion of the facility. Prior to delivery of a vessel, interest and commitment fees associated with the loans for a vessel may be capitalized and added to the outstanding loans.

In addition to the security we have granted to secure the facility, we are also subject to other customary conditions precedent and other restrictions before we may borrow under the facility including, but not limited to, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the $291.2 Million Credit Agreement. In addition, the $291.2 Million Credit Agreement contains various covenants limiting our ability to, among other things:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with affiliates; or

change the flag, class or management of the collateral vessels.

The $291.2 Million Credit Agreement also contains certain financial covenants including, but not limited to, those that require Seaspan Corporation to maintain:

a tangible net worth in excess of $450,000,000;

total borrowings at less than 65% of the total assets;

cash on hand and cash equivalents of $25,000,000 if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of 2.50 to 1.00; and

an interest and principal coverage ratio greater than or equal to 1.1 to 1.0.

The $291.2 Million Credit Agreement contains certain events of default including, but not limited to, non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Our $400.0 Million UK Lease Facility

The following summary of the material terms of the $400.0 Million UK Lease Facility does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $400.0 Million UK Lease Facility. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $400.0 Million UK Lease Facility listed as an exhibit to this Annual Report.

Our wholly-owned subsidiary, Seaspan Finance I Co. Ltd., or the lessee, entered into lease agreements with Peony, also referred to as the lessor, for a UK lease facility in respect of each of the 4500 TEU vessels. The purpose of the lease facility is to finance the acquisition of our 4500 TEU vessels. The facility limit, or the aggregate net capital expenditure allowed for all five 4500 TEU vessels under the terms of the lease agreements, is $400.0 million. The lessee and the lessor entered into lease agreements for all five of the 4500 TEU vessels on

December 27, 2007, accompanied by a payment to Samsung by the lessor for three of the 4500 TEU vessels on December 28, 2007 and for the remaining two 4500 TEU vessels on January 8, 2008.

As part of the lease transaction, the lessor acquired each 4500 TEU vessel by way of a novation of the shipbuilding contract so that legal title of each vessel will pass from Samsung directly to the lessor on the delivery date of each vessel. The lessor appointed our Manager as its agent to supervise the construction of the vessels in accordance with the terms of the novated shipbuilding contracts. Our Manager will perform all of the obligations of the lessor under the novated shipbuilding contracts, other than payment of the contract price, which the lessor will be responsible for during the construction period and signature of the protocol of delivery and acceptance (which it may only sign upon instruction and satisfaction of the lease conditions precedent). If the amounts owing to Samsung are in excess of the $400.0 million facility limit, the lessee will contribute towards the lessor’s capital expenditure on each vessel.

On the delivery date of each vessel, the lessor will lease the vessel to the lessee by bareboat charter for a maximum period of four years and 360 days, during which time the lessee will have full possession and use of the vessel with quiet enjoyment except in certain limited circumstances. During the lease period, the lessee will pay to the lessor a rental payment calculated in accordance with a financial schedule appended to the lease agreements. The payments are predicated upon a number of principles and variable assumptions. The lessee bears any change of law risk. To the extent that any variable assumptions are incorrect, the lessor will be entitled to alter the rentals payable under the leases to take account of the failure of, or the change in, the relevant assumption. The obligation of the lessee to pay such rent applies irrespective of any contingency, including but not limited to the unavailability of the relevant vessel for any reason.

The rentals will be paid in large part by equal installments and quarterly in arrears, the first installment payable on the first to occur of January 15, April 15, July 15 and October 15 after delivery from Samsung and the final payment for each vessel, being the lower of 99% of the total vessel cost and $64,000,000, will be due and payable at the end of the lease period. No rental payments will be due to the lessor during the construction period.

The lease agreements require payment of a commitment fee of 0.35% of any undrawn balance of the facility limit payable in arrears on interest payment dates during the construction period.

The lessee’s obligations under the $400.0 million facility are secured by a general assignment of earningsagents (other than those related to the time charters for the vessels), insurances and requisition hire for each vessel and a corporate guarantee issued by us in respect of the obligations of the lessee and our Manager.

Subject to payment of a termination fee in certain circumstances, the lessee may voluntarily terminate the lease agreements during the construction period if the lease transactions are determined to be economically burdensomecrew) or commercially burdensome. Upon a voluntary termination during the construction period, the lessor will further novate the vessel to the lessee. The lessee may also terminate the lease during the lease period after the construction period subject to payment of a termination fee. Upon such termination, the lessor will sell the relevant vessel and appoint the lessee as its sales agent for that purpose. Following the sale, the lessor will pay to the lessee a rebate of rental equal to 99.99% of the proceeds of sale of the vessel (after deduction of any rental or other sums then due and unpaid to the lessor).

The lease agreements may be treated by the lessor as terminated in the event of certain circumstances including the failure of the lessee to pay an installment of rent and the acceleration and non-payment of the financial indebtedness owed by us or the lessee to the lessor or any other subsidiary of Bank of Scotland plc, and failure of the lessee to perform other obligations of a non-financial nature. The lessee will also be required to prepay rental amounts, broken funding costs and other costs to the lessor in certain circumstances, including but not limited to a change in law which will result in the lessor incurring a material liability or increased liability arising out of its ownership of the vessel beyond its day-one liabilities that does not entitle the lessor to increase

the rental payment. Termination or mandatory prepayment will result in payment by the lessee to the lessor of a termination amount, rental amounts due and payable, broken funding costs and other costs. If the termination or mandatory prepayment event occurs during the lease period, the lessor will have the right to sell the vessel which shall be subject to the above sales agency arrangements unless the lessee has forfeited these.

The lease agreements contain various covenants regarding the use and employment of the vessels, their maintenance and operation, equipment, title and registration and insurances. The lease agreements also contain certain covenants that limit the ability of the lessor to, among other things, create or allow any security interests to arise over the vessels. Certain financial covenants are included in our corporate guarantee that are similar to those in our credit facilities and which include, but are not limited to, those that require us and our subsidiaries to maintain:

a tangible net worth in excess of $450,000,000;

total borrowings at less than 65% of the total assets;

cash and cash equivalents of $25,000,000 if at any time less than 50% of the collateral vessels are subject to time charters having a remaining term of one year or more;

a net interest coverage ratio always greater than 2.50 to 1.00; and

an interest and principal coverage ratio greater than 1.1 to 1.0.

Subject to the lessee not being in default under the lease agreement at the relevant time, at the end of each lease period and in other prescribed circumstances, the lessor will appoint the lessee as its sole and exclusive agent to sell the relevant vessel to certain acceptable parties, excluding the lessee (but not excluding Seaspan Corporation or one of its other subsidiaries) and K-Line. The sale must be on best terms, including price, that are reasonably obtainable on the open market on an “as is, where is” basis. Following the payment of the sale proceeds to the lessor, the lessor will unconditionally pay to the lessee a rebate of rental equal to 99.99% of the proceeds of sale of the vessel (after deduction of any rental or other sums then due and unpaid to the lessor).

To comply with the lease arrangements, the lessee is a party to the time charters with K-Line, and we have guaranteed the performance of the lessee’s obligations to K-Line.

The lease agreements also provide for a standby loan agreement to be provided by an affiliate of the lessor to a Seaspan company, or a standby lender, at the end of the lease period in respect of the vessels. The availability of the standby loan will be determined in the sole discretion of the standby lender and on the terms and conditions set out in the lease agreements.

The benefits under the lease financings are derived primarily from tax depreciation assumed to be available to lessors as a result of their investment in the vessels. If that depreciation ultimately proves not to be available to the lessors, or is clawed back from the lessor as a result of adverse tax rate changes or rulings, or in the event that we terminate one or more of our leases, the benefits of a reduced financing margin may be lost.

In entering into the lease arrangements, the lessee has taken credit, insolvency and performance risk on the lessor. If the lessor is subject to insolvency or similar proceedings in the UK, the lessee may not be able to obtain full performance of the lease arrangements, and will be subject to the insolvency rules applicable to claims by unsecured creditors. However, the lessee has the benefit of a limited parent support letter from Bank of Scotland plc.

In accordance with the guidance in Emerging Issues Task Force Issue No. 96-21, we include the value of the leased vessels and the liability related to the lease commitment on our books during the construction period and over the subsequent lease period.

Our $235.3 Million Credit Facility

The following summary of the material terms of our $235.3 million term loan facility, the $235.3 Million Credit Facility, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the $235.3 Million Credit Agreement, as defined below. Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire $235.3 Million Credit Agreement listed as an exhibit to this Annual Report.

On March 31, 2008, we entered into a $235.3 million credit facility agreement, or the $235.3 Million Credit Agreement. The proceeds of the facility are available to partially finance the construction, acquisition and vessel delivered costs (as defined in the credit agreement) of two of our 13100 TEU vessels, one of which will be constructed by HHI and the other by HSHI.

The final maturity date for the $235.3 Million Credit Facility is the earlier of the twelfth anniversary of the delivery date of the last vessel relating to the facility delivered and February 6, 2024. Our obligations under the credit agreement are or will be secured by, among other things, assignments of shipbuilding contracts and refund guarantees for the vessels, assignments of time charters and earnings for the vessels, assignments of insurances for the vessels, mortgages of the vessels and an assignment of a management agreement for the vessels.

Under the facility, we may borrow up to the lesser of $235.3 million and 65% of the vessel delivered costs (as defined in the credit agreement) and on an individual vessel basis, the lesser of $117.65 million and 65% of the vessel delivered costs for that vessel; however, amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1.5 million per vessel, except that it may be increased to an amount of up to $2.5 million per vessel with the consent of the facility agent.

Beginning six months from the actual delivery date of the last delivered vessel securing the $235.3 Million Credit Facility, the amount borrowed with respect to that vessel will be reduced in 24 semi-annual payments of $2,693,750 until the maturity date. A final repayment of $53.0 million of the amount borrowed with respect to that vessel is required upon the final maturity date.

We may prepay all loans without penalty, other than breakage costs in certain circumstances. No amounts prepaid under the $235.3 Million Credit Agreement may be re-borrowed. We will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where we elect not to substitute another vessel within the time period and on the terms set out in the credit agreement or if the KEIC insurance policies, or the KEIC Insurance, cease to be valid or enforceable in any material respect other than in certain circumstances.

The $235.3 Million Credit Agreement requires payment of interest on the outstanding loans at a rate calculated as LIBOR plus 0.7% per annum on the portion of the facility covered by the KEIC Insurance and LIBOR plus 1.0% per annum on the portion of the facility that is not covered by the KEIC Insurance. The $235.3 Million Credit Agreement also requires payment of a commitment fee of 0.35% per annum calculated on the undrawn, uncancelled portion of the facility. Prior to delivery of a $235.3 Million Credit Agreement vessel, interest and commitment fees associated with the loans for a vessel may be capitalized and added to the outstanding loans.

In addition to the security granted by us to secure the $235.3 Million Credit Agreement, we are also subject to other customary conditions precedent before we may borrow under the facility including, but not limited to, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the credit agreement. The $235.3 Million Credit Agreement contains various covenants limiting our ability to, among other things:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with affiliates; or

change the flag, class or management of the collateral vessels.

The $235.3 Million Credit Agreement also contains certain financial covenants including, but not limited to, those that require Seaspan Corporation to maintain:

a tangible net worth in excess of $450.0 million;

cash on hand and cash equivalents of $25.0 million if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio of greater than 2.5 to 1.0; and

an interest and principal coverage ratio greater than or equal to 1.1 to 1.0.

The $235.3 Million Credit Agreement contains customary events of default including, but not limited to, non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Recent Equity Offerings

Public Offering of Common Shares April 2008

On April 16, 2008, we issued 7,663,300 common shares at a public offering price of $27.25 per share. This amount includes 7,000,000 common shares sold in an underwritten public offering and 663,300 shares sold directly to certain executive officers and directors, certain affiliates of our Manager and certainin the performance of their executive officers and Dennis R. Washington in a concurrent sale. On May 5, 2008, we issued 1,050,000 common shares as a resultits duties.

Our Manager has agreed not to dispose of those wholly owned subsidiaries that provide services to us pursuant to the underwriters’ exercise of the entire over-allotment option granted to them in connectionmanagement agreements. For information about our agreements with the April 2008 public common share offering. Manager, please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Our net proceeds from the underwritten public offering, including the exercise of the over-allotment option, after deducting underwriting discounts but before offering expenses, were $210.6 million. The net proceeds from the concurrent sale were $18.1 million. We used the net proceeds from the public offering and the concurrent sale for general corporate purposes, including repayment of indebtedness, capital expenditures, working capital and to make vessel acquisitions.

Our Dividend Reinvestment Plan

On May 29, 2008, we instituted a dividend reinvestment plan, or the DRIP. The plan allows interested shareholders to reinvest all or a portion of their cash dividends in our common shares without paying any brokerage commission or service charge. During the year ended December 31, 2009, 852,230 shares were issued through the participation in the DRIP resulting in the re-investment of $7.1 million.

Our Series A Preferred Share Offering

The following summary of the material terms of our Series A Preferred Share Offering and the other transactions incidental thereto does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Statement of Designation, the Registration Rights Agreement, the Amendment to the Rights Agreement, the Preferred Share Purchase Agreement and the Amendment to the Gerry Wang Employment Agreement (as defined below). Because the following is only a summary, it does not contain all information that you may find useful. For more complete information, you should read the entire Statement of Designation, the Registration Rights Agreement, the Amendment to the Rights Agreement, the Preferred Share Purchase Agreement and the Amendment to the Gerry Wang Employment Agreement, each of which are listed as exhibits to this Annual Report.

On January 22, 2009, we entered into a preferred stock purchase agreement, or the Preferred Share Purchase Agreement, to issue and sell shares of 12% Cumulative Preferred Stock—Series A, par value $0.01 per share, to Dennis R. Washington, Kevin L. Washington, Kyle R. Washington, who is our chairman, and Graham Porter, through certain of their respective affiliates, or the Investors, for $200 million. Under the Preferred Share Purchase Agreement, the Series A Preferred Shares are to be issued in two equal tranches of $100 million. The first tranche closed on January 30, 2009 and the second tranche closed on October 1, 2009. The Series A Preferred Shares have not been registered under the Securities Act.

In connection with the closing of the transactions contemplated by the Preferred Share Purchase Agreement, we filed a statement of designation, or the Statement of Designation, on January 29, 2009, creating the Series A Preferred Shares and establishing the designations, preferences and other rights of the Series A Preferred Shares with the Registrar of Corporations of the Republic of the Marshall Islands.

The Statement of Designation sets the initial liquidation preference of the Series A Preferred Shares at $1,000 per share, subject to adjustment. No dividend will be payable in respect of the Series A Preferred Shares in the first five years. Instead, the liquidation preference of the Series A Preferred Shares will increase at a rate of 12% per annum until January 31, 2014, compounded quarterly. As a result, this will not reduce our distributable cash available to common shareholders during the next five years. The Series A Preferred Shares will automatically convert into the common shares at a conversion price of $15.00 at any time on or after January 31, 2014 if the average closing price of the trailing 30 trading days of the common shares is equal to or greater than $15.00. If at any time on or after January 31, 2014 the average closing price over the trailing 30 trading days of our common shares is less than $15.00, we have the option to convert the Series A Preferred Shares at a conversion price of $15.00 and pay the Investors 115% of the difference between the conversion price and average closing price of the trailing 30 trading days of the common shares, payable in cash or common shares at our option. If on January 31, 2014 the Series A Preferred Shares have not converted to common shares, the liquidation preference of the Series A Preferred Shares will increase at a rate of 15% per annum, compounded quarterly, payable in cash or by continuing to increase the liquidation value of the Series A Preferred Shares at the holder’s option.

Upon any liquidation or dissolution of the company, holders of the Series A Preferred Shares will generally be entitled to receive the cash value of the liquidation preference of the Series A Preferred Shares, including any accrued but unpaid dividends, after satisfaction of all liabilities to our creditors but before any distribution is made to or set aside for the holders of junior stock, including common shares.

In general, the holders of the Series A Preferred Shares will be entitled to vote together with the holders of common shares on an as-converted basis on any matter submitted for a vote of common shares. In addition, the holders of the Series A Preferred Shares, voting as a separate class, will have the right to approve any future issuance of senior or parity stock (except that we may freely issue additional Series A Preferred Shares up to an aggregate amount of $115 million), any redemption of our capital stock, any amendment of our articles of incorporation, bylaws or the Statement of Designation or any share exchange, reclassification, merger, consolidation, liquidation, dissolution, sale or other disposition of all or substantially all of our assets. In addition, subject to certain exceptions, the holders of the Series A Preferred Shares have preemptive rights to prevent dilution and the right to elect up to two members of our board of directors.

In addition, on January 30, 2009, as contemplated by the Preferred Share Purchase Agreement, we entered into a registration rights agreement, or the Registration Rights Agreement, with the Investors pursuant to which, in certain circumstances, we will be obligated to file a registration statement covering the potential sale of the common shares issuable upon conversion of the Series A Preferred Shares.

Pursuant to the Preferred Share Purchase Agreement, on January 30, 2009, we entered into an amendment to our shareholders rights agreement, or the Amendment to the Rights Agreement, in order to exempt from the shareholders rights agreement the Investors as to the transactions contemplated by the Preferred Share Purchase Agreement and any conversion of the Series A Preferred Shares into common shares.

In connection with the closing of the transactions contemplated by the Preferred Share Purchase Agreement, Gerry Wang, our chief executive officer, entered into an amendment to his employment agreement with SSML, or the Amendment to the Gerry Wang Employment Agreement, in order to extend the initial term of his employment to December 31, 2013. Thereafter, his employment agreement automatically extends on December 31 of each year unless a prior written notice of non-renewal is delivered by either party no earlier than 210 days and no later than 180 days prior to such date.Management Agreements.”

Environmental and Other Regulations

Government regulation affects the ownership and operation of our vessels in a significant manner. We are subject to international conventions and codes, and national, state, provincial and local laws and regulations in force in the countries in which our vessels may operate or are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, and water discharges and ballast water management.

A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard, Canadian Coast Guard, harbor master or equivalent), classification societies, flag state administrations (country of registry), charterers, and terminal operators. Certain of these entities require us to obtain permits, licenses and certificates for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend the operation of one or more of our vessels in one or more ports.

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 shipping industry.

Increasing environmental concerns have created a demand for vessels that conform to the strictest environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States, Canadian and international regulations and with flag administration. We rely on our Manager in complying with these standards and requirements.

International Maritime Organization

The International Maritime Organization, or IMO, has negotiated international conventions that impose liability for pollution in international waters and a signatory’s territorial waters. For example, the International

Convention for the Prevention of Pollution from Ships, or MARPOL, imposes environmental standards on the shipping industry relating to pollution prevention and procedures, technical standards, oil spills management, management of garbage, the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage and air emissions. Annex III of MARPOL regulates the transportation of marine pollutants, including 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. Annex VI to MARPOL, which became effective in May 2005, addresses air pollution from ships. All of theour vessels we have agreed to purchase are generally Annex VI compliant. Annex VI sets limits on sulfur oxide, nitrogen oxide carbon dioxide and particulate matter emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. On July 21,By means of the Maritime Pollution Prevention Act of 2008, the United States enacted the Maritime Pollution Protection Act of 2008, implementingimplemented Annex VI in its territorial waters of the United States. The United States deposited its instrument of ratification with IMO onin January 2009. In October 8, 2008, and Annex VI entered into force for the United States on January 8, 2009. On October 9, 2008, the Member States of the IMO adopted amendments to Annex VI creating more stringent standards for engines and fuels. These amendments call for a new interim fuel standard beginning in

2010, the use of low 2012, incremental reductions in sulfur in fuel by 2015,between 2012 and 2016, and the use of advanced technology engines designed to reduce emissions of nitrogen oxide by 2016. These requirements could require modifications to our vessels to achieve compliance. The Company isWe are evaluating these requirements and the alternatives for achieving compliance. The costs to comply with these requirements may be material or significant to our operations. In Europe, an Emission Control Area, or ECA, with similar standards is already in effect and we are already complying by switching to low sulfur fuel when operating in this area.

Shortly after ratifying Annex VI, the United States, along with Canada, proposed the designation of an Emission Control Area (“ECA”)ECA for specific portions of U.S. and Canadian coastal waters in March 2009. This action would control the emission of NOx, SOx,nitrogen oxides, sulfur oxides, and particulate matter from ocean-going ships. OnIn July 17, 2009, the joint proposal from the United States and Canada to amend MARPOL Annex VI to designate specific areas these coastal waters as an ECA was accepted in principle at the IMO. The proposal will circulate among member states for six months. In March 2010, member states who are parties to MARPOL Annex VI will vote to adopt an amendment designatingIMO; the North American ECA.ECA was accepted by member states in March 2010. The approved ECA maywill enter into force as early asin August 2012. New requirements associated with the ECA may increase the cost of operating our vessels in U.S. and Canadian waters.

The operation of our vessels is also affected by the requirements set forth in the ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. A Safety Management Certificate is issued under the provisions of the International Convention for the Safety of Life at Sea, or SOLAS, to each ship with an SMSa Safety Management System verified to be in compliance with the ISM Code. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. All of the vessels in our current fleet are ISM code-certified.

The IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginningtreatment beginning in 2009), to be replaced in time2009, with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. As of January 31,December 2010, the BWM Convention hashad not yet been adopted by the required number of states to come into force. The IMO has indicated that it may seek to postpone the deadline for inclusion of ballast water treatment facilities on newly built ships to the end of 2011 if the BWM Convention were adopted by the requisite number of statesstates. When this convention is ratified, material costs will be faced to lead to an earlier effectiveinstall these ballast water treatment plants on all our vessels before the due date. Presently the due date would be the first docking after 2016.

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 Oil.“bunker oil.” The Bunker Convention defines “Bunker Oil”“bunker oil” as “any hydrocarbon mineral oil, including lubricating oil, used or intended to be used for the operation or propulsion of the ship, and any residues of such oil.” The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). The Bunker Convention took effect onin November 21, 2008.

OnIn September 17, 2008, the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or AFSC, came into force. It prohibits the use of harmful organotins in anti-fouling paints used on ships and will establish a mechanism to prevent the potential future use of other harmful substances in anti-fouling systems. Our vessels are required to obtain certification of compliance.

Increasingly, various regions are adopting additional, unilateral requirements on the operation of vessels in their territorial waters. These regulations, such as those described below, apply to our vessels when they are in

their the relevant regions’ waters and can add to the costs of operating and maintaining those vessels as well as increasing the potential liabilities that apply to spills or releases of oil or other materials or violations of the applicable requirements. What follows will describe such regional regulations.

United States

The United States Oil Pollution Act of 1990

The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States’ territorial sea and its two hundred nautical mile exclusive economic zone. Although OPA is primarily directed at oil tankers (which are not operated by us), it also applies to non-tanker ships, including container ships, with respect to the fuel used to power such ships.

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

 

natural resources damage and the costs of assessment thereof;

 

real and personal property damage;

 

net loss of taxes, royalties, rents, fees and other lost revenue;

 

lost profits or impairment of earning capacity due to property or natural resources damage; and

 

net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

Amendments to OPA signed into law onEffective July 11, 2006 increased2009, the limits on the liability of responsible parties for any vessel other than a tank vessel increased to $950$1000 per gross ton or $800,000,$854,400, whichever is greater, unless the incident is caused by gross negligence, willful misconduct, or a violation of certain regulations, in which case liability is unlimited. In response to the 2010 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 non-tank vessels.

We maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation. OPA requires owners and operators of vessels over 300 gross tons to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential aggregate liabilities under OPA and the act. In 1994, the U.S. Coast Guard implemented regulations requiring evidenceComprehensive Environmental Response, Compensation and Liability Act, or CERCLA. The current amount of such financial responsibility for non-tank vessels in the amount of $900is $1,250 per gross ton, which includes the then-applicable OPA limitation on liability of $600 per gross ton and the U.S. CERCLA liability limit of $300 per gross ton, as described below. On February 5, 2008, the U.S. Coast Guard proposed a new rule that will increase the applicable amount of required evidence of financial responsibility to $1,250 per gross ton, to reflect the increase in liability limits under OPA pursuant to the recent amendments and CERCLA. Under the U.S. Coast Guard regulations implementing OPA, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance, or guaranty. Under the OPA regulations, 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 vessels in the fleet having the greatest maximum liability under OPA. We have obtained the necessary OPA financial assurance certificates for each of our vessels currently in service and trading to the United States.

The Coast Guard and Maritime Transportation Act of 2004, or the CGMTA, amended OPA to require 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, to prepare and submit a response plan for each vessel on or before August 8, 2005. Previous law was

limited to vessels that carry oil in bulk as cargo.vessel. The vessel response plans include detailed information on actions to be taken by vessel personnel to prevent or mitigate any discharge or threat of discharge of oil from the vessel due to operational activities or casualties. Each of our vessels has the necessary response plans in place to comply with the requirements of the CGMTA and OPA.

OPA 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 that 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.

CERCLA

The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA governs spills or releases of hazardous substances other than petroleum or petroleum products. CERCLA imposes joint and several liability, without regard to fault, on the owner or operator of a ship, vehicle or facility from which there has been a release, along with other specified responsible parties. Costs recoverable under CERCLA include cleanup and removal costs, natural resource damages and governmental oversight costs. Liability under CERCLA is generally limited for vessels to the greater of $300 per gross ton or $0.5 million unless(or $5 million for vessels carrying hazardous substances as cargo or residue) per release of or incident involving a release of hazardous substances. These liability limits do not apply if the incident is caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited.

Ballast Water Management

The U.S. Environmental Protection Agency, or the EPA, had exempted the discharge of ballast water and other substances incidental to the normal operation of vessels in U.S. ports from the Clean Water Act permitting requirements. However, onin March 30, 2005, a U.S. District Court ruled that the EPA exceeded its authority in so exempting ballast water from regulation under the act. OnIn September 18, 2006, the court issued an order invalidating the exclusion in the EPA’s regulations for all discharges incidental to the normal operation of a vessel as of September 30, 2008, and directing the EPA to develop a system for regulating all discharges from vessels by that date. The EPA’s appeal failed and the Ninth Circuit Court of Appeals upheld the District Court’s ruling onin July 23, 2008. In response, the EPA issuedrequired compliance, commencing in February 2009, with a Vessel General Permit, or the VGP, covering the discharges incidental to the operation of vessels greater than 79 feet in length on December 18, 2008. Vessels must comply with the VGP by February 6, 2009.length. The VGP requires the use of Best Management Practices, inspections, and monitoring of the areas of the vessel the permit addresses. Since January 2009, several environmental groups and industry associations have filed challenges in U.S. federal courtcourts to the EPA’s issuance of the Vessel General Permit. TheseVGP; these cases are still in early procedural stages of litigation. were recently settled, and EPA must issue a new VGP by November 2011, with the final VGP issued by November 2012.

States may also add additional conditions.conditions, and many of them have added conditions to their certifications under section 401 of the Clean Water Act. For example, California requires that all vessel discharges in its waters comply with numeric effluent limitations.

The United States National Invasive Species Act, or NISA, was enacted in 1996 in response to growing reports of harmful organisms being released into United States waters through ballast water taken on by vessels in foreign ports. The Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering United States waters. The Coast Guard is developing a proposal to establishhas issued proposed standards for ballast water discharge, which could set maximum acceptable discharge limits for various invasive species, and/or lead to requirements for active treatment of ballast water.

In the absence of federal standards, states have enacted legislation or regulations to address invasive species through ballast water and hull cleaning management and permitting requirements. For example, Michigan has approved a law requiring vessels to obtain a ballast water discharge permit to operate in state waters and use certain technologies to prevent the introduction of non-native species into waters of the state. The Michigan Department of Environmental Quality has approved four options for ballast water treatment that involve sodium hypochlorite, chlorine dioxide, ultraviolet light radiation, or de-oxygenation. The use of these technologies may be costly for oceangoing vessels operating in Michigan ports to implement. The Sixth Circuit and several state courts have rejected a challengechallenges to this law in November 2007, and it is unclear if it will be challenged on other grounds.since 2007.

Similarly, onin October 10, 2007, the California governor signed into law legislation, or A.B. 740, expanding the state’s marine invasive species ballast water regulatory program (A.B. 433, California’s Marine Invasive Species Act, which regulates the discharge and/or exchange of ballast water of vessels coming from outside the exclusive economic zone into a California port) to regulate “hull fouling organisms.” A.B. 740 gives the State Lands Commission until 2012 to adopt regulations requiring vessels owners and operators to use best available and economically feasible “inwater” technology to remove aquatic species from submerged parts of vessels. Until the regulations can be implemented, A.B. 740 specifies that “hull fouling organisms,” such as barnacles, algae, mussels, and worms that attach to the hard parts of ships, must be removed and disposed of on a regular basis. Furthermore, onIn addition, in October 15, 2007, the California State Lands Commission approved regulations governing the discharge of ballast water for vessels operating in California waters, which among other things, sets limits for the number of living organisms allowed in ballast water discharge. The regulations will beare being implemented on a graduated time schedule beginning onin January 1, 2009, with a final performance standard of zero detectable living organisms going into effect onin January 1, 2020. Other states may create other similar hull cleaning regulations or ballast water performance standards that could materially increase the costs of operating in state waters of the United States.

Clean Air Act

The Federal Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements when cleaning fuel tanks and conducting other operations in regulated port areas and to air emissions standards for compression-ignition marine engines operating in U.S. waters. These types of engines are called “Category 3” marine diesel engines and are typically found on large oceangoingocean-going vessels. These rules are currently limited to new engines beginning with the 2004 model year. More recently, in AugustDecember 2009, the EPA issued a Notice of Proposed Rulemaking regarding its plan to proposeadopted new rules imposing more stringent emission standards and other related provisions for new Category 3 marine engines. This rule was finalized in December, 2009, and contains standards consistent with Annex VI of MARPOL discussed above, by establishing lower standards for vessel emissions of particulate matter, sulfur oxides, and nitrogen oxides. The rule’s emission standards apply in two stages: near-term standards for newly-built engines will apply beginning in 2011, and long-term standards requiring an 80 percent80% reduction in nitrogen dioxides (NOx)oxides will begin in 2016. To the extent that these rules apply to existing vessels (as opposed to vessels manufactured after the effective date), we may incur costs to install equipment in these vessels to comply.

The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/orand industrial areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a

Federal Implementation Plan. Several SIPs regulate emissions resulting from degassing operations by requiring the installation of vapor control equipment on vessels. A risk exists that new regulations could require significant capital expenditures and otherwise increase our costs.

After a previous attempt to regulate the emissions of auxiliary diesel engines on ocean-going vessels was rejected by the Ninth Circuit, California’s Air Resources Board or CARB, approved new regulations onthat went into effect in July 24, 2008. These regulations2009, which apply to ocean-going vessels’ main diesel engines, auxiliary engines, and auxiliary boilers when operating within 24 miles of the California coast and require operators to use low sulfur fuels. These regulations became legally effective on July 1, 2009.

California also approved regulations on December 3, 2008that became effective in January 2009 to reduce emissions from diesel auxiliary engines on certain ocean-going vessels while in California ports, including container ship fleets that make 25 or more annual visits to California ports. The regulations became effective January 2, 2009 and require vessel operators to either (1) turn off auxiliary engines for most of their stay and connect to the vessel to some other source of power, most likely a shore-based grid, or (2) use alternative control techniques to achieve equivalent emission reductions. These requirements may increase our operating costs while in California ports.

Canada

Canada has established a complex regulatory enforcement system under the jurisdiction of various ministries and departments for preventing and responding to a marine pollution incident. The legislation prescribes measures to prevent pollution, mandates clean up of marine pollution, and creates civil and criminal liabilities for those responsible for a marine pollution incident.

The Canada Shipping Act, 2001

OnIn July 1, 2001, the Canada Shipping Act, 2001, or CSA 2001, replaced the Canada Shipping Act, 1985, as the primary legislation governing marine transport, pollution and safety. However, most of the provisions of CSA 2001 did not come into force until July 1, 2007, when certain regulations necessary to implement these provisions came into effect. CSA 2001 applies to all vessels operating in Canadian waters and in the Exclusive Economic Zone of Canada and establishes the primary regulatory and liability regime for oil pollution prevention and response.

Regulations that relate primarily to environmental matters under the CSA 2001 include the Regulations for the Prevention of Pollution from Ships and for Dangerous Chemicals, which contain provisions to enable Canada to complete accession to annex IV (sewage), V (garbage) and VI (air) of the International Convention for the Prevention of Pollution from Ships, the Ballast Water Control and Management Regulations and the Response Organizations and Oil Handling Facilities Regulations. It is expected that the Response Organizations and Oil Handling Facilities Regulations are towill be replaced at a future date by new Environmental Response Regulations.

CSA 2001 requires ship owners to have in place an arrangement with an approved pollution response organization. Vessels must carry a declaration, which identifies the vessel’s insurer and confirms that an arrangement with a response organization is in place. Failure of a vessel to comply with these requirements can result in a fine of up to C$1 million or imprisonment for a term of not more than 18 months, or both. Lesser offenses, such as failing to comply with the directions of a pollution prevention officer, are subject to a fine of not more than C$100,000, imprisonment for a term of not more than one year, or both.

CSA 2001 also makes it a strict liability offense to discharge a pollutant, including but not limited to, oil from a vessel. Vessels must have a shipboard oil pollution plan and implement the same in respect of an oil pollution incident. The maximum fine for marine pollution, or for failing to implement an oil pollution plan, is C$1 million or imprisonment for not more than 18 months, or both. If the discharge of a pollutant continues for more than one day, the person committing the offense may be convicted of a separate offense for each day on which the pollutant is discharged. Lesser offenses, such as failing to comply with directions of the Minister in respect of a pollution incident, are subject to a fine of not more than C$100,000, imprisonment for a term of not

more than one year, or both. Depending upon the circumstances of the offense, a person convicted of an offense may be subject to other penalties, such as being liable to fund the cost of conducting research into the ecological use and disposal of the pollutant in respect of which the offense was committed.

CSA 2001 also provides the authorities with broad discretionary powers to enforce its requirements. The CSA 2001 authorizes the detention of a vessel where there are reasonable grounds for believing that the vessel caused marine pollution or that an offenceoffense has been committed. In addition, CSA 2001 provides authorities with the power to issue administrative monetary penalties for contraventions of the legislation. The Administrative Monetary Penalties Regulations, which came into force onin April 3, 2008 and apply to all vessel types except pleasure crafts, allow for the imposition of penalties up to C$25,000 outside of the formal court process.

Canada’s Department of Transport has also published proposed regulations on ballast water management under CSA 2001. These regulations will require the use of management practices, including mid-ocean ballast water exchange.

Migratory Birds Convention Act, 1994

The Migratory Birds Convention Act, or MBCA, implements Canada’s obligations under a bilateral Canada—UnitedCanada-United States treaty designed to protect migrating birds that cross North American land and water areas. Recent amendments to MBCA clarify existing prohibitions, expand the investigative and enforcement powers of Environment Canada and provide the government with the ability to enforce the statute effectively in Canada’s Exclusive Economic Zone.

MBCA prohibits the deposit of any substance that is harmful to migratory birds in any waters or area frequented by migratory birds. Increased maximum fines range from C$300,000 to C$1 million or imprisonment from six months to three years, or both, which penalty provisions extend to the vessel’s owner, operator, master and chief engineer. MBCA imposes minimum fines, C$500,000 for an indictable offenceoffense and C$100,000 for a summary offence,offense, for offencesoffenses committed by a vessel in excess of 5,000 tons deadweight. An offenceoffense can be committed by a “person” or a “vessel.”

MBCA extends to every master, chief engineer, owner and operator of a vessel and, if the vessel is owned by a corporation, to certain of its directors and officers, the duty to take reasonable steps to ensure a vessel’s compliance with the prohibition against harmful deposits. A foreign vessel may be detained within Canada’s Exclusive Economic Zone with the consent of the attorney general. MBCA grants discretion to the court, on application by a person who has incurred monetary loss as a result of an offence,offense, to order the convicted party to pay compensation to that person.

The Canadian Environmental Protection Act, 1999

The Canadian Environmental Protection Act, or CEPA, regulates water pollution, including disposal at sea and the management of hazardous waste. Insofar as the shipping industry is concerned, CEPA prohibits the disposal or incineration of substances at sea except with a permit issued under CEPA, the importation or exportation of a substance for disposal at sea without a permit, and the loading on a ship of a substance for disposal at sea without a permit.

Contravention of CEPA can result in maximum fines ranging from C$300,000 to C$1 million or imprisonment from six months to three years, or both. The penalties may be increased if damage to the environment results and the person acted intentionally or recklessly. A vessel also may be seized or detained for contravention of CEPA’s prohibitions. Costs and expenses of measures taken to remedy a condition or mitigate damage resulting from an offenceoffense are also recoverable. CEPA establishes civil liability for restoration of the environment, costs and expenses incurred relating to prevention or remedying environmental damage, or an environmental emergency. Limited defenses are provided but generally would not cover violations arising from ordinary vessel operations.

Recent amendments to CEPA subject owners of ships and directors and officers of corporations that own ships to a duty of care to ensure that ships comply with CEPA provisions and its regulations concerning disposal at sea and with orders and directions made under CEPA. The amendments also expand the jurisdiction of Canadian courts to include the Exclusive Economic Zone of Canada.

Environmental Enforcement Act

The Environmental Enforcement Act, or EEA, received Royal Assent in June 2009 and amends nine existing statutes that are administered by Environment Canada and the Parks Canada Agency, including CEPA and the MBCA. Key provisions of the EEA raise maximum fines and introduce minimum fines for the first time. In particular, the EEA raises maximum fines to as high as $6C$6 million and establishes minimum fines for serious offencesoffenses which range between $5,000C$5,000 for individuals and $500,000C$500,000 for large corporations and vessels or ships of 7,500 tonnestons deadweight or over (the minimum fine for serious offencesoffenses by small corporations and vessels or ships of less than 7,500 tonnestons deadweight ranges between $25,000C$25,000 and $75,000)C$75,000). Furthermore, the EEA provides enforcement officers with new powers to investigate cases and grants courts new sentencing authorities to ensure that penalties reflect the seriousness of the pollution and wildlife offences.offenses. The EEA is not yetcame into force in forceDecember 2010, except for provisions related to the penalty schemes of certain statutes, including the CEPA and noMBCA. No coming into force date has been announced.announced with respect to these provisions.

An Act toTo Amend theThe Migratory Birds Convention Act, 1994 and the Canadian Environmental Protection Act, 1999

Passed in 2005, an Act To Amend The Migratory Birds Convention Act, 1994 and the Canadian Environmental Protection Act, 1999 clarifies existing prohibitions, expands the investigative and enforcement

powers of Environment Canada and provides the government with the ability to enforce the two statutes effectively in Canada’s Exclusive Economic Zone. The act also creates or amends a number of strict liability offences.offenses. Other amendments effected by the act include:

 

the extension to every master, chief engineer, owner and operator of a vessel and, if the vessel is owned by a corporation, to certain of its directors and officers, of the duty to take reasonable steps to ensure a vessel’s compliance with the prohibition against harmful deposits;

 

a provision allowing a foreign vessel to be detained within Canada’s Exclusive Economic Zone with the consent of the attorney general;

 

an increased maximum fine of C$1 million or up to three years’ imprisonment, or both, for indictable offencesoffenses and an increased maximum fine of C$300,000 or up to six months’ imprisonment for summary offences,offenses, which penalty provisions extend to the vessel’s owner, operator, master and chief engineer;

 

for offencesoffenses committed by a vessel in excess of 5,000 tons deadweight, a minimum fine of C$500,000 for an indictable offenceoffense and C$100,000 for a summary offence;offense;

 

a provision that an offenceoffense can be committed by a person or a vessel; and

 

the grant to a court of the discretion, on application by a person who has incurred monetary loss as a result of an offence,offense, to order the convicted party to pay compensation to that person.

If oneany of our vessels fails to comply with its provisions, it could have an adverse effect on us.

Fisheries Act

The Fisheries Act prohibits the deposit of a deleterious substance in waters frequented by fish. The owner of a deleterious substance, the person having control of the substance and the person causing the spill must report the spill and must take all reasonable measures to counteract, mitigate or remedy any adverse effects resulting from a spill and are subject to maximum fines ranging from C$300,000 to C$1 million or imprisonment from six months to three years, or both.

Marine Liability Act

The Marine Liability Act, which came into force onin August 8, 2001, is the principal legislation dealing with liability of ship owners and operators in relation to passengers, cargo, pollution and property damage. The Marine Liability Act implements the 1992 International Convention on Civil Liability for Oil Pollution Damage (the CLC or Civil Liability Convention) and the 1992 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (the IOPC or Fund Convention). The Marine Liability Act creates strict liability for a vessel owner for damages from oil pollution from a ship, as well as for the costs and expenses incurred for clean up and preventive measures. Both governments and private parties can pursue vessel owners for damages sustained or incurred as a result of such an incident. Although the act does provide some limited defenses, they are generally not available for spills or pollution incidents arising out of the routine operation of a vessel. The act limits the overall liability of a vessel owner to amounts that are determined by the tonnage of the containership.

In 2009, amendments were made to the Marine Liability Act to enable the implementation of two additional international maritime conventions on pollution liability and compensation, the Supplementary Fund Protocol of 2003 to the 1992 International Oil Pollution Compensation Fund and the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001. The amendments also introduce the creation of a maritime lien over foreign vessels for unpaid invoices to ship suppliers operating in Canada, and the establishment of a general limitation period of three years in federal law for maritime claims where a limitation period does not currently exist.

British Columbia’s Environmental Management Act

British Columbia’s Environmental Management Act, or EMA, governs spills or releases of waste into the environment within the province in a manner or quantity that causes pollution. EMA imposes absolute, retroactive, joint and separate liability for remediation of a contaminated site. Maximum penalties for an offenceoffense are C$1 million or imprisonment for up to six months, or both. Where a person intentionally causes damage to the environment, the maximum penalties are C$3 million or imprisonment for up to three years, or both.

European Union Requirements

In waters of the European Union, or the EU, our vessels are subject to regulation EU-level directives implemented by the various nations through laws and regulations of these requirements. These laws and regulations prescribe measures to prevent pollution, protect the environment, and support maritime safety. For instance, the EU has adopted directives that require member states to refuse access to their ports to certain sub-standard vessels, according to vessel type, flag, and number of previous detentions. Member states must inspect at leaseleast 25% of vessels using their ports annually and provide increased surveillance of vessels posing a high risk to maritime safety or the marine environment. If deficiencies are found that are clearly hazardous to safety, health or the environment, the state is required to detain the vessel until the deficiencies are addressed. Member states are also required to implement a system of penalties for breaches of these standards.

Our vessels are also subject to inspection by appropriate classification societies. Classification societies typically establish and maintain standards for the construction and classification of vessels, supervise that construction is according to these standards, and carry out regular surveys of ships in service to ensure compliance with the standards. The EU has adopted directives that provide member states with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of classification societies that are negligent in their duties. The EU requires member states to monitor these organizations’ compliance with EU inspection requirements and to suspend any organization whose safety and pollution prevention performance of the organization becomes unsatisfactory.

The EU’s directive on the sulfur content of fuels restricts the maximum sulfur content of marine fuels used in vessels operating in EU member states’ exclusive economic zones. Under this Directive,directive, our vessels may need

to make expenditures to comply with the sulfur fuel content limits in the marine fuel they use in order to avoid delays or other obstructions to their operations. The EU has also issued a directive adopting the IMO’s standards for the maximum sulfur content of marine fuels used in special SOxsulfur oxide Emission Control Areas, or ECAs, in the Baltic Sea, the North Sea, and for any other seas or ports the IMO may designate as SOxsulfur oxide ECAs 12 months after the date of entry into force of the designation. These and other related requirements may increase our costs of operating and may affect financial performance.

In response to the sinking of the MT Prestige and resulting oil spill in 2003, the EU adopted a directive requiring member states to impose criminal sanctions for certain pollution discharges committed intentionally, recklessly or by serious negligence. Penalties may include fines, imprisonment, permanent or temporary disqualification from engaging in commercial activities, placement under judicial supervision, or exclusion from access to public benefits or aid.

The EU also authorizes member states to adopt the IMO’s Bunker Convention, discussed above, that imposes strict liability on ship owners for pollution damage caused by spills of oil carried as fuel in vessels’ bunkers and requires vessels of a certain size to maintain financial security to cover any liability for such damage.

The EU is currently considering other proposals to further regulate vessel operations. In October 2007, the EU adopted a new Integrated Maritime Policy for the European UnionEU that included, in part, the development of environmentally sound end-of-life ship dismantling requirements, promotion of the use of shore-side electricity by ships at berth in EU ports to reduce air emissions, and consideration of options for EU legislation to reduce

greenhouse gas emissions from maritime transport. Individual countries in the EU may also have additional environmental and safety requirements. It is impossible to predict what additional legislation or regulations, if any, may be promulgated by the European UnionEU or any other country or authority. The trend, however, is towards increasing regulation and our prediction iswe anticipate that if true, requirements will become more extensive and more stringent. Were more stringent future requirements to be put in effect in the future, they may require, individually or in the aggregate, significant expenditures and could increase our costs of operating, potentially adversely affecting our financial performance.condition and operating results.

Other Regions

Other regions of the world also have the ability to adopt requirements or regulations that may impose obligations on our vessels and may increase our costs to operate them. We cannot assure you that compliance with these requirements will not entail significant expenditures on our part. However, these requirements would apply to the industry as a whole and should also affect our competitors.

Greenhouse Gas Legislation

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Kyoto Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming. Currently, the greenhouse gas emissions from international shipping do not come under the Kyoto Protocol. At the December 2010 meeting of the United Nations Climate Change Conference in Cancun, the IMO proposed measures to control greenhouse gas emissions from international shipping. The European Union confirmedEU has indicated that if the IMO does not decide how to address greenhouse gas emissions from international shipping before December 2011, the EU will include international shipping in April 2007 that it plans to expand the European Unionits emissions trading scheme by adding vessels.scheme. In the United States, the California Attorney General and a coalition of environmental groups petitioned the EPA in October 2007 to regulate greenhouse gas emissions from ocean-going ships under the Clean Air Act. Legislation has been introduced into the U.S. Congress to reduce greenhouse gas emissions in the United States. In addition, the EPA’s December 2009 “endangerment finding” regarding greenhouse gases allows the EPA to begin regulating greenhouse gas emissions under existing provisions of the federal Clean Air Act. To date, rules proposed by the EPA pursuant to this authority have not involved ocean-going vessels. Any

passage of climate control legislation or other regulatory initiatives by the IMO, European Union,EU, United States or other individual countries where we operate that restrict emissions of greenhouse gases from vessels could require us to make significant financial expenditures we cannot predict with certainty at this time.

In Canada, the British Columbia, Legislature passedCanada, the Greenhouse Gas Reduction Targets Act became effective in late 2007 and brought it into force on January 1, 2008. ItThis act sets a province-wide 33% reduction in the 2007 level of greenhouse gas emissions by 2020. As part of British Columbia’s plan to implement the Western Climate Initiative’s cap-and-trade system, a regulation requiring the reporting of greenhouse gas emissions was approved under the authority of the Greenhouse Gas Reduction (Cap and Trade) Act in November 2009. The Reporting Regulation came into effect onin January 1, 2010 and requires operations that are located in British Columbia and emitting 10,000 tonnestons or more of carbon dioxide equivalent per year to report greenhouse gas emissions to the British Columbia Ministry of Environment. Those reporting operations with emissions of 25,000 tonnestons or greater are required to have emissions reports verified by a third party. However, certain sectors are exempt from the Reporting Regulation, including marine transportation.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. OnIn November 25, 2002, the Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the United States Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The new chaptersecurity, which came into effect in July 2004 and2004. The new chapter 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, or AIS, to enhance vessel-to-vessel and vessel-to-shore communications;

 

on-board installation of ship security alert systems;

 

the development of vessel security plans; and

 

compliance with flag state security certification requirements.

The United States Coast Guard regulations, intended to align with international maritime security standards, exempt non-United States vessels from MTSA vessel security measures provided such vessels have on board a valid International Ship Security Certificate, or ISSC, that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. The VesselCosOur existing vessels have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code and we intend to continue to do so in the future.

C.    Organizational Structure

We incorporated three wholly-owned subsidiary companies in 2007: Seaspan Finance I Co. Ltd., Seaspan Finance II Co. Ltd. and Seaspan Finance III Co. Ltd. In 2009, we incorporated an additional wholly-owned subsidiary company: Seaspan (Asia) Corporation. Seaspan (Asia) Corporation incorporated three wholly-owned subsidiary companies in 2009: Seaspan Containership 2181 Ltd., Seaspan Containership 2177 Ltd., and Seaspan Containership S452 Ltd. EachTaxation of our subsidiary companies, and their wholly owned subsidiaries, was incorporated in the Marshall Islands.Company

D.    Property, Plants and EquipmentUnited States Taxation

Our Fleet

As of December 31, 2009, we owned and operated a fleet of 42 containerships and have entered into contracts to purchase or lease an additional 26 containerships. The average age of our fleet of 42 vessels was 4.9 years as of December 31, 2009.

The following table summarizes facts regardingis a discussion of the sizeexpected material U.S. federal income tax considerations applicable to us. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, existing final and capacity fortemporary regulations promulgated thereunder, or the 42 vesselsTreasury Regulations, and current administrative rulings and court decisions, all of which are subject to change, possibly with retroactive effect. Changes in operation as of December 31, 2009:these authorities may cause the U.S. federal income tax considerations to vary substantially from those described below.

      Approximate Vessel Dimensions and
Gross Tonnage
 

Classification Society

Vessel

Class

(TEU)

 # of
Vessels
 

Shipyard

 Length Width Depth Gross
Tonnage
 

Design,
Construction &
Inspection

 

Operation

      (in meters) (tons)    

9600

 2 Samsung 336.7 45.6 27.2 108,069 Lloyd’s(1) Lloyd’s (1)

8500

 2 Samsung 334.0 42.8 24.6 90,645 Lloyd’s(1) Lloyd’s (1)

5100

 3 HHI 294.1 32.2 22.1 54,940 Lloyd’s(1) DNV(3)

4800

 4 Odense-Lindo 294.2 32.2 21.5 52,191 Lloyd’s(1) Lloyd’s(1)

4250

 19 Samsung 260.0 32.3 19.3 39,941 Lloyd’s(1) Lloyd’s (1) & DNV (3)

4250

 2 New Jiangsu 261.0 32.3 19.3 40,541 Germanischer (2) DNV(3)

3500

 2 Zhejiang 231.0 32.2 18.8 35,988 Germanischer(2) DNV(3)

2500

 8 Jiangsu 208.9 29.8 16.4 26,404 Lloyd’s(1) Lloyd’s(1)
         
 42       

(1)Lloyd’s Register of Shipping, or Lloyd’s

(2)Germanischer Lloyd, or Germanischer

(3)Det Norske Veritas, or DNV

The following table summarizes key factsdiscussion is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations applicable to us. No ruling has been requested from the IRS regarding any matter affecting us. The statements made herein may not be sustained by a court if contested by the time charters for the 42 vessels in operation asIRS.

Taxation of December 31, 2009:

Vessel Name

  Vessel
Class
(TEU)
  Commencement
of Charter
  Year
Built
  Charterer  

Length of Time Charter

  Daily Charter
Rate
 
                  (in thousands) 

CSCL Zeebrugge

  9600  3/15/07  2007  CSCL Asia  12 years  $34.0 (1) 

CSCL Long Beach

  9600  7/5/07  2007  CSCL Asia  12 years   34.0 (1) 

CSCL Oceania (3)

  8500  12/4/04  2004  CSCL Asia  12 years + one 3-year option   29.5 (2) 

CSCL Africa

  8500  1/24/05  2005  CSCL Asia  12 years + one 3-year option   29.5 (2) 

MOL Emerald

  5100  4/30/09  2009  MOL  12 years   28.9  

MOL Eminence

  5100  8/31/09  2009  MOL  12 years   28.9  

MOL Emissary

  5100  11/20/09  2009  MOL  12 years   28.9  

MSC Sweden

  4800  11/6/06  1989  APM  5 years + two 1-year options + one 2-year option   23.5 (4) 

Cap Victor (5)

  4800  11/20/06  1988  APM  5 years + two 1-year options + one 2-year option   23.5 (4) 

Cap York

  4800  12/6/06  1989  APM  5 years + two 1-year options + one 2-year option   23.5 (4) 

MSC Ancona

  4800  12/22/06  1989  APM  5 years + two 1-year options + one 2-year option   23.5 (4) 

CSCL Hamburg

  4250  7/3/01  2001  CSCL Asia  10 years + one 2-year option   18.3 (6) 

CSCL Chiwan

  4250  9/20/01  2001  CSCL Asia  10 years + one 2-year option   18.3 (6) 

CSCL Ningbo

  4250  6/15/02  2002  CSCL Asia  10 years + one 2-year option   19.7 (6) 

CSCL Dalian

  4250  9/4/02  2002  CSCL Asia  10 years + one 2-year option   19.7 (7) 

CSCL Felixstowe

  4250  10/15/02  2002  CSCL Asia  10 years + one 2-year option   19.7 (7) 

CSCL Vancouver

  4250  2/16/05  2005  CSCL Asia  12 years   17.0  

CSCL Sydney

  4250  4/19/05  2005  CSCL Asia  12 years   17.0  

CSCL New York

  4250  5/26/05  2005  CSCL Asia  12 years   17.0  

CSCL Melbourne

  4250  8/17/05  2005  CSCL Asia  12 years   17.0  

CSCL Brisbane

  4250  9/15/05  2005  CSCL Asia  12 years   17.0  

New Delhi Express

  4250  10/18/05  2005  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Dubai Express

  4250  1/3/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Jakarta Express

  4250  2/21/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Saigon Express

  4250  4/6/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Lahore Express

  4250  7/11/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Rio Grande Express

  4250  10/20/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Santos Express

  4250  11/13/06  2006  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Rio de Janeiro Express

  4250  3/28/07  2007  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

Manila Express

  4250  5/23/07  2007  HL USA  3 years + seven 1-year extensions + two 1-year options (9)   18.0 (8) 

CSAV Loncomilla

  4250  4/28/09  2009  CSAV  6 years   25.9  

CSAV Lumaco

  4250  5/14/09  2009  CSAV  6 years   25.9  

COSCO Fuzhou

  3500  3/27/07  2007  COSCON  12 years   19.0  

COSCO Yingkou

  3500  7/5/07  2007  COSCON  12 years   19.0  

CSCL Panama

  2500  5/15/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL Montevideo

  2500  9/6/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL São Paulo

  2500  8/11/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL Lima

  2500  10/15/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL Santiago

  2500  11/8/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL San Jose

  2500  12/1/08  2008  CSCL Asia  12 years   16.8 (10) 

CSCL Callao

  2500  4/10/09  2009  CSCL Asia  12 years   16.8 (10) 

CSCL Manzanillo

  2500  9/21/09  2009  CSCL Asia  12 years   16.8 (10) 

(1)CSCL Asia has a charter period of 12 years with a charter rate of $34,000 per day, increasing to $34,500 per day after six years.

(2)CSCL Asia has an initial charter period of 12 years with a charter rate of $29,500 per day for the first six years, $29,800 per day for the second six years, and $30,000 per day during the option period.

(3)The MSC Belgium was renamed CSCL Oceania on or about September 5, 2009 following the end of its sub-charter by CSCL Asia to Mediterranean Shipping Company S.A.

(4)APM has a initial charter period of five years at $23,450 per day, two consecutive one-year options to charter the vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter the vessel at $20,400 per day; provided, however, that APM may declare an initial charter period on one or two vessels that is up to 9 months less than 5 years so long as they declare an initial charter period that is correspondingly greater than 5 years for the same number of vessels. In addition, we pay an affiliate of APM a 0.5% commission on all hire payments for each of the APM charters.

(5)The name of the Maersk Matane was changed to Cap Victor on or about August 7, 2009 in connection with the subcharter of the vessel by APM to Hamburg Süd;

(6)CSCL Asia has an initial charter period of ten years with a charter rate of $18,000 per day for the first five years, $18,300 per day for the second five years, and $19,000 per day for the final two-year option.

(7)CSCL Asia has an initial charter period of ten years with a charter rate of $19,933 per day for the first five years, $19,733 per day for the second five years, and $20,500 per day for the final two-year option.

(8)HL USA has an initial charter period of three years that automatically extends for up to an additional seven years with a charter rate of $18,000 per day, and $18,500 per day for the final two one-year options.

(9)For these charters, the initial charter period is three years that automatically extends for up to an additional seven years in successive one-year extensions, unless HL USA elects to terminate the charters with two years’ prior written notice. The charterer is required to pay a termination fee of approximately $8.0 million to terminate a charter at the end of the initial charter period. The termination fee declines by $1.0 million per year per vessel in years four through nine. The initial charter periods of the charters for theNew Delhi ExpressOperating Income, theDubai Express, theJakarta Express, theSaigon Express, theLahore Express,the Rio Grande Expressand theSantos Express have expired, and these charters have automatically extended pursuant to their terms. As at December 31, 2009, no notice of non-renewal has been received for the remaining two vessels.

(10)CSCL Asia has a charter period of 12 years with a charter rate of $16,750 per day for the first six years of the charter period, increasing to $16,900 per day for the second 6 years.

New Vessel Contracts

At December 31, 2009, we had contracted to purchase or lease, as the case may be, 26 additional containershipsWe expect that are currently orsubstantially all of our gross income will be under construction. These consistattributable to the transportation of two 2500 TEU vessels, two 4250 TEU vessels, five 4500 TEU vessels, one 5100 TEUcargo. For this purpose, gross income attributable to transportation, or Transportation Income, includes income from the use (or hiring or leasing for use) of a vessel eight 8500 TEU vesselsto transport cargo and eight 13100 TEU vessels. We expectthe performance of services directly related to take deliverythe use of these 26 containerships over approximately the next 30 months. To fund the remaining portionany vessel to transport cargo and, thus, includes time charter and bareboat charter income.

Fifty percent (50%) of the price of the vessels we have contractedTransportation Income attributable to purchase,transportation that either begins or lease as the case may be, we need to raiseends, but that does not both begin and end, in the range of approximately $180 millionUnited States, or U.S. Source International Transportation Income, is considered to $240 million in common or other equitybe derived from sources within the United States. Transportation Income attributable to transportation that both begins and or other forms of capital beginning no later than approximately the fourth quarter of 2010 or first quarter of 2011 and ending in approximately the second quarter of 2012. This amount of capital is based on a quarterly dividend of $0.10 per common share. The amount of capital required decreased from a range of approximately $500 million to $600 million because of the decision of our board of directors to reduce the quarterly dividend from $0.475 to $0.10 per share as announced on April 28, 2009. Due to the uncertainties associated with the global recession and the capital markets, our board of directors cannot determine how long this reduction will be in effect. The reduction will enable Seaspan to retain an approximate additional amount of $100 million per year that can be redeployed to fund its newbuilding program.

As a result of the recent economic slowdown and over-capacityends in the container shipping industry as well asUnited States, or U.S. Source Domestic Transportation Income, is considered to be 100% derived from sources within the uncertainty ofUnited States. Transportation Income attributable to transportation exclusively between non-U.S. destinations is considered to be 100% derived from sources outside the capital markets, we have been pursuing alternatives in cooperation with our shipyards and charterersUnited States. Transportation Income derived from sources outside the United States generally will not be subject to delay the delivery of some of the 26 vesselsU.S. federal income tax.

We believe that we have contracted to purchase or lease, as the case may be, over the next 30 months. In this regard,not earned any U.S. Source Domestic Transportation Income, and we entered into agreements with someexpect that we will not earn any such income in future years. However, certain of our shipyards wherebyactivities give rise to U.S. Source International Transportation Income, and future expansion of our operations could result in an increase in the amount of our U.S. Source International Transportation Income. Unless the exemption from tax under certain circumstances we had the option to delay the delivery of up to 15Section 883 of the newbuilding vessels that we have contracted to purchase. In July 2009, we exercisedCode, or the option to delay the delivery of 11 of the 15 vessels and we deferred the delivery dates for those vessels for periods ranging from two to 15 months from the dates agreed to under the original shipbuilding contracts. We did not exercise the option to delay the delivery of the remaining four vessels. As set out in the option agreements, we will compensate the shipyards for their costs and expenses related to the deferral at the time we pay the final installment to the shipyards. The shipbuilding contracts and time charters have been amended to reflect the deferred dates.

Two ofSection 883 Exemption, applies, our shipyards also agreed to delay the delivery of five additional vessels that were not subject to option agreements. The deferrals are for a period of approximately nine months from the dates that were agreed to under the original shipbuilding contract. The shipbuilding contracts and time charters for these five vessels have been amended to allow for the new delivery dates.

We previously agreed to acquire ten 2500 TEU vessels from Jiangsu as each vessel is delivered and passes inspection, each vessel to be built at Jiangsu’s shipyard in Jiangsu Province, China. The average contractual purchase price for these 2500 TEU vessels is $41.4 million per vessel. Six of these vessels were delivered in 2008 and two were delivered in 2009. These eight vessels are currently operating under twelve-year time charters with CSCL Asia. The remaining two vesselsU.S. Source International Transportation Income generally will be subject to ten-year time charters with K-Line, commencing upon delivery.U.S. federal income taxation under either the net basis tax and the branch profits tax or the 4% gross basis tax, all of which are discussed below.

The Section 883 Exemption

In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, or the Section 883 Regulations, it will not be subject to the net basis and branch profits taxes or the 4% gross basis tax described below on its U.S. Source International Transportation Income. The Section 883 Exemption does not apply to U.S. Source Domestic Transportation Income.

A non-U.S. corporation will qualify for the Section 883 Exemption if, among other things, it (i) is organized in a jurisdiction outside the United States that grants an exemption from tax to U.S. corporations on international Transportation Income, or an Equivalent Exemption, (ii) satisfies one of three ownership tests, or Ownership Test, described in the Section 883 Regulations and (iii) meets certain substantiation, reporting and other requirements.

We previously agreedare organized under the laws of the Republic of the Marshall Islands. The U.S. Treasury Department has recognized the Republic of the Marshall Islands as a jurisdiction that grants an Equivalent Exemption. We also believe that we will be able to satisfy all substantiation, reporting and other requirements necessary to qualify for the Section 883 Exemption. Consequently, our U.S. Source International Transportation Income will be exempt from U.S. federal income taxation provided we satisfy the Ownership Test and provided we file a U.S. federal income tax return to claim the Section 883 Exemption. We believe that we currently should satisfy the Ownership Test because our common stock is primarily and regularly traded on an established securities market in the United States within the meaning of the Section 883 Regulations. We can give no assurance, however, that changes in the ownership of our common stock subsequent to the date of this offering will permit us to continue to qualify for the Section 883 Exemption.

The Net Basis Tax and Branch Profits Tax

If the Section 883 Exemption does not apply, our U.S. Source International Transportation Income may be treated as effectively connected with the conduct of a trade or business in the United States, or Effectively

Connected Income, if we have a fixed place of business in the United States and substantially all of our U.S. Source International Transportation Income is attributable to regularly scheduled transportation or, in the case of bareboat charter income, is attributable to a fixed place of business in the United States.

We believe that we do not have a fixed place of business in the United States. As a result, we believe that none of our U.S. Source International Transportation Income would be treated as Effectively Connected Income. While we do not expect to acquire four 4250 TEU vessels from New Jiangsua fixed place of business in the United States, there is no assurance that we will not have, or will not be treated as eachhaving, a fixed place of business in the United States in the future, which may, depending on the nature of our future operations, result in our U.S. Source International Transportation Income being treated as Effectively Connected Income.

Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the highest statutory rate currently is 35%) and a 30% branch profits tax imposed under Section 884 of the Code. In addition, a 30% branch interest tax could be imposed on certain interest paid, or deemed paid, by us.

If we were to sell a vessel that has produced Effectively Connected Income, we generally would be subject to the net basis and branch profits taxes with respect to the gain recognized up to the amount of certain prior deductions for depreciation that reduced Effectively Connected Income. Otherwise, we would not be subject to U.S. federal income tax with respect to gain realized on the sale of a vessel, provided the sale is deliverednot considered to occur in the United States under U.S. federal income tax principles.

The 4% Gross Basis Tax

If the Section 883 Exemption does not apply and passes inspection, each vesselwe are not subject to be built by New Jiangsu at its shipyard in Jiangsu Province, China. The contractual purchase price is $61.4 million per vessel. Two of these vessels were delivered in 2009the net basis and are currently operating under six-year time charters with CSAV. The remaining two vessels 4250branch profits taxes described above, we generally will be subject to a six-year time charter with CSAV, commencing upon delivery.4% U.S. federal income tax on our U.S. Source International Transportation Income without the benefit of deductions.

Canadian Taxation

Under the Income Tax Act (Canada), or the Canada Tax Act, a corporation that is resident in Canada is subject to tax in Canada on its worldwide income.

Our place of residence, under Canadian law, would generally be determined on the basis of where our central management and control are, in fact, exercised. It is not our current intention that our central management and control be exercised in Canada but, even if it were, there is a specific statutory exemption under the Canada Tax Act that provides that a corporation incorporated, or otherwise formed, under the laws of a country other than Canada will not be resident in Canada in a taxation year if its principal business is the operation of ships that are used primarily in transporting passengers or goods in international traffic, all or substantially all of its gross revenue for the year consists of gross revenue from the operation of ships in transporting passengers or goods in that international traffic, and it was not granted articles of continuance in Canada before the end of the year.

Based on our operations, we do not believe that we are, nor do we expect to be, resident in Canada for purposes of the Canada Tax Act, and we intend that our affairs will be conducted and operated in a manner such that we do not become a resident of Canada under the Canada Tax Act. However, if we were or become resident in Canada, we would be or become subject under the Canada Tax Act to Canadian income tax on our worldwide income and our non-Canadian resident shareholders would be or become subject to Canadian withholding tax on dividends paid in respect of our shares.

Generally, a corporation that is not resident in Canada will be taxable in Canada on income it earns from carrying on a business in Canada and on gains from the disposition of property used in a business carried on in Canada. However, there are specific statutory exemptions under the Canada Tax Act that provide that income

earned in Canada by a non-resident corporation from the operation of a ship in international traffic, and gains realized from the disposition of ships used principally in international traffic, are not included in a non-resident corporation’s income for Canadian tax purposes where the corporation’s country of residence grants substantially similar relief to a Canadian resident. A Canadian resident corporation that carries on an international shipping business, as described in the previous sentence, in the Republic of the Marshall Islands is exempt from income tax under the current laws of the Republic of the Marshall Islands.

We previously agreed to acquire four 5100 TEU vessels from HHI as each vessel is delivered and passes inspection, each vesselexpect that we will qualify for these statutory exemptions under the Canada Tax Act. Based on our operations, we do not believe that we are, nor do we expect to be, built by HHI at its shipyardcarrying on a business in Ulsan, South Korea. The contractual purchase priceCanada for purposes of the Canada Tax Act other than a business that would provide us with these statutory exemptions from Canadian income tax. However, these statutory exemptions are contingent upon reciprocal treatment being provided under the laws of the Republic of the Marshall Islands. If in the future as a non-resident of Canada, we are carrying on a business in Canada that is $77.4 million per vessel. Threenot exempt from Canadian income tax, or these statutory exemptions are not accessible due to changes in the laws of these vessels were delivered in 2009 and are currently operating under twelve-year time charters with MOL. The remaining vessel willthe Republic of the Marshall Islands or otherwise, we would be subject to Canadian income tax on our non-exempt income earned in Canada which could reduce our earnings available for distribution to shareholders.

C.    Organizational Structure

Please read Exhibit 8.1 to this Annual Report for a twelve-year time charter with MOL, commencing upon delivery.list of our significant subsidiaries as of March 25, 2011.

We have also agreed to acquire eight 8500 TEU vessels from HHI as each vessel is deliveredD.    Property, Plants and passes inspection. The contractual purchase price is $122.4 million per vessel. These eight vessels will be assembled, launched, completed, commissioned and delivered by HHI at its shipyard in Ulsan, South Korea. Each 8500 TEU vessel will be subject to a twelve-year time charter with COSCON with three one-year options, commencing upon delivery.

We have also agreed to acquire eight 13100 TEU vessels, five of which will be built by HHI at its shipyard in Ulsan, South Korea and the other three by HSHI at its shipyard in Samho, South Korea. Again, we will acquire these vessels as they are delivered and pass inspection. The contractual purchase price is $165.3 million per vessel. Each 13100 TEU vessel will be subject to a twelve-year time charter with COSCON, commencing upon delivery.

We have also agreed to lease five 4500 TEU vessels from Peony as each vessel is delivered to Peony and passes inspection. These five vessels will be built by Samsung at its shipyard in Geoje Island, South Korea. Each 4500 TEU vessel will be subject to a twelve-year time charter with K-Line with two three-year options, commencing upon delivery.Equipment

For the exercise of options to defer vessels as described above, we will pay an aggregate additional $19.0 millioninformation on our fleet and new vessel contracts.

As of December 31, 2009,contracts, please read “Item 4. Information on the 21 newbuilding containerships thatCompany—B. Business Overview—Our Fleet.” Other than our vessels, we do not have contracted to purchase and the five that we have contracted to lease are currently or will be under construction and consist of the following vessels:any material property.

 

Vessel

  Vessel
Class
(TEU)
  

Length of Time Charter (1)

  Charterer  Daily
Charter Rate
  Shipbuilder
            (in thousands)   

Hull No. S452

  13100  12 years  COSCON  $55.0   HSHI

Hull No. 2177

  13100  12 years  COSCON   55.0   HHI

Hull No. S453

  13100  12 years  COSCON   55.0   HSHI

Hull No. 2178

  13100  12 years  COSCON   55.0   HHI

Hull No. S454

  13100  12 years  COSCON   55.0   HSHI

Hull No. 2179

  13100  12 years  COSCON   55.0   HHI

Hull No. 2180

  13100  12 years  COSCON   55.0   HHI

Hull No. 2181

  13100  12 years  COSCON   55.0   HHI

COSCO Japan

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Korea

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Philippines

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Malaysia

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Indonesia

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Thailand

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Pakistan

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

COSCO Vietnam

  8500  12 years + three one- year options  COSCON   42.9 (2)  HHI

MOL Empire

  5100  12 years  MOL   28.9   HHI

Brotonne Bridge

  4500  12 years + two three- year options  K-Line   34.3 (3)  Samsung

Brevik Bridge

  4500  12 years + two three- year options  K-Line   34.3 (3)  Samsung

Bilbao Bridge

  4500  12 years + two three- year options  K-Line   34.3 (3)  Samsung

Berlin Bridge

  4500  12 years + two three- year options  K-Line   34.3 (3)  Samsung

Budapest Bridge

  4500  12 years + two three- year options  K-Line   34.3 (3)  Samsung

CSAV Lingue

  4250  6 years  CSAV   25.9   New Jiangsu

CSAV Lebu

  4250  6 years  CSAV   25.9   New Jiangsu

Guayaquil Bridge

  2500  10 years  K-Line   17.9   Jiangsu

Calicanto Bridge

  2500  10 years  K-Line   17.9   Jiangsu

(1)Each charter begins upon delivery of the vessel to the relevant charterer.

(2)COSCON has an initial charter period of 12 years with a charter rate of $42,900 per day and $43,400 per day for the three one-year options.

(3)K-Line has an initial charter period of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

The following chart details the estimated number of vessels in our fleet as we take contractual delivery (1):

      Forecasted
   Year Ended December 31,
   2009  2010  2011  2012

Deliveries

  7  13  9  4
            

Operating Vessels

  42  55  64  68
            

Total Capacity (TEU)

  187,456  266,157  349,075  401,443
            

(1)This table reflects the deferred delivery dates of the 16 vessels as previously described.

Item 5.Operating and Financial Review and Prospects

A.    Results of OperationsGeneral

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis should be read in conjunction with our historicalconsolidated financial statements and their notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled “Risk Factors” and elsewhere in this Annual Report.

Overview

We are Seaspan Corporation, a Marshall Islands corporation that was incorporated on May 3, 2005. Our business is to ownWe are a leading independent charter owner of containerships, which we charter themprimarily pursuant to long-term, fixed-rate charters andtime charters. We seek additional accretive vessel acquisitions.acquisitions as market conditions allow. We primarily deploy all our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters. Since our initial public offering, our primary objective has been to continue to grow our business through accretive acquisitions over the mid to long-term and as market conditions allow in order to increase our dividend per share.

As of December 31, 2009,March 25, 2011 we owned and operated a fleet of 4258 containerships (including three leased vessels) and have entered into contracts to purchase oran additional seven containerships and to lease an additional 26four containerships. The average age of the 58 vessels in our fleet of 42 vessels was 4.9approximately five years as of December 31, 2009.March 25, 2011. Please read “Information“Item 4. Information on the Company—D. Property, Plants and Equipment—B. Business Overview—Our Fleet” for more information.

2010 Developments

Series B Preferred Shares

In May 2010, we issued 260,000 Cumulative Series B Preferred Shares to Jaccar Holdings Limited, an investor related to Zhejiang, for $26 million. The initial liquidation preference of the Series B Preferred Shares is $100 per share, subject to adjustment. Please read “Recent Equity Offerings—Our customer selection process is targeted at well-established container liner companies that charter-inSeries B Preferred Share Offering.” for more information.

Two Non-Recourse Sale-leaseback Transactions

In February 2010, one of our subsidiaries entered into a sale-leaseback transaction for one of our 13100 TEU newbuilding vessels on a long-term basis as part of their fleet expansion strategy. Currently, 22 containerships in our fleet are under time charters with CSCL Asia. CSCL Asia is a subsidiary of CSCL and is listed on the Hong Kong Stock Exchange. CSCL Asia primarily operates in the China trade routes. Nine containerships in our fleet are under time charters with HL USA, which is an affiliate of Hapag-Lloyd.a leading publicly-traded Chinese bank. This vessel is being constructed by HHI and will be under a time charter with COSCON. Upon delivery from HHI, the vessel will be purchased by the affiliate of the Chinese bank, and through an inter-company operating charter with our subsidiary, we will still time-charter the vessel to COSCON in accordance with the terms of our original time charter. Our four 4800subsidiary’s obligations under the sale-leaseback arrangement are non-recourse to Seaspan Corporation.

In October 2010, one of our subsidiaries entered into a sale-leaseback transaction for one of our 13100 TEU newbuilding vessels with an affiliate of Crédit Agricole CIB. This vessel is being constructed by HHI and will be under a time charter with COSCON. Upon delivery from HHI, the vessel will be purchased by the affiliate of Crédit Agricole CIB, and through an inter-company operating charter with our subsidiary, we will still time-charter the vessel to COSCON in accordance with the terms of our original time charter. Our subsidiary’s obligations under the sale-leaseback arrangement are charterednon-recourse to APM. Two containerships are currently charteredSeaspan Corporation.

Extension of Time Charter

In November 2010, CSCL Asia exercised its option to COSCON. Our three 5100 TEU vessels are chartered to MOL, and twoextend the long-term time charter on one of our 4250 TEU containershipsvessels that it has sub-chartered, the CSAV Licanten, upon conclusion of its initial 10-year term. We are currently charteredchartering the vessel to CSAV.CSCL Asia at a rate of $18,300 per day and the rate for the option period increases to $19,000 per day beginning July 2011, for a term that expires in July 2013.

Guarantee Reduction

One of our wholly owned subsidiaries is the lessee under a lease facility used to finance the acquisition of five 4500 TEU vessels. We provide a guarantee relating to the lease facility. In October 2010, we amended the lease facility to provide that our guarantee of obligations under the lease facility is limited to a significantly reduced fixed amount. As part of this reduction, we have placed $60.0 million in a deposit account over which the lessor has a first priority security interest. Please read “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Financing Facilities—Our Lease Facilities.”

2011 Recent Developments

Delivery of Three New Vessels

In January 2011, we accepted delivery of the Brevik Bridge and the Bilbao Bridge. Both 4500 TEU vessels are on charter to K-Line under 12-year, fixed-rate time charter contracts, with options to K-Line to extend the contract terms up to an additional six years. In March 2011, we accepted delivery of the COSCO Prince Rupert. This 8500 TEU vessel is on charter to COSCON under a 12-year, fixed-rate time charter contract, with options to COSCON to extend the contract terms up to an additional three years.

Dividend Increase and New Dividend Policy

In February 2011, our board of directors adopted a progressive dividend policy aimed at increasing our dividends in a manner that preserves our long-term financial strength and our ability to expand our fleet. We expect this policy to increase dividends paid to holders of our Class A common shares, while continuing to permit us to pursue our growth strategy. Our board expects to declare aggregate dividends of $0.75 per Class A common share for the four quarters ended December 31, 2011, beginning with a $0.1875 per share dividend for the first quarter of 2011. Regardless of our dividend policy, declaration and payment of any dividend is subject to the discretion of our board of directors. Please read “Item 8. Financial Information—A. Financial Statements and Other Financial Information—Dividend Policy.”

Extension of Time Charter

In March 2011, CSCL Asia exercised its option to extend the long-term time charter for the CSCL Chiwan, upon conclusion of its initial 10-year term. We are currently chartering the vessel to CSCL Asia at a rate of $18,300 per day and the rate for the option period increases to $19,000 per day beginning September 2011, for a term that expires in September 2013.

Investment in Carlyle Containership-Focused Investment Vehicle

In March 2011, we agreed to participate in the Vehicle, an investment vehicle established by an affiliate of Carlyle, which will invest up to $900 million equity capital in containership assets, primarily newbuilding vessels strategic to Greater China. The 26amount of equity capital will be reduced to the extent that the Carlyle affiliate member of the Vehicle separately invests in non-containership assets. We believe that the combination of our expertise and relationships in the containership market and Carlyle’s financial resources, global business network and access to capital will enhance our ability to take advantage of growth opportunities in the containership market.

There currently exists significant excess capacity in Asian shipyards, and we believe that, as a result of this excess capacity, in the near term shipyards are willing to provide pricing and design concessions for large newbuilding construction orders. The size of these orders likely exceeds the size of orders we would be able or willing to make on our own. As a result, we view our participation in the Vehicle, and especially the right of first refusal we will have on containership investment opportunities available to the Vehicle, as a means of selectively and cost-effectively expanding our fleet. We believe that the combined scale of our business and the Vehicle will allow us to realize volume discounts for newbuilding orders, negotiate design improvements from shipyards and obtain more attractive vessel financing than we would otherwise be able to achieve on our own, thereby creating a competitive advantage for us.

The members of the Vehicle are (i) Seaspan Investment I Ltd., a subsidiary of us, or the Seaspan Member, (ii) Blue Water Commerce, LLC, an affiliate of Dennis R. Washington, or the Washington Member, (iii) Tiger Management Limited, an entity owned and controlled by our director Graham Porter, or the Tiger Member, and (iv) Greater China Industrial Investments LLC (a limited liability company owned by affiliates of Carlyle and the Tiger Member), or GC Industrial.

The conflicts committee of our board of directors, with the assistance of financial and legal advisors, reviewed and approved our investment in the Vehicle and the related transactions and agreements, including the right of first refusal and right of first offer. Upon the unanimous recommendation of the conflicts committee, the independent members of our board of directors subsequently approved our investment in the Vehicle and the related transactions and agreements.

For additional information about the transactions and agreements relating to our investment in the Vehicle, please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle, —Certain Relationships and Transactions, —Omnibus Agreement, —Employment Agreement and Other Related Agreements with Gerry Wang, —Financial Services Agreement with Tiger Ventures Limited and —Registration Rights Agreements.”

Newbuilding Order

In February 2011, we signed a letter of intent to order a significant number of newbuilding containerships to be constructed by a leading Chinese shipyard. This is our first newbuilding order since 2007. If an order is finalized, the New Panamax 10000 TEU vessels would be constructed using a lightweight and fuel efficient design. We expect that any order resulting from this letter of intent would be made available to the Vehicle and would be subject to our right of first refusal. Please read “Item 7. Major Shareholders and Related Party

Transactions—B. Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and First Offer Agreements.” We expect to enter into long-term time charters with leading liner companies concurrently with executing any definitive purchase agreement for these vessels. There exists only a letter of intent for this order at this time, and there is no assurance that definitive agreements relating to this order will be entered into or that the orders will be completed.

New Employment Agreement and Other Related Agreements with Gerry Wang and Agreement with Graham Porter

Mr. Wang has served as our chief executive officer and the chief executive officer of Seaspan Ship Management Ltd., or SSML, pursuant to an employment agreement with SSML. In March 2011, in connection with our investment in the Vehicle, Mr. Wang’s agreement with SSML was amended and restated and we entered an employment agreement and a transaction services agreement with Mr. Wang. Pursuant to our employment agreement with Mr. Wang, he will continue to serve as our chief executive officer through January 1, 2013. The transaction services agreement will become effective following termination of Mr. Wang’s employment with us. Pursuant to Mr. Wang’s employment agreement and an agreement with our director Graham Porter, we have reduced the fiduciary duties of Mr. Wang and Mr. Porter in relation to certain containership vessel and business opportunities to the extent such opportunities are subject to our right of first refusal with the Vehicle and (a) the conflicts committee of our board of directors has decided to such opportunity or we have failed to exercise our right of first refusal to pursue such opportunity, (b) we have exercised such right but failed to pursue such opportunity or (c) we do not have the right under our right of first refusal to pursue such opportunity. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Employment Agreement and Other Related Agreements with Gerry Wang and —Graham Porter Agreement” for more information.

Potential Transactions

The discussion of potential transactions or arrangements in this section is prospective and is intended to benefit from the protections described in the discussion regarding forward-looking statements in the beginning of Part I of this Annual Report. For any of the potential transactions or arrangements described below, the transactions or arrangements may not be completed, and the terms of the transactions and arrangements that are completed, if any, may differ materially from those described below.

Potential Non-Recourse Loan Facility Transaction

We are negotiating a transaction that would involve one of our subsidiaries entering into a transaction with affiliates of a leading Chinese and a Japanese bank for a non-recourse loan facility in an amount up to $150 million relating to one of our 13100 TEU newbuilding vessels. The vessel is being constructed by HHI and is currently financed with up to $75 million under one of our revolving credit facilities. Upon delivery of the vessel and through an inter-company operating charter with our subsidiary, we will still time-charter the vessel to COSCON in accordance with the terms of the original 12-year time charter. The subsidiary’s indebtedness under the loan facility would be non-recourse to Seaspan Corporation.

Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees

Our Manager and certain of its subsidiaries provide us with all of our technical, administrative and strategic services, together with all of our employees, other than our chief executive officer. We are in discussions with our Manager about potentially acquiring all or a portion of our Manager. It is contemplated that the purchase price would be paid in shares of our capital stock or cash, or a combination thereof.

We believe any such acquisition of our Manager would increase our control over access to the services our Manager provides on a long-term basis. Additionally, based on the technical management fees and additional fees under the management agreement between our Manager and the Vehicle and disclosure by other public containership companies and third-party management companies, the owners of our Manager have proposed increases in existing technical management fees and the inclusion of additional fees under the management

agreements, which they believe reflect current market practice. Under the management agreements, the fees for the technical services are scheduled for renegotiation in December 2011. Any increases or anticipated increases in the fee arrangements under our management agreements could result in an increase to the purchase price of our Manager. The conflicts committee of our board of directors is evaluating these proposals with the assistance of financial and legal advisors.

For additional information about the agreements with our Manager that govern the services provided to us, please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Our Management Agreements.”

Recent Equity Offerings

Our Dividend Reinvestment Plan

On May 29, 2008, we instituted a dividend reinvestment plan, or the DRIP. The plan allows interested shareholders to reinvest all or a portion of their cash dividends in our common shares without paying any brokerage commission or service charge. During the year ended December 31, 2010, 708,325 shares were issued through shareholder participation in the DRIP, resulting in the re-investment of $7.7 million.

Our Series A Preferred Share Offering

In January 2009, we issued a total of 200,000 of our Series A Preferred Shares to certain investors, including an entity affiliated with the chairman of our board of directors. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Series A Preferred Share Offering.” The initial liquidation preference of the Series A Preferred Shares is $1,000 per share, subject to adjustment. In lieu of dividends, the liquidation preference of the Series A Preferred Shares will increase at a rate of 12% per annum until January 31, 2014, compounded quarterly, after which the liquidation preference will increase at a rate of 15% per annum, compounded quarterly. Commencing on March 31, 2014, the holders of our Series A Preferred Shares may elect to receive cash dividends in lieu of such guaranteed increases in liquidation preference. The Series A Preferred Shares will automatically convert into Class A common shares at a conversion price of $15.00 at any time on or after January 31, 2014 if the average closing price of the trailing 30 trading days of the Class A common shares is equal to or greater than $15.00. If at any time on or after January 31, 2014, the average closing price over the trailing 30 trading days of our Class A common shares is less than $15.00, we have the option to convert the Series A Preferred Shares at a conversion price of $15.00 and pay the holders of the Series A Preferred Shares 115% of the difference between the conversion price and average closing price of the trailing 30 trading days of the Class A common shares, payable in cash or Class A common shares at our option.

Upon any liquidation or dissolution of us, holders of the Series A Preferred Shares will generally be entitled to receive the cash value of the liquidation preference of the Series A Preferred Shares, including any accrued but unpaid dividends, after satisfaction of all liabilities to our creditors but before any distribution is made to or set aside for the holders of junior stock, including our Series B and C Preferred Shares and Class A common shares.

In general, the holders of the Series A Preferred Shares will be entitled to vote together with the holders of Class A common shares on an as-converted basis on any matter submitted for a vote of Class A common shares. In addition, the holders of the Series A Preferred Shares, voting as a separate class, will have the right to approve certain matters. In addition, subject to certain exceptions, the holders of the Series A Preferred Shares have preemptive rights to prevent dilution and the right to elect up to two members of our board of directors.

Our Series B Preferred Share Offering

In May 2010, we issued 260,000 Cumulative Series B Preferred Shares to Jaccar Holdings Limited, an investor related to shipbuilder Zhejiang, for $26.0 million. The initial liquidation preference of the Series B Preferred Shares is $100 per share, subject to adjustment. The shares are redeemable by us at any time and they

carry an annual dividend rate of 5% of the liquidation value until June 30, 2012, 8% from July 1, 2012 to June 30, 2013, and 10% thereafter. The Series B Preferred Shares are not convertible into Class A common shares and are not redeemable by the holder. Upon any liquidation or dissolution of us, holders of the Series B Preferred Shares will generally be entitled to receive the cash value of the liquidation preference of the Series B Preferred Shares after satisfaction of all liabilities to our creditors and holders of the Series A Preferred Shares, but before any distribution is made to or set aside for the holders of junior stock, including our Class A common shares. We can redeem the Series B Preferred Shares at any time following their issuance, provided that we provide proper notice to the holders of the Series B Preferred Shares.

Our Series C Preferred Share Offering

In January 2011, we issued 10,000,000 9.5% Series C Cumulative Redeemable Perpetual Preferred Shares. The initial liquidation preference of the Series C Preferred Shares is $25 per share, subject to adjustment. The shares are redeemable by us at any time on or after January 30, 2016. The shares carry an annual dividend rate of 9.5% per $25 of liquidation preference per share, subject to increase if (i) we fail to comply with certain covenants (ii) we experience certain defaults under any of our credit facilities (iii) four quarterly dividends payable on the Series C Preferred Shares are in arrears or (iv) the Series C Preferred Shares are not redeemed in whole by January 30, 2017. The Series C Preferred Shares are not convertible into Class A common shares and are not redeemable by the holder. Upon any liquidation or dissolution of us, holders of the Series C Preferred Shares will generally be entitled to receive the cash value of the liquidation preference of the Series C Preferred Shares, plus an amount equal to accumulated and unpaid dividends, after satisfaction of all liabilities to our creditors and holders of the Series A Preferred Shares, at the same time distribution is made to or set aside for the holders of the Series B Preferred Shares and before any distribution is made to or set aside for the holders of junior stock, including our Class A common shares.

Trend Information

The containership charter market experienced significant upward movement in time charter rates in the period between the start of 2002 and the middle of 2005 due to increased demand for containership capacity driven by increases in global container trade. Midway through 2005, containership charter rates began to fall as a result of increased capacity and falling freight rates, before stabilizing at the end of 2006. However, the global economic downturn and the resulting slowdown in container trade growth created a relative oversupply of capacity, leading to a rapid fall in containership earnings in the latter half of 2008, which continued in the first half of 2009, with earnings remaining depressed during the rest of 2009. In 2010, containership charter rates registered an upward trend over the year as a whole, although rates remain below long term averages.

The charter owner containership sector is also subject to the development of newbuilding prices, which reflect the cost of new containerships paid by owners from the shipyards. The development of containership newbuilding prices reflects both the demand for vessels as well as the cost of acquisition of new containerships by owners from shipyards, which is influenced by the cost of materials and labor, availability of shipbuilding capacity, and the impact of demand from other shipping sectors on shipyards. Economies of scale in containership building means that the cost per TEU involved in building larger containerships is less than for ships with smaller TEU capacity. The newbuilding price for a theoretical 6200 TEU containership increased from $60.0 million at the start of 2003 to a peak of $108.0 million in the period of June to September 2008. However, following the economic downturn, this figure fell to $66.0 million at the end of January 2010. By the end of February 2011, the newbuilding price for a theoretical 6200 TEU containership had increased to $76.0 million. The average price for a 6200 TEU containership newbuilding since March 2001 is approximately $83.5 million.

B.    Results of Operations

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009

The following discussion of our financial condition and results of operations is for the years ended December 31, 2010 and 2009. The consolidated financial statements have been prepared in accordance with GAAP and, except where otherwise specifically indicated, all amounts are expressed in U.S. dollars.

The following table presents our operating results for the years ended December 31, 2010 and 2009.

   Year Ended
December 31,
2010
  Year Ended
December 31,
2009
 

Statement of operations data (in thousands of dollars):

   

Revenue

  $407,211   $285,594  

Operating expenses:

   

Ship operating

   108,098    80,162  

Depreciation

   99,653    69,996  

General and administrative

   9,612    7,968  
         

Operating earnings

   189,848    127,468  

Other expenses (income):

   

Interest expense

   28,801    21,194  

Interest income

   (60  (311

Undrawn credit facility fee

   4,515    4,641  

Amortization of deferred charges

   3,306    2,042  

Change in fair value of financial instruments

   241,033    (46,450

Other expenses

   —      1,100  
         

Net earnings (loss)

  $(87,747 $145,252  
         

Common shares outstanding at year end:

   68,601,240    67,734,811  

Per share data (in dollars):

   

Basic earnings (loss) per Class A and B common share

  $(1.70 $1.94  

Diluted earnings (loss) per Class A and B common share(1)

  $(1.70 $1.75  

Dividends paid per class A and B common share(2)

  $0.450   $0.775  

Basic and diluted earnings (loss) per Class C common share

  $—     $—    

Dividends paid per Class C common share

  $—     $—    

Statement of cash flows data (in thousands of dollars):

   

Cash flows provided by (used in):

   

Operating activities

  $153,587   $94,576  

Investing activities

   (782,448  (409,520

Financing activities

   529,680    312,059  
         

Net (decrease) in cash and cash equivalents

  $(99,181 $(2,885
         

Selected balance sheet data (in thousands of dollars):

   

Cash and cash equivalents

  $34,219   $133,400  

Vessels

   4,210,872    3,485,350  

Other assets

   132,137    45,697  
         

Total assets

  $4,377,228   $3,664,447  
         

Other liabilities

   70,371    30,692  

Fair value of financial instruments

   407,819    280,445  

Long-term debt(3)

   2,396,771    1,883,146  

Other long-term liabilities

   512,531    410,598  

Shareholders’ equity

   989,736    1,059,566  
         

Total liabilities and shareholders’ equity

  $4,377,228   $3,664,447  
         

   Year Ended
December 31,
2010
  Year Ended
December 31,
2009
 

Other data:

   

Number of vessels in operation at period end

   55    42  

Average age of fleet in years at period end

   4.7    4.9  

TEU capacity at period end

   265,300    187,456  

Average remaining initial term on outstanding charters

   6.9    7.1  

Fleet utilization

   98.7  99.7

(1)Diluted earnings per share for the year ended December 31, 2009 has been revised primarily to correctly record the impact of the convertible Series A Preferred Shares on the denominator for only the period they were outstanding during the year. Diluted earnings per share for the year ended December 31, 2009 has been revised by an immaterial amount from $1.58 per share (as previously reported) to $1.75 per share.

(2)Effective October 1, 2008, the subordination period for our 7,145,000 Class B common shares, owned by the members of the Washington family, or trusts set up on their behalf, an entity owned by our co-chairman and chief executive officer, Gerry Wang, and an entity owned by Graham Porter, our director and a director of our Manager, ended and the rights and privileges of our Class B common shares became the same as our Class A common shares.

(3)Long-term debt related to operating vessels was $1.8 billion as at December 31, 2010 ($0.9 billion at December 31, 2009).

We accepted delivery of seven vessels during the year ended December 31, 2009. We began 2010 with 42 vessels in operation and, during the year ended December 31, 2010, accepted delivery of 13 vessels, bringing our fleet to a total of 55 vessels in operation as at December 31, 2010. We have accepted delivery of three additional vessels between December 31, 2010 and March 25, 2011. Operating days are the primary driver of revenue while ownership days are the primary driver for ship operating costs.

   Year Ended December 31,   Increase 
   2010   2009   Days   % 

Operating days

   17,951     14,003     3,948     28.2

Ownership days

   18,184     14,041     4,143     29.5

Financial Summary (in millions)  Year Ended December 31,  Change 
   2010   2009  $  % 

Revenue

  $407.2    $285.6   $121.6    42.6

Ship operating expenses

   108.1     80.2    27.9    34.8

Depreciation

   99.7     70.0    29.7    42.4

General and administrative expenses

   9.6     8.0    1.6    20.6

Interest expense

   28.8     21.2    7.6    35.9

Change in fair value of financial instruments (gain/loss)

   241.0     (46.5  (287.5  (618.9%) 

Other expenses

   —       1.1    (1.1  (100.0%) 

Revenue

The increase in revenue was due to an increase in operating days, and the dollar impact thereof, for the year ended December 31, 2010 was due to the following:

   Operating
Days Impact
  $ Impact
(in  millions)
 

2010 vessel deliveries

   2,854   $92.5  

Full year contribution for 2009 vessel deliveries

   1,289    32.3  

Scheduled off-hire

   (94  (1.3

Unscheduled off-hire

   (101  (1.9
         

Total

   3,948   $121.6  
         

Vessel utilization was 98.7% for the year ended December 31, 2010, compared to 99.7% for the prior year. This decrease in vessel utilization for the year ended December 31, 2010 was primarily due to the 90 days of unscheduled off-hire resulting from the grounding of the CSCL Hamburg (currently the CSAV Licanten) in the Gulf of Aqaba on December 31, 2009. CSCL Hamburg’s next dry-docking was originally scheduled for 2013; however we combined the repairs of the CSCL Hamburg with the scheduled dry-docking, which defers the vessel’s next scheduled dry-docking to 2015. This dry-docking resulted in 12 days of scheduled off-hire. The CSCL Hamburg returned to service in April 2010. During 2010, we also completed the dry-dockings for the CSCL Vancouver, CSCL Sydney, CSCL New York, CSCL Melbourne, New Delhi Express, CSCL Brisbane and Dubai Express. These dry-dockings resulted in a total of 119 days of scheduled off-hire. Our vessel utilization since our initial public offering August 2005 is 99.1%.

Ship Operating Expenses

The increase in ship operating expenses was mainly due to the increase in ownership days, and the dollar impact thereof, for the year ended December 31, 2010 was due to the following:

   Ownership Days
Impact
   $ Impact
(in  millions)
 

2010 vessel deliveries

   2,854    $17.8  

Full year contribution for 2009 vessel deliveries

   1,289     7.3  

Changes in extraordinary* costs and expenses not covered by the fixed fee

   —       2.8  
          

Total

   4,143    $27.9  
          

*Extraordinary costs and expenses are defined in our management agreements and do not relate to extraordinary items as defined by financial reporting standards.

Depreciation

The increase in depreciation expense for the year ended December 31, 2010 was due to the additional ownership days from the 13 deliveries in 2010 and a full period for the seven deliveries in 2009.

General and Administrative Expenses

The increase in general and administrative expenses for the year ended December 31, 2010 was primarily due to the increase in non-cash share based compensation resulting from higher share prices at the awards’ grant dates and increased costs to support growth.

Interest Expense

Interest expense was composed of interest at the variable rate plus margin incurred on debt for operating vessels and a reclassification of amounts from accumulated other comprehensive income related to previously designated hedging relationships. The increase in interest expense for the year ended December 31, 2010, was primarily due to higher average operating debt balances as compared to the year ended December 31, 2009. The average LIBOR for the year ended December 31, 2010 was 0.4% which was consistent with the prior year. Although we enter into fixed interest rate swaps, the difference between the variable interest rate and the swapped fixed rate on operating debt is recorded in our change in fair value of financial instruments caption as required by financial reporting standards. The interest incurred on our long-term debt for our vessels under construction was capitalized to the respective vessels under construction.

Undrawn Credit Facility Fee

The decrease in undrawn credit facility fees was due to lower average undrawn balances on our credit facilities due to increased debt draws for construction and final delivery of vessels. We pay commitment fees ranging from 0.2% to 0.35% on our credit facilities, which were expensed as incurred.

Amortization of Deferred Charges

Amortization of deferred charges relating to our financing fees increased by 30.3%, or $0.5 million, to $1.9 million for the year ended December 31, 2010, from $1.5 million for the year ended December 31, 2009. Financing fees on leases were deferred and amortized using the effective interest rate method over the term of the underlying obligation. Financing fees on credit facilities were deferred and amortized on a straight-line basis over the term of the facility based on amounts available under the facilities. To the extent that the amortization of the deferred financing fees related to our operating credit facilities, the amortization is expensed while the amortization of the deferred financing fees relating to our construction facilities were capitalized to the related vessels under construction.

Amortization relating to dry-dock was consistent with the prior year. We applied the deferral method of accounting for dry-docking activities whereby actual costs incurred are deferred and amortized on a straight-line basis over the period until the next scheduled dry-docking activity.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a loss of $241.0 million for the year ended December 31, 2010 compared to a gain of $46.5 million for the prior year. The change in fair value loss of $241.0 million for the year ended December 31, 2010 was due to decreases in the forward LIBOR curve and overall market changes in credit risk since December 31, 2009.

All of our interest rate swap agreements and our swaption agreement were marked to market with all changes in the fair value of these instruments recorded in “Change in fair value of financial instruments” in the Statement of Operations.

Please read “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for further discussion.

Other expenses

Additional charges of $1.1 million were accrued for in the three months ended June 30, 2009. This amount is due to the shipyards in connection with the 11 options of $0.1 million each that were exercised. These amounts are due at the deferred delivery date of each vessel and are considered to represent the cost of entering into the delivery deferral options.

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008

The following discussion of our financial condition and results of operations is for the years ended December 31, 2009 and 2008. The consolidated financial statements have been prepared in accordance with GAAP and, except where otherwise specifically indicated, all amounts are expressed in U.S. dollars.

The following table presents our operating results for the years ended December 31, 2009 and 2008.

   Year Ended
December 31,
2009
  Year Ended
December 31,
2008
 

Statement of operations data (in thousands of dollars):

   

Revenue

  $285,594   $229,405  

Operating expenses:

   

Ship operating

   80,162    54,416  

Depreciation

   69,996    57,448  

General and administrative

   7,968    8,895  
         

Operating earnings

   127,468    108,646  

Other expenses (income):

   

Interest expense

   21,194    33,035  

Interest income

   (311  (694

Undrawn credit facility fee

   4,641    5,251  

Amortization of deferred charges

   2,042    1,825  

Change in fair value of financial instruments

   (46,450  268,575  

Other expenses

   1,100    —    
         

Net earnings (loss)

  $145,252   $(199,346
         

Common shares outstanding at year end:

   67,734,811    66,800,141  

Per share data (in dollars):

   

Basic earnings (loss) per Class A and B common share

  $1.94   $(3.12

Diluted earnings (loss) per Class A and B common share(1)

  $1.75   $(3.12

Dividends paid per Class A and B common share

  $0.775   $1.90  

Basic and diluted earnings (loss) per Class C common share

  $—     $—    

Dividends paid per Class C common share

  $—     $—    

Statement of cash flows data (in thousands of dollars):

   

Cash flows provided by (used in):

   

Operating activities

  $94,576   $124,752  

Investing activities

   (409,520  (634,782

Financing activities

   312,059    523,181  
         

Net increase (decrease) in cash and cash equivalents

  $(2,885 $13,151  
         

Selected balance sheet data (in thousands of dollars):

   

Cash and cash equivalents

  $133,400   $136,285  

Vessels

   3,485,350    3,126,489  

Other assets

   45,697    34,098  
         

Total assets

  $3,664,447   $3,296,872  
         

Other liabilities

   30,692    23,654  

Fair value of financial instruments

   280,445    414,769  

Long-term debt

   1,883,146    1,721,158  

Other long-term liabilities

   410,598    390,931  

Shareholders’ equity

   1,059,566    746,360  
         

Total liabilities and shareholders’ equity

  $3,664,447   $3,296,872  
         

Other data:

   

Number of vessels in operation at period end

   42    35  

Average age of fleet in years at period end

   4.9    4.8  

TEU capacity at period end

   187,456    158,483  

Average remaining initial term on outstanding charters

   7.1    7.6  

Fleet utilization

   99.7  99.3

(1)Diluted earnings per share for the year ended December 31, 2009 has been revised primarily to correctly record the impact of the convertible Series A Preferred Shares on the denominator for only the period they were outstanding during the year. Diluted earnings per share for the year ended December 31, 2009 has been revised by an immaterial amount from $1.58 per share (as previously reported) to $1.75 per share.

In 2008, we accepted delivery of six vessels. We began 2009 with 35 vessels in operation and took delivery of seven newbuilding vessels during 2009 for a total of 42 vessels in operation at December 31, 2009. Operating days are the primary driver of revenue while ownership days are the driver for ship operating costs.

   Year Ended December 31,   Increase 
   2009   2008   Days   % 

Operating days

   14,003     11,195     2,808     25.1

Ownership days

   14,041     11,277     2,764     24.5

Financial Summary (in millions)  Year Ended December 31,   Change 
       2009          2008       $  % 

Revenue

  $285.6   $229.4    $56.2    24.5

Ship operating expenses

   80.2    54.4     25.7    47.3

Depreciation

   70.0    57.4     12.5    21.8

General and administrative expenses

   8.0    8.9     (0.9  (10.4%) 

Interest expense

   21.2    33.0     (11.8  (35.8%) 

Change in fair value of financial instruments (gain)/loss

   (46.5  268.6     (315.0  (117.3%) 

Other expenses

   1.1    —       1.1    100.0

Revenue

The increase in revenue was due to an increase in operating days, and the dollar impact thereof, for the year ended December 31, 2009 was due to the following:

   Operating Days
Impact
  $ Impact
(in  millions)
 

2009 vessel deliveries

   1,259   $30.5  

Full year contribution for 2008 vessel deliveries

   1,534    25.7  

Scheduled off-hire

   (15  (0.6

Other*

   30    0.6  
         

Total

   2,808   $56.2  
         

*Other includes the impact of: 59 fewer days of unscheduled off-hire off-set by the 29 day ownership impact due to the leap year in 2008 for the 29 vessels in operation at that time.

Vessel utilization was 99.7% for the year ended December 31, 2009, compared to 99.3% for the prior year.

Ship Operating Expenses

The increase in ship operating expense was partially due to the adjustment of technical services fees for the period commencing January 1, 2009 which increased the fees by approximately 23% from the initial technical services fees.

The increase in ownership days, and the dollar impact thereof, for the year ended December 31, 2009 was due to the following:

   Ownership Days
Impact
  $ Impact
(in  millions)
 

Adjustment of technical services fees*

   (29 $11.5  

Full year contribution for 2008 vessel deliveries

   1,522    8.2  

2009 vessel deliveries

   1,271    6.9  

Fewer extraordinary** costs and expenses not covered by the fixed fee

   —      (0.9
         

Total

   2,764   $25.7  
         

*This 29 day ownership impact was due to the leap year in 2008 for the 29 vessels in operation at that time.

**Extraordinary costs and expenses are defined in our management agreements and do not relate to extraordinary items as defined by GAAP.

Depreciation

The increase in depreciation expense for the year ended December 31, 2009 was due to the additional ownership days from the seven deliveries in 2009 and a full year for the 2008 deliveries.

General and Administrative Expenses

The decrease in general and administrative expenses for the year ended December 31, 2009 was primarily due to lower share-based compensation and a reduction in discretionary activities.

Interest Expense

Interest expense was composed of interest at the variable rate plus margin incurred on debt for operating vessels and a non-cash reclassification of amounts from accumulated other comprehensive income related to previously designated hedging relationships. Although the average operating debt balance was higher in the year ended December 31, 2009 compared to the prior year, interest expense decreased due to a decrease in LIBOR. The average LIBOR for the year ended December 31, 2009 was 0.4% compared to 3.0% for the prior year. Although we enter into fixed interest rate swaps, the difference between the variable interest rate and the swapped fixed rate on operating debt was recorded in our change in fair value of financial instruments caption as required by financial reporting standards. The interest incurred on our long-term debt for our vessels under construction was capitalized to the respective vessels under construction.

Undrawn Credit Facility Fee

The decrease in undrawn credit facility fees was due to lower average undrawn balances on our credit facilities due to increased debt draws for construction and final delivery of vessels. We pay commitment fees ranging from 0.2% to 0.35% on our credit facilities, which were expensed as incurred.

Amortization of Deferred Charges

Amortization of deferred charges relating to our financing fees increased by 14.4%, or $0.2 million, to $1.5 million for the year ended December 31, 2009, from $1.3 million for the year ended December 31, 2008. Financing fees were deferred and amortized over the terms of the individual credit facilities using the effective interest yield basis. To the extent that the amortization of the deferred financing fees related to our operating credit facilities, the amortization was expensed while the amortization of the deferred financing fees relating to our construction facilities were capitalized to the related vessels under construction.

Amortization relating to dry-dock was consistent with the prior year. We applied the deferral method of accounting for dry-docking activities whereby actual costs incurred were deferred and amortized on a straight-line basis over the period until the next scheduled dry-docking activity.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a gain of $46.5 million for the year ended December 31, 2009, compared to a loss of $268.6 million for the prior year. The change in fair value gain of $46.5 million for the year ended December 31, 2009 was due to increases in the forward LIBOR curve and overall market changes in credit risk since December 31, 2008. During the year ended December 31, 2009 and 2008, the change in fair value of financial instruments includes losses of $nil and $1.6 million, respectively, for ineffectiveness on interest rate swaps designated as hedges. Also, included in the change in fair value of financial instruments for the year ended December 31, 2008, was a $1.6 million charge to earnings from accumulated other comprehensive loss for the two interest rate swaps that were de-designated during the three months ended March 31, 2008. We have de-designated these interest rate swaps as a result of certain changes in the forecasts of probable debt which decreased the probable notional debt balances at certain future interest settlement periods.

On September 30, 2008, due to the compliance and expense burden associated with applying hedge accounting, we elected to prospectively de-designate all interest rate swaps for which we were applying hedge accounting treatment. As a result, from October 1, 2008, all of our interest rate swap agreements and our swaption agreement were marked to market with all changes in the fair value of these instruments recorded in “Change in fair value of financial instruments” in the Statement of Operations. Prior to de-designation on September 30, 2008, approximately 30% of the change in fair value was recorded in “Accumulated other comprehensive loss” in the equity section of our balance sheet for our designated swaps with the change in fair value of our non-designated swaps recorded in “Change in fair value of financial instruments” in the statement of operations.

Change in fair value of derivative financial instruments is a required accounting adjustment under financial reporting standards. At the end of each reporting period, we must record a mark-to-market adjustment for our interest rate swap agreements and swaption agreement as though the instruments were realized as of the reporting date.

Please read “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for further discussion.

Other expenses

Additional charges of $1.1 million were accrued for in the three months ended June 30, 2009. This amount is due to the shipyards in connection with the 11 options of $0.1 million each that were exercised. These amounts are due at the deferred delivery date of each vessel and are considered to represent the cost of entering into the delivery deferral options.

C.    Liquidity and Capital Resources

Liquidity and Cash Needs

As at December 31, 2010, our cash and cash equivalents totaled $34.2 million. Our primary short-term liquidity needs are to fund our operating expenses, including payments under our management agreement, and payment of our quarterly dividend. Our medium-term liquidity needs primarily relate to the purchase of the containerships we have contracted to purchase. Our long-term liquidity needs primarily relate to vessel acquisitions and debt repayment.

We anticipate that our primary sources of funds for our short and medium-term liquidity needs will be our committed credit facilities, new credit facilities, new lease obligations, additional equity offerings as well as our

cash from operations, while our long-term sources of funds will be from cash from operations and/or debt or equity financings. As of December 31, 2010, the estimated remaining installments on the 14 vessels we had contracted to purchase, or lease as the case may be, was approximately $975 million, which we will fund primarily from our credit facilities, lease obligations, and cash from operations. As a result of the reduction of the corporate guarantee and non-recourse sale-leaseback for Hull No. 2180 signed in October 2010, we believe the availability under our credit and lease facilities and current and anticipated operating cash flows less dividends are similarlysufficient to fund the remaining payments for our contracted newbuilding program. We do not believe we will need to issue any additional equity in order to permit us to fund our contracted $1.0 billion newbuilding program. Future equity issuances may be considered for growth so long as our strict return requirements are met.

Our dividend policy heavily impacts our future liquidity needs. Since our initial public offering, our board of directors adopted a dividend policy to pay a regular quarterly dividend on our common shares while reinvesting a portion of our operating cash flow in our business. Retained cash may be used to, among other things, fund vessel or fleet acquisitions, other capital expenditures and debt repayments, as determined by our board of directors. This dividend policy reflects our judgment that by retaining a portion of our cash in our business over the long-term, we will be able to provide better value to our shareholders by enhancing our longer term dividend paying capacity. In February 2011, our board of directors adopted a progressive dividend policy aimed at increasing our dividends in a manner that preserves our long-term financial strength and ability to expand our fleet. We expect this policy to increase dividends paid to holders of our Class A common shares. For more information, please read “Item 8. Financial Information—A. Financial Statements and Other Financial Information—Dividend Policy.”

Financing Facilities

The following table summarizes our credit and lease facilities as of December 31, 2010. In addition, our credit and lease facilities are described in Notes 7 and 8, respectively, to our consolidated financial statements included in this report.

Name

  Amount
Outstanding
(millions)
   Amount
Committed
(millions)
   Amount
Available
(millions)
 

$1.3 billion credit facility(1)

  $1,032.7    $1,300.0    $—    

$920.0 million revolving credit facility

   718.7     920.0     201.3  

$365.0 million revolving credit facility – Tranche A

   65.0     70.8     5.8  

$365.0 million revolving credit facility – Tranche B

   258.6     271.0     12.4  

$291.2 million credit facility

   —       291.2     291.2  

$235.3 million credit facility

   104.1     235.3     131.2  

$218.4 million credit facility

   217.7     217.7     —    

$150.0 million credit facility

   —       150.0     150.0  
               
   2,396.8     3,456.0     791.9  
               

$400.0 million lease (limited recourse to Seaspan Corporation)(2)

   383.8     400.0     16.2  

$150.0 million lease (non-recourse to Seaspan Corporation)(3)

   82.1     150.0     67.9  

$150.0 million lease (non-recourse to Seaspan Corporation) (3)

   21.0     150.0     129.0  
               
   486.9     700.0     213.1  
               
   2,883.7     4,156.0     1,005.0  
               

(1)We are able to draw additional funds under this facility so long as the loan to market value ratio, being the ratio of the outstanding principal amount of the loan immediately after a drawing to the market value of the vessels that are provided as collateral under that facility, does not exceed 70%. Based on a valuation of the vessels financed under the $1.3 billion credit facility that was obtained in December 2010 (which was on a without-charter basis as required by our credit facility), we are currently unable to borrow the remaining $267 million available under this facility. This restriction does not impact the repayment of amounts borrowed.

(2)The amount outstanding of $383.8 million represents amounts funded by the lessor. The difference between the carrying value of this facility and the amount outstanding is due to implicit interest accrued for financial reporting purposes. On October 21, 2010, the amount of the lease guaranteed by Seaspan Corporation was significantly reduced.

(3)Amounts outstanding are owed by a wholly owned subsidiary of Seaspan Corporation and are non-recourse to Seaspan Corporation.

Our Credit Facilities

We primarily use our credit facilities to finance the construction and acquisition of vessels. Our credit facilities are, or will be upon vessel delivery, secured by first-priority mortgages granted on 61 of our vessels, together with other related security, such as assignments of shipbuilding contracts and refund guarantees for the vessels, assignments of time charters and earnings for the vessels, assignments of insurances for the vessels and assignment of management agreements for the vessels.

As of December 31, 2010, our revolving credit facilities and term loans provided for borrowings of up to $3.5 billion, of which $2.4 billion was outstanding. Approximately $267 million of such $3.5 billion was not available to us as of that date. Interest payments on the revolving credit facilities are based on LIBOR plus margins, which ranged between 0.5% and 0.85% as of December 31, 2010. We may prepay certain loans under long-term charters. Sixteenour revolving credit facilities without penalty, other than breakage costs and opportunity costs in certain circumstances. We are required to prepay a portion of thosethe outstanding loans under certain circumstances, such as the sale or loss of a vessel where we do not substitute another appropriate vessel or where the ratio of the loan-to-market value of the remaining collateral vessels exceeds a certain percentage. Amounts prepaid in accordance with these provisions may be reborrowed, subject to certain conditions, including, in one credit facility, requirements for a loan-to-value ratio condition to advances. Certain of our revolving credit facilities also require a commitment fee per annum calculated on the undrawn, uncancelled portion of the facility, where such fee ranges from 0.2% to 0.3%.

Interest payments on our term loans are based on either LIBOR plus margins, which ranged between 0.35% and 1.0% as of December 31, 2010 or, for a portion of one of our term loans, KEXIM plus margins, which was 0.65% as of December 31, 2010. We may prepay all term loans without penalty, other than breakage costs in certain circumstances. We are required to prepay a portion of the outstanding loans under certain circumstances, including the sale or loss of a vessel if we do not substitute another vessel. Our term loans also require a commitment fee per annum calculated on the undrawn, uncancelled portion of the facility, where such fee is 0.3% on one term loan and 0.35% on the other.

Our Lease Facilities

As at December 31, 2010, we had lease obligations of approximately $543 million. Under our lease agreements, subject to payment of a termination fee in certain circumstances, the lessee may voluntarily terminate a lease agreement during or after the construction period if the lease transactions are determined to be economically or commercially burdensome. The lessee will also be required to prepay rental amounts, broken funding costs and other costs to the lessor in certain circumstances, including, among others, a change in law which will result in the lessor incurring a material liability or increased liability arising out of its ownership of the vessel beyond its day-one liabilities that does not entitle the lessor to increase the rental payment.

Our wholly owned subsidiary Seaspan Finance I Co. Ltd. was a party, as lessee, to lease agreements with Peony, as lessor, for a lease facility used to finance the acquisition of five 4500 TEU vessels. The first vessel was delivered in October 2010. This vessel has commenced, and the remaining four vessels will commence, operations under 12-year fixed-rate time charters with COSCON, sevenK-Line upon delivery. The lessee is and will be a party to each of the time charters with K-Line, and we have guaranteed the performance of the lessee’s obligations to K-Line.

The lessee’s obligations under this facility are secured by a general assignment of earnings (other than those related to the time charters for the vessels), insurances and requisition hire for each vessel and a corporate guarantee issued by us in respect of the obligations of the lessee and our Manager. In October 2010, the lessee amended this facility to provide that our guarantee of scheduled rental and termination amounts is limited to a significantly reduced fixed amount of the lessee’s obligations. As part of this reduction, we have placed $60.0 million in a deposit account over which the lessor has a first priority interest.

In February 2010, we entered into a sale-leaseback transaction with an affiliate of a leading Chinese bank for a 12-year sale-leaseback of one of our 13100 TEU newbuilding vessels in an amount up to $150.0 million. This transaction involves a vessel that we had previously contracted to purchase from HHI and will be under a time charter with MOLCOSCON. Following the sale, the purchaser chartered the vessel to one of our subsidiaries and our subsidiary sub-chartered to us through an inter-company operating charter. We will still time-charter the vessel to COSCON in accordance with the terms of our original time charter. Our subsidiary’s financial indebtedness under the charter is non-recourse to us.

In October 2010, one of our subsidiaries entered into a sale-leaseback transaction for one of our 13100 TEU newbuilding vessels with an affiliate of Crédit Agricole CIB. This vessel is being constructed by HHI and will be under a time charter with COSCON. Upon delivery from HHI, the vessel will be purchased by the affiliate of Crédit Agricole CIB, and through an inter-company operating charter with our subsidiary, we will still time-charter the vessel to COSCON in accordance with the terms of our original time charter. Our subsidiary’s financial indebtedness under the charter is non-recourse to us.

Standard Terms under our Credit and Lease Facilities

We are subject to customary conditions before we may borrow under our credit and lease facilities, including, among others, that no event of default is outstanding and that there has been no material adverse change in our ability to make all required payments under the facilities. Under one of our revolving credit facilities, we are also subject to certain conditions subsequent to drawing including, among others, registration of certain refund guarantees with applicable authorities in China.

Our credit and lease facilities also contain various covenants limiting our ability to, among other things:

allow liens to be placed on the collateral securing the facility;

enter into mergers with other entities;

conduct material transactions with affiliates; or

change the flag, class or management of the vessels securing the facility.

Certain of our credit and lease facilities may also contain financial covenants, including, among others, those that require Seaspan Corporation and its subsidiaries to maintain:

a tangible net worth in excess of $450 million;

total borrowings at less than 65% of the total assets. Total borrowings and total assets are terms defined in our credit facilities and differ from those used in preparing our consolidated financial statements, which are prepared in accordance with GAAP;

cash on hand and cash equivalents of $25 million if at any time more than 50% of the collateral vessels are subject to time charters having a remaining term of one year or less;

a net interest coverage ratio greater than 2.50 to 1.0; and

an interest and principal coverage ratio greater than or equal to 1.1 to 1.0.

Our credit and lease facilities contain customary events of default, including, among others, for non-payment of principal or interest, breach of covenants, material inaccuracy of representations, default under other material indebtedness and bankruptcy.

Cash Flows

The following table summarizes our sources and uses of cash for the periods presented:

   Year ended
December 31,

2010
(in thousands)
  Year ended
December 31,
2009

(in thousands)
 

Net cash flow from operating activities

  $153,587   $94,576  

Net cash flow used in investing activities

   (782,448  (409,520

Net cash flow from in financing activities

   529,680    312,059  

Operating Cash Flows

Net cash flows from operating activities increased to $153.6 million for the year ended December 31, 2010, from $94.6 million for the year ended December 31, 2009. The increase of $59.0 million was primarily due to higher operating earnings before depreciation, which were partially offset by (1) increased swap settlement payments, (2) increased interest expense, net of amounts capitalized and (3) working capital changes, as shown below:

   Year ended
December 31,
2010
(in millions)
 

Higher operating earnings before depreciation

  $92.0  

Higher swap settlements

   (25.8

Higher cash interest expense, net of amounts capitalized

   (6.9

Working capital changes

   (0.7

Other

   0.4  
     

Increase in net cash from operating activities over the same period in the prior year

  $59.0  
     

The higher operating earnings before depreciation resulted from the delivery of 13 additional vessels in 2010. The increase in swap settlement payments were primarily due to lower LIBOR and higher notional amounts on our swaps. The increase in interest expense, net of amounts capitalized, is primarily due to the increase in our debt balances from our increased number of operating vessels.

Net cash flow from operating activities decreased to $94.6million for the year ended December 31, 2009, from $124.8 million for the year ended December 31, 2008. The decrease of $30.2 million was primarily due to increased swap settlement payments, which were partially offset by higher operating earnings before depreciation, as show below:

   Year ended
December 31,
2009
 
   (in millions) 

Higher operating earnings before depreciation

  $31.3  

Higher swap settlements

   (61.3

Other

   (0.2
     

Increase in net cash from operating activities over the same periods in the prior year

  $(30.2
     

The higher swap settlement payments were primarily due to lower LIBOR and higher average notional amounts in the swap agreements in 2009 compared to 2008. The increase in operating earnings before depreciation during the year ended December 31, 2009 was due to the delivery of seven additional vessels in 2009.

Investing Cash Flows

Cash used in investing activities increased to $782.4 million for the year ended December 31, 2010, from $409.5 million for the year ended December 31, 2009. The increase of $372.9 million was primarily due to the increase in the amount of installments paid in 2010 under our shipbuilding contracts and $60.0 million which we have placed in a deposit account as part of the guarantee reduction to our lease facility used to finance the acquisition of five 4500 TEU vessels.

Cash used in investing activities decreased to $409.5 million for the year ended December 31, 2009, from $634.8 million for the year ended December 31, 2008. The decrease of $225.3 million for the year ended December 31, 2009 as compared to 2008 is primarily due to the decrease in the amount of installments paid in 2009 under our shipbuilding contracts.

Financing Cash Flows

Net cash flow from financing activities increased to $529.7 million for the year ended December 31, 2010, from $312.1 million for the year ended December 31, 2009. The increase of $217.6 million was primarily due to net draws on our credit facilities and reduced dividend payments. Net draws on our credit facilities were $351.6 million more than in 2009 due to more installments under our shipbuilding contracts being due in 2010. We also reduced the amount of dividends we paid in 2010 by $21.1 million over the prior year. The increased cash flow from these financing activities was partially offset by a decrease in net proceeds from equity issuances and the absence of certain lease-related payments to us. In 2010 we raised net proceeds of $25.9 million from the issuance of Series B Preferred Shares, which was $172.5 million less than net proceeds of $198.4 million we raised from the issuance of Series A Preferred Shares in 2009. In addition, we did not receive an amount similar to the $21.3 million we received in 2010 as part of the ICBC leasing arrangement.

Net cash flow from financing activities decreased to $312.1 million for the year ended December 31, 2009, from $523.2 million for the year ended December 31, 2008. The decrease of $211.1 million was primarily due to decreased net draws on our credit facilities and lower proceeds from our equity issuances. Net draws on our credit facilities were $219.7 million less than in 2008 due to fewer installments under our shipbuilding contracts being due in 2009. Our net proceeds of $198.4 million from the issuance of Series A Preferred Shares in 2009 was $29.1 million less than the net proceeds of $227.5 million we raised from the issuance of common shares in 2008. Our cash flow from financing also decreased because we did not receive an amount similar to the $35.4 million reimbursement we received in 2008 as part of the leasing arrangement we entered into with Peony. The decreased cash flow from these financing activities was partially offset by our reduced dividend payments. The amount of dividends we paid in 2009 decreased by $70.7 million over the prior year.

Ongoing Capital Expenditures and Dividends

The average age of the vessels in our operating fleet is approximately five years; as such, no significant capital expenditures for dry-docking and maintenance have occurred in the past. On December 31, 2009, the CSCL Hamburg (currently the CSAV Licanten) went aground in the Gulf of Aqaba en route to Singapore. No personal injuries or pollution resulted from the incident. All repair costs are expected to be covered by insurance, net of the insurance deductible. The vessel was off-hire for approximately 100 days and returned to service on April 12, 2010. Although the vessel was not expected to undergo its next scheduled 5-year survey until 2013, we chose to combine the repairs with the scheduled dry-docking to achieve savings and defer the next scheduled dry-docking to 2015.

Our Manager has included the cost of routine dry-docking within the technical services fee we pay pursuant to the management agreement. In 2010, the CSCL Vancouver, CSCL Sydney, CSCL New York, CSCL Melbourne, New Delhi Express, CSCL Brisbane and Dubai Express underwent their 5-year survey for a total of eight dry-dockings, including the CSCL Hamburg. In 2009, the CSCL Oceania and the CSCL Africa underwent their 5-year survey for a total of two dry-dockings. In 2008, the CSCL Hamburg underwent 10 days of routine

dry-docking work. There were no other scheduled 5-year surveys in 2008. There are scheduled 5-year surveys in 2011 for six of our 4250 TEU vessels and one of our 4800 TEU vessels. In addition, although the CSCL Sao Paulo was not scheduled to undergo its next 5-year survey until 2013, we chose to combine the scheduled dry-docking for this vessel with CSAV.repairs initiated in December 2010 to achieve savings and defer the next scheduled dry-docking for this vessel to 2016.

The technical services fee does not cover extraordinary costs or expenses. We are insured for certain matters, but we cannot assure you that our insurance will be adequate to cover all of these matters. During 2010, we incurred approximately $4.7 million of additional costs and expenses, which are not covered by the technical services fee. These costs include bunkers consumed during dry-docking and off-hire, repair costs and insurance deductibles.

We must make substantial capital expenditures over the long-term to preserve our capital base, which is comprised of our net assets, to continue to refinance our indebtedness or maintain our dividends. We will likely need at some time in the future to retain funds to provide reasonable assurance of maintaining our capital base over the long-term. We believe it is not possible to determine now, with any reasonable degree of certainty, when and how much of our operating cash flow we should retain in our business to preserve our capital base. Factors that will impact our decisions regarding the amount of funds to be retained in our business to preserve our capital base, including the following:

the remaining lives of our vessels;

the returns that we generate on our retained cash flow, which will depend on the economic terms of any future acquisitions and charters are currently unknown;

future market charter rates for our vessels, particularly when they come off charter, which are currently unknown;

our future operating and interest costs, particularly after the expiration of the technical services fees and financing arrangements described in this Annual Report (our technical services fees are fixed until December 31, 2011 and will be subject to renegotiation thereafter; our initial financing costs are effectively hedged until at least February 2014; however, future operating and financing costs are currently unknown);

our future refinancing requirements and alternatives and conditions in the relevant financing and capital markets at that time; and

unanticipated future events and other contingencies. Please read “Item 3. Key Information—D. Risk Factors.”

Our board of directors will periodically consider these factors in determining our need to retain funds rather than pay them out as dividends. Unless we are successful in making acquisitions with outside sources of financing that add a material amount to our cash available for retention in our business or unless our board of directors concludes that we will likely be able to recharter our fleet upon expiration of existing charters at rates higher than the rates in our current charters, our board of directors will likely determine at some future date to reduce, or possibly eliminate, our dividend for reasonable assurance that the Company is retaining the funds necessary to preserve our capital base.

The following dividends were paid or accrued:

   Year Ended December 31, 
   2010   2009 
   (dollars in thousands, except per share amounts) 

Dividends on class A common shares

    

Declared, per share

  $0.450    $0.775  

Paid in cash

   22,958     44,841  

Reinvested in common shares through DRIP

   7,700     7,132  
          
  $30,658    $51,973  
          

Dividends on preferred shares

    

Series A, accrued

  $26,918    $14,464  
          

Series B, paid in cash

  $777    $—    
          

In February 2011, our board of directors adopted a progressive dividend policy aimed at increasing our dividends in a manner that preserves our long-term financial strength and ability to expand our fleet. We expect this policy to increase dividends paid to holders of our Class A common shares. For more information, please read “Item 8. Financial Information—A. Financial Statements and Other Financial Information—Dividend Policy.”

Dividends on our charterers andSeries C Preferred Shares have accrued at a rate of 9.5% per annum from the provisionsdate of our time charter contracts, please read “Information onissuance of such shares in January 2011. This rate is subject to adjustment pursuant to the Company—B. Business Overview—Time Charters.”Statement of Designation of the 9.5% Cumulative Redeemable Perpetual Preferred Shares—Series C.

D.    Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, and we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent obligations. On an on-going basis, we evaluate our estimates and judgments. We base our estimates on historical experience and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates.

Senior management has discussed with our audit committee the development, selection, and disclosure of accounting estimates used in the preparation of our consolidated financial statements.

Amortization of Dry-Docking Activities

We defer costs incurred for dry-docking activities. Dry-docking of our vessels is performed every five years and includes major overhaul activities that are comprehensive and all encompassing. Regular repairs and maintenance during operations on the other hand are limited in scope.

Repairs and maintenance normally performed on an operational vessel either at port or at sea are limited to repairs to specific damages caused by a particular incident or normal wear and tear, or minor maintenance to minimize the wear and tear to the vessel. Above the water line repairs, minor deck maintenance and equipment repairs may be performed to the extent the operations and safety of the crew and vessel are not compromised.

Major overhaul performed during dry-docking is differentiated from normal operating repairs and maintenance by these factors: safety, operational priorities, dry-dock specific equipment, shore contractor skills, time and earnings capability. A vessel at dry-dock under the requirements of a classification society must

perform certain assessments, refurbishments, replacements and alterations within a safe non-operational environment that allows for complete shutdown of certain machinery and equipment, navigational, ballast (keep the vessel upright) and safety systems. Such shutdowns are either not allowed during a regular port call or are operationally difficult to effect and extremely unsafe at sea. Below water inspection and overhaul (such as hull steel replacement and the painting/resurfacing of the hull, rudder, propeller or thrusters) and the examination of internal tanks, engine casing integrity and internal engine components require access to areas normally filled or enveloped with water, lubes or fuel and are extremely hazardous during vessel operations even at port. Other areas not accessible for major overhaul during vessel operations include cargo holds, hatch covers, and main switchboard, which are continuously involved in the vessel’s activities. Additional specialized equipment required to access and maneuver vessel components such as hatch covers, which weigh approximately 32 tons, and engine room blowers are not available at regular ports and such activities have an impact on revenue.

A regular port visit requires a vessel to continuously unload and reload containers and the vessel must clear the port within a short timeframe. Major overhauls during dry-dock, where components are dismantled, examined, altered, replaced, resealed and refinished, may take days to complete far beyond the duration of a port call. Additionally, specialized shore skills from contractors and dry-dock specific equipment are required to perform a major comprehensive overhaul. Examination of large complex engine components, electrical systems, pipes and valves, internal tanks, the aggregate of which encompasses a vast portion of the vessel, are unsafe to examine during continuous vessel operations and are, therefore, deferred to a safe dry-dock environment. Minimizing container port stay mitigates the risk of off-hire and reduced revenues, while a major overhaul during dry-dock, which may include technological changes, can help control future costs and, in combination, enhance long term profitability.

The major components of dry-docking costs include: 1)(1) yard costs, which may include riggers, pilot/tugs, yard fees, hull painting service, deck repairs (such as steel work, anchors, chains, valves, tanks, and hatches) and engine components (such as shafts, thrusters, propeller, rudder, main engine and auxiliary machinery); 2)(2) non-yard costs which includes the paint, technician service costs and parts ordered specifically for dry-dock; and 3)(3) other costs associated with communications, pilots, tugs, survey fees, port fees and classification fees.

We currently defer dry-docking amounts based on the costs incurred under the management agreements. At the date of our initial public offering, certain amounts were paid by our predecessor to our Manager for expected dry-docking liabilities relating to certain vessels currently in operation. These amounts are not included in our consolidated financial statements as they are recorded by our Manager. As of December 31, 2009,2010, we estimate that the five-year China based dry-docking costs for the vessels currently in operation would range from $0.4 million to $0.6 million per vessel. Based on this estimate, if the current operating fleet dry-docked and the dry-docking costs were deferred, the expected annual amortization of dry-docking costs would be approximately $3.8$5.3 million for the 4255 vessels in our fleet as of December 31, 2009.2010. The actual costs may be materially different than this estimate. Dry-docking costs are subject to changes in global economics, port availability and changes in trade routes made by the charterer, which may cause actual costs to be materially different than current estimates. We will reimburse the Manager for the amount of dry-docking costs that are considered to be “extraordinary costs and expenses” as defined in the management agreements.

Vessel Lives

We depreciate our vessels using the straight-line method over their estimated useful lives. We review the estimate of our vessels useful lives on an ongoing basis to ensure they reflect current technology, service potential, and vessel structure. For accounting purposes, we estimate the useful life of the vessels will be 30 years from the date of initial completion. Should certain factors or circumstances cause us to revise our estimate of vessel service lives in the future, depreciation expense could be materially lower or higher. Such factors include, but are not limited to, the extent of cash flows generated from future charter arrangements, changes in international shipping requirements, and other factors, many of which are outside of our control.

Impairment of Long-lived Assets

Our business is capital intensive and has required, and will continue to require, significant investments in vessels. At December 31, 2009,2010, the net book value of our vessels was $3.5$4.2 billion. We estimate the useful lives of vessels and this is used as the basis for recording depreciation and amortization. Recoverability of vessels is measured by comparing the net book value of an asset to the undiscounted future net cash flows expected to be generated from the asset over its estimated useful life. An impairment charge is recognized in cases where the undiscounted expected future cash flows from an asset are less than the net book value of the asset. The impairment charge is equal to the amount by which the net book value of the asset exceeds its fair value.

We test our long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Examples of such events or changes in circumstances related to our long-lived assets include, but are not restricted to: a significant adverse change in the extent or manner in which it is being used or in its physical condition; a significant adverse change in legal factors or in the business climate that could affect its value, including an adverse action or assessment by a foreign government that impacts the use of the asset; or a current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with its use. To the extent that there has been a general decline in the market value of vessels, we will analyze our vessels for impairment to the extent that the decline in market value is expected to impact the future cash flows of the vessel. In cases where the vessel being analyzed is under a long-term charter party agreement, a decline in the current market value of the vessel may not impact the recoverability of its carrying value.

There are two key variables that impact our estimate of future cash flows: (1) the length and rates of any current time charter and management arrangements, and (2) the terms of any arrangements entered into beyond the current time charter. Cash flow estimates are based on current contractual rates, to the extent such information is available. Longer term rate estimates are based on our view of long-term supply and demand and consideration is given to many factors including but not limited to estimates of changes in general economic conditions, future shipping capacity, and the global industry cost structure. Changes in these assumptions will impact our estimates of future cash flows. Consequently, it is possible that our future operating results could be adversely affected by asset impairment charges or by changes in depreciation and amortization rates related to our vessels.

Intangible Assets

For certain vessels where the Company provides lubricants for the operation of such vessels, the Company has a contractual right to have the vessel returned with the same level and complement of lubricants. This contractual right is recorded as an intangible asset at the historical fair value of the lubricants at the time of delivery. Intangible assets are tested for impairment annually or more frequently due to events or changes in circumstances that indicate the asset might be impaired. An impairment loss is recognized when the carrying amount of the intangible asset exceeds its fair value.

Derivative Instruments

Our hedging policies permit the use of various derivative financial instruments to manage interest rate risk. Interest rate swap and swaption agreements have been entered into to reduce our exposure to market risks from

changing interest rates. Derivatives and hedging activities are accounted for in accordance with guidance on disclosures about derivative instruments and hedging activities (FASB ASC 815), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. We recognize the interest rate swap and swaption agreements on the balance sheet at their fair value.values.

To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be formally designated as a hedge at the inceptionThe fair values of the hedging relationship. We considerinterest rate swap and swaption agreements have been calculated by discounting the future cash flows of both the fixed rate and variable rate interest rate payments. The interest rate payments and discount rates were derived from a hedgeyield curve created by nationally recognized financial institutions adjusted for the associated credit risk. The inputs used to be highly effective ifdetermine the change in fair valuevalues of these agreements are readily observable. Accordingly, the derivative hedging instrument is within 80% to 125% of the opposite change inCompany has classified the fair value of the hedged item attributable to the hedged risk. For interest rate swap and swaption agreements that qualify for hedge accounting and are formally designated as cash flow hedges, the changes inwithin Level 2 of the fair value hierarchy as defined by GAAP.

The Company had previously designated certain of theseits interest rate swaps areas accounting hedges and applied hedge accounting to those instruments. While hedge accounting was applied, the effective portion of the unrealized gains or losses on those designated interest rate swaps was recorded in other comprehensive income andincome.

By September 30, 2008, the Company had de-designated all of its interest rate swaps as accounting hedges. Subsequent to their de-designation dates, changes in their fair value are reclassified to earnings when and where the hedged transaction is reflectedrecorded in earnings. Ineffective portions

The Company evaluates whether any of the hedges are recognized in earnings as they occur. Actual cash receipts and/or payments and related accruals on derivatives related to hedges are recorded as adjustments to the interest income or interest expense associated with the hedged item. During the life of the hedge, we formally assess whether each derivative designated as a hedging instrument continues to be highly effective in offsetting changes in the fair value or cash flows of hedged items. If it is determined that a hedge has ceased to be highly effective, we will discontinue hedge accounting prospectively. Furthermore, for hedges that may be highly effective or may continue to be highly effective for accounting purposes, we may not elect to apply hedge accounting or may prospectively discontinue hedge accounting for such hedges.

When we de-designate a hedging relationship and discontinue hedge accounting, we evaluate the future settlements to determine whether there are anypreviously hedged interest rate payments are remote of occurring. The Company has concluded that the previously hedged interest payments are improbable to occur. When such amounts are identified as being improbable, the balance pertaining to these amounts that is includednot remote of occurring. Therefore, unrealized gains or losses in accumulated other comprehensive income is reversed through earnings immediately. When amounts are not identified as improbable, any balances recorded in accumulated other comprehensive income atassociated with the de-designation date are recognized in earnings when the related settlements under the interest rate swap occur.

For interest rate swap agreements and the swaption agreement that are not designated as hedging instruments or have been de-designated, we record changes in the fair value of these instruments in earnings.

On January 31, 2008, we de-designated two of our interest rate swap hedges when we changed our forecasts of probable outstanding debt as a result of certain changes in economic factors and capital structuring.

On September 30, 2008, we elected to prospectively de-designate the remainder of ourpreviously designated interest rate swaps. This election was made due to the compliance burden associated with this accounting policy. The amounts included in other comprehensive loss related to these interest rate swaps will beare recognized in earnings when and where the interest payments willare recognized. If such interest payments were to be recognized.

We do not hedge foreign currency translationidentified as being remote of assets or liabilities or foreign currency transactions or use financial instruments for trading oroccurring, the accumulated other speculative purposes.comprehensive income balance pertaining to these amounts would be reversed through earnings immediately.

Recent Accounting Pronouncements

In June 2009,Effective January 1, 2010, as required by revised guidance issued by the FASB issued guidance on the consolidation of variable interest entities thatFinancial Accounting Standards Board, the Company will apply prospectively effective January 1, 2010. The new guidance will changechanged the evaluationway it evaluates whether it is the primary beneficiary of, whenand therefore consolidates, a variable interest entity, shouldor VIE. The primary beneficiary, under the revised guidance, is the enterprise that has both the power to make decisions that most significantly affect the economic performance of the VIE and has the right to receive benefits or the obligation to absorb losses that in either case could potentially be consolidated and requires additional disclosures about a reporting entity’s involvement in variable interest entities.significant to the VIE. The Company is currently evaluatingadoption of the revised guidance did not have an impact of this new guidance.on the Company’s financial position, financial performance, or cash flows.

Important Financial and Operational Terms and ConceptsGlossary

We use a variety of financial and operational terms and concepts when analyzing our performance.in this Annual Report. These include the following:

Annual Survey. The inspection of a ship pursuant to international conventions, by a classification society surveyor, on behalf of the flag state, that takes place every year.

Ballast. A voyage during which the ship is not laden with cargo.

Bareboat Charter. A charter of a ship under which the shipowner is usually paid a fixed amount of charter hire for a certain period of time during which the charterer is responsible for the ship operating expenses and voyage expenses of the ship and for the management of the ship, including crewing. A bareboat charter is also known as a “demise charter” or a “time charter by demise.”

Bunkers.Heavy fuel and diesel oil used to power a ship’s engines.

Charter.The hire of a ship for a specified period of time or a particular voyage to carry a cargo from a loading port to a discharging port. The contract for a charter is commonly called a charterparty.

Charterer.The party that hires a ship for a period of time or for a voyage.

Charterhire.A sum of money paid to the shipowner by a charterer for the use of a ship. Charterhire paid under a voyage charter is also known as “freight”.

Classification society.An independent organization that certifies that a ship has been built and maintained according to the organization’s rules for that type of ship and complies with the applicable rules and regulations of the country of the ship’s registry and the international conventions of which that country is a member. A ship that receives its certification is referred to as being “in-class”.

Dry-docking.The removal of a ship from the water for inspection and repair of those parts of a ship that are below the water line and other normally inaccessible areas of the vessel.line. During dry-dockings, which are required to be carried out periodically, certain mandatory classification society inspections are carried out and relevant certifications are issued. Dry-dockings for containerships are generally occurrequired once every five years, atone of which must be a Special Survey.

Gross ton. A unit of measurement for the total enclosed space within a ship equal to 100 cubic feet or 2.831 cubic meters.

Hire rate. The payment to the shipowner from the charterer for the use of the vessel.

Hull. Shell or body of a ship.

IMO. International Maritime Organization, a United Nations agency that issues international standards for shipping.

Intermediate survey. The inspection of a ship by a classification society surveyor that takes place 24 to 36 months after each special survey.

Newbuilding. A new ship under construction or just completed.

Off-hire. The period in which a ship is not available for service under a time charter and, accordingly, the charterer generally is not required to pay the hire rate. Off-hire periods can include days spent on repairs, dry-docking and surveys, whether or not scheduled.

Protection and indemnity insurance. Insurance obtained through a special survey may be conducted.mutual association formed by shipowners to provide liability indemnification protection from various liabilities to which they are exposed in the course of their business, and which spreads the liability costs of each member by requiring contribution by all members in the event of a loss.

Scrapping. The sale of a ship as scrap metal.

Ship operating expenses.The costs of operating a ship, primarily consisting of crew wages and associated costs, insurance premiums, management fee, lubricants and spare parts, and repair and maintenance costs. Ship operating expenses exclude fuel cost, port expenses, agents’ fees, canal dues and extra war risk insurance, as well as commissions, which are included in “voyage expenses”.

Special survey.The inspection of a ship by a classification society surveyor that takes place every five years, as part of the recertification of the ship by a classification society.

Spot market.The market for immediate chartering of a ship, usually for single voyages.

TEU.Twenty-foot equivalent unit, the international standard measure for containers and containership capacity.

Time charter.A charter under which the shipowner hires out a ship for a specified period of time. The shipowner is responsible for providing the crew and paying ship operating expenses while the charterer is responsible for paying the voyage expenses and additional voyage insurance. The shipowner is paid charterhire, which accrues on a daily basis.

Voyage charter.A charter under which a shipowner hires out a ship for a specific voyage between the loading port and the discharging port. The shipowner is responsible for paying both ship operating expenses and voyage expenses. Typically, the charterer is responsible for any delay at the loading or discharging ports. The shipowner is paid freight on the basis of the cargo movement between ports.

Voyage expenses.Expenses incurred due to a ship’s traveling from a loading port to a discharging port, such as fuel (bunkers) cost, port expenses, agents’ fees, canal dues, extra war risk insurance and commissions.

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008E.    Research and Development

The following discussion of our financial condition and results of operations is for the years ended December 31, 2009 and 2008. The consolidated financial statements have been prepared in accordance with GAAP and, except where otherwise specifically indicated, all amounts are expressed in U.S. dollars.Not applicable.

The following table presents our operating results for the years ended December 31, 2009 and 2008.

   Year Ended
December 31, 2009
  Year Ended
December 31, 2008
 

Statement of operations data (in thousands of dollars):

   

Revenue

  $285,594   $229,405  

Operating expenses:

   

Ship operating

   80,162    54,416  

Depreciation

   69,996    57,448  

General and administrative

   7,968    8,895  
         

Operating earnings

   127,468    108,646  

Other expenses (income):

   

Interest expense

   21,194    33,035  

Interest income

   (311  (694

Undrawn credit facility fee

   4,641    5,251  

Amortization of deferred charges

   2,042    1,825  

Change in fair value of financial instruments

   (46,450  268,575  

Other expenses

   1,100    —    
         

Net earnings (loss)

  $145,252   $(199,346
         

Common shares outstanding at year end:

   67,734,811    66,800,141  

Per share data (in dollars):

   

Basic earnings (loss) per class A and B common share

  $1.94   $(3.12

Diluted earnings (loss) per class A and B common share

  $1.58   $(3.12

Dividends paid per class A and B common share

  $0.775   $1.90  

Basic and diluted earnings (loss) per class C common share

  $—     $—    

Dividends paid per class C common share

  $—     $—    

Statement of cash flows data (in thousands of dollars):

   

Cash flows provided by (used in):

   

Operating activities

  $94,576   $124,752  

Investing activities

   (409,520  (634,782

Financing activities

   312,059    523,181  
         

Net increase in cash and cash equivalents

  $(2,885 $13,151  
         

Selected balance sheet data (in thousands of dollars):

   

Cash and cash equivalents

  $133,400   $136,285  

Vessels

   3,485,350    3,126,489  

Other assets

   45,697    34,098  
         

Total assets

  $3,664,447   $3,296,872  
         

Other liabilities

   30,692    23,654  

Fair value of financial instruments

   280,445    414,769  

Long-term debt

   1,883,146    1,721,158  

Other long-term liabilities

   410,598    390,931  

Shareholders’ equity

   1,059,566    746,360  
         

Total liabilities and shareholders’ equity

  $3,664,447   $3,296,872  
         

Other data:

   

Number of vessels in operation at period end

   42    35  

Average age of fleet in years at period end

   4.9    4.8  

TEU capacity at period end

   187,456    158,483  

Average remaining initial term on outstanding charters

   7.1    7.6  

Fleet utilization

   99.7  99.3

In 2008, we accepted delivery of six vessels. We began 2009 with 35 vessels in operation and took delivery of seven newbuilding vessels during 2009 for a total of 42 vessels in operation at December 31, 2009. Operating days are the primary driver of revenue while ownership days are the driver for ship operating costs.

   Year Ended December 31,  Increase 
         2009              2008        Days  % 

Operating days

  14,003  11,195  2,808  25.1

Ownership days

  14,041  11,277  2,764  24.5

Financial Summary (in millions)  Year Ended
December 31,
  Change 
   2009  2008  $  % 

Revenue

  $285.6   $229.4  $56.2   24.5

Ship operating expenses

   80.2    54.4   25.7   47.3

Depreciation

   70.0    57.4   12.5   21.8

General and administrative expenses

   8.0    8.9   (0.9 (10.4%) 

Interest expense

   21.2    33.0   (11.8 (35.8%) 

Change in fair value of financial instruments

   (46.5  268.6   (315.0 (117.3%) 

Other expenses

   1.1    —     1.1   100.0

Revenue

The increase in revenue is due to an increase in operating days and the dollar impact thereof, for the year was due to the following:

   Operating Days
impact
  $ impact
(in millions)
 

2009 vessel deliveries

  1,259   $30.5  

Full year contribution for 2008 vessel deliveries

  1,534    25.7  

Scheduled off-hire

  (15  (0.6

Other *

  30    0.6  
        

Total

  2,808   $56.2  
        

*Other includes the impact of: 59 fewer days of unscheduled off-hire off-set by the 29 day ownership impact due to the leap year in 2008 for the 29 vessels in operation at that time.

Vessel utilization was 99.7% for the year ended December 31, 2009, compared to 99.3% for the prior year.

Ship Operating Expenses

The increase in ship operating expense was partially due to the adjustment of technical services fees for the period commencing January 1, 2009 which increased the fees by approximately 23% from the initial technical services fees.

The increase in ownership days, and the dollar impact thereof, for the year was due to the following:

   Ownership Days
impact
  $ impact
(in millions)
 

Adjustment of technical services fees *

  (29 $11.5  

Full year contribution for 2008 vessel deliveries

  1,522    8.2  

2009 vessel deliveries

  1,271    6.9  

Fewer extraordinary ** costs and expenses not covered by the fixed fee

  —      (0.9
        

Total

  2,764   $25.7  
        

*This 29 day ownership impact is due to the leap year in 2008 for the 29 vessels in operation at that time.

**Extraordinary costs and expenses are defined in our management agreements and do not relate to extraordinary items as defined by GAAP.

Depreciation

The increase in depreciation expense was due to the additional ownership days from the seven deliveries in 2009 and a full year for the 2008 deliveries.

General and Administrative Expenses

General and administrative expenses decreased primarily to lower share-based compensation and a reduction in discretionary activities.

Interest Expense

Interest expense is composed of interest at the variable rate plus margin incurred on debt for operating vessels and a non-cash reclassification of amounts from accumulated other comprehensive income related to previously designated hedging relationships. Although the average operating debt balance was higher in the year ended December 31, 2009 compared to the prior year, interest expense decreased due to a decrease in LIBOR. The average LIBOR for the year ended December 31, 2009 was 0.4% compared to 3.0% for the prior year. Although we enter into fixed interest rate swaps, the difference between the variable interest rate and the swapped fixed rate on operating debt is recorded in our change in fair value of financial instruments caption as required by financial reporting standards. The interest incurred on our long-term debt for our vessels under construction is capitalized to the respective vessels under construction.

Undrawn Credit Facility Fee

The decrease in undrawn credit facility fees is due to lower average undrawn balances on our credit facilities due to increased debt draws for construction and final delivery of vessels. We pay commitment fees ranging from 0.2% to 0.35% on our credit facilities, which are expensed as incurred.

Amortization of Deferred Charges

Amortization of deferred charges relating to our financing fees increased by 14.4%, or $0.2 million, to $1.5 million for the year ended December 31, 2009, from $1.3 million for the year ended December 31, 2008. Financing fees are deferred and amortized over the terms of the individual credit facilities using the effective interest yield basis. To the extent that the amortization of the deferred financing fees relates to our operating credit facilities, the amortization is expensed while the amortization of the deferred financing fees relating to our construction facilities are capitalized to the related vessels under construction.

Amortization relating to dry-dock is consistent with the prior year. We apply the deferral method of accounting for dry-docking activities whereby actual costs incurred are deferred and amortized on a straight-line basis over the period until the next scheduled dry-docking activity.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a gain of $46.5 million for the year ended December 31, 2009 compared to a loss of $268.6 million for the prior year. The change in fair value gain of $46.5 million for the year ended December 31, 2009 is due to increases in the forward LIBOR curve and overall market changes in credit risk since December 31, 2008. During the year ended December 31, 2009 and 2008, the change in fair value of financial instruments includes losses of $nil and $1.6 million, respectively, for ineffectiveness on interest rate swaps designated as hedges. Also, included in the change in fair value of financial instruments for the year ended December 31, 2008, is a $1.6 million charge to earnings from accumulated other comprehensive loss for the two interest rate swaps that were de-designated during the three months ended March 31, 2008. We have de-designated these interest rate swaps as a result of certain changes in the forecasts of probable debt which decreased the probable notional debt balances at certain future interest settlement periods.

On September 30, 2008, due to the compliance and expense burden associated with applying hedge accounting, we elected to prospectively de-designate all interest rate swaps for which we were applying hedge accounting treatment. As a result, from October 1, 2008, all of our interest rate swap agreements and our swaption agreement are marked to market with all changes in the fair value of these instruments recorded in “Change in fair value of financial instruments” in the Statement of Operations. Prior to de-designation on September 30, 2008, approximately 30% of the change in fair value was recorded in “Accumulated other comprehensive loss” in the equity section of our balance sheet for our designated swaps with the change in fair value of our non-designated swaps recorded in “Change in fair value of financial instruments” in the statement of operations.

Change in fair value of derivative financial instruments is a required accounting adjustment under financial reporting standards. At the end of each reporting period, we must record a mark-to-market adjustment for our interest rate swap agreements and swaption agreement as though the instruments were realized as of the reporting date.

Please read “Item 11—Quantitative and Qualitative Disclosures About Market Risk” for further discussion.

Other expenses

Additional charges of $1.1 million were accrued for in the three months ended June 30, 2009. This amount is due to the shipyards in connection with the 11 options of $0.1 million each that were exercised. These amounts are due at the deferred delivery date of each vessel and are considered to represent the cost of entering into the delivery deferral options in accordance with financial reporting standards and therefore were accrued for.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

The following discussion of our financial condition and results of operations is for the years ended December 31, 2008 and 2007. The consolidated financial statements have been prepared in accordance with GAAP and, except where otherwise specifically indicated, all amounts are expressed in U.S. dollars.

The following table presents our operating results for the years ended December 31, 2008 and 2007.

   Year Ended
December 31, 2008
  Year Ended
December 31, 2007
 

Statement of operations data (in thousands of dollars):

��  

Revenue

  $229,405   $199,235  

Operating expenses:

   

Ship operating

   54,416    46,174  

Depreciation

   57,448    50,162  

General and administrative

   8,895    6,006  
         

Operating earnings

   108,646    96,893  

Other expenses (income):

   

Interest expense

   33,035    34,062  

Interest income

   (694  (4,074

Undrawn credit facility fee

   5,251    3,057  

Amortization of deferred charges

   1,825    1,256  

Write-off on debt refinancing

   —      635  

Change in fair value of financial instruments

   268,575    72,365  
         

Net loss

  $(199,346 $(10,408
         

Common shares outstanding at year end:

   66,800,141    57,541,933  

Per share data (in dollars):

   

Basic and diluted loss per class A and B common share

  $(3.12 $(0.20

Dividends paid per class A and B common share

  $1.90   $1.785  

Basic and diluted earnings (loss) per class C common share

  $—     $—    

Dividends paid per class C common share

  $—     $—    

Statement of cash flows data (in thousands of dollars):

   

Cash flows provided by (used in):

   

Operating activities

  $124,752   $113,168  

Investing activities

   (634,782  (1,104,704

Financing activities

   523,181    1,022,443  
         

Net increase in cash and cash equivalents

  $13,151   $30,907  
         

Selected balance sheet data (in thousands of dollars):

   

Cash and cash equivalents

  $136,285   $123,134  

Vessels

   3,126,489    2,424,253  

Other assets

   34,098    29,514  
         

Total assets

  $3,296,872   $2,576,901  
         

Other liabilities

   23,654    15,716  

Fair value of financial instruments

   414,769    135,617  

Long-term debt

   1,721,158    1,339,438  

Other long-term liability

   390,931    223,804  

Shareholders’ equity

   746,360    862,326  
         

Total liabilities and shareholders’ equity

  $3,296,872   $2,576,901  
         

Other data:

   

Number of vessels in operation at period end

   35    29  

Average age of fleet in years at period end

   4.8    4.7  

TEU capacity at period end

   158,483    143,207  

Average remaining initial term on outstanding charters

   7.6    7.7  

Fleet utilization

   99.3  99.0

We began 2008 with 29 vessels in operation and took delivery of six newbuilding vessels during 2008 for a total of 35 vessels in operation at December 31, 2008. Operating days are the primary driver of revenue while ownership days are the driver for ship operating costs.

   Year Ended December 31,  Increase 
       2008          2007      Days  % 

Operating days

  11,195  9,731  1,464  15.0

Ownership days

  11,277  9,829  1,448  14.7

Revenue

Revenue increased by 15.1%, or $30.2 million, to $229.4 million for the year ended December 31, 2008, compared with $199.2 million for the year ended December 31, 2007, which was primarily due to the six vessels delivered during 2008 and a full year of operations in 2008 for the six vessels delivered in 2007. The twelve vessel deliveries contributed 1,424 of the 1,464 additional operating days for the year ended December 31, 2008. We incurred 82 days of net off-hire for the year, which impacted revenue by $1.6 million. Vessel utilization was 99.3% for the year ended December 31, 2008, compared to 99.0% for the prior year.

Ship Operating Expenses

Ship operating costs increased by 17.8%, or $8.2 million, to $54.4 million for the year ended December 31, 2008, from $46.2 million for the year ended December 31, 2007. The increase for the year ended December 31, 2008 was due to a full year of ownership in 2008 for the six vessels delivered in 2007, in addition to the six vessels delivered in 2008. Stated in ownership days, these twelve deliveries contributed 1,424 of the 1,448 additional ownership days for the year ended December 31, 2008 and an additional $6.2 million in ship operating expenses.

Depreciation

Depreciation expense increased by 14.5%, or $7.3 million, to $57.4 million for the year ended December 31, 2008, from $50.2 million for the comparable period last year. The increase was primarily due to a full year of amortization for the 2007 vessel deliveries and the impact of the 2008 vessel deliveries.

General and Administrative Expenses

General and administrative expenses increased by 48.1 %, or $2.9 million, to $8.9 million for the year ended December 31, 2008, from $6.0 million for the prior period last year. Of the $2.9 million, approximately $1.4 million relates to share-based compensation for directors and officers, $0.6 million relates to professional fees, including accounting and legal services, and $0.9 million for increased overhead costs to support growth and corporate governance costs.

Interest Expense

Interest expense decreased by 3.0%, or $1.0 million, to $33.0 million for the year ended December 31, 2008, from $34.1 million for the comparable period last year. The decrease is attributable to lower overall average operating debt outstanding during 2008 compared to 2007. We have entered into interest rate swap agreements to reduce our exposure to market rate risks from changing interest rates on the LIBOR based payments on our facilities. As a result, the decrease in the average LIBOR from 5.3% in 2007 to 2.9% in 2008 has not significantly impacted our interest expense as the majority of our operating debt for the 2007 fiscal year and the period up to October 1, 2008 was hedged under fixed rate terms with interest rate swaps that were designated and tested as effective hedges for accounting purposes. During 2008, we de-designated all interest rate swaps for which we were applying hedge accounting treatment. The amounts recorded in other comprehensive loss relating to the de-designated swaps will be recognized in earnings when and where the previously hedged interest payments will be recognized.

The interest incurred on our long-term debt for our vessels under construction is capitalized to the respective vessels under construction.

Undrawn Credit Facility Fee

During the year ended December 31, 2008, we incurred $5.3 million in undrawn credit facility fees compared with $3.1 million for the year ended December 31, 2007, an increase of 71.8% or $2.2 million. The increase is primarily due to the new credit facilities entered into at the end of 2007. The commitment fees on undrawn credit facilities ranges from 0.20% to 0.35% per annum on undrawn credit facility amounts. The commitment fees are expensed as incurred.

Interest Income

During the year ended December 31, 2008, we earned interest income of $0.7 million compared with $4.1 million for the year ended December 31, 2007, a decrease of 83.0% or $3.4 million. This interest income was earned through investing excess cash balances in highly liquid securities with terms to maturity of three months or less. The decrease from the prior year is due to having smaller average cash balances and lower average interest rates in the year ended December 31, 2008.

Amortization of Deferred Charges

Amortization of deferred charges increased 45.3%, or $0.6 million, to $1.8 million for the year ended December 31, 2008, from $1.3 million for the year ended December 31, 2007.

Amortization of deferred charges relating to our financing fees increased by 29.4%, or $0.3 million, to $1.3 million for the year ended December 31, 2008, from $1.0 million for the year ended December 31, 2007. The increase was due to the amortization of deferred financing fees on Tranche B of the $365.0 Million Credit Facility for the six vessels delivered in 2008. Financing fees are deferred and amortized over the terms of the individual credit facilities using the effective interest yield basis. To the extent that the amortization of the deferred financing fees relates to our operating credit facilities, the amortization is expensed while the amortization of the deferred financing fees relating to our construction facilities are capitalized to the related vessels under construction.

As a result of the adoption of FSP AUG AIR-1, we have adopted the deferral method of accounting for dry-docking activities whereby actual costs incurred are deferred and amortized on a straight-line basis over the period until the next scheduled dry-docking activity. Amortization of deferred charges relating to dry-docking increased to $0.5 million for the year ended December 31, 2008, from $0.3 million for the year ended December 31, 2007.

Change in Fair Value of Financial Instruments

Change in fair value of financial instruments (a loss) increased by $196.2 million, to $268.6 million for the year ended December 31, 2008, from $72.4 million for the comparable period last year. The increase is primarily due to decreases in the forward LIBOR curves and overall market changes in credit risk of our non-designated interest rate swaps. The financial instruments consist entirely of fixed interest rate swaps and a swaption that we enter into to lock in the return on our acquisitions and provide predictable long-term cash earnings and distributions to our shareholders. Certain of our interest rate swaps were accounted for as hedging instruments in accordance with the requirements in accounting literature. The change in fair value of financial instruments includes the ineffective portion of our interest rate swap agreements that were accounted for as hedging instruments. During the years ended December 31, 2008 and 2007, the change in fair value of financial instruments includes losses of $1.6 million and $0.1 million, respectively, of ineffectiveness on interest rate swaps designated as hedges. Also, included in the change in fair value of financial instruments is a $1.6 million

charge to earnings from accumulated other comprehensive loss for the two interest rate swaps that were de-designated during the three months ended March 31, 2008. We have de-designated these interest rate swaps as a result of certain changes in the forecasts of probable debt which decreased the probable notional debt balances at certain future interest settlement periods.

On September 30, 2008, we elected to prospectively de-designate all interest swaps for which we were applying hedge accounting treatment due to the compliance burden associated with this accounting policy. Subsequent to this date, all of our interest rate swap agreements and the swaption agreement are marked to market and the changes in the fair value of these instruments are recorded in earnings.

B.    Liquidity and Capital Resources

Liquidity and Cash NeedsF.    Off-Balance Sheet Arrangements

As at December 31, 2009, our cash and cash equivalents totaled $133.4 million.

As at December 31, 2009, we have drawn approximately $1.0 billion of an available $1.3 billion under our $1.3 Billion Credit Facility for general corporate purposes, including to fund the delivery of and pay certain installments for certain of our vessels. This facility has a maturity date of May 11, 2015.

There are restrictions on the amount that can be advanced to us under the $1.3 Billion Credit Facility based on the market value of the vessel or vessels that are provided as collateral for the facility. For instance, our $1.3 Billion Credit Facility contains a loan to market value ratio requirement that must be met before we can borrow funds under it. We are able to draw down funds so long as the loan to market value ratio, being the ratio of the outstanding principal amount of the loan immediately after a drawing to the market value of the vessels that are provided as collateral under that facility, calculated on a without charter basis does not exceed 70%. We may be unable to obtain an appraisal as to the market value of our vessels due to current market conditions and the unwillingness of valuators to provide them. The last valuation we obtained was in December of 2009, and in light of the recent economic downturn, vessel valuations in the marketplace have declined significantly. As a result, we are currently unable to borrow the remaining approximately $267 million under our $1.3 Billion Credit Facility; however, we do not require this amount to fund the remaining installments for our newbuild fleet. In certain circumstances and for a certain period of time, even if our loan to value ratio exceeds 70%, we can borrow under the facility to fund the purchase of additional vessels, so long as the loan to market value ratio does not exceed 80%, and in that case such vessels will then become additional security under the facility. For more information, please read “Our $1.3 Billion Credit Facility.”

We entered into our $365 Million Credit Facility on May 19, 2006. This facility is split into two separate tranches, one to fund the acquisition of the 3500 TEU vessels and the second to fund the construction of eight of our ten 2500 TEU vessels. We are also able to use the facility for general corporate purposes.

As at December 31, 2009, we have drawn $128.6 million of the $283.0 million available in the second tranche under the $365 Million Credit Facility to partially finance eight of our ten 2500 TEU vessels. No amounts to date have been drawn from the first tranche of this credit facility, of which $74.8 million is available as at December 31, 2009. For more information, please read “Our $365 Million Credit Facility.”

On October 16, 2006, we entered into our $218.4 Million Credit Facility. The proceeds of this facility are being used to partially fund the construction of four 5100 TEU vessels, one that is being constructed by HHI and three that have already been delivered. As at December 31, 2009, we have drawn $189.2 million of an available $218.4 million under this credit facility to fund the construction of the 5100 TEU vessels. For more information on this facility, please read “Our $218.4 Million Credit Facility.”

On August 8, 2007, we entered into the $920 Million Credit Facility, the proceeds of which have been used to partially fund the construction of two of the ten 2500 TEU vessels under construction by Jiangsu, the four 4250 TEU vessels constructed or under construction by New Jiangsu and the eight 8500 TEU vessels under

construction by HHI. After delivery of these vessels, we may use the facility for general corporate purposes. As at December 31, 2009, we have drawn $495.9 million of the $920.0 million available under this facility. See “Our $920 Million Credit Facility” for more information on this facility.

We entered into the $150 Million Credit Facility on December 28, 2007 with two of our wholly-owned subsidiary companies, Seaspan Finance II Co. Ltd. and Seaspan Finance III Co. Ltd., as borrowers. We guaranteed the obligations of our subsidiaries under the terms of the agreement. The proceeds of the facility are available to finance construction of two of our 13100 TEU vessels; one of which is under construction by HHI and the other by HSHI. After delivery of these vessels, we may use the facility for general corporate purposes. As at December 31, 2009, no amounts were drawn on the $150.0 million available under this facility. For more information, please read “Our $150 Million Credit Facility.”

On March 17, 2008, we entered into our $291.2 Million Credit Facility. The proceeds of this facility are being used to partially finance the construction of two of our 13100 TEU vessels, one of which is being built by HHI and the other by HSHI. The $291.2 Million Credit Facility has a term loan component, which is divided into two tranches, and a revolving loan component. As of December 31, 2009, no amounts were drawn under this facility. For more information on this facility, please read “Our $291.2 Million Credit Facility.”

On March 31, 2008, we entered into our $235.3 Million Credit Facility. The proceeds of this facility are being used to partially finance the construction of two of our 13100 TEU vessels, one of which is being built by HHI and the other by HSHI. As at December 31, 2009, we have drawn $36.7 million of an available $235.3 million under this credit facility to fund the construction of the 13100 TEU vessels. For more information on this facility, please read “Our $235.3 Million Credit Facility.”

Our primary short-term liquidity needs are to fund our operating expenses, including payments under our management agreement, and payment of our quarterly dividend. Our medium-term liquidity needs primarily relate to the purchase of the containerships we have contracted to purchase. Our long-term liquidity needs primarily relate to vessel acquisitions and debt repayment. We anticipate that our primary sources of funds for our short and medium-term liquidity needs will be our committed credit facilities, new credit facilities, new lease obligations, additional equity offerings as well as our cash from operations, while our long-term sources of funds will be from cash from operations and/or debt or equity financings. We believe that these sources of funds will be sufficient to meet our liquidity needs to fund our newbuild program through the remainder of 2010. Our 2011 liquidity needs will require us to raise additional equity capital, or other forms of capital, or alternatively, our board of directors may elect to reduce or eliminate our quarterly dividend to help finance our newbuilding program.

As of December 31, 2009, the estimated remaining installments on the 26 vessels we contracted to purchase, or lease as the case may be, was approximately $1.7 billion, which we expect to fund primarily from our credit facilities, lease obligations, and from additional equity offerings. Our obligation to purchase the vessels we contracted to purchase is not conditional upon our ability to obtain financing for such purchases. To fund the remaining portion of the purchase price of these vessels, we need to raise in the range of approximately $180 million to $240 million in common or other equity and or other forms of capital beginning no later than approximately the fourth quarter of 2010, or first quarter of 2011 and ending in approximately the second quarter of 2012. This amount of capital is based on a quarterly dividend of $0.10 per common share. The recent state of global financial markets and economic conditions may adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude from us from issuing equity at all.

As a result of the current economic slowdown and over-capacity in the container shipping industry as well as the uncertainty of the capital markets, we have been pursuing alternatives in cooperation with our shipyards and charterers to delay the delivery of some of the 26 vessels that we have contracted to purchase or lease, as the case may be, over the next 30 months. In this regard, we entered into agreements with some of our shipyards whereby under certain circumstances we had the option to delay the delivery of up to 15 of the newbuilding vessels that we have contracted to purchase. In July 2009, we exercised the option to delay the delivery of 11 of

the 15 vessels and we deferred the delivery dates for those vessels for periods ranging from two to 15 months from the dates agreed to under the original shipbuilding contracts. We did not exercise the option to delay the delivery of the remaining four vessels. As set out in the option agreements, we will compensate the shipyards for their costs and expenses related to the deferral at the time we pay the final installment to the shipyards. The shipbuilding contracts and time charters have been amended to reflect the deferred dates.

Two of our shipyards also agreed to delay the delivery of five additional vessels that were not subject to option agreements. The deferrals are for a period of approximately nine months from the dates that were agreed to under the original shipbuilding contract. The shipbuilding contracts and time charters for these five vessels have been amended to allow for the new delivery dates.

We currently have seven credit facilities and one tax lease, with an approximate combined borrowing capacity of $3.6 billion and a commitment of $3.9 billion. Our diversified international banking group is composed of 24 banks holding between 1% to 15% of the total borrowing capacity. There are six banks that hold 5% or more of the total borrowing capacity: Lloyds Banking Group (15%); DnB Nor Bank ASA (12%); Credit Suisse (9%); Sumitomo Mitsui Banking Corporation (10%); Industrial and Commercial Bank of China Limited (8%); and BNP Paribas (6%).

Due to the recent deterioration of the global credit markets, we may not be able to obtain funding under our current credit facilities or may not be able to obtain funds at the interest rate agreed in such facilities. Although we have credit facilities committed to satisfy our short, medium and long-term debt needs and although we have not experienced any difficulties drawing on those facilities to date, we may be unable to obtain adequate funding under our current credit facilities in the future because our lenders may be unwilling or unable to meet their funding obligations. Our credit facilities contain standard provisions with respect to a “market disruption” of LIBOR and if certain circumstances occur, including that the lenders can no longer obtain matching deposits at the published LIBOR rate, our lenders may require that the interest rate under the facilities be increased, for the applicable term only, so as to be equivalent to their cost of funding or an alternate rate to which we agree. In response to the deterioration in the credit markets, central banks and governments worldwide are working together to address credit market issues. For more information about liquidity risks associated with the current state of the global financial markets, please read “Risk Factors—The current state of global financial markets and current economic conditions may adversely impact our ability to obtain financing on acceptable terms which may hinder or prevent us from meeting our future capital needs.”

Our credit facilities do not contain traditional vessel market value covenants that require us to repay our facilities solely because the market value of our vessels declines below a specified level. However, a decline in the market value of certain vessels could impair our ability to draw the full amount available under one of our facilities. Our $1.3 Billion Credit Agreement contains a loan to market value ratio requirement that must be met before we can borrow funds under that facility. We are able to draw down funds under that facility so long as the loan to market value ratio, being the ratio of the outstanding principal amount of the loan immediately after a drawing to the market value of the vessels that are provided as collateral under that facility, does not exceed 70%. In certain circumstances and for a certain period of time, even if our loan to value ratio exceeds 70%, we can borrow under the facility to fund the purchase of additional vessels, so long as the loan to market value ratio does not exceed 80%, and in that case, such vessels will then become additional security under the facility. Under all of our credit facilities, in certain circumstances a prepayment may be required as a result of certain events such as a termination or expiration of a charter (and the inability to enter into a charter suitable to lenders within a period of time) or termination of a shipbuilding contract. The amount that must be prepaid may be calculated based on the loan to market value ratio or some other ratio that takes into account the market value of the relevant vessels. In these circumstances, valuations of our vessels are conducted on a “without charter” basis as required under the relevant credit facility agreement. Our credit facilities also contain “gearing” covenants which prohibit us from incurring total borrowings in an amount greater than 65% of our total assets.

Our dividend policy heavily impacts our future liquidity needs. At the time of our initial public offering, our board of directors adopted a dividend policy to pay a regular quarterly dividend on our common shares while

reinvesting a portion of our operating cash flow in our business. Retained cash may be used to, among other things, fund vessel or fleet acquisitions, other capital expenditures and debt repayments, as determined by our board of directors. This dividend policy reflects our judgment that by retaining a portion of our cash in our business over the long-term, we will be able to provide better value to our shareholders by enhancing our longer term dividend paying capacity. Based on a dividend of $0.475 per quarter, our annualized dividend on the current number of shares outstanding is approximately $129 million. We have equity capital requirements of approximately $180 to $240 million starting in approximately the fourth quarter of 2010 or first quarter of 2011 and ending in approximately second quarter 2012. This amount of capital is based on a quarterly dividend of $0.10 per common share. The amount of capital required decreased from a range of approximately $500 million to $600 million because of the decision of our board of directors to reduce the quarterly dividend from $0.475 to $0.10 per share as announced on April 28, 2009. Due to the uncertainties associated with the global recession and the capital markets, our board of directors cannot determine how long this reduction will be in effect. The reduction will enable Seaspan to retain an approximate additional amount of $100 million per year that can be redeployed to fund its newbuilding program. If it becomes necessary to provide further assurance that we will be able to meet our liquidity needs for our new vessel orders, our board of directors may elect to further reduce or eliminate our quarterly dividend. Please read “Financial Information—Dividend Policy.”

All of the vessels that are currently chartered and that we will acquire are chartered to charterers under long-term time charters, and these charterers’ payments to us are and will be our sole source of operating cash flow. At any given time in the future, cash reserves of the charterers may be diminished or exhausted, and we cannot assure you that the charterers will be able to make charter payments to us. If the charterers are unable to make charter payments to us, our results of operations and financial condition will be materially adversely affected.

We have good commercial relations with each of our customers and we believe they will be able to meet their commitments under their charter agreements with us. Part of our business strategy is to grow our customer base. If our existing charters with CSCL Asia, HL USA, APM, COSCON, CSAV or MOL were terminated, based on current charter rates, we do not believe we could recharter such vessels at rates equal to the existing rates over similar time periods.If our existing charters are terminated and market rates continue to decline, we may recharter our vessels at lower rates, adversely affecting our results of operations, financial condition and ability to pay dividends.

Operating Activities Cash Flows

Net cash from operating activities decreased by $30.2 million, to $94.6 million for the year ended December 31, 2009, from $124.8 million for the year ended December 31, 2008. Primarily, this net decrease is comprised of higher swap settlements of $61.3 million, net of higher operating earnings before depreciation of $31.3 million in 2009. The higher swap settlements were primarily due to lower LIBOR and higher average notional amounts in the swap agreements in 2009 compared to 2008. The increase in operating earnings before depreciation during the year was due to the delivery of seven additional vessels in 2009.

Net cash from operating activities increased by $11.6 million, to $124.8 million for the year ended December 31, 2008, from $113.2 million for the year ended December 31, 2007. The increase was primarily attributable to the delivery of six additional vessels in 2008, resulting in higher operating earnings.

Investing Activities Cash Flows

Cash used in investing activities decreased by $225.3 million, to $409.5 million for the year ended December 31, 2009, from $634.8 million for the year ended December 31, 2008. The decrease is primarily due to the decrease in the amount of installments scheduled to be paid in 2009 under our shipbuilding contracts.

Cash used in investing activities decreased by $469.9 million, to $634.8 million for the year ended December 31, 2008, from $1.1 billion for the year ended December 31, 2007. The decrease of $469.9 million for the year ended December 31, 2008 compared to 2007 is primarily due to a decrease of $477.7 million in expenditures for vessels due to lower scheduled installments under our shipbuilding contracts.

Financing Activities Cash Flows

Net cash from financing activities decreased by $211.1 million, to $312.1 million for the year ended December 31, 2009, from $523.2 million for the year ended December 31, 2008. The decrease of $211.1 million is primarily comprised of net proceeds received on the issuance of preferred shares of $198.4 million being $29.1 million less than net proceeds of $227.5 million received on the issuance of common shares in 2008, net draws on our credit facilities being $219.7 million less than in 2008 due to less installments under our shipbuilding contracts being due in 2009. Additionally, no amount similar to the $35.4 million reimbursement from Peony for the deposits on vessels under construction to be leased from Peony Leasing Limited was received in 2009 and the amount of dividends paid in 2009 decreased by $70.7 million over the prior year.

Net cash from financing activities decreased by $499.3 million, to $523.2 million for the year ended December 31, 2008, from $1.0 billion for the year ended December 31, 2007. The decrease of $499.3 million is due to a decrease of $69.3 million in common shares issued, a decrease of $260.5 million in draws on credit facilities, a decrease in financing fees incurred of $3.6 million, an increase in repayment of credit facilities of $134.0 million, an increase of $21.3 million in dividends paid compared to the prior year, and a decrease of $17.7 million in reimbursements from Peony for the deposits on vessels under construction to be leased from Peony Leasing Limited.

Ongoing Capital Expenditures and Dividends

The average age of the vessels in our operating fleet is less than five years; as such, no significant capital expenditures for dry-docking and maintenance have occurred in the past. On December 31, 2009, the CSCL Hamburg went aground in the Gulf of Aqaba en route to Singapore. Any repair costs are expected to be recovered from insurance, net of the insurance deductible. The vessel is expected to be off-hire for approximately 100 days. Although the vessel was not expected to undergo its next scheduled 5-year survey until 2013, the Company chose to combine the repairs with an earlier dry-docking to achieve savings and defer the next scheduled dry-dock to 2015. On March 5, 2008 the CSCL Hamburg collided with a bulk carrier in the South China Sea. Both vessels sustained damage as a result of the collision. The CSCL Hamburg was off-hire for 60 days while it underwent repairs for 50 days for damage sustained from the collision and 10 days for other routine dry-docking work. The vessel went back into operation on May 5, 2008. During the first quarter of 2007, the CSCL Chiwan incurred approximately 9 days of off-hire for repairs to its rudder-horn.

Our Manager has included the cost of routine dry-docking within the technical services fee we pay pursuant to the management agreement. In 2009, the CSCL Oceania and the CSCL Africa underwent their 5-year survey for a total of two dry-dockings. In 2008, the CSCL Hamburg underwent 10 days of routine dry-docking work. There were no other scheduled 5-year surveys in 2008. During 2007, three of our 4250 TEU vessels and three of our 4800 TEU vessels underwent their 5-year survey for a total of six dry-dockings. There are scheduled 5-year surveys in 2010 for seven of our 4250 TEU vessels.

The technical services fee does not cover extraordinary costs or expenses. We are insured for certain matters, but we cannot assure you that our insurance will be adequate to cover all of these matters. During 2009, we incurred approximately $1.9 million of additional costs and expenses, which are not covered by the technical services fee. These costs include bunkers consumed during dry-docking and off-hire, repair costs and insurance deductibles.

We must make substantial capital expenditures over the long-term to preserve our capital base. If we do not retain funds in our business in amounts necessary to preserve our capital base over the long-term, we will not be able to continue to refinance our indebtedness or maintain our dividends. On an annual basis, we will likely need at some time in the future to retain funds in addition to such amount to provide reasonable assurance of maintaining our capital base over the long-term. We believe it is not possible to determine now, with any reasonable degree of certainty, when and how much of our operating cash flow we should retain in our business to preserve our capital base. We believe that the amounts we forecast to be able to retain in our business after the

acquisition of our initial fleet will provide a substantial portion of our needs. There are a number of factors that will not be determinable for a number of years, but that will enter into our board of directors’ future decisions regarding the amount of funds to be retained in our business to preserve our capital base, including the following:

the remaining lives of our vessels;

the returns that we generate on our retained cash flow, particularly the returns generated from investments in additional vessels (this will depend on the economic terms of any future acquisitions and charters, which are currently unknown);

future market charter rates for our vessels, particularly with respect to our fleet when the vessels come off charter (this will depend on various factors, including: our existing charters are not expected to expire for approximately 5-12 years from their commencement; the existing charters are at rates substantially below current spot rates and short-term charter rates; but actual market charter rates when the existing charters expire are currently unknown);

our future operating and interest costs, particularly after the expiration of the technical services fees and financing arrangements described in this Annual Report (our technical services fees are fixed until December 31, 2011 and will be subject to renegotiation thereafter; our initial financing costs are effectively hedged until at least February 2014; but future operating and financing costs are currently unknown);

our future refinancing requirements and alternatives and conditions in the relevant financing and capital markets at that time; and

unanticipated future events and other contingencies. Please read “Risk Factors.”

Our board of directors will periodically consider these factors in determining our need to retain funds rather than pay them out as dividends. Unless we are successful in making acquisitions with outside sources of financing that add a material amount to our cash available for retention in our business or unless our board of directors concludes that we will likely be able to recharter our fleet upon expiration of existing charters at rates higher than the rates in our current charters, our board of directors will likely determine at some future date to reduce, or possibly eliminate, our dividend to have reasonable assurance that the Company is retaining the funds necessary to preserve our capital base.

During the year ended December 31, 2009, dividends of $52.0 million, or $0.775 per share, were declared on common shares. Because of the adoption of the DRIP, for the year ended December 31, 2009 the actual amount of cash dividends paid was $44.8 million and $7.1 million was reinvested through the DRIP.During the year ended December 31, 2008, dividends of $121.4 million, or $1.90 per share, were declared on common shares. Because of the adoption of the DRIP, for the year ended December 31, 2008, the actual amount of cash dividends paid was $115.6 million and $5.8 million was reinvested through the DRIP.

During the year ended December 31, 2009, dividends of $14.5 million were accrued for Series A preferred shares.

C.    Research and Development

Not applicable.

D.    Trend Information

In the containership charter market, there was significant upward movement in time charter rates in the period between the start of 2002 and the middle of 2005. Demand for containership capacity driven by increases in global container trade underpinned upward market movements, and the market recovered from the falls seen in 2001 to levels beyond previous market highs. Midway through 2005, containership charter rates began to fall as a

result of increased capacity and falling freight rates, before stabilizing at the end of 2006. Containership charter rates generally stayed strong until mid 2008 when the effects of the credit crisis affected global container trade adversely. Current rates are now estimated to be at late 2001 levels with further pressure expected through at least 2010.

The charter owner containership sector is also subject to the development of newbuilding prices, which reflect the cost of new containerships paid by owners from the shipyards. Since early 2003, newbuilding prices have risen substantially but have recently declined. The total newbuilding price for a theoretical 2750 TEU containership increased from $29.5 million at the start of 2003 to $53.0 million at the start of January 2008 but has decreased to $29.5 million in December 2009. Over the same period, for a theoretical 4700 TEU containership the newbuilding price rose from $45.0 million to $81.0 million and has now declined to $56.3 million in December 2009, while the newbuilding price for a theoretical 6350 TEU containership increased from $60.0 million to $107.0 million and has now decreased to $86.5 million in December 2009. Economies of scale in containership building mean that the cost per TEU involved in building larger containerships is smaller than for ships with smaller TEU capacity.

E.    Off-Balance Sheet Arrangements

At December 31, 2009, we do not have any off-balance sheet arrangements.

F.G.    Contractual Obligations

On a pro forma basis ourOur long-term undiscounted contractual obligations as of December 31, 2009,2010, including amounts payable under our credit facilities, consists of the following:

 

 Payments Due by Period Payments Due by Period 
 Total Less than
1 Year
 1-3 Years 3-5 Years More than 5
Years
 Total Less than
1 Year
 1-3 Years 3-5 Years More than
5 Years
 
 (in thousands) 

(in thousands)

 

Long-term debt obligations (1)

 $1,883,146 $5,452 $64,471 $345,864 $1,467,359 $2,396,771   $16,069   $209,182   $1,022,423   $1,149,097  

Purchase obligations for additional vessels (2)

  1,710,621  669,756  1,040,865  —    —  

Fixed payments to the Manager for technical, construction supervision and administrative services under our management agreements (3)

  244,268  108,185  136,083  —    —  

Lease obligations (4)

  545,529  400  73,845  90,504  380,780

Purchase obligations for additional vessels (2)

  780,874    527,323    253,551    —      —    

Fixed payments to the Manager for technical, construction supervision and administrative services under our management agreements (3)

  138,071    138,071    —      —      —    

Lease obligations (4)

  936,362    33,409    141,580    276,536    484,837  
                         

Total

 $4,383,564 $783,793 $1,315,264 $436,368 $1,848,139 $4,252,078   $714,872   $604,313   $1,298,959   $1,633,934  
                         

 

(1)Represents principal payments on amounts drawn on our credit facilities that bear interest at variable rates of LIBOR plus margins ranging from 0.5% to 0.925% per annum, for which we have entered into interest rate swap agreements to fix the LIBOR at rates ranging from 4.6325% to 5.87% per annum. For the purpose of this table, principal repayments are determined based on amounts outstanding at period end, pro-rated to reflect commitment reduction schedules for each related facility.facility as if they were fully drawn. Actual repayments may differ from the amounts presented as repayment timing is impacted by the balance outstanding at each commitment reduction date.

 

(2)These obligations are expenditures for the 21remaining vessels that we have contracted to purchase and include the paymentsyet to be made ondelivered under our behalf forcontracted newbuilding program and exclude amounts that will be funded by our sale-leaseback transactions. Amounts due under our sale-leaseback transactions are included in this table in the five vessels we have agreed to lease. Theselease obligations are based on the contractual delivery dates under the shipbuilding contracts with our shipyards.row.

 

(3)

Under the management agreements, the Manager provides services to us for fixed fees. On December 31, 2008, we negotiated the adjusted technical services fee for the period commencing January 1, 2009 and ending on December 31, 2011 for the vessels that are subject to the management agreements and the initial technical services fee for the same period for the vessels to be delivered but are not yet subject to management agreements. These will then be subject to re-negotiation with our Manager. The administrative services portion of the fees is capped at $6,000 per month, plus reimbursement for all reasonable costs and

expenses incurred by our Manager and its affiliates. Our Manager provides construction supervision services under fixed fee arrangements of $250,000 to $350,000 per vessel. For purposes of this table only, we have only included fixed payments based on the adjusted technical services fee and the initial technical service fee until December 31, 2011. The amounts presented above are based on the adjusted technical services fees for the vessels currently operating in our fleet at December 31, 20092010 and for the vessels that we have contracted to purchase based on each of their contractual delivery dates in addition to the remaining fees for construction supervision services for the vessels under construction. The amounts do not include reimbursements that may become payable to our Manager for administrative or strategic services provided.

 

(4)The Company, through wholly owned subsidiaries, has agreed to enter into leaseback transactions for certain of its wholly-owned subsidiary Seaspan Finance I Co. Ltd., has entered into an arrangement with Peony Leasing Limitedvessels where the lease term commences upon the delivery dates of the vessels. The amounts in this row represent payments due to lease five 4500 TEU vessels, whichthe lessors assuming the maximum amounts committed are currently under construction,funded and, therefore, include payments for five year terms commencing on their delivery dates.amounts not yet funded as of December 31, 2010.

Item 6.Directors, Senior Management and Employees

A.    Directors and Senior Management

On July 25, 2009, George H. Juetten was appointed to our board of directors by the Company’s Series A Preferred shareholders. The board has determined that Mr. Juetten meets the standards for independence established by the New York Stock Exchange and that he satisfies the criteria to qualify as a financial expert. Mr. Juetten replaced David Korbin as chair of the audit committee on September 19, 2009 following Mr. Korbin’s resignation as a director of the Company and chair of the audit committee.

On September 19, 2009, Antony S. Crawford was elected as a director of the Company at the 2009 annual shareholder meeting. Mr. Crawford passed away on January 23, 2010.

On October 25, 2009, Milton K. Wong resigned as a member of our board of directors effective as of January 2, 2010.

Our directors and executive officers as of the date of this annual report and their ages as of December 31, 20092010 are listed below:

 

Name

  

Age

  

Position

Kyle R. Washington

  3940  ChairmanCo-Chairman of the Board of Directors

Gerry Wang

  4748  Chief Executive Officer and DirectorCo-Chairman of the Board of Directors

Sai W. Chu

  4344  Chief Financial Officer

John C. Hsu

47Director

George H. Juetten

  6263  Director

Peter Lorange

  6667Director

Nicholas Pitts-Tucker

59Director

Graham Porter

40  Director

Peter S. Shaerf

  5556  Director

Barry R. Pearl

60Director

John C. Hsu

46DirectorDeputy Chair of the Board of Directors

Kyle R. Washington. Kyle R. Washington was appointed as chairman of the board in May 2005.2005 and in February 2011 became co-chairman with Gerry Wang. He iswas also appointed as a director and the executive chairman of the board of SCLLour Manager in August 2005 and also serves as a director and chairmanofficer of certain of our Manager and certain of itsManager’s operating subsidiaries. From 1998 to 2006, Mr. Washington was responsible for the overall corporate strategy of the Washington Marine Group and was active in developing senior level customer, supplier, competitor and governmental relationships. Within the Washington Marine Group, he was a director and the executive chairman of Seaspan International Ltd., a marine transportation company that is involved in shipdocking, barging and shipyard enterprises. In 2009, Mr. Washington returned as a director and executive chairman of Seaspan International Ltd. and was appointed as a director of Envirocon, Inc., Modern Machinery Co., Inc., Montana Rail Link, Inc., Montana Resources, Inc. and Southern Railway of British Columbia, Ltd., all of which are within the Washington Group of Companies. Mr. Washington has also been a director of bioLytical Laboratories Inc. since 2005, a company that develops and manufactures a rapid HIV diagnostic product, and he

is a principal of CopperLion Capital, a $100 million private equity fund he started in 2007. Mr. Washington was chairman of 2003 World Weightlifting Championships, an ambassador to the 2010 Winter Olympics in Vancouver and is an active supporter of the Young Life Organization. He is a graduate of the University of Montana with a degree in business administration.

Gerry Wang. Gerry Wang was appointed as our chief executive officer and director in May 2005.2005, and as co-chairman of our board of directors in February 2011. Mr. Wang joined the Offshore Division of Seaspan International Ltd. in early 1990 and is currently a director, chief executive officer and president of SCLL.Seaspan Crew Management Ltd., or SCML. Mr. Wang is alsowas appointed as a director of our Manager in August 2005 and president and chief executive officer of certain affiliates of our Manager.SSML. From 1986 to 1989, Mr. Wang was the business manager for China Merchants Group in Hong Kong. He graduated from Shanghai Maritime University in 1983 with a Bachelor’s degree in Navigation, and in 1986, he earned a Master’s degree in International Economics under the sponsorship program of the United Nations Economic and Social Council Asia Pacific. In 1993, he obtained his MBAMaster of Science in Business Administration degree from the University of British Columbia in Vancouver, BC,B.C., Canada.

Sai W. Chu. Sai W. Chu was appointed as our chief financial officer in June 2007. Mr. Chu was appointed chief financial officer of SSML, SCLL, and SCML in May 2005 after joining SSML as corporate controller in September 2004 and the Washington Marine Group as corporate controller in April 2004. Mr. Chu qualified as a chartered accountant in 1992 having articled with KPMG LLP’s Vancouver office and also qualified as a certified management accountant in 1990. From 1995 to 1998, he was the assistant corporate controller with Imperial Parking Limited, an integrated parking management company with operations in Asia and North America. From 1998 to 1999, Mr. Chu was manager, financial reporting, of BC Gas Inc. (now Terasen Inc.), a natural gas and oil transmission and distribution utility. From 2000 to April 2004, he was controller of Datawest Solutions Inc., a technology provider of banking and payment solutions. All of Mr. Chu’s previous employers subsequent to 1995 and prior to joining us were companies listed on the Toronto Stock Exchange.

John C. Hsu.John C. Hsu was appointed as director in April 2008 and as chair of the compensation committee in February 2011. He is currently a partner of Ajia Partners, one of Asia’s largest privately-owned alternative investment firms. Mr. Hsu’s family has been in the business of owning and operating bulkers, tankers and specialized ships, through affiliated entities such as Sincere Navigation Corp. (Taiwan listed) and Oak Maritime, Inc., for generations. Mr. Hsu is currently a director of Oak Maritime, Inc., and is also director of several other private companies, including TSSi, Inc. (a surveillance IC solutions provider) and Convergence Tech Venture (a venture capital fund). From 1998 to 2002, he was chief investment officer of Matrix Global Investments, a hedge fund in U.S.-listed technology companies. Since 1993, he has been responsible for managing the Hsu family’s investment portfolio, consisting of financial securities, hedge funds, and private equity investments. Mr. Hsu received his B.A. from Colgate University in 1986 and his MBA from Columbia University in 1992, and is fluent in Japanese and Mandarin.

George H. Juetten. George H. Juetten was elected by our Series A Preferred shareholders as a director onin July 25, 2009 and has served as chair of our audit committee since September 19, 2009. Prior to his election, Mr. Juetten was executive vice president and chief financial officer of Washington Group International (URS Corporation) from 2001 to 2009. Washington Group International was an integrated engineering, construction and management services company that was listed on the New York Stock Exchange. Prior to that, Mr. Juetten was with Dresser Industries, Inc. (Halliburton Company), an NYSEa NYSE-listed company that provided technology, products and services for developing energy and natural resources. He served as vice president controller from 1993 to 1996 and as executive vice president and chief financial officer from 1996 to 1999. Mr. Juetten was an audit partner for Price Waterhouse from 1969 to 1993, serving in several jurisdictions including a three-year tour of duty in The Hague. He is a trustee of St. Alphonsus Regional Medical Centre and the College of Idaho and a member of the Boardboard of Directorsdirectors of the Boise Philharmonic Association. Mr. Juetten received a Bachelor of Science degree in Accounting from the Marquette University, Milwaukee, Wisconsin and is member of the American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants. As a director elected by our Series A Preferred shareholders, Mr. Juetten is not a member of any of our board’s three classes of directors, which members are elected to hold office for a term of three years or until a successor is elected and qualifies.

Peter Lorange. Peter Lorange was appointed as a director in August 2005. Mr. Lorange is chairman, president and chief executive officer of Lorange Institute of Business Zurich. Mr. Lorange was president of International Institute for Management Development, or IMD, from July 1, 1993 to April 1, 2008, and until July 1, 2009, he was Professor of Strategy at IMD and held the Kristian Gerhard Jebsen Chair of International Shipping. He was formerly president of the Norwegian School of Management in Oslo. Mr. Lorange was affiliated with the Wharton School, University of Pennsylvania for more than a decade in various assignments, including director for the Joseph H. Lauder Institute of Management and International Studies and The William H. Wurster Center for International Management Studies, as well as The William H. Wurster Professor of Multinational Management. He has also taught at the Sloan School of Management (M.I.T.), IMEDE (now IMD), and the Stockholm School of Economics. Mr. Lorange serves on the board of directors of several corporations including:including Marsoft International A/S, Preferred Global Health, Zaruma

Resources Inc., Global Praxis and Copenhagan Consulting Company (CoCoCo).Quartz & Co. He received his undergraduate education from the Norwegian School of Economics and Business, was awarded a Masters of Arts degree in Operations Management from Yale University and his Doctor of Business Administration degree from Harvard University.

Nicholas Pitts-Tucker. Nicholas Pitts-Tucker was appointed as a director in April 2010 and is chair of the nominating and corporate governance committee. Mr. Pitts-Tucker joined Sumitomo Mitsui Banking Corporation in 1997, following 14 years at Deutsche Morgan Grenfell and over 10 years at Grindlays Bank Limited in Asia. At Sumitomo Mitsui Banking Corporation, Mr. Pitts-Tucker served as the head of project finance, co-head of the structured finance division of Sumitomo Mitsui Banking Corporation Europe Limited, or SMBC Europe, and co-head of the international finance department of SMBC Europe, with particular emphasis on shipping and aviation finance in Asia, Europe and the Middle East. He also served as an executive director of SMBC Europe and of Sumitomo Mitsui Banking Corporation in Japan, or SMBC Japan. He retired from SMBC Europe and SMBC Japan in April 2010, and now serves as a non-executive director and as a member of the audit

committee of SMBC Europe. He also serves as a director of Investors in the Community GP, which governs a trust invested in infrastructure projects in the United Kingdom. In December 2010, Mr. Pitts-Tucker was appointed as a director of Black Rock Frontier Investment Trust PLC, which is listed on the London Stock Exchange, and is a member of the audit committee. Mr. Pitts-Tucker is a founder, director and current Head of the Finance Subcommittee of Riders for Health, an organization dedicated to providing reliable transport to remote rural African health networks. Mr. Pitts-Tucker has a Master of Arts degree from Christchurch, Oxford University and a Master of Business Administration from Cranfield University.

Graham Porter. Graham Porter was appointed as a director in April 2010. Mr. Porter has also served as managing director, deputy chairman and director of our Manager since August 2005. Mr. Porter joined Seaspan International Ltd. in 1992 as part of the offshore heavy-lift and ocean towing division and is currently a director and secretary of SCLL. In 2000, Mr. Porter was part of the senior management and equity team to form SCLL, established to own and operate deep-sea containerships. Mr. Porter is also a director, managing director and deputy chairman of our Manager. Mr. Porter is chairman of Tiger Group, an investment firm based in Hong Kong which, through its affiliated companies, holds shares in us and in other shipping ventures. He graduated in 1992 with a degree in business, major in transportation and logistics and minor in accounting, from the University of British Columbia in Vancouver, B.C. Canada. Mr. Porter currently resides in Hong Kong.

Peter S. Shaerf. Peter S. Shaerf has servedwas appointed as a director of the Company sincein August 2005, and is chair of the conflicts committee and during 2010 was chair of the compensation committee. Mr. Shaerf resigned as chair of the compensation committee upon his appointment as Deputy Chair of our board of directors in February 2011. Since 2002, Mr. Shaerf has been a managing director of AMA Capital Partners, an investment bank and private equity firm specializing in the maritime industry. From 1998 until April 2002, Mr. Shaerf was a managing director of Poseidon Capital Corp., an independent maritime consulting and investment company that works extensively in the investment community. From 1980 to 2002, he was a partner of The Commonwealth Group, a brokerage and consulting company that specializes in the dry cargo and liner shipping industry. From 1977 to 1980, he was a director of Common Brothers U.S.A. Ltd., a shipbroking subsidiary of a British shipowner of dry cargo and tanker tonnage. He is a director of General Maritime Corporation, a company listed on the New York Stock Exchange, and a director of TBS International, a company listed on the NASDAQ exchange. Mr. Shaerf is chairman of New York Maritime Inc. (NYMAR), a leading global trade association that promotes New York as a maritime center. Mr. Shaerf holds a B.A. degree in international business law from the London Metropolitan University.

Barry R. Pearl. Barry R. Pearl was appointed as a director in October 2006. Mr. Pearl is executive vice-president of Kealine LLC (and its WesPac Energy LLC affiliate), a private developer and operator of petroleum infrastructure facilities, and serves as a director of Kayne Anderson Energy Development Company, Targa Resources Partners, L.P. and Magellan Midstream Partners, L.P. Mr. Pearl served as president, chief executive officer and director of TEPPCO Partners, L.P. from May 2002 through 2005 and as president and chief operating officer from February 2001 until his appointment as chief executive officer. Mr. Pearl began his career with Champlin Petroleum Company in 1974, and served in a variety of staff financial and analysis positions until his appointment as vice president and general manager of Calnev Pipeline in 1982. Mr. Pearl joined Southern Pacific Pipelines in 1984 and served as vice president, operations, senior vice president, business development and planning, and senior vice president and chief financial officer. From 1998 through 2000, Mr. Pearl was vice president and chief financial officer of Maverick Tube Corporation. Mr. Pearl has been involved in a number of petroleum industry organizations, including service as chairman of the Association of Oil Pipelines from 2004 through 2005. He received a Bachelor of Arts degree in Mathematics from Indiana University, and was awarded a Masters of Arts degree in Operations Research from Yale University and a Master of Business Administration degree from the University of Denver.

John C. Hsu.John Hsu was appointed as director in April 2008. He is currently a partner of Ajia Partners, one of Asia’s largest privately-owned alternative investment firms. Mr. Hsu’s family has been in the business of owning and operating bulkers, tankers and specialized ships, through affiliated entities such as Sincere Navigation Corp (Taiwan listed) and Oak Maritime, Inc., for generations. Mr. Hsu is currently a director of Oak Maritime, Inc and is also director of several other private companies, including TSSi, Inc. (a surveillance IC solutions provider) and Convergence Tech Venture (a venture capital fund). From 1998 to 2002, he was chief investment officer of Matrix Global Investments, a hedge fund in U.S.-listed technology companies. Since 1993, he has been responsible for managing the Hsu family’s investment portfolio—consisting of financial securities, hedge funds, and private equity investments. Mr. Hsu received his B.A. from Colgate University in 1986 and MBA from Columbia University in 1992, and is fluent in Japanese and Mandarin.

Directors and Officers of Our Manager

The following table provides information about the directors and officers of our Manager and officers of certain of its subsidiaries. As described below, our Manager and certain of its wholly-ownedwholly owned subsidiaries provide us with technical, administrative and strategic services pursuant to the management agreements.

 

Name

  Age  

Position

Kyle R. Washington

  3940  Chairman of the Board of Directors and Director of our Manager and Director and Officer of certain subsidiaries of our Manager

Gerry Wang

  4748  Director of our Manager and Director, President and Chief Executive Officer of SSML and SCML

Graham Porter

  3940  Managing Director, Deputy Chairman and Director of our Manager

Sai W. Chu

  4344  Chief Financial Officer of SSML and SCML

Peter Curtis

  5152  Vice President of SSML

Kyle R. Washington. Kyle R. Washington was appointed directorAs noted above, several of the directors and chairmanexecutive officers of our Manager in August 2005. Heor its subsidiaries also serve as our directors or executive officers. The business experience of these individuals is also a director and officer of certain of our Manager’s operating subsidiaries.described above.

Gerry Wang. Gerry Wang was appointed director of our Manager in August 2005. He has been a director of SSML since 2000 and was appointed president and chief executive officer in July 2004. He is also director, president and chief executive officer of SCML.

Graham Porter. Graham Porter was appointed managing director, deputy chairman and director of our Manager in August 2005. Mr. Porter plays a key role in the overall strategic management services our Manager provides to us. Mr. Porter joined Seaspan International Ltd. in 1992 as part of the offshore heavy-lift and ocean towing division and is currently a director, managing director and secretary of SCLL. In 2000, Mr. Porter was part of the senior management and equity team to form SCLL, established to own and operate deep-sea container vessels. Mr. Porter is also a director, managing director or deputy chairman of certain affiliates of our Manager. Mr. Porter is chairman of Tiger Group, an investment firm based in Hong Kong which, through its affiliated companies, holds shares in us and in other shipping ventures. He graduated in 1992 with a degree in business, major in transportation and logistics and minor in accounting, from the University of British Columbia in Vancouver, BC, Canada. Mr. Porter currently resides in Hong Kong.

Sai W. Chu. Sai W. Chu was appointed chief financial officer of SSML, SCLL, and SCML in May 2005.

Peter Curtis. Peter Curtis was appointed vice president of SSML in April 2001. He is responsible for the ship building management, overall operations and commercial management of the vessels managed by SSML.SSML, including all of our vessels. From 1981 to 1989, Mr. Curtis served in the South African Navy, where he attained the rank of Lt. Commander in charge of the submarine maintenance facility and design office. From 1989 to 1991, he was an associate with a firm of engineering consultants in Cape Town, working on offshore and naval architectural projects, such as offshore oil and gas as well as other marine projects. From 1991 to 1999, Mr. Curtis was with Safmarine, where he was responsible for the operations of a mixed fleet of containerships, handy-size and cape-size bulkcarriers and also oversaw a number of new building programs. Prior to joining SSML in 2001, Mr. Curtis was based in Cyprus for two years with Columbia Ship Management as technical director. In 1981, he obtained a B.Sc. Mechanical Engineering degree at Natal University in Durban, South Africa. In 1986, Mr. Curtis obtained his Master’s degree in Naval Architecture from University College in London, England and in 2000, he obtained his B.Sc. in business from Stellenbosch University in Cape Town, South Africa.

B.    Compensation

EachIn 2010, each independent member of our board of directors received an annual cash retainer of $45,000. In addition, the chair of the audit committee received an annual payment of $20,000 and Peter Lorangeeach member of the audit committee received an annual payment of $5,000. The chair of the compensation committee received an annual payment of $5,000 and each member of the compensation committee also received an annual payment of $5,000. The chair of the conflicts committee received an annual payment of $5,000 and each member of the conflicts committee received an annual payment of $5,000 for the regular quarterly committee meetings and $1,500 per meeting for any other meetings attended during the calendar year. In October 2010, the Board established the nominating and corporate governance committee. The chair of the nominating and corporate governance committee received an annual payment of $5,000 and each member of the compensation committee received an annual payment of $5,000. All annual cash retainers and payments are payable in equal quarterly installments.

For 2011, each independent member of our board of directors receives an annual cash retainer of $45,000.$60,000. In addition, the chair of the audit committee receives an annual payment of $20,000 and each member of the audit committee receives an annual payment of $5,000.$10,000. The chair of the compensation committee receives

an annual payment of $5,000$10,000 and each member of the compensation committee also receives an annual payment of $5,000.$10,000. The chair of the conflicts committee receives an annual payment of $5,000$10,000 and each member of the conflicts committee receives an annual payment of $5,000$10,000 for the regular quarterly committee meetings and a payment of $1,500 per meeting for other meetings attended during the calendar year. Independent directors who attend committee meetings, other than a regularly scheduled quarterly meeting, at the invitation of the chair of the committee but who are not members of any such committee will receive a payment of $1,500 per meeting. The chair of the nominating and corporate governance committee receives an annual payment of $10,000 and each member of the nominating and corporate governance committee receives an annual payment of $10,000 for the regular quarterly committee meetings and a payment of $1,500 per meeting for other meetings attended during the calendar year. All annual cash retainers and payments are payable in equal quarterly installments.

Except for Peter Lorange, who is an officer of our subsidiary companies, officersOfficers who also serve as directors willdo not receive compensation for their services as directors. Mr.However, Peter Lorange receives $5,000received $1,600 of prorated additional compensation per year payable in quarterly installments in recognition of his ongoing service as a director andan interim officer of certain of our subsidiaries.

In 2009, Milton K. Wong received $5,000 in additional compensation for the year ended December 31, 2009 paid in quarterly installments. This amount was paid to him in recognition of the assistance he provided to the chairman of the Board. Mr. Wong resigned from the Board effective January 2,subsidiaries through April 25, 2010.

Each director is reimbursed for out-of-pocket expenses incurred while attending any meeting of the Board or any Board committee. In addition, in 2010 each independent Board member and Peter Lorange iswas entitled to receive a travel stipend in the amount of $4,000 per Board meeting if the eligible recipient travels transoceanic to attend the meeting in person or $3,000 per Board meeting if the eligible recipient travels transcontinental to attend the meeting in person. We paid a total amount of $80,000$89,000 to the independent directors and Peter Lorange in travel stipends in 2009.2010. We do not intend to pay travel stipends in 2011.

Mr. Wang has served as our chief executive officer and the chief executive officer of SSML pursuant to an employment agreement with SSML. In March 2011, in connection with our investment in the Vehicle, Mr. Wang’s agreement with SSML was amended and restated and we entered an employment agreement and a transaction services agreement with Mr. Wang. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Employment Agreement and Other Related Agreements with Gerry Wang” for more information.

Equity Incentive Plan

In December 2005, our Board adopted the Seaspan Corporation Stock Incentive Plan, or the Plan, under which our officers, employees and directors may be granted options, restricted shares, phantom share units, and other stock based awards as may be determined by our Board. A total of 1,000,0002,000,000 common shares wereare reserved for issuance under the Plan, which is administered by our Board. The Plan will expire 10 years from the date of its adoption.December 2015. The following directors have beenwere awarded the following equity incentive awards under the Plan on or subsequent to January 1, 2009:2010:

 

On January 1, 2010, each of our independent directors and Peter Lorange was awarded 7,200 restricted shares, which will vestvested on January 1, 2011. Those shares granted to Antony S. Crawford vested on January 23, 2010, the date of his death; and

 

On January 6, 2009,April 25, 2010 and July 24, 2010, Nicholas Pitts-Tucker and Graham Porter were each of our independent directors as of that date (including David Korbin, who resigned on September 19, 2009, and Milton K. Wong, who resigned on January 2, 2010) and Peter Lorange was awarded 6,6004,952 restricted shares, which vested on January 1, 2009. Upon their election to the Board, George H. Juetten2011, as they were appointed directors in April 2010; and Antony S. Crawford

On January 1, 2011, each of our independent directors, and Graham Porter and Peter Lorange, were each awarded a pro-rata portion of the 6,600 shares (being 2,893 and 1,8817,200 restricted shares, respectively) which vested onwill vest January 1, 2010. In recognition of Mr. Korbin’s services to the Company and in consideration of his assistance in the transition of the chair of the audit committee to Mr. Juetten, the Board awarded Mr. Korbin the compensation he would have been entitled to if he remained a director and committee member of the Corporation until December 31, 2009, which included the vesting of his 6,600 shares.2012.

Our board of directors approved a grant ofWe granted 15,000 phantom share units to Sai W. Chu, our chief financial officer, on March 1, 2009.in April 2010. This grant, which was made in accordance with the Plan, and is subject to a three-year vesting period, beginningwhich began on January 1, 2010. On2011. In March 2009, also in accordance with the Plan, we granted to Mr. Chu 15,000 phantom share units. One-third of these vested on each of January 1, 2010 and January 1, 2011 and the remaining one-third on will vest on January 1, 2012. In June 8, 2007, our board of directors also approved a grant ofwe granted 15,000 phantom share units to Sai W.Mr. Chu in accordance with the Plan. One-third of the phantom share units vested on each of January 1, 2008, January 1, 2009 and January 1, 2010.

Our board of directors approved a grant ofWe granted 150,000 phantom share units to Gerry Wang, our chief executive officer on March 1, 2009.and co-chairman of our board of directors, in April 2010. This grant, which was made in accordance with the Plan, is subject to a three-year vesting period beginning on January 1, 2010.2011. In December 2007, our board of directors,March 2009, also in accordance with

the Plan, approved a grantwe granted to GerryMr. Wang 150,000 phantom share units. One-third of these vested on each of January 1, 2010 and January 1, 2011, and the remaining one-third will vest on January 1, 2012. In January 2008, also in accordance with the Plan, we granted to Mr. Wang 135,000 phantom share units. One-third of these vested on each of December 21, 2008 and December 21, 2009 and the remaining one-third will vest on December 21, 2010. In October 2006, our board of directors, in accordance with the Plan, approved a grant to Mr. Wang of 99,500 phantom share units, subject to vesting over a three year period beginning January 1, 2007. The last one-third of those phantom share units vested on January 1, 2009.

On March 1, 2009, Christa Scowby, our corporate secretary and corporate counsel of a subsidiary of our Manager, was awarded 12,000 phantom share units under the Plan. One-third of the phantom share units vested on January 1, 2010 and the remaining two-thirds will vest equally on January 1, 2011 and January 1, 2012.

During the years ended December 31, 20092010 and 2008,2009, we paid to our directors and management (13 persons in 20092010 and 1113 persons in 2008)2009) aggregate cash compensation of approximately $1.3$1.2 million and $1.2$1.3 million respectively. We do not have a retirement plan for members of our management team or our directors.

The report of the compensation committee of our board of directors for the fiscal year ended December 31, 20092010 will be included as part of our Proxy Statement, which will be filed with the U.S. Securities and Exchange Commission, or SEC, as a Current Report on Form 6-K.

C.    Board Practices

General

As of March 1,December 31, 2010, the Board consisted of seveneight members. Except for George H. Juetten, who was appointed by our Series A Preferred Shareholders on July 25, 2009 and who does not belong to a class of directors, the Board is divided into the following three classes, with members of each class elected to hold office for a term of three years in accordance with the classification indicated below and until his successor is elected and qualified:

 

Our Class I director isdirectors are Kyle R. Washington and hisNicholas Pitts-Tucker and their term expires in 2012. Antony S. Crawford, who was a Class I director following his election to the Board at the annual shareholder meeting on September 19, 2009, passed away on January 23, 2010. David Korbin, who was also a Class I director, resigned from the Board effective September 19, 2009;2012;

 

Our Class II directors are Gerry Wang, Peter Lorange and Barry R. Pearl. They have terms that expire in 2010. Mr. Wang and Mr. Lorange have each been nominated by the board of directors for re-election at the 2010 annual meeting of shareholders. The Board has nominated Graham Porter for election to the board to replace Mr. Pearl upon the expiration of his term. If elected, Mr. Porter will be a Class II director and will hold office until the next election of Class II directors and until his successor has been elected and qualified. For more information on Mr. Porter, please read “Item 6. A. Directors, Senior Management and Employees—Directors and Senior Management—Directors and Officers of Our Manager” of this Annual Report and “Proposals to be Voted on—ProposalNo. 1 Election of Directors”their term expires in our Proxy Statement, which will be filed with the SEC as a Current Report on Form 6-K;2013; and

 

Our Class III directors are Peter S. Shaerf and John C. Hsu. They have terms that expireHsu and their term expires in 2011. Milton K. Wong, who was also a Class III director, resigned from the Board effective January 2, 2010.

There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.service, however Gerry Wang, our chief executive officer and co-chairman of our board of directors, has entered into employment agreements with us and SSML that provide for certain severance benefits. Please read “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Employment Agreement and Other Related Agreements with Gerry Wang.”

The board of directors has determined that each of the current members of the board,Board, other than Kyle R. Washington, Gerry Wang and Peter Lorange,Graham Porter, has no material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us, and is, therefore, independent from management and our Manager. Peter Lorange, who was previously an officer of certain of our subsidiary companies on an interim basis, resigned from that appointment on April 25, 2010 and was replaced with Mr. Porter. Our board of directors has determined that Peter Lorange cannot currently be deemed

independent due to his continued service as an officer of our subsidiaries. However, we intend to find a replacement to serve as an officer of our subsidiaries in lieu of Mr. Lorange. We believe that upon stepping down as an officer of our subsidiaries, Mr. Lorange will havehas no material relationship with us either directly or as a partner, shareholder or officer of an organization that has a relationship with us, and will beus. The board of directors has also determined that, in spite of his prior interim service as an officer of certain of our subsidiary companies, Mr. Lorange is independent from us, a standard that differs from the independence standard for domestic companies that is set forth in the NYSE listed company manual. Please read “—Exemptions from NYSE Corporate Governance Rules” for more information about the ways in which our corporate governance practices differ from those followed by domestic companies.

If elected, Graham Porter will not be deemed an independent director due to his relationship with us and our Manager, which existed prior to our initial public offering. Mr. Porter indirectly owns part of our predecessor, SCLL, and, in connection with our initial public offering, we acquired SCLL’s entire existing and future containership business, including the vessels that made up our initial fleet. In addition, an entity indirectly owned by Mr. Porter owns part of our Manager. Mr. Porter currently serves as managing director, deputy chairman and director of our Manager and as director, managing director and secretary of SCLL.Committees

The board of directors has the following three standingfour committees: audit committee, compensation committee, conflicts committee and conflicts committee.nominating and corporate governance committee (which was established in October 2010). The membership of these committees during 20092010 and the function of each of the committees are described below. Each of our standing committees is currently comprised entirely of members that have been deemed independent by our board of directors and operates under a written charter adopted by our board of directors. All of the committee charters are available under “Corporate Governance” in the Investor Relations section of our website at www.seaspancorp.com.

During 2009,2010, the Boardboard of directors held nineeight meetings, the audit andcommittee held four meetings, the compensation committees eachcommittee held fiveeight meetings, and the conflicts committee held ten meetings.14 meetings, and the nominating and corporate governance committee held one meeting. Each director attended at least 75% of the Boardboard meetings (held during the period for which such person was a director) during the last fiscal year with the exception of Peter Lorange and Antony S. Crawford. Mr. Lorange attended five of the nine board meetings held in 2009 and Mr. Crawford was not able to attend the one board meeting held during the period for which he was a member of the Board.year. Each director attended at least 75% of the total number of committee meetings on which such person served (held during the periods for which such person served) during the last fiscal year with the exception of Peter Shaerf. Mr. ShaerfLorange, who attended sevenfive of ten14 conflicts committee meetings.

Our audit committee is composed entirely of directors who currently satisfy applicable NYSE and SEC audit committee independence standards. In 2009,As of December 31, 2010, our audit committee members were Barry R. Pearl, Milton K. Wong,George H. Juetten, John C. Hsu and George H. Juetten, who was appointed on September 19, 2009 and who replaced David Korbin as a member and chair of the audit committee. Milton K. Wong resigned as a director of the Company effective January 2, 2010 and no other director has been appointed to the audit committee in his place.Nicholas Pitts-Tucker. All members of the committee are financially literate, and the

board of directors has determined that Mr. Juetten, Mr. Pearl and Mr. Hsu all members qualify as financial experts. The audit committee assists the board of directors in fulfilling its responsibilities for general oversight of: the integrity of our consolidated financial statements; our compliance with legal and regulatory requirements; the independent auditors’ qualifications and independence; and the performance of our internal audit function and independent auditors.

In 2009,Our compensation committee is composed entirely of directors who currently satisfy applicable NYSE independence standards. As of December 31, 2010, our compensation committee consisted of Peter S. Shaerf, Milton K. Wong, Barry R. Pearl and John C. Hsu. Milton K. Wong resigned as a director of the Company effective January 2, 2010Hsu and no other director has been appointed to the compensation committee in his place.George H. Juetten. The compensation committee reviews, evaluates and approves our agreements, plans, policies and programs to compensate our officers and directors. Each year itthe committee produces a report on executive compensation and publishes the report in our Annual Report on Form 20-F, otherwise discharges the Board’s responsibilities relating to the compensation of our officers and directors, and performs such other functions as the Board may assign to the committee from time to time.

Our conflicts committee is composed entirelyAs of directors who currently satisfy applicable NYSE independence standards. Until the fourth quarter of 2009, the members ofDecember 31, 2010, our conflicts committee were David

Korbin, Barry R. Pearl, Milton K. Wong andconsisted of Peter S. Shaerf. David Korbin ceased to be a member of the conflicts committee following his resignation as a director of the Company on September 19, 2009. Milton K. Wong also ceased to be a member of the conflicts committee upon his resignation as a director of the Company effective January 2, 2010. John C. Hsu was subsequently appointed to the conflicts committee on January 28, 2010.Shaerf, Peter Lorange and Nicholas Pitts-Tucker. The conflicts committee reviews and approves transactions between us and our directors, our officers and other related parties for potential conflicts of interest on an ongoing basis. Each member of the committee currently satisfies applicable NYSE independence standards, other than Mr. Lorange, whom the board of directors has determined has no material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us and has been deemed by our board of directors to be independent from us.

Our nominating and corporate governance committee is composed entirely of directors who currently satisfy applicable NYSE independence standards. As of December 31, 2010, our nominating and corporate governance committee consisted of Nicholas Pitts-Tucker, George H. Juetten and John C. Hsu. The nominating and corporate governance committee assists the Board with: corporate governance practices; identifying qualified individuals to become members of the Board; the process of recommending director nominees to the Board for election at annual meetings of the shareholders or to fill vacancies on the Board; and the results of period performance evaluations of the members of the Board and making any recommendations on consequent improvements that have been identified during such evaluations.

Exemptions from NYSE Corporate Governance Rules

As a foreign private issuer, we are exemptedexempt from certain corporate governance rules that apply to domestic companies under NYSE listing standards. The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies:

 

we hold annual meetings of shareholders under the Business Corporations Act of the Republic of the Marshall Islands, similar to NYSE requirements;

in lieu of a nominating committee, the full board of directors regulates nominations as set forth in our bylaws; and

inIn lieu of obtaining shareholder approval prior to the adoption of equity compensation plans, the full board of directors approves such adoption.

In addition, our board of directors will not have a majority of directors who satisfy the independence standards set forth in the NYSE listed company manual.

Unlike domestic companies listed on the NSYE,NYSE, foreign private issuers are not required to have a majority of independent directors and the standard for independence applicable to foreign private issuers is differentmay differ from the standard that is applicable to domestic issuers.

Our Boardboard of directors has determined that four of our seveneight current directors (being John C. Hsu, George H. Juetten, Barry R. PearlNicholas Pitts-Tucker and Peter S. Shaerf) satisfy the NYSE’s independence standards which are not applicable to us. Althoughfor domestic companies. Our board of directors has also determined that Peter Lorange, doeswho has no material relationship with us either directly or as a partner, shareholder or officer of an organization that has a relationship with us, is independent from us. This is the general NYSE independence standard. Our board of directors has not currently qualify as an independent director in accordance withapplied the NYSE independence standards duethree-year look-back test relating to his continuingMr. Lorange’s interim service as an officer of certain of our subsidiaries, we believe that ifsubsidiary companies in deeming Mr. Lorange were to step down from these offices, our Board would determine that he would be independent from our management and our sponsor. Under the NYSE independence standards applicable to a domestic issuer, however, Mr. Lorange could not be considered independent from us until three years after he ceased to be an officer of our subsidiaries.independent.

Upon the election of Mr. Porter and the replacement of Mr. Lorange as an officer of our subsidiaries, four of our seven directors will be independent but only three directors (less than a majority of the Board) will be independent under the NYSE’s independence standards.

Finally, U.S. issuers are required to have a compensation committee that isand a nominating and corporate governance committee, each comprised entirely of independent directors. Although as a foreign private issuer this rule doesthese rules do not apply to us, we have a compensation committee and a nominating and corporate governance committee that each consists of three directors, all of whom currently satisfy NYSE standards for independence.

D.    Employees

We do not have any employees. OurPursuant to our management agreements, our Manager providesand certain of its affiliates provide us with all of our staff and all ofemployees (other than our other officers.chief executive officer). Our board of directors has the authority to hire other employees as it deems necessary.

E.    Share Ownership

The following table sets forth certain information regarding the beneficial ownership of our common and preferred shares by:

 

each of our current and former directors;

each of our current named executive officers; and

 

all current and former Seaspan directors and all current named executive officers as a group.

The information presented in the table is based on information filed with the SEC and on information provided to Seaspan prior to February 12, 2010.16, 2011.

 

Name of Beneficial Owner

  Common
Shares
  Percentage of
Common Shares (1)
  Series A
Preferred
Shares
  Percentage of
Series A Preferred
Shares
  Percentage of Total
Voting Securities (2)
 

Kyle R. Washington(3)

  2,589,858  3.8 12,000  6.0 4.2

Gerry Wang(4)

  1,414,268  2.1 —    —     1.7

Sai W. Chu

  35,571  *   —    —     *  

David Korbin

  17,850  *   —    —     *  

Peter Lorange(5)

  99,224  *   —    —     *  

Peter S. Shaerf

  54,407  *   —    —     *  

Milton K. Wong(6)

  37,850  *   —    —     *  

Barry R. Pearl

  26,220  *   —    —     *  

John C. Hsu

  16,400  *   —    —     *  

George H. Juetten

  35,093  *   —    —     *  

Antony S. Crawford(7)

  9,081  *   —    —     *  

All executive officers and directors as a group (11 persons)

  4,335,822  6.4 12,000  6.0 6.3

Name of Beneficial Owner

  Common
Shares
   Percentage of
Common
Shares (1)
  Series A
Preferred
Shares
   Percentage of
Series A
Preferred
Shares
  Percentage of
Total Voting
Securities(2)
 

Graham Porter (3)

   4,409,051     6.4  20,000     10.0  7.1

Kyle R. Washington (4)

   2,675,291     3.9  12,000     6.0  4.3

Gerry Wang (5)

   1,573,946     2.3  —       —      1.8

Peter Lorange (6)

   106,424     *    —       —      *  

Peter S. Shaerf

   61,607     *    —       —      *  

Sai W. Chu

   58,559     *    —       —      *  

George H. Juetten

   42,293     *    —       —      *  

John C. Hsu

   23,600     *    —       —      *  

Nicholas Pitts-Tucker

   12,307     *    —       —      *  

All executive officers and directors as a group (9 persons)

   8,963,078     13.0  32,000     16.0  13.6

 

(1)Percentages are based on the 67,998,16068,808,033 common shares that were issued and outstanding on February 12, 2010.15, 2011.

 

(2)Assumes the conversion of Series A Preferred Shares at a conversion price of $15.00. Percentages are based on the 14,499,75416,335,470 votes that the Series A Preferred Shares were entitled to in the aggregate as of February 12, 2010.15, 2011.

 

(3)The number of common shares shown for Mr. Porter includes common shares beneficially owned by Tiger Container Shipping Co. Ltd., or Tiger, and Jenstar Ltd., or Jenstar. The number of Series A Preferred Shares shown for Mr. Porter includes Series A Preferred Shares beneficially owned by Tiger. Tiger and Jenstar are Cayman Islands companies that are owned by Mr. Porter, a managing director and director of our Manager. This information is based on prior SEC filings and information provided to Seaspan by Mr. Porter on or about February 16, 2011.

(4)The number of common and preferred shares shown for Kyle R. Washington includes shares beneficially owned by The Kyle R. Washington 1999 Trust II and CopperLion Capital (KRW) I Limited Partnership.(1999). This information is based on the Schedule 13D filed with theprior SEC on March 20, 2006filings and information provided to Seaspan by Kyle R. Washington on or about February 17, 2010.8, 2011.

 

(4)(5)The number of common shares shown for Mr. Wang includes shares beneficially or directly owned by Gerry Wang, as well as by certain members of his immediate family, the Gerry Wang Family Trust and by 0731455 B.C. Ltd., a British Columbia company. This information was provided to Seaspan by Mr. Wang on or about February 12, 2010.16, 2011.

(5)(6)The number of common shares shown for Mr. Lorange includes shares held by S. Ugelstad Invest A/S 100. This information was provided to Seaspan by Mr. Lorange on or about February 23, 2010.10, 2011.

 

(6)The number of common shares shown for Mr. Wong includes shares held by Pip Peri Pembo Management Ltd. This information was provided to Seaspan by Mr. Wong on or about March 3, 2010.

(7)Antony S. Crawford was granted 1,881 restricted common shares, which vested on January 1, 2010, and 7,200 restricted common shares, which vested on January 23, 2010.

*Less than 1%.

Item 7.Major Shareholders and Related Party Transactions

A.    Major Shareholders

The following table sets forth certain information regarding the beneficial ownership of our common and preferred shares by each person known by us to be a beneficial owner of more than 5% of the common or preferred shares. The information provided in the table is based on information filed with the SEC and on information provided to Seaspan prior on or about February 12, 2010.Feburary 16, 2011.

 

Name of Beneficial Owner

  Common
Shares
  Percentage of
Common
Shares(1)
  Series A
Preferred
Shares
  Percentage of
Series A
Preferred
Shares
  Percentage of
Total Voting
Securities(2)
 

Graham Porter(3)

  3,981,553  5.9 20,000  10.0 6.6

Dennis R. Washington(4)

  9,430,292  13.9 160,000  80.0 25.5

Name of Beneficial Owner

  Common
Shares
   Percentage of
Common
Shares (1)
  Series A
Preferred
Shares
   Percentage of
Series A
Preferred
Shares
  Percentage of
Total Voting
Securities(2)
 

Dennis R. Washington (3)

   11,051,648     16.1  160,000     80.0  28.3

Graham Porter (4)

   4,409,051   �� 6.4  20,000     10.0  7.1

 

(1)Percentages are based on the 67,998,16068,808,033 common shares that were issued and outstanding on February 12, 2010.15, 2011.

 

(2)Percentages are based on the 14,499,75416,335,470 votes that the Series A Preferred Shares were entitled to in the aggregate as of February 12, 2010.15, 2011.

 

(3)The number of common and preferred shares shown for Dennis R. Washington includes those shares beneficially owned by Deep Water Holdings, LLC and the Roy Dennis Washington Revocable Living Trust. This information is based on prior SEC filings and information provided to Seaspan by Dennis R. Washington on or about February 14, 2011.

(4)The number of commons shares shown for Mr. Porter includes common shares beneficially owned by Tiger Container Shipping Co. Ltd., or Tiger, and Jenstar Ltd., or Jenstar. The number of Series A Preferred Shares shown for Mr. Porter include Series A Preferred Shares beneficially owned by Tiger. Tiger and Jenstar are Cayman Islands companies that are owned by Graham Porter, a managing director and director of our Manager. This information is based on the Schedule 13D filed with theprior SEC on March 12, 2010filings and information provided to Seaspan by Mr. Porter on or about February 18, 2010.

(4)The number of common and preferred shares shown for Dennis R. Washington includes those shares beneficially owned by Deep Water Holdings, LLC and the Roy Dennis Washington Revocable Living Trust. This information is based on the Schedule 13D filed with the SEC on October 6, 2009 and information provided to Seaspan by Dennis R. Washington on or about February 15, 2010.16, 2011.

The major shareholders in our common shares have the same voting rights as other shareholders in our common shares.

Pursuant to the Preferred Share Purchase Agreement in connection with the Series A Preferred Share Offering, we agreed to issue and sell an aggregate of $200 million of our Series A Preferred Shares to entities owned by Dennis R. Washington, Kyle R. Washington, Kevin L. Washington and Graham Porter in two equal tranches. The first tranche closed on January 30, 2009. As a result, the aforementioned investors acquired an aggregate of 100,000 of our Series A Preferred Shares. The second tranche closed on October 1, 2009 which resulted in such investors acquiring an additional 100,000 Series A Preferred Shares.

As of December 31, 2009, 13,475,6382010, 15,292,016 of our Class A common shares were held by 7163 holders of record in the United States. As of December 31, 2009,2010, 100% of our Class C common shares were held by our Manager.

We are not aware of any arrangements, the operation of which may at a subsequent date result in a change of control.

B.    Related Party Transactions

From time to time since our initial public offering, we have entered into agreements and have consummated transactions with certain related parties. These related party agreements include agreements relating to the management of the vessels in our fleet, the provision of services by our executive officers, and the sale and purchase of our common and preferred equity securities.securities and our investment in the Vehicle. We may enter into related party transactions from time to time in the future. In January 2009, we established a conflicts committee, comprised entirely of independent directors, which must approve all proposed material related party transactions.

Certain Relationships and Transactions Related to Our Initial Public Offering

We,Gerry Wang, our chief executive officer and co-chairman of our board of directors is also an executive officer and director of our Manager and certain affiliates entered into various documentsof its subsidiaries, and agreementswill provide services to the Vehicle, GC Industrial and the Tiger Member. Mr. Wang is a co-owner of our Manager, together with affiliated entities of Graham Porter, Kyle R. Washington and his brother Kevin L. Washington, and may become an indirect investor in GC Industrial. Our Manager provides us with all of our technical, administrative and strategic services and will provide technical and commercial management services with respect to the vessel investments made by the Vehicle. Please read “—Our Management Agreements” and “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Greater China Intermodal Investments LLC Agreement—Services Agreements.” In addition, Mr. Wang serves as chairman of the board of managers of the Vehicle and is a voting member of the Transaction Committee of the Vehicle.

Kyle R. Washington, co-chairman of our board of directors, is also the chairman of our Manager and certain of its subsidiaries. Mr. Washington is the son of Dennis R. Washington, who controls entities that effectedtogether represent our largest shareholder. An affiliated entity of Kyle R. Washington is also a co-owner of our Manager, together with affiliated entities of his brother Kevin L. Washington, Graham Porter and Gerry Wang. Our Manager provides us with all of our technical, administrative and strategic services and will provide technical and commercial management services with respect to the transactions relatingvessel investments made by the Vehicle. Please read “—Our Management Agreements” and “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle —Greater China Intermodal Investments LLC Agreement—Services Agreements.” The Washington Member, which is an affiliate of Dennis R. Washington, has an indirect interest in the Tiger Member, which is a member of GC Industrial. Accordingly, the Washington Member will have an indirect economic interest in any incentive distributions received by GC Industrial from the Vehicle. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Greater China Intermodal Investments LLC Agreement—Distributions.” In addition, the Vehicle has granted the Washington Member a right of first refusal on containership investment opportunities, which applies to a smaller percentage of vessels and is subordinate to our formation, our initial public offeringright of first refusal. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and Offer Agreements—Washington Member Right of First Refusal.” Mr. Washington serves on the applicationboard of the proceeds from our initial public offering. These agreements were notVehicle as the result of arm’s-length negotiations and they, or anyrepresentative of the transactions that they provide for, may not have been effected on terms at leastWashington Member and is a non-voting member of the Transaction Committee of the Vehicle.

Graham Porter, one of our directors, is an executive officer and director of our Manager and its subsidiary Seaspan Advisory Services Limited, or SASL. Previously, Mr. Porter served as favorable to the parties to these agreements as they could have obtainedchief executive officer of SASL. He resigned from unaffiliated third parties. For more information on the transactions thatthis position in July 2010. In March 2011, we entered into an agreement with Mr. Porter, SASL and SSML that terminated a restrictive covenant agreement dated August 8, 2005, including the remainder of Mr. Porter’s post-employment two-year non-competition restriction. Mr. Porter is also a co-owner of our Manager and of the Tiger Member. Our Manager provides us with all of our technical, administrative and strategic services and our Manager and the Tiger Member will provide technical and commercial management services with respect to the vessel investments made by the Vehicle. Please read “—Our Management Agreements” and “—Agreements Related to Our Investment in connectionCarlyle Containership-Focused Investment Vehicle —Greater China Intermodal Investments LLC Agreement—Services Agreements.” Mr. Porter holds an

economic interest in the Tiger Member, which is a member of GC Industrial and the Vehicle. Accordingly, he will have an indirect economic interest in any incentive distributions received by GC Industrial from the Vehicle. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Greater China Intermodal Investments LLC Agreement—Distributions.” Mr. Porter also serves on the board of managers of the Vehicle and is a voting member of the Transaction Committee of the Vehicle. In addition, Mr. Porter and his affiliates own Tiger Ventures Limited, which provides certain financial services to us pursuant to a services agreement. Please read “—Financial Services Agreement with Tiger Ventures Limited.”

Sai W. Chu, our chief financial officer, is also the chief financial officer of certain subsidiaries of our Manager that provide services to us.

During the year ended December 31, 2010, because Mr. Wang was an employee of SSML, a subsidiary of our Manager, his compensation (other than any awards under our long-term incentive plan) was set and paid by such subsidiary. In March 2011, Mr. Wang entered into an amended and restated employment agreement with SSML and a new employment agreement with us. Please read “—Employment Agreement and Other Related Agreements with Gerry Wang.” Mr. Chu is also an employee of certain subsidiaries of our Manager, and his compensation (other than any awards under our long-term incentive plan) is also set and paid by such subsidiaries. Pursuant to an agreement with our initial public offering, please read “—Registration Rights Agreements,” “InformationManager, we have agreed to reimburse our Manager or its applicable subsidiaries for time spent by our executive officers on the Company—B. Business Overview—Management Related Agreements,” “—Management Agreements,” “—Omnibus Agreement,” “—Employment Agreement with Gerry Wang,” and “—Employment Agreement with Graham Porter.”our management matters.

Our Management Agreements

Our Manager provides substantiallySubstantially all of the management services for our vessels under variousare provided by our Manager, the provision of which is currently governed by the amended and restated management agreements. For more information aboutagreement that we entered into in 2007, as amended, or the Amended and Restated Management Agreement, and eleven additional management agreements relating to specific vessels. We are in discussions with our Manager that governabout potentially acquiring all or a portion of our Manager. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Potential Transactions—Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees.” Under our current management agreements, our Manager is responsible for providing us with certain services, in each case, at the direction of our board of directors, which include the following:

Technical Services, which include managing day-to-day vessel operations, arranging general vessel maintenance, ensuring regulatory compliance and compliance with the law of the flag of each vessel and of the places where the vessel trades, ensuring classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging for the training, transportation, compensation and insurance of the crew (including processing all claims), arranging normally scheduled dry-docking and general and routine repairs, arranging insurance for vessels (including marine hull and machinery insurance, protection and indemnity insurance and risks and crew insurance), purchasing stores, supplies, spares, lubricating oil and maintenance capital expenditures for vessels, appointing supervisors and technical consultants and providing technical support, shoreside support, and attending to all other technical matters necessary to run our business;

Administrative Services, which include assistance with the maintenance of our corporate books and records, payroll services, the assistance with the preparation of our tax returns (and paying all vessel taxes) and financial statements, assistance with corporate and regulatory compliance matters not related to our vessels, procuring legal and accounting services (including the preparation of all necessary budgets for us for submission to our board of directors), assistance in complying with U.S. and other relevant securities laws, human resources, 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 (including all annual, quarterly, current and other reports we are required to file with the SEC pursuant

to the Exchange Act, assistance with office space, providing legal and financial compliance services, overseeing banking services (including the opening, closing, operation and management of all our accounts including making any deposits and withdrawals reasonably necessary for the management of our business and day-to-day operations), procuring general insurance and director and officer liability insurance, arranging for the licensing to us of the tradename “Seaspan” and associated logos, providing all administrative services required for subsequent debt and equity financings and attending to all other administrative matters necessary to ensure the professional management of our business; and

Strategic Services, which include chartering our vessels, managing our relationships with our customers, identifying and negotiating the purchase and sale of vessels and arranging for financing of such vessels, providing general strategic planning services and implementing corporate strategy, providing business development services, developing acquisition and divestiture strategies, working on the integration of any acquired business, providing pre-delivery services for vessels, including overseeing and supervising the plan approval and construction of new vessels and negotiating shipbuilding contracts and liaising with the shipbuilders, and providing such other strategic, corporate planning, business development and advisory services as we may reasonably identify from time to time.

Generally, our Manager is responsible for paying for all costs associated with the provision of managementtechnical services but is not responsible for certain “extraordinary costs and expenses,” which consist of: repairs for accidents; non-routine dry-docking; any improvement, structural change, installation of new equipment imposed by compulsory legislation; increase in crew employment and support expenses resulting from an introduction of new, or change in the interpretation of, applicable laws; or any other similar costs, liabilities and expenses that were not reasonably contemplated by us and our fleet, please read “Information onManager as being encompassed by or a component of the Company—B. Business Overview—technical services fee at the time the fee was determined. We carry insurance coverage consistent with industry standards for certain matters but our insurance may not be adequate to cover all extraordinary costs and expenses. If any extraordinary costs and expenses are caused by our Manager’s fraud, willful misconduct, recklessness or gross negligence, our Manager will be responsible for them. Except for newbuilding vessels covered under the Amended and Restated Management Agreements.”Agreement, we pay for the pre-delivery purchase of stores, spares, lubricating oils, supplies, equipment and services related to the delivery of the vessels and for fees associated with the classification society or registration under the relevant flag.

ChangeTerm and Termination Rights

Subject to certain termination rights, the initial term of Control Planthe management agreements will expire on December 31, 2025, except for four management agreements pertaining to four vessels financed under lease facilities, which are scheduled to expire at the end of the applicable charter. If not terminated, the management agreements (except for those pertaining to the four vessels described above) shall automatically renew for a five-year period and shall thereafter be extended in additional five-year increments if we do not provide notice of termination in the fourth quarter of the fiscal year immediately preceding the end of the respective term.

Effective as of January 1, 2009, we establishedWe may terminate a management agreement in certain circumstances, including, if:

our Manager materially breaches a management agreement (and the matter is unresolved after a 90-day dispute resolution period) or experiences certain bankruptcy events or experiences a change of control severance planto which we do not consent;

we provide notice in the fourth quarter of 2019 after two-thirds of our board of directors elects to terminate a management agreement, which termination would be effective on December 31, 2020; or

except for the two management agreements pertaining to the two vessels described above that are financed under lease facilities, we provide notice in the fourth quarter of 2024, which termination would be effective on December 31, 2025. If a management agreement is extended pursuant to its terms, we can elect to exercise this optional termination right in the fourth quarter of the year immediately preceding the end of the respective term.

If we elect to terminate the Amended and Restated Management Agreement under the first circumstance described above, we may purchase the Manager’s Class C common shares for $100 at the time of termination. If we elect to terminate the Amended and Restated Management Agreement under either of the second or third circumstances described above, our Manager or its affiliates shall continue to receive dividends on the Class C common shares for a period of five years from the date of actual termination of the agreement, and at the end of such five year period the Class C common shares shall be surrendered to us at no cost to us. Please read “—Compensation of Our Manager,” which describes our grant of Class C common shares to our Manager.

Our Manager may terminate a management agreement prior to the end of its term under either of the following two circumstances:

after August 12, 2010 with 12 months’ notice; or

if we materially breach a management agreement and the matter is unresolved after a 90-day dispute resolution period.

If our Manager elects to terminate the Amended and Restated Management Agreement under the first circumstance described above, we may purchase its Class C common shares for $100 at the time of termination.

If our Manager elects to terminate a management agreement under the first circumstance described above, at our option, our Manager will continue to provide technical services to us for up to an additional two-year period from termination, provided that our Manager or its affiliates continue in the business of providing such services to third parties for similar types of vessels. The omnibus agreement (as described below) shall remain in effect and binding on the parties thereto for a two-year period from the date of such termination of the agreement.

If our Manager elects to terminate the Amended and Restated Management Agreement under the second circumstance described above, our Manager or its affiliates shall continue to receive dividends on its Class C common shares for a period of five years from the date of actual termination of the agreement, and at the end of such five year period the Manager’s Class C common shares shall be surrendered to us at no cost to us.

The management agreements will terminate automatically and immediately if we experience any of certain changes of control. Upon any such termination, we may purchase the Manager’s Class C common shares or the Manager may cause us, or our successor, to purchase its Class C common shares for the fair market value of such shares, which is to be determined by an appraisal process.

Reporting Structure

Our chief executive officer and our chief financial officer manage our day-to-day operations and affairs. Pursuant to his employment agreements with us and our Manager, our chief executive officer devotes the amount of time to us and our Manager that is reasonably necessary to perform his duties. Our chief financial officer devotes substantially all of his business time to us and our Manager on our business and affairs. Our Manager reports to our board of directors through our chief executive officer and our chief financial officer and operates our business. Our board of directors and our chief executive officer and chief financial officer have responsibility for overall corporate strategy, acquisitions, financing and investor relations. Our chief executive officer and chief financial officer utilize the resources of our Manager to run our business.

Compensation of Our Manager

In return for its technical management of our ships, our Manager receives a daily fixed fee per vessel payable on a monthly basis once the vessels have been delivered. During 2008, in accordance with the terms of the management agreements, we negotiated with the Manager and agreed to the fixed fees ranging from $5,118 to $8,336, depending on vessel size, for the three year period commencing January 1, 2009. Pursuant to the existing terms of the management agreements, these fixed fees are in effect through December 31, 2011 and

thereafter will be subject to renegotiation every three years (except for one vessel financed under a lease facility). We are currently in discussions with our Manager about potentially acquiring all or a portion of our Manager, or changing the amount and types of fees payable under the management agreements. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Potential Transactions—Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees.”

With respect to fee renegotiation for the applicable vessels, if our Manager and our board of directors are unable to reach an agreement, an arbitrator will determine the fair market fee for technical services. If we acquire an additional vessel financed under an existing credit agreement, the technical services fee in respect of that vessel will be the same fee as is applicable to vessels of the same size. If there is a material difference in the operating costs associated with the new vessel, or if there are no vessels of a similar size already owned by us, we will negotiate a fair market fee with our Manager. If we are unable to reach an agreement, an arbitrator will determine the fair market fee.

In return for providing us with strategic and administrative services, our Manager is entitled to a service fee not exceeding $6,000 per month, and, except for certain employeessupervisory services, to reimbursement for all of SSML. For more informationthe reasonable costs and expenses incurred by it and its affiliates in providing us with such services. With respect to the reimbursement of certain costs and expenses for the provision of certain services related to the supervision of construction of our vessels, the Manager is paid a fixed amount per vessel, which fee is based on vessel class and has been agreed upon with our Manager. Our Manager provides these supervisory services to us directly but may subcontract certain of these services to other entities, including its affiliates. The management agreements provide that we have the right to audit the costs and expenses billed to us and also provides for a third party to settle any billing disputes between us and our Manager.

We incurred the following aggregate costs under these various management agreements:

   Year ended December 31, 
   2010   2009   2008 

Technical services

  $108,046,000    $81,844,000    $54,623,400  

Dry-dock activities included in technical services

   4,637,000     3,575,000     2,945,000  

Administrative and strategic services

   72,000     72,000     72,000  

Reimbursed expenses

   3,087,000     2,458,000     2,242,000  

Construction supervision (under fixed fee arrangements of $250,000 to $350,000 per vessel)

   1,864,000     3,106,000     1,714,000  

Consulting services incurred with the Manager and parties related thereto

   192,000     240,000     40,000  

Arrangement fee

   1,500,000     nil     nil  

To provide an incentive for our Manager in its provision of strategic services to us, in connection with our initial public offering in 2005, we issued to our Manager’s affiliate 100 Class C common shares. The Class C common shares are entitled to a share of incremental dividends, based on specified sharing ratios, once dividends on our Class A common shares reach certain specified targets, beginning with the first target of $0.485 per share, and we have an adequate operating surplus to pay such a dividend. Under the terms of the Amended and Restated Management Agreement, we have the right to reacquire the Class C common shares from our Manager’s affiliate at a nominal price under specified circumstances and we have the obligation to reacquire such shares at a price determined by independent parties under other specified circumstances.

The following table further details this allocation among the Class A common shares and Class C common shares:

      Allocation of Incremental Operating
Surplus Paid—as a Dividend
 
   Quarterly Common Share
Dividend—Target Amount
  Class A
Common Shares
  Class C
Common Shares
 

Below First Target

  up to $0.485   100  0

First Target

  above $0.485 up to $0.550   90  10

Second Target

  above $0.550 up to $0.675   80  20

Third Target

  above $0.675   75  25

The table below illustrates the percentage allocations of operating surplus distributed between the Class A common shares and the Class C common shares as a result of certain quarterly dividend amounts per Class A common share. The amounts presented below are intended to be illustrative of the way in which the Class C common shares are entitled to an increasing share of dividends based on the Changetarget dividend levels described above as total dividends increase. This is not intended to represent a prediction of Control Plan, pleasefuture performance.

Quarterly Dividend Per Class A

Common Share

  

Class A Common Share Dividend as
Percentage of Total Dividends

   

Class C Common Share Dividend as
Percentage of Total Dividends

 

$0.485

   100.00     0.00  

$0.550

   98.70     1.30  

$0.675

   94.61     5.39  

$0.750

   92.20     7.80  

$1.000

   87.20     12.80  

Omnibus Agreement

In connection with our initial public offering, we entered into an omnibus agreement with our Manager, certain of our Manager’s subsidiaries that provide services to us, Norsk and SIL. We amended this agreement in March 2011 in connection with our investment in the Vehicle. The following discussion describes the provisions of the omnibus agreement, as amended.

Non-competition

Our Manager, Norsk and SIL have agreed, and have caused their controlled affiliates (other than us and our subsidiaries) to agree, directly or indirectly, not to engage in or otherwise acquire or invest in any business involved in the chartering or rechartering of containerships to others, hereinafter referred to as the “containership business,” during the term of our Amended and Restated Management Agreement, except as provided below. “Containerships” includes any ocean-going vessel that is intended primarily to transport containers or is being used primarily to transport containers. If our Amended and Restated Management Agreement is terminated as a result of the breach thereof by our Manager or if our Manager elects to terminate our Amended and Restated Management Agreement pursuant to its optional termination right, the term of the non-competition agreement shall survive for two years from such date. The non-competition agreement does not prevent SIL, Norsk, our Manager or any of their controlled affiliates (other than us and our subsidiaries) from:

acquiring and subsequently operating assets that are within the definition of containership business as part of a business if a majority of the fair market value of the acquisition is not attributable to the containership business; however, if at any time a party completes such an acquisition, it must offer to sell the assets that are attributable to the containership business to us for their fair market value plus any additional tax or other similar costs to the acquiring party that would be required to transfer such assets to us separately from the acquired business;

solely with respect to SIL, acquiring and subsequently operating assets that are within the definition of containership business that relate to discussions, negotiations or agreements that occurred prior to the

date of our initial public offering; provided, however, that Seaspan International must offer to sell the assets to us within one year from the acquisition date valued at their “fully built-up cost,” which represents the aggregate expenditures incurred by Seaspan International to acquire and bring such assets to the condition and location necessary for our intended use;

collectively with Gerry Wang, Graham Porter and the controlled affiliates of SIL, Norsk and our Manager, acquiring up to a 9.9% equity ownership, voting or profit participation for investment purposes only in any publicly traded entity that is engaged in the containership business;

acquiring operating assets that are within the definition of containership business pursuant to the right of first offer after our Amended and Restated Management Agreement is terminated;

acquiring, and subsequently operating, containerships that we do not purchase pursuant to the terms of the asset purchase agreement;

acquiring, and subsequently operating, containerships with a capacity of less than 1000 TEU; or

providing technical ship management services relating to containerships.

In March 2011, we entered into an amendment under which the non-competition provisions of the omnibus agreement do not prevent SIL, Norsk, our Manager or any of their controlled affiliates (other than us and our subsidiaries), or any officer, director, employee or direct or indirect equity owner of such entities (including Gerry Wang and Graham Porter), from making investments in, and providing services to, the Vehicle, GC Industrial, their subsidiaries and successors, or acting as an employee or consultant to, designating any director or manager of, or assisting in any other manner, the Vehicle, GC Industrial, their subsidiaries and successors. SIL, Norsk, our Manager or any of their controlled affiliates (other than us and our subsidiaries), or any officer, director, employee or direct or indirect equity owner of such entities, are also permitted to make investments in, and provide services to, the Washington Member and its affiliates, or act as an employee or consultant to, designate any director or manager of, or assist in any other manner, the Washington Member and its affiliates in connection with any vessels that the Washington Member or an affiliate acquires pursuant to the right of first refusal granted to it by the Vehicle. Please read “Information“—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle —Rights of First Refusal and Offer Agreements—Washington Member Right of First Refusal.”

Rights of First Offer on Containerships

Our Manager and SIL and their controlled affiliates have granted us a 30-day right of first offer on any proposed sale, transfer or other disposition of any assets that fall within the definition of containership business they might own. This right of first offer does not apply to a sale, transfer or other disposition of vessels between any affiliates, or pursuant to the terms of any charter or other agreement with a charterer. Our right of first offer is in effect during the term of our Amended and Restated Management Agreement and, unless the agreement is terminated as a result of a breach by us, or we terminate pursuant to our early termination right or optional termination right, shall extend for a two year period following its termination.

Prior to any disposition of assets that fall within the definition of containership business, SIL, our Manager and their controlled affiliates, as appropriate, must deliver a written notice setting forth the material terms and conditions of any proposed sale, transfer or disposition of the assets. During the 30-day period after the delivery of such notice, we will negotiate in good faith with SIL, our Manager or their controlled affiliates, as appropriate, to reach an agreement on the Company—B. Business Overview—Changetransaction. If an agreement is not reached within such 30-day period, SIL or our Manager, as the case may be, will be able within the next 180 days to sell, transfer or dispose of Control Plan.such assets to a third party (or to agree in writing to undertake such transaction with a third party) on terms generally no less favorable to the selling party than those offered pursuant to the written notice.

Our Manager and SIL have a similar 30-day right of first offer on any of our assets that fall within the definition of containership business for a period beginning on the date of the termination of our Amended and

Restated Management Agreement and extending for a period of two years, unless such agreement is terminated as a result of the breach thereof by our Manager or if our Manager exercises its optional termination right, in which case such right of first offer shall not apply.

Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle

Greater China Intermodal Investments LLC Agreement

Purpose, Members and Exclusivity

Formed in March 2011, the Vehicle will invest primarily in newbuilding and secondhand maritime containership assets that are primarily strategic to Greater China. It is anticipated that the investments will be made over a five-year period.

The members of the Vehicle are (i) Seaspan Investment I Ltd., a subsidiary of us, or the Seaspan Member, (ii) Blue Water Commerce, LLC, an affiliate of Dennis R. Washington, or the Washington Member, (iii) Tiger Management Limited, an entity owned and controlled by our director Graham Porter, or the Tiger Member, and (iv) Greater China Industrial Investments LLC (a limited liability company owned by affiliates of Carlyle and the Tiger Member), or GC Industrial.

Until the earliest of (i) the fifth anniversary of the date of the LLC agreement, (ii) dissolution of the Vehicle and (iii) consummation of a sale of the Vehicle, GC Industrial and its subsidiaries shall only invest in containerships through the Vehicle.

Capital Commitments

GC Industrial, the Seaspan Member and the Washington Member have agreed to make aggregate capital commitments of up to $900 million. GC Industrial has committed up to $775 million ($750 million of which is a commitment from the Carlyle affiliate members of GC Industrial and $25 million of which is a commitment from the Tiger Member), the Washington Member has committed up to $25 million and the Seaspan Member has committed up to $100 million. The Tiger Member will contribute services to the Vehicle, and 50% of the fees for such services will be paid to the Tiger Member in the form of an equity interest in the Vehicle.

GC Industrial’s capital commitment will be reduced to the extent it separately invests in non-containership assets, in which case the capital commitments of other members would be proportionately reduced. We believe that containership opportunities currently are more favorable than those for tankers and bulkers.

Distributions

The Vehicle’s available cash will be distributed as and when determined by the Vehicle’s board of managers. Distributions will be made first proportionately to the members to return their respective capital contributions and then proportionately to the members until a cumulative compounded rate of return of 12% has been generated on all member capital contributions. Further distributions will be divided between the members, pro rata in accordance with their respective percentage interests, and GC Industrial, which is entitled to incentive distributions ranging from 20% to 30% depending on the amount of the distributions.

Mr. Porter holds an economic interest in the Tiger Member, which is a member of GC Industrial. Accordingly, he will have an indirect economic interest in any incentive distributions received by GC Industrial from the Vehicle. The Washington Member has an indirect interest in the Tiger Member, and accordingly will have an indirect economic interest in any incentive distributions received by GC Industrial from the Vehicle.

Governance

The Vehicle will be governed by a board of managers initially consisting of up to nine members. GC Industrial has the right to designate five members, the Tiger Member has the right to designate two members, who shall initially be Gerry Wang and Graham Porter, and the Washington Member and the Seaspan Member each have the right to designate one member. Our chief executive officer and co-chairman of our board of directors, Mr. Wang, and our director, Mr. Porter, will each provide services to the Vehicle and GC Industrial and pursue investment opportunities for the Vehicle and GC Industrial.

The Vehicle will have a Transaction Committee, which will be primarily responsible for approving the purchase, newbuild contracting, chartering, financing and technical management of new and existing investments. The voting members of the Transaction Committee will initially consist of Mr. Wang, Mr. Porter and two GC Industrial designees. Our co-chairman and the Washington Member designee on the Vehicle’s board of managers, Kyle R. Washington, is a non-voting member of the Transaction Committee. The Seaspan Member will not have a designee on the Transaction Committee, although Mr. Washington will provide to us certain Transaction Committee materials, subject to a confidentiality agreement.

Services Agreements

Our Manager, the Tiger Member and Carlyle have each agreed to provide certain services to GC Intermodal Operating Company, a subsidiary of the Vehicle. Pursuant to a management agreement, our Manager will provide technical and commercial management services with respect to the vessel investments made by the Vehicle for a daily fee of $750 per vessel once a vessel begins operation, as well as construction supervision fees ranging from $550,000 to $650,000 per newbuilding vessel, depending on the size of the vessel. The Tiger Member will provide the Vehicle with financial and strategic advisory services pursuant to a management agreement. The Tiger Member generally will be entitled to (1) charter fees equal to 1.0% of the monthly gross charter revenue from the Vehicle vessels, (2) transaction fees equal to 0.80% of the purchase or sales price of vessel or newbuilding contracts, payable upon delivery of the vessel and (3) financing fees equal to 0.40% of the aggregate amount of debt or lease financing provided by non-Greater China banks or financial institutions and 0.80% for debt or financing provided by Greater China banks or financial institutions. A portion of these fees will be reinvested in the Vehicle and the equity issued in connection with such re-investment will be held by the Tiger Member. The Washington Member has an indirect interest in the Tiger Member, and accordingly will have an indirect economic interest in any incentive distributions received by GC Industrial from the Vehicle as described above in “Greater China Intermodal Investments LLC Agreement—Distributions. Carlyle will also be entitled to transaction, financing and management fees pursuant to a consulting agreement.

Tag-Along, Drag-Along, Preemptive and Registration Rights

Each member of the Vehicle has customary “tag-along” rights on sales of interests in the Vehicle by any other member. If any member proposes to transfer any of its interests in the Vehicle to a third party purchaser, each other member will have the right to sell a share of the interests to be transferred to the third party based on the members’ respective interests in the Vehicle. The aggregate purchase price payable in connection with such sale will be allocated among the selling members as if the proceeds were distributed as described above in “—Distributions.” These provisions do not apply to transfers of the Vehicle interests in connection with, or following the consummation of, an initial public offering or related reorganization.

GC Industrial will have customary “drag-along” rights, which will permit it to require other members to join in on sales by it to a third party of a majority of the Vehicle interests. In this case, each member will be required to transfer a percentage of their interest based on the members’ respective interests in the Vehicle, on terms no less favorable than those offered to GC Industrial. The aggregate purchase price payable in connection with such sale will be allocated among the selling members as if the proceeds were distributed as described above in “—Distributions.”

Each member has preemptive rights on issuances by the Vehicle of certain new securities, which will permit such member to acquire a portion of such new securities based on such member’s respective percentage interest in the Vehicle. Prior to the issuance of any applicable new securities, the Vehicle shall give each member written notice of such proposed issuance, describing the amount and terms of the new securities. Each member will have 10 business days to determine whether to purchase its pro rata share of the new securities on such terms specified in the notice. The members’ preemptive rights terminate upon consummation of any initial public offering or the sale of the Vehicle.

GC Industrial has demand registration rights, which it may exercise at any time following 180 days after an initial public offering of the Vehicle or its successor entity in order to register with the SEC, or in accordance with the securities laws of any applicable jurisdiction, equity shares of the Vehicle or such successor, and all members have “piggy-back” registration rights if the Vehicle or its successor entity proposes to register shares of equity securities with the SEC, or in accordance with the securities laws of any other applicable jurisdiction, at any time after the initial public offering.

Dissolution

The Vehicle will be dissolved upon the first to occur of the following: (a) 18 months after the effective date of the Greater China Intermodal Investments LLC agreement if no investments have been made at that time, unless otherwise determined by the Transaction Committee; (b) the approval of the board of managers and the Transaction Committee; (c) the first date on which the Vehicle no longer holds any investments and the Vehicle cannot call capital from its members; and (d) any other event causing dissolution by law.

Rights of First Refusal and First Offer Agreements

We have a right of first refusal relating to the Vehicle’s containership investment opportunities, or Container Investment Opportunities. We may exercise this right until March 31, 2015, unless it is terminated earlier as the result of certain triggering events, including if we exercise this right for more than 50% of the aggregate vessels subject to the right prior to specified dates. “Please read —Termination of Right of First Refusal.” The Washington Member also has a right of first refusal on Container Investment Opportunities. This right applies to a smaller percentage of vessels and is subordinate to our right of first refusal. Please read “—Washington Member Right of First Refusal.” Container Investment Opportunities that are not acquired by us or the Washington Member may be acquired by the Vehicle. In addition, we have rights of first offer relating to certain containerships that the Vehicle and the Washington Member may propose to sell or dispose of. Please read “—Rights of First Offer.” These rights of first refusal and first offer provide potential opportunities for us to increase the size of our fleet through selective vessel acquisitions.

Right of First Refusal Mechanics

For each Container Investment Opportunity, the Vehicle will deliver to us a notice of the summary transaction terms (including vessel terms and charter terms to the extent known to the Vehicle at the time of delivery, and indicative financing terms) and a copy of a letter of intent for the construction or acquisition of the vessel that the Vehicle is prepared to enter into, or the Negotiated Vessel Purchase Contract, and, if applicable, a copy of any letter of intent for the chartering of the vessels, or the Negotiated Charter Contract. The Negotiated Vessel Purchase Contract and the Negotiated Charter Contract are referred to herein as the Negotiated Vessel Contracts. Generally, we will have 12 business days from the date of the Vehicle’s notice in which to elect to exercise our right of first refusal, in whole or in part, and four business days from the date of delivery of the Negotiated Vessel Contracts, to sign and return such agreements to the Vehicle for delivery to the applicable shipyard or charterer. These time periods will be extended if there are changes to the material terms of the transaction.

After we have executed the Negotiated Vessel Contracts, the Vehicle will use commercially reasonable efforts for a period of five business days to cause the other party or parties to the Negotiated Vessel Contracts to enter into the contracts with us. If the other party or parties to the agreements do not enter into the Negotiated Vessel Contracts with us during the five-business day period, the applicable vessels will no longer be considered to be vessels on which we have exercised our right of first refusal. If it is a charterer that refuses or fails to enter into Negotiated Charter Contract, we may still elect to acquire the vessel pursuant to the Negotiated Vessel Purchase Contract. If the other party or parties to the Negotiated Vessel Contracts inform the Vehicle that a Negotiated Vessel Contract must be executed prior to the otherwise applicable deadlines agreed upon by the

Vehicle, the Washington Member and us, the Vehicle will have the right to execute such contracts and acquire the applicable vessels. However, if we subsequently exercise our right of first refusal on these vessels, the Vehicle will assign its right under such contracts to us, or we will purchase the vessels from the Vehicle on the same terms and conditions as set forth in the Negotiated Vessel Purchase Contract and, if applicable, charter the vessels pursuant to the Negotiated Charter Contract.

Right of First Refusal Scope

Prior to August 15, 2014, we may exercise our right of first refusal with respect to 100% of the vessels comprising a Container Investment Opportunity, and on or after August 15, 2014 with respect to a number of vessels (not to exceed 100% of the vessels comprising such Container Investment Opportunity) equal to the sum of:

50% of the vessels comprising a Container Investment Opportunity plus

a number of vessels equal to:

(a) the total number of vessels with respect to which we previously exercised our right of first refusal, but which vessels were not purchased by us due to the refusal or failure of the other party or parties to the Negotiated Vessel Contracts to execute the contracts (or in cases where the Negotiated Vessel Contracts are in the form of a letter of intent that contemplates definitive agreements, the other party’s refusal or failure to execute definitive agreements that have the same material terms as the letter of intent and the right of first refusal notice), minus

(b) the excess of:

(i) the total number of vessels with respect to which we previously exercised our right of first refusal on or after August 15, 2014 and subsequently purchased, over

(ii) 50% of the aggregate number of all vessels comprising all previous Container Investment Opportunities on or after August 15, 2014.

We have a similar right of first refusal with respect to the acquisition of companies that own containerships which comprise more than 50% of such company’s assets.

Termination of Right of First Refusal

Our right of first refusal will terminate upon the earlier of:

March 31, 2015;

the date on which the Vehicle is dissolved or liquidated;

the Vehicle’s election to terminate, given in writing to us and the Washington Member at any time after any of August 15, 2011, 2012, 2013 or 2014, if we have exercised our right of first refusal with respect to greater than 50% of the vessels comprising all Container Investment Opportunities prior to such date (or if we have provided notice to the Vehicle of such event, the Vehicle must notify us whether it elects to terminate the right of first refusal within 90 days after receipt of our notice), provided, that (i) we shall not be deemed to have exercised our right to acquire any vessel that is subject to a Negotiated Vessel Contract that is not exercised by the other party of such contract within five business days (or in cases where the Negotiated Vessel Contracts are in the form of a letter of intent that contemplates definitive agreements, the other party’s refusal or failure to execute definitive agreements that have the same material terms as the letter of intent and the right of first refusal notice) and (ii) the vessels with respect to which we have exercised our right of first refusal will include any vessels on which the Washington Member has exercised its right of first refusal (described below in “—Washington Member Right of First Refusal”) if such vessel is subsequently transferred to us or a controlled affiliate and such transfer is within one year of delivery or the Washington Member intended at the time of delivery to eventually so transfer;

consummation of an initial public offering of any equity securities of the Vehicle or any of its subsidiaries; provided, however, that with respect to an initial public offering of a subsidiary, the right of first refusal will remain in effect with respect to the Vehicle and its subsidiaries, but terminate with respect to the subsidiary that consummated the initial public offering and its subsidiaries; and generally, upon consummation of a sale to a third party of more than 50% of the outstanding interests of the Vehicle or of assets representing at least 75% of the consolidated net asset value of the Vehicle and its subsidiaries.

Washington Member Right of First Refusal

The Washington Member also has a right of first refusal on Container Investment Opportunities. This right applies to a smaller percentage of vessels and is subordinate to our right of first refusal. If we do not exercise our right of first refusal with respect to all vessels in a Container Investment Opportunity, the Washington Member has an additional three business days (15 business days total) to inform the Vehicle whether it will exercise its right of first refusal with respect to the vessels remaining in such Container Investment Opportunity, or the Seaspan Declined Vessels, on the same terms and conditions as offered to us.

Prior to August 15, 2014, the Washington Member may exercise its right of first refusal with respect to a number of vessels equal to the sum of:

25% of the Seaspan Declined Vessels in a Container Investment Opportunity, plus

a number of vessels equal to:

(a) the total number of vessels with respect to which the Washington Member previously exercised its right of first refusal, but which vessels were not purchased by it due to the refusal or failure of the other party or parties to the Negotiated Vessel Contracts to execute the contracts (or in cases where the Negotiated Vessel Contracts are in the form of a letter of intent that contemplates definitive agreements, the other party’s refusal or failure to execute definitive agreements that have the same material terms as the letter of intent and the right of first refusal notice) minus

(b) the excess of:

(i) the total number of vessels with respect to which the Washington Member previously exercised its right of first refusal and subsequently purchased, over

(ii) 25% of the aggregate number of Seaspan Declined Vessels for all previous Container Investment Opportunities.

On or after August 15, 2014, the Washington Member may exercise its right of first refusal with respect to a number of vessels equal to the greater of (a) 25% of the Seaspan Declined Vessels in a Container Investment Opportunity and (b) 12.5% of the vessels comprising the Container Vessel Opportunity.

The Washington Member does not have a right of first refusal with respect to the acquisition of companies that own containerships.

Rights of First Offer

We have certain rights of first offer if the Vehicle intends to sell or otherwise dispose of one or more containerships (other than in connection with an initial public offering or a sale of the Vehicle). We must exercise this right of first offer within 12 business days after receiving notice of such opportunity, which notice shall describe the vessels in reasonable detail, the related charter terms (including a copy of the charter documents) and any existing financing that may be assumed upon transfer of the vessel (including a copy of the loan documents). The Vehicle may accept or reject our offer, which must set forth all material terms and conditions (including price) on which we would be willing to purchase the applicable vessels, in its sole

discretion. If the Vehicle rejects our offer, it may only sell the vessels to a third party, generally within 180 days of its notice to us, and only for consideration greater than that offered by us. This right of first offer terminates upon the termination of our right of first refusal described above.

Our right of first offer on Washington Member vessels is generally similar to our right of first offer on Vehicle vessels, and applies to certain transfers or sales of any containerships acquired by the Washington Member pursuant to its right of first refusal from the Vehicle. The Washington Member right of first offer terminates after 10 years.

Employment Agreement and Other Related Agreements with Gerry Wang

Mr. Wang has served as our chief executive officer and the chief executive officer of SSML pursuant to an employment agreement with SSML. In March 2011, in connection with our investment in the Vehicle, Mr. Wang’s agreement with SSML was amended and restated and we entered an employment agreement and a transaction services agreement with Mr. Wang. Pursuant to our employment agreement with Mr. Wang, he will continue to serve as our chief executive officer. The transaction services agreement will become effective following termination of Mr. Wang’s employment with us. The term of the combined agreements lasts until the termination of the right of first refusal granted to us by the Vehicle, which is scheduled to expire on March 31, 2015, unless earlier terminated. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and Offer Agreements” for more information.

Mr. Wang’s employment agreement with us provides that he will receive an annual base salary of $1.2 million and an annual target performance bonus of $1.5 million, payable 50% in cash and 50% in our common shares. In addition, Mr. Wang will receive transaction fees equal to 1.25% of the aggregate consideration under any binding agreement that we enter into to construct, sell or acquire a vessel whether or not the transaction was proposed by Mr. Wang. However, the amount of this fee will be reduced by the amount of any similar fee we pay to a nationally recognized investment bank retained with the approval of our board of directors (including a majority of the independent directors) in connection with the transaction. The transaction fees will be paid to Mr. Wang either in cash or, at our discretion, a combination of cash and up to 50% in our common shares. Mr. Wang will devote the amount of his time to us that is reasonably necessary to perform his duties, with the understanding that he will also be the chief executive officer of SSML, and provide services to the Vehicle, GC Industrial and the Tiger Member. Pursuant to the employment agreement, we have reduced Mr. Wang’s fiduciary duties in relation to certain containership vessel and business opportunities to the extent such opportunities are subject to our right of first refusal with the Vehicle and (a) the conflicts committee of our board of directors has decided to reject such opportunity or we have failed to exercise our right of first refusal to pursue such opportunity, (b) we have exercised such right but failed to pursue such opportunity or (c) we do not have the right under our right of first refusal to pursue such opportunity.

The initial term of Mr. Wang’s employment agreement expires on January 1, 2013; however, either party may terminate the agreement at any time, with or without cause. If during the period of Mr. Wang’s employment, the right of first refusal granted to us by the Vehicle is terminated, Mr. Wang has agreed to resign from our board of directors at our request and Mr. Wang may resign thereafter with immediate effect. Under Mr. Wang’s employment agreement with us, the restrictive covenant agreement, dated August 8, 2005, among SSML, us and Mr. Wang, is terminated, including a post-employment two-year non-competition restriction.

Upon the termination of his employment agreement with us, Mr. Wang will continue to provide certain strategic services pursuant to a transaction services agreement. These continued services include identifying and negotiating transactions involving the construction, acquisition or disposition of vessels. In exchange for these services, Mr. Wang will receive 1.5% of the aggregate consideration payable to us under any agreement that we enter into to build, acquire or sell a vessel, whether or not the transaction was proposed by Mr. Wang. However

the amount of this fee will be reduced by the amount of any similar fee we pay to a nationally recognized investment bank retained with the approval of our board of directors (including a majority of the independent directors) in connection with the transaction. The 1.5% transaction fee will be payable in a combination of cash and our common shares. Mr. Wang may engage in business activities unrelated to us and, subject to our omnibus agreement (which contains exceptions for the provision of services to the Vehicle and GC Industrial, among other entities) he may also compete with us. Please read “—Omnibus Agreement.” The transaction services agreement will expire upon the termination of the right of first refusal granted to us by the Vehicle, which is scheduled to expire on March 31, 2015, unless earlier terminated, but may be terminated earlier by either party, with or without cause. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and Offer Agreements.”

1,397,190 of our common shares owned by Mr. Wang and certain of his family members and affiliates are subject to a four-year lock-up agreement. Under this lock-up agreement, Mr. Wang and such other parties have agreed to restrict the transfer of 50% of their existing shares for three years, and 25% of such shares for a fourth year.

Mr. Wang’s amended employment agreement with SSML provides that he receive an annual salary of $600,000, which is the same as the original agreement. Mr. Wang serves as SSML’s chief executive officer and owes fiduciary obligations to SSML. He devotes the amount of his time to SSML that is reasonably necessary to perform his duties, with the understanding that he will also be our chief executive officer, and will provide services to the Vehicle, GC Industrial and the Tiger Member. The initial term of the amended employment agreement expires on January 1, 2013; however, either party may terminate the agreement at any time, with or without cause. The initial term of the original agreement expired on December 31, 2013.

We have agreed to register the shares Mr. Wang earns under his employment agreement and the transaction services agreement with the SEC. Please read “—Registration Rights Agreements.”

Financial Services Agreement with Tiger Ventures Limited

In March 2011, in connection with our investment in the Vehicle, we entered into a financial services agreement with Tiger Ventures Limited, an entity owned and controlled by our director, Mr. Porter and his affiliates. Under the financial services agreement, Tiger Ventures Limited will provide us with certain strategic services, including negotiating and procuring pre-delivery and post-delivery financing or refinancing for the construction of new vessels or the acquisition of used vessels, and other strategic, financial and advisory services that we may request.

Tiger Ventures Limited will receive fees of (i) 0.80% of the aggregate principal amount of any debt or operating lease financing provided to us by a bank or financial institution that is headquartered or has its principal place of business in Greater China, and (ii) 0.40% of the aggregate principal amount of debt or operating lease financing provided by a bank or financial institution other than a bank or financial institution located in Greater China. These financing fees will be paid to Tiger Ventures Limited either in cash or, at our discretion, a combination of cash and up to 50% in our common shares. A portion of such shares will be subject to a four-year lock-up agreement. The financial services agreement will expire upon the expiration of the right of first refusal granted to us by the Vehicle, but may be terminated earlier by either party, with cause. We have agreed to register the shares Tiger Ventures Limited earns under this agreement with the SEC. Please read “—Registration Rights Agreements.”

Graham Porter Agreement

In March 2011, in connection with our investment in the Vehicle, we entered into an agreement with our director Graham Porter pursuant to which we have reduced Mr. Porter’s fiduciary duties in relation to certain containership vessel and business opportunities to the extent such opportunities are subject to our right of first refusal with the Vehicle and (a) the conflicts committee of our board of directors has decided to reject such

opportunity or we have failed to exercise our right of first refusal to pursue such opportunity, (b) we have exercised such right but failed to pursue such opportunity or (c) we do not have the right under our right of first refusal to pursue such opportunity. Please read “—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and Offer Agreements.”

Arrangement Fee to Tiger Group Investments

In connection with certain financial transactions involving the Company, Tiger Group Investments, or Tiger Group, will receive a fee up to a maximum amount of $4.5 million (payable on a success basis) for certain services rendered in connection with the arrangement, structuring and negotiation of the transactions. Tiger Group is controlled by Graham Porter, an officer and director of our Manager and an officer of Seaspan Advisory, a subsidiary of our Manager. The terms of the fee were reviewed and approved by the Conflicts Committee of our board of directors. During the year ended December 31, 2010, we paid $1.5 million to Tiger Group as an arrangement fee.

Registration Rights Agreements

In connection with our initial public offering, we agreed to register for resale on a shelf registration statement under the Securities Act of 1933, or Securities Act, and applicable state securities laws, any subordinated shares proposed to be sold by the holders of the subordinated shares (or the underlying common shares upon their conversion) upon expiration of a certain holding period if an exemption from the registration requirements is not otherwise available or advisable. These holders also have certain piggyback registration rights allowing them to participate in offerings by us to the extent that their participation does not interfere or impede with our offering. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.

In connection with the Series A Preferred Share Offering, we entered into a registration rights agreement, pursuant to which, in certain circumstances, we will be obligated to file a registration statement covering the potential sale by a holder of the common shares that are issuable upon the conversion of the Series A Preferred Shares unless the sum of the common shares held by such holder as a result of the conversion can be sold in a single transaction under Rule 144 of the Securities Act. These holders also have certain piggyback registration rights allowing them to participate in offerings by us to the extent that their participation does not interfere with or impede such offering. Under this agreement, we are obligated to pay all expenses incidental to the registration, excluding underwriting discounts or commissions. For a more detailed discussion of the Series A Preferred Share Offering, see “Information on the Company—B. Business Overview—“Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Equity Offerings—Our Series A Preferred Share Offering.”

In March 2011, in connection with our investment in the Vehicle, we entered into a new employment agreement with Gerry Wang, pursuant to which we agreed to register the shares Mr. Wang earns as a performance bonus or as transaction fees on a Form S-8 registration statement filed with the SEC. Please read “—Employment Agreement and Other Related Agreements with Gerry Wang” for more information.

In March 2011, in connection with our investment in the Vehicle, we also entered a transaction services agreement with Gerry Wang and a financial services agreement with Tiger Ventures Limited, pursuant to which we entered into registration rights agreements with each of Mr. Wang and Tiger Ventures Limited. Please read “—Employment Agreement and Other Related Agreements with Gerry Wang, and Financial Services Agreement with Tiger Ventures Limited” for more information. Under these registration rights agreements, in certain circumstances, we will be obligated to file a registration statement covering the potential sale by Mr. Wang or Tiger Ventures Limited of the common shares earned pursuant to the transaction services agreement or financial services agreement, as applicable. Mr. Wang and Tiger Ventures Limited also have certain piggyback registration rights allowing them to participate in offerings by us to the extent that their participation does not

interfere with or impede such offering. Under these agreements, we are obligated to pay all expenses incidental to the registration, excluding underwriting discounts or commissions.

Offering of Common Shares Concurrently with Our April 2008 Equity Offering

In April 2008, in connection with an underwritten public equity offering, we sold 663,300 common shares directly to certain of our executive officers and directors, certain affiliates of our Manager and certain of their executive officers and directors and Dennis R. Washington. For a description of our April 2008 equity offering and the concurrent sale of common shares to certain affiliates, please read “Information on the Company—B. Business Overview—Recent Equity Offerings—Public Offering of Common Shares April 2008.”

Series A Preferred Share Offering

In January 2009, we entered into various documents and agreements in connection with the issuance and sale of our Series A Preferred Shares to certain investors, including an entity affiliated with the chairman of our board of directors. For a description of our Series A Preferred Share Offering please read “Information on the Company—B. Business Overview—“Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Equity Offerings—Our Series A Preferred Share Offering.”

SaleChange of Subordinated SharesControl Plan

Concurrently withWe established a change of control severance plan, or the Change of Control Plan, for certain employees of our initial public offering,ship manager, SSML, effective as of January 1, 2009. We do not currently have any employees and we sold 7,145,000 subordinated shares to membersrely on the technical, administrative and strategic services provided by our Manager and its affiliates, including SSML. The purpose of the Change of Control Plan is to allow SSML to recruit qualified employees and limit the loss or distraction of such qualified employees that may result from the possibility of a change of control.

Under the terms of the Change of Control Plan, certain employees of SSML, or the Participants, are entitled to receive from us a severance benefit if their employment is terminated due to a qualifying termination. A qualifying termination means a termination by either SSML (if the Participant is terminated for reasons other than cause, death or disability) or by the Participant (if the Participant resigns for good reason, which includes a reduction in base salary or a material diminution in responsibilities, among other things) within a certain period of time following a change of control. A change of control includes:

the sale or other disposition of all or substantially all of our assets in certain circumstances;

a transaction where certain persons become the beneficial owner of more than a majority of our common shares;

a change in our directors after which a majority of our board are not continuing directors (as defined in the Change of Control Plan); or

the consolidation or merger of us with or into any person in certain circumstances.

A change of control does not include certain transactions or events involving certain of the original founders of SCLL, including Dennis R. Washington, family,Kyle R. Washington, Kevin L. Washington, Gerry Wang or trusts set upGraham Porter or any of their respective affiliates.

The time period during which a Participant will be entitled to any benefits under the Change of Control Plan following a change of control and the severance benefit to which he or she will be entitled on their behalf, to an entity owned by oura qualifying termination depends on the tier in which the Participant is placed in the Change of Control Plan. The Change of Control Plan is composed of three tiers of Participants and the chief executive officer Gerry Wang,of SSML may add or remove Participants from the Change of Control Plan at any time with our prior written consent.

Tier 1 Participants are entitled to severance benefits on a qualifying termination for a two-year period following a change of control and they will receive from us 30 months of their current base salary and bonuses.

Tier 2 and Tier 3 Participants are entitled to an entity owned by Graham Porter,severance benefits on a directorqualifying termination for a one year period following a change of our Manager, atcontrol and will receive from us 18 months and 9 months, respectively, of their current base salary and bonus. All Participants will also become fully vested in all outstanding incentive awards in addition to receiving their severance benefits. Participants will also receive certain other benefits, including but not limited to health, dental and life insurance benefits for a purchase price per share equalthree-month period subject to the initial public offering price of our common shares. Effective October 1, 2008, the subordinated period ended and the rights and privileges on our subordinated shares became the same as our common shares.

Arrangement Fee to Tiger Group Investments

In connection with certain financial transactions involving the Company, Tiger Group Investments, or Tiger Group, will receive a fee up to a maximum amount of $4.5 million (payable on a success basis) for certain services rendered in connection with the arrangement, structuring and negotiationpermission of the transactions. Tiger Groupbenefits carrier.

We will require any entity who is controlled by Graham Porter, an officerour successor to assume and directoragree to perform our obligations under the Change of our ManagerControl Plan. The Participants will only be entitled to benefits under the Change of Control Plan upon providing us and an officerSSML with a release and waiver.

C.    Potential Related Party Transactions

For information about certain proposed transactions we are considering, please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Seaspan Advisory, a subsidiaryFinancial Condition and Results of our Manager. The terms of the fee were reviewed and approved by the Conflicts Committee of our board of directors.Operations—Potential Transactions.”

 

Item 8.Financial Information

A.    Financial Statements and Other Financial Information

Please see Item 18 below.

Legal Proceedings

We have not been involved in any legal proceedings that may have, or have had a significant effect on our business, financial position, results of operations or liquidity, and we are not aware of any proceedings that are pending or threatened that may have a material effect on our business, financial position, results of operations or liquidity. 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. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

Dividend Policy

In January 2010, we declaredFrom 2005 (the date of our initial public offering) to 2008, our quarterly dividend on Class A and B common shares was $0.475 per share. From 2009 to the first quarter of 2010, our quarterly dividend on Class A common shares was $0.10 per share, onand since the second quarter of 2010, our common shares effective for the fourth quarter 2009, whichquarterly dividend was paid on February 12, 2010 to all shareholders of record on February 1, 2010. Declaration and payment of dividends is at the discretion of our board of directors and there can be no assurance we will not reduce or eliminate our dividend. Since our initial public offering, and including the dividend paid in February 2010, we have paid cumulative dividends of $6.49has been $0.125 per share on our common and subordinated shares.share.

At the time ofSince our initial public offering, our board of directors adopted a dividend policy to pay a regular quarterly dividend on our common shares while reinvesting a portion of our operating cash flow in our business. Retained cash flow may be used, among other things, to fund vessel or fleet acquisitions, create reserves for vessel replacement costs, other capital expenditures and debt repayments, as determined by our board of directors. This dividend policy reflects our judgment that by retaining a portion of our cash flow in our business,

we will be able to provide better value to our shareholders by enhancing our longer term dividend paying capacity. It is our goal to further growincrease our dividend through accretive acquisitions of additional vessels. There can be no assurance, however, that we will be successful in meeting our goal.

On April 28, 2009, we announced thatIn February 2011, our board of directors decidedadopted a progressive dividend policy aimed at increasing our dividends in a manner that preserves our long-term financial strength and our ability to temporarily reduceexpand our quarterlyfleet. We expect this policy to increase dividends from $0.475paid to $0.10 per share. Dueholders of our Class A common shares, while continuing to the uncertainties associated with the global recession and the capital markets, our board of directors cannot determine how long this reduction will be in effect. This reduction will enablepermit us to retain an approximate pursue our growth strategy. It is our goal to increase our dividend through accretive acquisitions of

additional amount of $100 million per year thatvessels; however, there can be redeployed to fund our newbuilding program. Based on a dividend of $0.475 per quarter, our annualized dividend on the current number of shares outstanding is approximately $129 million. We have equity capital requirements of $180 to $240 million starting in approximately the fourth quarter of 2010 or first quarter of 2011 and ending in approximately second quarter 2012.These amounts are based on a quarterly dividend of $0.10 per common share. Before the reduction of the dividend, we required approximately $500 million to $600 million in non-debt capital over an approximate two year period beginning in 2010. Based on these equity needs, the recent global economic downturn and the uncertainty of the capital markets, our board of directors is continuing to evaluate our dividend policy. If it becomes necessary to provideno assurance that we will be able to meetsuccessful in meeting our liquidity needs for our new vessel orders, our boardgoal. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of directors may elect to reduce or eliminate our quarterly dividend.Financial Condition and Results of Operations—2011 Recent Developments—Dividend Increase and New Dividend Policy.”

As compensation for providing strategic services, our Manager received 100 incentive shares concurrently with our initial public offering. The purpose of the incentive shares is to incentivize our Manager to increase the amount of distributable cash flow per share. The incentive shares will share in incremental dividends only after quarterly dividends on the common shares exceed $0.485 per share as follows:

 

first, 90% of incremental dividends to all common shares, pro rata, and 10% of incremental dividends to the incentive shares, until each common share has received a total of $0.550 for that quarter;

 

second, 80% of incremental dividends to all common shares, pro rata, and 20% of incremental dividends to the incentive shares, until each common share has received a total of $0.675 for that quarter; and

 

after that, 75% of the incremental dividends to all common shares, pro rata, and 25% of incremental dividends to the incentive shares.

With respect to the Series A Preferred Shares, no dividend will be payable in respect of those shares until 2014. Instead, the liquidation preference of the Series A Preferred Shares will increase at a rate of 12% per annum until January 31, 2014, compounded quarterly. As a result, this will not reduce the Company’s distributable cash available to common shareholders during the next five years. The Series A Preferred Shares are convertible on or after January 31, 2014 under certain circumstances. If on January 31, 2014 the Preferred Shares have not converted to common shares, the liquidation preference of the Preferred Shares will increase at a rate of 15% per annum, compounded quarterly, payable in cash or by continuing to increase the liquidation value of the Preferred Shares at the holder’s option. While, generally, no cash dividend is payable in respect of the Series A Preferred Shares, if at any time after March 31, 2014 the Series A Preferred Shares are outstanding, the Statement of Designations provides that holder of Series A Preferred Shares may make an “Early Payment Election” to receive a cash dividend on all Series A Preferred Shares held by such holder. This payment shall be made prior to and in preference to any declaration or payment of dividends on any junior stock, including our Common Shares.

There are a number of factors that could affect the dividends on our common shares in the future. As a result of these factors, you may not receive dividends in the intended amounts or at all. These factors include, but are not limited to, the following:

 

we may not have enough cash to pay dividends due to changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;

our ability to pay dividends is dependent upon the charter rates on new vessels and those obtained upon the expiration of our existing charters;

 

while the dividend policy adopted by our board of directors contemplates the distribution of a substantial portion of our cash available to pay dividends, our board of directors could modify or revoke this policy at any time;

 

even if our dividend policy is not modified or revoked, the actual amount of dividends distributed under the policy and the decision to make any distribution will remain at all times entirely at the discretion of our board of directors;

 

the amount of dividends that we may distribute is limited by restrictions under our senior secured credit facilities and future indebtedness could contain covenants that are even more restrictive. In addition, our credit facilities require us to comply with various financial covenants, and our credit facilities prohibit the payment of dividends if an event of default has occurred and is continuing under our credit facilities or if the payment of the dividend would result in an event of default;

the amount of any cash reserves established by our board of directors;

 

the amount of dividends that we may distribute is subject to restrictions under Marshall Islands law;

 

the amount of dividends we pay in respect of our common shares on or after March 31, 2014 will be subject to the rights of our Series A Preferred Shareholders to receive dividend payments pursuant to Early Payment Elections as described above; and

 

our common shareholders have no contractual or other legal right to dividends, and we are not otherwise required to pay dividends.

Please read “Risk“Item 3. Key Information—D. Risk Factors—Risks Inherent In Our Business—We may not have sufficient cash from our operations to enable us to pay dividends on our shares following the payment of expenses and the establishment of any reserves,” “—The current state ofFuture disruptions in global financial markets and current economic conditions or changes in lending practices may adversely impactharm our ability to obtain financing on acceptable terms, which maycould hinder or prevent us from meeting our future capital needs,” “—The amount of cash we have available for dividends on our shares will not depend solely on our profitability,” “—Over the long-term,long term, we will be required to make substantial capital expenditures to preserve the operating capacity of our fleet, which could result in a reduction or elimination ofnegatively affect our ability to pay dividends on our shares,” and “—We will be required to make substantial capital expenditures to complete the acquisition of our fleet thatnewbuilding containerships and any additional vessels we have contracted to purchase and to expandacquire in the sizefuture, which may result in increased financial leverage, dilution of our fleet, which may causeequity holders’ interests or our decreased ability to pay dividends to be diminished,on our financial leverage to increase or our shareholders to be diluted”shares” for a more detailed description of various factors that could reduce or eliminate our ability to pay dividends.

B.    Significant Changes

Not applicable.In March 2011, we agreed to participate in an investment vehicle established by an affiliate of Carlyle. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—2011 Recent Developments—Investment in Carlyle Containership-Focused Investment Vehicle” for more information.

In February 2011, we also signed a letter of intent to purchase a significant number of newbuilding containerships to be constructed by a leading Chinese shipyard. Please read “Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—2011 Recent Developments—Newbuilding Order” for more information.

Item 9.The Offer and Listing.

Our common stock is traded on the NYSE under the symbol “SSW.”“SSW”. The following table sets forth the high and low prices for the common shares on the NYSE since the date of listing for the periods indicated.

 

   High  Low

August 9, 2005 to December 31, 2005

  $21.51  $17.20

January 1, 2006 to December 31, 2006

   23.20   19.51

January 1, 2007 to December 31, 2007

   37.73   19.65

January 1, 2008 to December 31, 2008

   31.40   4.37

January 1, 2009 to December 31, 2009

   13.07   5.12

First quarter 2008

   31.40   24.02

Second quarter 2008

   29.14   23.61

Third quarter 2008

   26.35   17.90

Fourth quarter 2008

   17.99   4.37

First quarter 2009

   13.07   7.23

Second quarter 2009

   12.00   5.52

Third quarter 2009

   10.85   5.12

Fourth quarter 2009

   10.23   8.15

September 2009

   10.85   6.50

October 2009

   10.23   8.25

November 2009

   9.89   8.15

December 2009

   9.50   8.60

January 2010

   11.36   9.27

February 2010

   10.88   9.66

March 2010 (March 1 through March 15)

   10.70   9.98
   High   Low 

January 1, 2006 to December 31, 2006

   23.20     19.51  

January 1, 2007 to December 31, 2007

   37.73     19.65  

January 1, 2008 to December 31, 2008

   31.40     4.37  

January 1, 2009 to December 31, 2009

   13.07     5.12  

January 1, 2010 to December 31, 2010

   15.05     9.22  

First quarter 2009

   13.07     7.23  

Second quarter 2009

   12.00     5.52  

Third quarter 2009

   10.85     5.12  

Fourth quarter 2009

   10.23     8.15  

First quarter 2010

   11.36     9.22  

Second quarter 2010

   13.78     9.30  

Third quarter 2010

   12.63     9.45  

Fourth quarter 2010

   15.05     11.89  

September 2010

   12.63     10.96  

October 2010

   15.05     12.25  

November 2010

   13.89     12.41  

December 2010

   13.14     11.89  

January 2011

   14.61     12.53  

February 2011

   16.21     14.42  

March 2011 (March 1 through March 25)

   17.93     14.19  

 

Item 10.Additional Information

A.    Share Capital

Under our Articles of Incorporation and Statement of Designation, our authorized shares consist of:

200,000,000 common shares (referred to in our articles of incorporation as the Class A Common Shares), par value $0.01 per share;

25,000,000 subordinated shares (referred to in our Articles of Incorporation as the Class B Common Shares), par value $0.01 per share;

100 incentive shares (referred to in our Articles of Incorporation as the Class C Common Shares), par value $0.01 per share; and

65,000,000 preferred shares (referred to in our articles of incorporation as the Preferred Shares), par value $0.01 per share, which includes 315,000 Series A preferred shares (referred to in our Statement of Designation as the Series A Preferred Shares), par value of $0.01 per share.

Effective October 1, 2008, the subordination period for our 7,145,000 subordinated shares, owned by the members of the Washington family, or trusts set up on their behalf, an entity owned by our chief executive officer, Gerry Wang, and an entity owned by Graham Porter, a director of our Manager, ended and the rights and privileges of our subordinated shares became the same as our common shares. Accordingly, the Class B Common Shares are no longer issued and outstanding. As of March 1, 2010, 67,998,160 Class A Common Shares and 100 Class C Common Shares were issued and outstanding.

As of March 2010, there were 200,000 Preferred Shares issued and outstanding as the result of the closing of the first and second tranche of the Series A Preferred Share Offering. The Statement of Designation permits us to issue and sell 115,000 additional Series A Preferred Shares. Pursuant to the Statement of Designation, the

Series A Preferred Shares are convertible after five years into Class A Common Shares. If they are converted, we will issue to the holders thereof the number of new Class A Common Shares from our authorized but unissued share capital that is necessary to fulfill our obligations under the Statement of Designation.

The rights, preferences and restrictions attaching to our Class A and Class C Common Shares are described in the section entitled “Description of Capital Stock” of our Rule 424(b)(5) prospectus (File No. 333-137051), filed with the SEC on November 3, 2006 and hereby incorporated by reference into this Annual Report and there have been no changes to those rights, preferences and restrictions since that date. The rights, preferences and restrictions of the Series A Preferred Shares are set forth in the Statement of Designation and described more fully in the section of this Annual Report entitled “Information on the Company—B. Business Overview—Recent Equity Offerings—Our Series A Preferred Share Offering.” The Statement of Designation was previously filed as exhibit 3.1 to our Report on Form 6-K filed on February 2, 2009 and is hereby incorporated by reference into this Annual Report.Not applicable.

B.    Memorandum and Articles of Association

Our Articles of Incorporation have previously been filed as exhibitExhibit 3.1 to Amendment No. 2 to Form F-1 (File No. 333-126762), filed with the SEC on August 4, 2005 and are hereby incorporated by reference into this Annual Report. Our Bylaws have previously been filed as exhibitExhibit 3.2 to Form F-1 (File No. 333-126762) filed with the SEC on July 21, 2005 and are hereby incorporated by reference into this Annual Report. In connection with our Series A Preferred Share Offering, Series B Preferred Share Offering and Series C Preferred Share Offering, we filed a StatementStatements of Designation with respect to our Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares with the Registrar of Corporations of the Republic of the Marshall Islands. Under the BCA, the StatementStatements of Designation isare deemed an amendmentamendments to our Articles of Incorporation. The Series A Statement of Designation was previously filed as exhibitExhibit 3.1 to our Report on Form 6-K filed on February 2, 2009 and is hereby incorporated by reference into this Annual Report. The Series B Statement of Designation was previously filed as Exhibit 3.1 to our Report on Form 6-K filed on June 4, 2010 and is hereby incorporated by reference into this Annual Report. The Series C Statement of Designation was previously filed as Exhibit 3.3 to our Report on Form 8-A12B filed on January 28, 2011 and is hereby incorporated by reference into this Annual Report.

The necessary actions required to change the rights of shareholders and the conditions governing the manner in which annual general meetings and special meetings of shareholders are convoked are described in our Bylaws filed as exhibitExhibit 3.2 to Form F-1 (File No. 333-126762) filed with the SEC on July 21, 2005 and are hereby incorporated by reference into this Annual Report.

We have in place a shareholder rights agreement that would have the effect of delaying, deferring or preventing a change in control of Seaspan. The shareholder rights agreement has been filed as part ofexhibit 10.7 to our Form 8-AF-1/A (File No. 001-32591)333-126762), filed with the SEC on August 2,4, 2005. In connection with the Series A Preferred Share Offering, we amended the shareholder rights agreement. Amendment No. 1 to the shareholder rights agreement is listed as an exhibit to this Annual Report and was previously filed with the SEC as an exhibit to our Current Report on Form 6-K on February 2, 2009. The shareholder rights agreement, as amended, is hereby incorporated by reference into this Annual Report.

There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the laws of the Republic of the Marshall Islands or by our Articles of Incorporation or Bylaws.

C.    Material Contracts

The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are a party, for the two years immediately preceding the date of this Annual Report:

(a) Underwriting Agreement by and among Seaspan Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Goldman, Sachs & Co. as Representatives of the several underwriters named therein dated April 10, 2008, previously filed as Exhibit 1.1 to Form 6-K, filed with the SEC on April 11, 2008.

(b) Preferred Stock Purchase Agreement dated January 22, 2009, by and among Seaspan Corporation and certain investors named therein, previously filed as Exhibit 10.1 to Form 6-K, filed with the SEC on February 2, 2009.

(c)(b) Amended and Restated Management Agreement dated as of the 8th day of August, 2005 as amended and restated as of the 4th day of May, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.1 to the Company’s Form 6-K/A, filed with the SEC on October 10, 2007.

(d) Vessel Management Agreement for 2500 TEU/3500 TEU Vessels dated2007, as amended as of the 18th day of May, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.3 to the Company’s Form 6-K/A, filed with the SEC on October 10, 2007.August 5, 2008.

(e) Vessel Management Agreement for 5100 TEU Vessels dated as of the 18th day of May, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.2 to the Company’s Form 6-K/A, filed with the SEC on October 10, 2007.

(f) Vessel Management Agreement for Two 2500 TEU K-Line Vessels/Four 4250 TEU CSAV Vessels/Eight 8500 COSCON Vessels dated as of the 28th day of September, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.1 to the Company’s Form 6-K, filed with the SEC on October 29, 2007.

(g) Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2177 and Hull No. S452 built by Hyundai Heavy Industries Co., Ltd. and Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. dated as of the 28th day of January 2008, among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 4.9 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(h) Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2178 and Hull No. S453 built by Hyundai Heavy Industries Co., Ltd. and Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. dated as of the 31st day of March, 2008 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.2 to Form 6-K, filed with the SEC on April 4, 2008.

(i) Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2179 and Hull No. S454 built by Hyundai Heavy Industries Co., Ltd. and Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. dated as of the 31st day of March, 2008 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd., previously filed as Exhibit 99.3 to the Company’s Form 6-K, filed with the SEC on April 4, 2008.

(j)(c) Amended and Restated Credit Agreement between Seaspan Corporation and Arranged by Citigroup Global Markets Limited and Fortis Capital Corp., with Citigroup Global Markets Limited, Credit Suisse, Landesbank Hessen-Thüringen, DnB Nor Bank ASA, Fortis Capital Corp. as Mandated Lead Arrangers with Fortis Capital Corp. as Facility Agent dated as of May 11, 2007, previously filed as Exhibit 1.1 to the Company’s Form 6-K, filed with the SEC on May 23, 2007.

(k)(d) Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000 dated May 19, 2006, among Seaspan Corporation, DnB Nor Bank ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen-Thüringen as documentation agent, previously filed as Exhibit 1 to the Company’s Form 6-K, filed with the SEC on June 12, 2006.

(l)(e) Amendment No. 1 to Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000, dated June 29, 2007, among Seaspan Corporation, DnB Nor Bank, ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen-Thüringen as documentation agent, previously filed as Exhibit 99.4 to the Company’s Form 6-K/A, filed with the SEC on October 10, 2007.

(m)(f) Amendment No. 2 to Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000 dated August 7, 2007, among Seaspan Corporation, DnB Nor Bank ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen-Thüringen as documentation agent, previously filed as Exhibit 4.17 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(n)(g) U.S. $218,400,000 Credit Facility Agreement dated October 16, 2006, among Seaspan Corporation, Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Banking Corporation Europe Limited, as Security Trustee and Sumitomo Mitsui Banking Corporation, Brussels Branch as Facility Agent, previously filed as Exhibit 1 to the Company’s Form 6-K, filed with the SEC on October 23, 2006.

(o)

(h) U.S. $920,000,000 Reducing, Revolving Credit Facility dated August 8, 2007, among DnB Nor Bank ASA, Credit Suisse, The Export-Import Bank of China, Industrial and Commercial Bank of China Limited and Sumitomo Mitsui Banking Corporation, Brussels Branch, previously filed as Exhibit 99.1 to the Company’s Form 6-K, filed with the SEC on August 9, 2007.

(p)(i) U.S. $150,000,000 Reducing Revolving Credit Facility Agreement dated December 28, 2007, for Seaspan Finance II Co. Ltd., Seaspan Finance III Co. Ltd. as borrowers with Seaspan Corporation, as guarantor, arranged by Industrial and Commercial Bank of China Limited and with Industrial and Commercial Bank of China Limited as facility agent, previously filed as Exhibit 4.20 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008 as amended on July 20, 2009.

(q)(j) U.S. $291,200,000 Credit Facility Agreement for Seaspan Corporation as Borrower, arranged by Fortis Bank S.A./N.V., New York Branch and The Export-Import Bank of Korea with Fortis Bank S.A./N.V., New York Branch as Facility Agent and Security Trustee and Fortis Bank S.A./N.V., New York Branch as Swap Agent dated March 17, 2008, previously filed as Exhibit 4.21 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(r)(k) U.S. $235,300,000 Credit Facility Agreement dated March 31, 2008 for Seaspan Corporation as borrower, Sumitomo Mitsui Banking Corporation as mandated lead arranger, Sumitomo Banking Corporation, Brussels Branch as original lender, Sumitomo Mitsui Banking Corporation Europe Limited as security trustee, Sumitomo Mitsui Banking Corporation, Brussels Branch as facility agent and Sumitomo Mitsui Banking Corporation, Brussels Branch as agent for the finance parties under the KEIC policies, previously filed as Exhibit 99.1 to Form 6-K, filed with the SEC on April 4, 2008.

(s)(l) Lease Agreement between Peony Leasing Limited and Seaspan Finance I Co. Ltd. dated December 27, 2007 in respect of one 4520 TEU container carrier to be built at Samsung Heavy Industries Co., Ltd. with Hull No. 1851, previously filed as Exhibit 4.22 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(t)(m) Lease Agreement between Peony Leasing Limited and Seaspan Finance I Co. Ltd. dated December 27, 2007 in respect of one 4520 TEU container carrier to be built at Samsung Heavy Industries Co., Ltd. with Hull No. 1852, previously filed as Exhibit 4.23 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(u)(n) Lease Agreement between Peony Leasing Limited and Seaspan Finance I Co. Ltd. dated December 27, 2007 in respect of one 4520 TEU container carrier to be built at Samsung Heavy Industries Co., Ltd. with Hull No. 1853, previously filed as Exhibit 4.24 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(v)(o) Lease Agreement between Peony Leasing Limited and Seaspan Finance I Co. Ltd. dated December 27, 2007 in respect of one 4520 TEU container carrier to be built at Samsung Heavy Industries Co., Ltd. with Hull No. 1854, previously filed as Exhibit 4.25 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(w)(p) Lease Agreement between Peony Leasing Limited and Seaspan Finance I Co. Ltd. dated December 27, 2007 in respect of one 4520 TEU container carrier to be built at Samsung Heavy Industries Co., Ltd. with Hull No. 1855, previously filed as Exhibit 4.26 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(x)(q) Amendment Agreement relating to Five Lease Agreements in respect of 4520 TEU Container Carriers to be Built at Samsung Heavy Industries Co., Ltd. with Hull Nos. 1851, 1852, 1853, 1854 and 1855, dated February 4, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd., previously filed as Exhibit 4.27 to the Company’s Annual Report on Form 20-F, filed with the SEC on March 24, 2008.

(y)(r) Amendment No. 1 to Shareholders Rights Agreement dated January 30, 2009, by and between Seaspan Corporation and American Stock Transfer & Trust Company, LLC as Rights Agent, previously filed as Exhibit 10.2 to Form 6-K, filed with the SEC on February 2, 2009.

(z)

(s) Registration Rights Agreement dated August 8, 2005, by and among Seaspan Corporation and certain investors named therein, previously filed as Exhibit 10.1 to the Company’s Amendment No. 2 to Form F-1, filed with the SEC on August 4, 2005.

(aa)(t) Registration Rights Agreement dated January 30, 2009, by and among Seaspan Corporation and certain investors named therein, previously filed as Exhibit 10.3 to Form 6-K, filed with the SEC on February 2, 2009.

(bb)(u) Amendment No. 1 to Executive Employment Agreement with Gerry Wang, effective as of January 1, 2009, by and between Seaspan Ship Management Ltd. and Gerry Wang, previously filed as Exhibit 10.4 to Form 6-K, filed with the SEC on February 2, 2009.

(cc)(v) Change of Control Severance Plan for Employees of Seaspan Ship Management Ltd., effective as of January 1, 2009, previously filed herewith.as Exhibit 4.34 to the Company’s Form 20-F, filed with the SEC on March 31, 2009.

(w) Amended and Restated Limited Liability Company Agreement of Greater China Intermodal Investments LLC, dated March 14, 2011, previously filed as Exhibit 4.1 to Form 6-K, filed with the SEC on March 14, 2011.

(x) Right of First Refusal Agreement among Seaspan Corporation, Greater China Intermodal Investments LLC and Blue Water Commerce, LLC, dated March 14, 2011, previously filed as Exhibit 4.2 to Form 6-K, filed with the SEC on March 14, 2011.

(y) Right of First Offer Agreement between Seaspan Corporation and Blue Water Commerce, LLC, dated March 14, 2011, previously filed as Exhibit 4.3 to Form 6-K, filed with the SEC on March 14, 2011.

(z) Executive Employment Agreement between Seaspan Corporation and Gerry Wang, dated March 14, 2011, previously filed as Exhibit 4.4 to Form 6-K, filed with the SEC on March 14, 2011.

(aa) Amended and Restated Executive Employment Agreement between Seaspan Ship Management Ltd. and Gerry Wang, dated March 14, 2011, previously filed as Exhibit 4.5 to Form 6-K, filed with the SEC on March 14, 2011.

(bb) Transaction Services Agreement between Seaspan Corporation and Gerry Wang, dated March 14, 2011, previously filed as Exhibit 4.6 to Form 6-K, filed with the SEC on March 14, 2011.

(cc) Financial Services Agreement between Seaspan Corporation and Tiger Ventures Limited, dated March 14, 2011, previously filed as Exhibit 4.7 to Form 6-K, filed with the SEC on March 14, 2011.

(dd) Amendment to Omnibus Agreement among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Ship Management Ltd., Seaspan Advisory Services Limited, Norsk Pacific Steamship Company Limited and Seaspan Marine Corporation, dated March 14, 2011, previously filed as Exhibit 4.8 to Form 6-K, filed with the SEC on March 14, 2011.

(ee) Graham Porter Letter Agreement, dated March 14, 2011, previously filed as Exhibit 4.9 to Form 6-K, filed with the SEC on March 14, 2011.

(ff) Form of Registration Rights Agreement, previously filed as Exhibit 4.10 to Form 6-K, filed with the SEC on March 14, 2011.

D.    Exchange Controls

We are not aware of any governmental laws, decrees or regulations in the Republic of The Marshall Islands that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.

We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of the Marshall Islands or our Articles of Incorporation and Bylaws.

E.    Taxation

U.S. Federal Income Tax Considerations

The following is a discussion of the expected material U.S. federal income tax considerations applicablethat may be relevant to us and the ownership and disposition of our common shares.shareholders. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, existing final and temporary regulations promulgated thereunder, or the Treasury Regulations, and current administrative rulings and pronouncements and judicialcourt decisions, all as in effect currently and during the year ended December 31, 2009, or our 2009 Year, and all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause the U.S. federal income tax considerations to vary substantially from those described below.

The following discussion is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations applicable to us or an investment in us. No ruling has been or will be requested from the IRS regarding any matter affecting us or our shareholders. The statements made herein may be challenged by the IRS and, if so challenged, may not be sustained upon review in a court.

U.S. Federal Income Taxation of Our Company

Taxation of Operating Income

Unless exempt from U.S. federal income taxation under the rules contained in Section 883 of the Code, a non-U.S. corporation that earns U.S. source “transportation income” is subject to U.S. federal income taxation under one of two alternative tax regimes: (i) the net basis tax and branch profits tax or (ii) the 4% gross basis tax. For this purpose, “transportation income” includes income from the use (or hiring or leasing for use) of a vessel to transport cargo and the performance of services directly related to the use of any vessel to transport cargo and, thus, includes time charter or bareboat charter income. Further, for this purpose, (i) transportation income attributable to transportation that either begins or ends, but that does not both begin and end, in the United States, or U.S. Source International Transportation Income, is considered to be 50% derived from sources within the United States, (ii) transportation income attributable to transportation that both begins and ends in the United States, or U.S. Source Domestic Transportation Income, is considered to be 100% derived from sources within the United States, and (iii) transportation income attributable to transportation exclusively between non-U.S. destinations is considered to be 100% derived from sources outside the United States.

We believe that we did not earn any U.S. Source Domestic Transportation Income during our 2009 Year, and we expect that we will not earn any such income in future years. However, certain of our activities gave rise to U.S. Source International Transportation Income during our 2009 Year, and future expansion of our operations could result in an increase in the amount of our U.S. Source International Transportation Income. Unless the exemption from tax under Section 883 of the Code, or the Section 883 Exemption, applies, our U.S. Source International Transportation Income generally will be subject to U.S. federal income taxation under either the net basis tax and branch profits tax or the 4% gross basis tax, both of which are discussed below.

The Net Basis Tax and Branch Profits Tax

If the Section 883 Exemption does not apply, the U.S. source portion of our U.S. Source International Transportation Income may be treated as effectively connected with the conduct of a trade or business in the United States, or Effectively Connected Income, if we have a fixed place of business in the United States involved in the earning of U.S. Source International Transportation Income and substantially all of our U.S. Source International Transportation Income is attributable to “regularly scheduled” transportation or, in the case of bareboat charter income, is attributable to a fixed place of business in the United States.

Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the highest statutory rate is currently 35%) as well as a 30% branch profits tax imposed under Section 884 of the Code. In addition, a 30% branch profits tax could be imposed on certain interest paid, or deemed paid, by us.

If we were to sell a vessel that has produced Effectively Connected Income, we generally would be subject to the net basis corporate income tax as well as to the 30% branch profits tax with respect to the gain recognized up to the amount of certain prior deductions for depreciation that reduced Effectively Connected Income. Otherwise, we would not be subject to U.S. federal income tax with respect to gain realized on the sale of a vessel, provided the gain is not attributable to an office or other fixed place of business maintained by us in the United States under U.S. federal income tax principles.

We believe that during our 2009 Year we did not have a fixed place of business in the United States. As a result, we believe that none of our U.S. Source International Transportation Income earned during our 2009 Year

is treated as Effectively Connected Income. While we do not expect to acquire a fixed place of business in the United States, there is no assurance that we will not have, or will not be treated as having, a fixed place of business in the United States in the future, which may result in our U.S. Source International Transportation Income being treated as Effectively Connected Income and our being subject to the net basis tax and branch profits tax as described above.

The 4% Gross Basis Tax

Provided we are not subject to the net basis tax and the branch profits tax described above, we generally will be subject to a 4% U.S. federal income tax on the U.S. source portion of our U.S. Source International Transportation Income (without benefit of deductions) unless the Section 883 Exemption applies (as more fully described below) and we file a U.S. federal income tax return to claim that exemption.

The Section 883 Exemption

In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, or the Section 883 Regulations, it will not be subject to the net basis tax and branch profits tax or the 4% gross basis tax described above on its U.S. Source International Transportation Income. The Section 883 Exemption does not apply to U.S. Source Domestic Transportation Income.

A non-U.S. corporation will qualify for the Section 883 Exemption if, among other things, it satisfies the following three requirements:

(i)it is organized in a jurisdiction outside the United States that grants an exemption from tax to U.S. corporations on the types of U.S. Source International Transportation Income that the non-U.S. corporation earns, or an Equivalent Exemption;

(ii)it satisfies one of the following three ownership tests: (a) the Qualified Shareholder Test, (b) the Controlled Foreign Corporation test, or (c) the Publicly Traded Test; and

(iii)it meets certain substantiation, reporting and other requirements.

We are organized under the laws of the Republic of the Marshall Islands. The U.S. Treasury Department has recognized the Republic of the Marshall Islands as a jurisdiction that grants an exemption from tax to U.S. corporations on the type of income we have earned and are expected to earn; therefore, we meet the first requirement for the Section 883 Exemption.

Regarding the second requirement for the Section 883 Exemption, we do not believe that we met the Qualified Shareholder Test or the Controlled Foreign Corporation Test with respect to our 2009 Year, and we do not expect to meet those tests in future years. The analysis of our ability to meet the Publicly Traded Test follows.

The Publicly Traded Test

In order to meet the Publicly Traded Test, the stock of the non-U.S. corporation at issue must be “regularly traded” and “primarily traded” on one or more established securities markets either in the United States or in a jurisdiction outside the United States that grants an Equivalent Exemption. Stock of a non-U.S. corporation will be considered to be regularly traded on an established securities market if such stock satisfies certain listing and trading requirements. Generally, the listing requirement will be satisfied if one or more classes of the non-U.S. corporation’s stock that, in the aggregate, represent more than 50% of the vote and value of all of the corporation’s outstanding stock are listed on an established market during such year. The trading volume requirement generally will be satisfied if, with respect to each class of stock relied on to meet the listing requirement, (i) trades in such class are effected, other than in minimal quantities, on an established securities

market on at least 60 days during the taxable year and (ii) the aggregate number of shares in such class of stock that are traded on an established securities market during the taxable year is at least 10% of the average number of shares outstanding in that class during the taxable year (with special rules for short taxable years). Alternatively, if the stock of the non-U.S. corporation is traded during the taxable year on an established securities market in the United States and the stock is “regularly quoted by dealers making a market in the stock” within the meaning of the Section 883 Regulations, the stock will be considered regularly traded on an established securities market in the United States. Notwithstanding these rules, a class of stock will not be treated as regularly traded on an established securities market if, for more than half of the number of days during the taxable year, one or more 5% shareholders (i.e.,a shareholder that holds, directly, indirectly or constructively, at least 5% of the vote and value of a class of stock) own in the aggregate 50% or more of the vote and value of that class, unless the corporation can establish that a sufficient proportion of such shareholders are “qualified shareholders” for purposes of the Section 883 Exemption so as to preclude other persons who are 5% shareholders from owning 50% or more of the value of that class for more than half the days during the taxable year. For purposes of the Section 883 Exemption, qualified shareholders include individual residents of jurisdictions that grant an Equivalent Exemption and non-U.S. corporations organized in jurisdictions that grant an Equivalent Exemption and that meet the Publicly Traded Test.

The stock of a non-U.S. corporation will be considered to be “primarily traded” on one or more established securities market in a given country if, with respect to the class or classes of stock relied on to meet the regularly traded requirement described above, the number of shares of each such class of stock that are traded on established securities markets in that country exceeds the number of shares in such class that are traded during that year on established securities markets in any other single country.

Because our common shares are and have been traded solely on the New York Stock Exchange, which is considered to be an established securities market in the United States, we believe our common shares are and have been primarily traded on an established securities market for purposes of the Publicly Traded Test. Additionally, we believe our common shares represented more than 50% of our outstanding stock by voting power and value during our 2009 Year, our common shares satisfied the listing and trading volume requirements described above for our 2009 Year, and 50% or more of common shares were not owned by 5% shareholders at any time during such year. Consequently, we believe we satisfied the Publicly Traded Test, and therefore qualified for the Section 883 Exemption, for our 2009 Year.

While there can be no assurance that we will continue to meet the requirements of the Publicly Traded Test and while our board of directors could determine that it is in our best interests to take an action that would result in our not being able to satisfy the Publicly Traded Test, we expect to continue to satisfy the requirements of the Publicly Traded Test and the Section 883 Exemption for future years.

U.S. Federal Income Taxation of U.S. Shareholders

As used herein, the term “U.S. Shareholder” means a beneficial owner of our common shares that is (i) an individual U.S. citizen or resident (as determined for U.S. federal income tax purposes), (ii) a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States or any of its political subdivisions, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

This discussion applies only to beneficial owners of our common shares that own the shares as “capital assets” (generally, for investment purposes) and does not comment on all aspects of U.S. federal income taxation that may be important to certain shareholders in light of their particular circumstances, such as shareholders subject to special tax rules (e.g., financial institutions, regulated investment companies, real estate investment trusts, insurance companies, traders in securities that have elected the mark-to-market method of accounting for

their securities, persons liable for alternative minimum tax, broker-dealers, tax-exempt organizations, partnerships or other pass-through entities and their investors or former citizens or long-term residents of the United States) or shareholders that will hold our common shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes, all of whom may be subject to U.S. federal income tax rules that differ significantly from those summarized below. If a partnership or other entity treated as a partnership for U.S. federal income tax purposes holds our common shares, the tax treatment of its partners generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common shares, you should consult your tax advisor to determine the appropriate tax treatment to you of the partnership’s ownership of our common shares.

No ruling has been requested from the Internal Revenue Service, or IRS, regarding any matter affecting us or our stockholders. Accordingly, statements made herein may not be sustained by a court if contested by the IRS.

This discussion does not contain information regarding any U.S. state or local, estate, gift or alternative minimum tax considerations concerning the ownership or disposition of our common shares. Shareholders are urged to consult their own tax advisors regarding the U.S. federal, state, local and other tax consequences of owning and disposing of our common shares.

U.S. Federal Income Taxation of U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of our shares that is a U.S. citizen or U.S. resident alien, a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, that was created or organized under the laws of the United States, any state thereof, or the District of Columbia, an estate whose income is subject to U.S. federal income taxation regardless of its source, or a trust that either is subject to the supervision of a court within the United States and has one or more U.S. persons with authority to control all of its substantial decisions or has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.

Distributions on Our Common Sharesshares

Subject to the discussion below regarding the rules applicable toof passive foreign investment companies, or PFICs, below, any distributions made by us with respect to our common shares to a U.S. ShareholderHolder generally will constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail in the paragraph below, to the extent of our current and accumulated earnings and profits allocated to the U.S. Holder’s shares, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits allocated to the U.S. Holder’s shares will be treated first as a nontaxable return of capital to the extent of the U.S. Shareholder’s

Holder’s tax basis in our common shares on a dollar-for-dollar basis and thereafter as capital gain, which will be either long-term or short-term capital gain depending upon whether the U.S. ShareholderHolder has held the common shares for more than one year. U.S. ShareholdersHolders that are corporations generally will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. For purposes of computing allowable foreign tax credits for U.S. federal income tax purposes, dividends received with respect to our common shares will be treated as foreign source income and generally will be treated as “passive category income.”

DividendsSubject to holding-period requirements and certain other limitations, dividends received with respect to our commonpublicly traded shares by a U.S. ShareholderHolder who is an individual, trust or estate, or a U.S. Individual Shareholder,Holder, generally will be treated as qualified dividend income that is taxable to such U.S. Individual ShareholderHolder at preferential capital gain tax rates provided that: (i) our common shares are readily tradable on an established securities market in the United States (such as the New York Stock Exchange on which our common shares are currently traded); (ii)(provided we are not classified as a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be, as discussed below); and (iii) the U.S. Individual Shareholder has owned our common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend. There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Individual Shareholder, and any dividends paid on our common shares that are not eligible for these preferential tax rates generally are taxed as ordinary income to a U.S. Individual Shareholder.year). In the absence of legislation extending the term of the preferential tax rates for qualified dividend income, all dividends received by a taxpayer in tax years beginning on or after January 1, 2011December 31, 2012 will be taxed at rates applicable to ordinary income.

Special rules may apply to any amounts received in respect of our common shares that are treated as “extraordinary dividends.”dividend” paid by us. Generally, an extraordinary dividend is a dividend with respect to a common share of preferred stock that is equal to or in excess of 10%5% of a preferred shareholder’s adjusted tax basis (or fair market value upon the shareholder’s election) in such commonpreferred share. In addition, extraordinary dividends include dividends received within a one year period that, in the aggregate, equal or exceed 20% of a shareholder’s adjusted tax basis (or fair market value). If we pay an extraordinary dividend on our common shares that is treated as qualified dividend income, then any loss recognized by a U.S. Individual ShareholderHolder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of the amount of such dividend.

Certain U.S. Individual Holders will be subject to a 3.8% tax on certain investment income, including dividends, for taxable years beginning after December 31, 2012.

Sale, Exchange or Other Disposition of Our Shares

Subject to the discussion of PFICs, below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of our shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such shares.

Subject to the discussion of extraordinary dividends above, gain or loss recognized upon a sale, exchange or other disposition of our shares will be (i) treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition and (ii) generally treated as U.S. source income or loss, as applicable, for foreign tax credit purposes. Certain U.S. Holders, including individuals, may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.

Certain U.S. Individual Holders will be subject to a 3.8% tax on certain investment income, including gain from the disposition of our shares, for taxable years beginning after December 31, 2012.

Consequences of Possible CFC Classification

If CFC Shareholders (generally, U.S. Holders who each own, directly, indirectly or constructively, 10% or more of the total combined voting power of all classes of our outstanding shares entitled to vote) own directly, indirectly or constructively more than 50 percent of either the total combined voting power of all classes of our outstanding shares entitled to vote or the total value of all of our outstanding shares, were owned, directly, indirectly or constructively, by citizens or residents of the United States, U.S. partnerships or corporations, or U.S. estates or trusts (as defined for U.S. federal income tax purposes), each of which owned, directly, indirectly or constructively, 10% or more of the total combined voting power of our outstanding shares entitled to vote (each, a CFC Shareholder), we couldgenerally would be treated as a controlled foreign corporation, or a CFC.

CFC Shareholders are treated as receiving current distributions of their sharesrespective share of certain income of the CFC without regard to any actual distributions anddistributions. In addition, CFC Shareholders are subject to othercertain burdensome U.S. federal income tax and administrative requirements but generally are not also subject to the requirements generally applicable to shareholders of a PFIC.PFIC (as discussed below). In addition, a person who is or has been a CFC Shareholder may recognize ordinary income on the disposition of shares of the CFC. Although we do not believe we are or will become a CFC, U.S. persons purchasing a substantial interest in us should consider the potential implications of being treated as a CFC Shareholder in the event we become a CFC in the future.

Sale, Exchange or Other Disposition of Our Common Shares

Subject to the discussion of PFICs, below, a U.S. Shareholder generally recognizes capital gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the shareholder from such sale, exchange or other disposition and the shareholder’s tax basis in such shares. A U.S. Shareholder’s ability to deduct capital losses is subject to certain limitations.

Subject to the discussion of extraordinary dividends above, gain or loss recognized upon a sale, exchange or other disposition of our common shares will be (i) treated as long-term capital gain or loss if the U.S. Shareholder’s holding period is greater than one year at the time of the sale, exchange or other disposition and (ii) generally treated as U.S. source income or loss, as applicable, for foreign tax credit purposes. Certain U.S. Shareholders, including individuals, may be eligible for preferential rates ofThe U.S. federal income tax consequences to U.S. Holders who are not CFC Shareholders would not change in respect of long-term capital gains.the event we become a CFC in the future.

PFIC Status and Significant Tax Consequences

Special and adverse U.S. federal income tax rules apply to a U.S. ShareholderHolder that holds stock in a non-U.S. entity treated as a corporation and classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC for any taxable year in which either (i) at least 75% of our gross income (including the gross income of certain of our subsidiaries) consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business), or (ii) at least 50% of the average value of the assets held by us (including the assets of certain of our subsidiaries) is attributable to assets that produce passive income or are held for the production of passive income. For purposes of determining whether we are a PFIC, income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income.

BasedThere are legal uncertainties involved in determining whether the income derived from our time chartering activities constitutes rental income or income derived from the performance of services, including the decision inTidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Code. However, the IRS stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the composition of our assetsway that the rental versus services framework was applied to the facts in theTidewater decision, and in its discussion stated that the time charters at issue inTidewater would be treated as producing services income (and that of our subsidiaries) for our 2009 Year, we believe that we were not a PFIC for such year. Furthermore, based on the expected composition of our assets and income (and that of our subsidiaries), we do not expect to become a PFICpurposes. The IRS’s statement with respect toTidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any future years. Our belief in this regard is based principally on the position that, for purposes of determining whether we are a PFIC, the majority, if not all, of the gross income we derive (or are deemed to derive) from the chartering activities of our wholly owned subsidiaries should constitute service income rather than rental income. Correspondingly, such income should not constitute passive income, and the assets owned and operated by us or our subsidiaries in connection with the production of such income (in particular, the vessels) should not constitute passive assets under the PFIC rules. We believe there is substantial legal authority supporting our position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters as services income for other tax purposes. However, there is nobinding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or relating to circumstances substantially similar to ours. Moreover,a court would not follow theTidewater decision in Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009),interpreting the United States Court of Appeals for the Fifth Circuit concluded that certain time charters were appropriately characterized as leases rather than service agreements for

purposes of the foreign sales corporationPFIC provisions of the Code. WhileNevertheless, based on the court’s conclusion was contrarycurrent composition of our assets and operations (and that of our subsidiaries), we intend to take the IRS’s position that the time charters should be treated as services agreements, the Tidewater decision may heighten the risk ofwe are not now and have never been a challenge regarding our status and the status under the PFIC rules of shipping companies that engage in time chartering operations generally.

AlthoughPFIC. Further, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of our operations, and therefore the composition of our income and assets, will remain the same in the future. Moreover, the market value of our common sharesstock may be treated as reflecting the value of our assets at any given time. Therefore, a decline in the market value of our common sharesstock (which is not within our control) may impact the determination of whether we are a PFIC. Because our status as a PFIC for any taxable year will not be determinable until after the end of the taxable year, there can be no assurance that we will not be considered a PFIC for any future taxable year.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. ShareholderHolder generally would be subject to one of three different U.S. income tax regimes, depending on whether the shareholderU.S. Holder makes certain elections.

Taxation of U.S. ShareholdersHolders Making a Timely QEF Election

If we were classified as a PFIC for a taxable year, a U.S. ShareholderHolder making a timely election to treat us as a “Qualified Electing Fund” for U.S. tax purposes, or a QEF Election, would be required to report his pro rata

share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the shareholder’sU.S. Holder’s taxable year regardless of whether the shareholderU.S. Holder received distributions from us in that year. Such pro rata share would not exceed the income allocable to dividends on our shares, although ordinary earnings could be allocated to a shareholder in the taxable year before the dividend is paid. Such income inclusions would not be eligible for the preferential tax rates applicable to qualified dividend income. The shareholder’sU.S. Holder’s adjusted tax basis in our common shares would be increased to reflect taxed but undistributed earnings and profits, and distributions of earnings and profits that had previously been taxed would not be taxed again when distributed but would result in a corresponding reduction in the shareholder’sU.S. Holder’s adjusted tax basis in our common shares. The shareholderU.S. Holder generally would recognize capital gain or loss on the sale, exchange or other disposition of our common shares.

A U.S. ShareholderHolder would make a QEF Election with respect to any year that we are a PFIC by filing one copy of IRS Form 8621 with his U.S. federal income tax return and a second copy in accordance with the instructions to such form. However, a U.S. Holder’s QEF Election will not be effective unless we annually provide the U.S. Holder with certain information concerning our income and gain, calculated in accordance with the Code, to be included with the U.S. Holder’s U.S. federal income tax return. We have not provided our U.S. Holders with such information in prior taxable years and do not intend to provide such information in the current taxable year. Accordingly, you will not be able to make an effective QEF Election at this time. If, contrary to our expectations, we determine that we are or will be a PFIC for any taxable year, we will provide U.S. Holders with the information necessary to make an effective QEF Election with respect to our shares.

Taxation of U.S. ShareholdersHolders Making a “Mark-to-Market” Election

Alternatively, if we were to be treated as a PFIC for any taxable year and, as we believe, our common shares are treated as “marketable stock,” then a U.S. ShareholderHolder would be allowed to make a “mark-to-market” election with respect to our common shares, provided the shareholderU.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions. If that election is made, the shareholderU.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of our common shares at the end of the taxable year over the shareholder’sU.S. Holder’s adjusted tax basis in our common shares. The shareholderU.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the shareholder’sU.S. Holder’s adjusted tax basis in our common shares over the fair market value thereof 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). The shareholder’sU.S. Holder’s tax basis in our common shares would be adjusted to reflect any such income or loss recognized. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of our common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the shareholder.U.S. Holder. Because the mark-to-market election only applies to marketable stock, however, it would not apply to a U.S. Holder’s indirect interest in any of our subsidiaries that were also determined to be PFICs.

Taxation of U.S. ShareholdersHolders Not Making a Timely QEF Election or Mark-to-Market Election

Finally, if we were to be treated as a PFIC for any taxable year and if a U.S. ShareholderHolder did not make either a QEF Election or a mark-to-market election for that year, the shareholderU.S. Holder would be subject to special rules resulting in increased tax liability with respect to (i) any excess distribution (i.e., the portion of any distributions received by the shareholderU.S. Holder on our common shares in a taxable year in excess of 125% of the average annual distributions received by the shareholderU.S. Holder in the three preceding taxable years, or, if shorter, the shareholder’sU.S. Holder’s holding period for our common shares), and (ii) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:

 

the excess distribution or gain would be allocated ratably over the shareholder’sU.S. Holder’s aggregate holding period for our common shares;

 

the amount allocated to the current taxable year and any taxable year prior to the year we were first treated as a PFIC with respect to the shareholderU.S. Holder would be taxed as ordinary income; and

 

the amount allocated to each other taxable year would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayers for that year, and

an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax.tax attributable to each such other taxable year.

Additionally, ifIf the shareholderU.S. Holder is an individual who dies while owning our common shares, such shareholder’s successor generally would not receive a step-up in tax basis with respect to such shares. In addition, if we were treated as a PFIC, a U.S. Holder would be required to file an annual report with the IRS for that year with respect to the U.S. Holder’s shares.

U.S. Holders are urged to consult their own tax advisors regarding the applicability, availability and advisability of, and procedure for, making QEF Elections, mark-to-market elections and other available elections with respect to us, and the U.S. federal income tax consequences of making such elections.

U.S. Return Disclosure Requirements for U.S. Individual Holders

U.S. individuals that hold certain specified foreign financial assets, which include stock in a foreign corporation, may be subject to additional U.S. return disclosure obligations (and related penalties for failure to disclose). Investors are encouraged to consult with their own tax advisors regarding the possible application of this disclosure requirement to their investment in our shares.

U.S. Federal Income Taxation of Non-U.S. ShareholdersHolders

A beneficial owner of our common shares (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. ShareholderHolder is referred to herein as a non-U.S. Shareholder.Holder.

Distributions on Our Common Shares

In general, a non-U.S. ShareholderHolder is not subject to U.S. federal income tax on distributions received from us with respect to our common shares unless the distributions are effectively connected with the shareholder’snon-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the shareholdernon-U.S. Holder maintains in the United States).

Sale, Exchange or Other Disposition of Our Common Shares

In general, a non-U.S. ShareholderHolder is not subject to U.S. federal income tax on any gain resulting from the disposition of our common shares unless (i) such gain is effectively connected with the shareholder’snon-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that the shareholder maintains in the United States) or (ii) the shareholder is an individual who is present in the United States for 183 days or more during the taxable year in which those shares are disposed (and certain other requirements are met).

Backup Withholding and Information Reporting

In general, payments of distributions or the proceeds of a disposition of our common shares to a non-corporate U.S. ShareholderHolder will be subject to information reporting requirements. These payments to a non-corporate U.S. ShareholderHolder also may be subject to backup withholding if the shareholder:U.S. Holder:

 

fails to provide an accurate taxpayer identification number;

 

is notified by the IRS that he has failed to report all interest or corporate distributions required to be shown on his U.S. federal income tax returns; or

in certain circumstances, fails to comply with applicable certification requirements.

Non-U.S. ShareholdersHolders may be required to establish their exemption from information reporting and backup withholding on payments made to them within the United States by certifying their status on an IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.

Backup withholding is not an additional tax. Rather, a shareholder generally may obtain a credit for any amount withheld against his liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by timely filing U.S. federal income tax return with the IRS.

Marshall Islands Tax Consequences

The following discussion is the opinion of Dennis J. Reeder, Reeder & Simpson, P.C., our counsel as to matters of the laws of the Republic of the Marshall Islands, and the current laws of the Republic of the Marshall Islands applicable to persons who do not reside in, maintain offices in or engage in business in the Republic of the Marshall Islands.

Because we do not, and we do not expect that we will, conduct business or operations in the Republic of the Marshall Islands, and because all documentation related to this offering will be executed outside of the Republic of the Marshall Islands, under current Marshall Islands law you will not be subject to Marshall Islands taxation or withholding on distributions, including upon a return of capital, we make to you as a shareholder. In addition, you will not be subject to Marshall Islands stamp, capital gains or other taxes on the purchase, ownership or disposition of common shares, and you will not be required by the Republic of the Marshall Islands to file a tax return relating to the common shares.

Each prospective shareholder is urged to consult his tax counsel or other advisor with regard to the legal and tax consequences, under the laws of pertinent jurisdictions, including the Marshall Islands, of his investment in us. Further, it is the responsibility of each shareholder to file all state, local and non-U.S., as well as U.S. federal tax returns that may be required of him.

Canadian Federal Income Tax Consequences

The following discussion is the opiniona summary of Blake, Cassels & Graydon, LLP, our counsel as to certain matters of Canadian law, as to the material Canadian federal income tax consequences under the Income Tax Act (Canada) (the Canada Tax Act), as of the date of this prospectus,Annual Report, that we believe are relevant to holders of common shares acquired in this offering who are, at all relevant times, for the purposes of the Canada Tax Act and the Canada-United States Tax Convention 1980 (the Canada-U.S. Treaty) resident only in the United States who are “qualifying persons” for purposes of the Canada-U.S. Treaty and who deal at arm’s length with us (U.S. Resident Holders). Holders that are United States limited liability companies should consult their own tax advisors.

Subject to the assumptions below, under the Canada Tax Act, no taxes on income (including taxable capital gains and withholding tax on dividends) are payable by U.S. Resident Holders in respect of the acquisition, holding, disposition or redemption of our shares. This opinion is based upon the assumptions that we are not a resident inof Canada and such U.S. Resident Holders do not have, and have not had, for the purposes of the Canada-U.S. Treaty, a permanent establishment in Canada to which such shares pertain and, in addition, do not use or hold and are not deemed or considered to use or hold such shares in the course of carrying on a business in Canada. We will not be resident in Canada in a taxation year if our principal business is the operation of ships that are used primarily in transporting passengers or goods in international traffic, all or substantially all of our gross revenue for the year consists of gross revenue from the operation of ships in transporting passengers or goods in that international traffic, and we were not granted articles of continuance in Canada before the end of the year. Income earned in Canada by a non-resident corporation fromPlease read “Item 4. Information on the operationCompany—B. Business Overview—Taxation of a ship in international traffic, and gains realized from the disposition of ships used principally in international traffic, are not included in a non-resident corporation’s incomeCompany—Canadian Taxation” for Canadian tax purposes where the corporation’s country of residence grants substantially similar relief to a Canadian resident. For a further discussion, separate from this opinion, of the tax consequences of us becoming a resident in Canada, please read “Risk Factors—Tax Risks.”of Canada.

Each prospective shareholder is urged to consult his tax counsel or other advisor with regard to the legal and tax consequences, under the laws of pertinent jurisdictions, including Canada, of his investment in us. Further, it is the responsibility of each shareholder to file all state, local and non-U.S., as well as U.S. federal tax returns that may be required of him.

F.    Dividends and Paying Agents

Not applicable.

G.    Statements by Experts

Not applicable.

H.    Documents on Display

Documents concerning us that are referred to herein may be inspected at the offices of Seaspan Ship Management Ltd. at 2600-200 Granville Street, Vancouver, British Columbia. Those documents electronically filed with the SEC may be obtained from the SEC’s website atwww.sec.gov or from the SEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Further information on the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. Copies of documents can be requested from the SEC public reference rooms for a copying fee.

 

Item 11.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates. We use interest rate swaps to manage interest rate price risks, but do not use these financial instruments for trading or speculative purposes.

Interest Rate Risk

As of December 31, 2009,2010, our floating-rate borrowings totaled $1.8$2.5 billion, of which we had entered into interest rate swap agreements to fix the rates on a notional principal of $2.1$2.4 billion. These interest rate swaps have a fair value of $280.4$407.8 million in the counterparties’ favor.

The tables below provide information about our financial instruments at December 31, 20092010 that are sensitive to changes in interest rates. See note 7 to our consolidated financial statements included elsewhere herein, which provides additional information with respect to our existing debt agreements. The information in this table is based upon our credit facilities.

 

  Principal Payment Dates  Principal Payment Dates 
  2010  2011  2012  2013  2014  Thereafter  2011   2012   2013   2014   2015   Thereafter 
  (dollars in thousands)  (dollars in thousands) 

Credit Facilities:

                        

Bearing interest at variable interest rates (1)

  5,452  5,815  58,656  121,893  223,971  1,467,359   16,069     71,128     138,054     251,501     770,922     1,149,098  

Lease Facilities:

            

Bearing interest at variable interest rates (2)

   4,980     23,430     27,437     27,712     28,006     278,745  

 

(1)Represents principal payments on our credit facilities that bear interest at variable rates for which we have entered into interest rate swap agreements to fix the LIBOR. For the purpose of this table, principal repayments are determined based on amounts outstanding at period end, pro-rated to reflect commitment reduction schedules for each related facility. Actual repayments may differ from the amounts presented as repayment timing is impacted by the balance outstanding at each commitment reduction date.

(2)Includes repayments for amounts yet to be funded of $204.5 million.

OnAs of December 31, 2007,2010, we had certainhave the following interest rate swaps designated as hedging instruments. During 2008, all of these interest rate swaps were de-designated. The relevant interest rate swap information and de-designation dates are as follows (dollars in thousands):outstanding:

 

Fixed per annum
rate swapped for
LIBOR

 Notional Amount
as at December 31,
2009
 Maximum
Notional Amount (1)
 Effective Date Ending Date Date of prospective de-
designation
4.6325% $663,399 $663,399 September 15, 2005 July 16, 2012 September 30, 2008
5.6400%  535,623  714,500 August 31, 2007 August 31, 2017 January 31, 2008(3)
5.2500%  200,000  200,000 September 29, 2006 June 23, 2010 September 30, 2008
5.2600%  106,800  106,800 July 3, 2006 February 26, 2021 (2) September 30, 2008
5.5150%  59,700  59,700 February 28, 2007 July 31, 2012 September 30, 2008
5.6000%  —    200,000 June 23, 2010 December 23, 2021 September 30, 2008
5.3150%  —    106,800 August 15, 2006 August 28, 2009 (4) January 31, 2008(3)

We received hedge accounting treatment on certain of our interest rate swaps during the period ended September 30, 2008 that ceased to receive such treatment in subsequent periods based on the prospective de-designation. For the interest rate swap agreements that were designated as hedging instruments in accordance with the requirements in the accounting literature, the changes in the fair value of these interest rate swaps were reported in accumulated other comprehensive income. Interest expense was adjusted to include amounts payable or receivable under the designated interest rate swaps. The ineffective portion of the interest rate swaps were recognized immediately in earnings. The amounts included in other comprehensive loss related to these interest rate swaps will be recognized in earnings when and where the interest payments will be recognized.

Fixed per annum
rate swapped for
LIBOR

 Notional
Amount as of
December 31,
2010
  Maximum
Notional
Amount (1)
  Effective Date Ending Date
5.6400% $714,500   $714,500   August 31, 2007 August 31, 2017
4.6325%  663,399    663,399   September 15, 2005 July 16, 2012
5.4200%  314,154    438,462   September 6, 2007 May 31, 2024
5.6000%  200,000    200,000   June 23, 2010 December 23, 2021
5.0275%  111,000    158,000   May 31, 2007 September 30, 2015
5.5950%  106,800    106,800   August 28, 2009 August 28, 2020
5.2600%  106,800    106,800   July 3, 2006 February 26,  2021(2)
5.2000%  96,000    96,000   December 18, 2006 October 2, 2015
5.5150%  59,700    59,700   February 28, 2007 July 31, 2012
5.1700%  24,000    55,500   April 30, 2007 May 29, 2020
5.1750%  —      663,399   July 16, 2012 July 15, 2016
5.8700%  —      620,390   August 31, 2017 November 28, 2025
5.4975%  —      59,700   July 31, 2012 July 31, 2019

 

(1)Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional amount during the term of the swap.

 

(2)The Company has entered into a swaption agreement with a bank (Swaption Counterparty) whereby the Swaption Counterparty has the option to require the Company to enter into an interest rate swap to pay LIBOR and receive a fixed rate of 5.26%. This is a European option and is open for a two hour period on February 26, 2014 after which it expires. The notional amount of the underlying swap is $106,800,000 with an effective date of February 28, 2014 and an expiration of February 26, 2021. If the Swaption Counterparty exercises the swaption, the underlying swap effectively offsets the Company’s 5.26% pay fixed LIBOR swap from February 28, 2014 to February 26, 2021.

(3)The impact of these de-designations resulted in recognition of a charge of $1,647,000 to earnings out of accumulated other comprehensive loss at the date of de-designation.

(4)Expired during the year.

In addition, we have the following interest rate swaps that are not designated as hedges (dollars in thousands):

Fixed per annum
rate swapped for
LIBOR

 Notional
Amount as at
December 31,
2009
 Maximum Notional
Amount (1)
 Effective Date Ending Date
5.4200% $224,467 $438,462 September 6, 2007 May 31, 2024
5.0275%  111,000  158,000 May 31, 2007 September 30, 2015
5.5950%  106,800  106,800 August 28, 2009 August 28, 2020
5.2000%  96,000  96,000 December 18, 2006 October 2, 2015
5.1700%  45,510  55,500 April 30, 2007 May 29, 2020
5.1750%  —    663,399 July 16, 2012 July 15, 2016
5.8700%  —    620,390 August 31, 2017 November 28, 2025
5.4975%  —    59,700 July 31, 2012 July 31, 2019

(1)Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional amount during the term of the swap.

The fair value of our interest rate swaps and swaption will change as market interest rates change. Since we prospectively de-designated the remaining interest rate swaps for which we were applying hedge accounting on September 30, 2008, all of our interest rate swap agreements are marked to market subsequent to this date. These instruments are recorded on the balance sheet at fair value and the changes in the fair value of these instruments are recorded in earnings.

Counterparties to these financial instruments may expose us to credit-related losses in the event of non-performance. As at December 31, 2009,2010, these financial instruments are in the counterparties’ favor. We have considered and reflected the risk of non-performance by us and our counterparties in the fair value of our financial instruments as of December 31, 2009.2010. As part of our consideration of non-performance risk, we perform evaluations of our counterparties for credit risk through ongoing monitoring of their financial health and risk profiles to identify funding risk or changes in their credit ratings.

Counterparties to these agreements are major financial institutions, and we consider the risk of loss due to non-performance to be minimal. We do not require collateral from these institutions. We do not hold and will not issue interest rate swaps for trading purposes.

 

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

OnIn January 22, 2009, we entered into the Preferred Share Purchase Agreement for the issuance and sale of $200 million aggregate amount of our Series A Preferred Shares. If certain conditions are met, the Series A Preferred Shares are convertible into our Class A Common Shares after five years. While the Series A Preferred Shares are issued and outstanding, the holders thereof have certain voting rights, preemptive rights and certain other rights and preferences that materially affect the rights of the Class A Common Shares. The voting and other powers, preferences and relative participating, optional or special rights and qualifications, limitations or restrictions are fully set forth in thea Statement of Designation, which was previously filed with the SEC as Exhibit 3.1 to our Current Report on Form 6-K on February 2, 2009.

In May 2010, we issued 260,000 Cumulative Series B Preferred Shares. The Series B Preferred Shares are not convertible into Class A Common Shares. While the Series B Preferred Shares are issued and outstanding, the holders thereof have certain rights and preferences that materially affect the rights of the Class A Common Shares. The powers, preferences and relative participating, optional or special rights and qualifications, limitations or restrictions are fully set forth in a Statement of Designation, which was previously filed with the SEC as Exhibit 3.1 to our Report on Form 6-K filed on June 4, 2010.

In January 2011, we issued 10 million 9.5% Series C Cumulative Redeemable Perpetual Preferred Shares. The Series C Preferred Shares are not convertible into Class A common shares and are not redeemable by the holder. While the Series C Preferred Shares are issued and outstanding, the holders thereof have certain rights and preferences that materially affect the rights of the Class A Common Shares. The powers, preferences and relative participating, optional or special rights and qualifications, limitations or restrictions are fully set forth in a Statement of Designation, which was previously filed with the SEC as Exhibit 3.3 to our Report on Form 8-A12B filed on January 28, 2011.

For more information, please read “Information on the Company—B. Business Overview—“Item 5. Operating and Financial Review and Prospects—A. General—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Equity Offerings—Our Series A Preferred Share Offering.Offerings.

 

Item 15.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 under the Exchange Act, management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

Based on the foregoing, our chief executive officer and chief financial officer have concluded that, as of December 31, 2009,2010, the end of the period covered by this report, our disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting refers to a process designed by, or under the supervision of, our chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our board of directors; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 20092010 using the framework set forth in the report of the Treadway Commission’s Committee of Sponsoring Organizations.

Based on the foregoing, management has concluded that our internal control over financial reporting was effective as of December 31, 2009.2010.

The effectiveness of our internal controls over financial reporting as of December 31, 20092010 has been audited by KPMG LLP, the independent registered public accounting firm that audited our December 31, 20092010 consolidated annual financial statements, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

Management has evaluated, with the participation of our chief executive officer and chief financial officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During 2010, we incorporated additional internal controls over the year ended December 31, 2009 therepreparation of our consolidated financial statements to reflect the increased complexity in the company’s financial reporting structure. We also revised our internal controls over the reporting of financial statement values related to sale-leaseback financing to reflect the

delivery of ships under lease arrangements. The first ship delivery under a sale-leaseback arrangement occurred in October 2010. There were no other significant changes with regard to internal control over financial reporting that hashave materially affected or isare reasonably likely to materially affect the Company’s internal control over financial reporting.

 

Item 16A.Audit Committee Financial Expert

The board of directors has determined that all members of the audit committee as of the date of filing of this Annual Report qualify as audit committee financial experts and are independent under applicable NYSE and SEC standards.

 

Item 16B.Code of Ethics

We have adopted Standards for Business Conduct that includes a Code of Ethics for all employees and directors. This document is available under “Corporate Governance” in the Investor Relations section of our website (www.seaspancorp.com). We also intend to disclose any waivers to or amendments of our Standards of Business Conduct or Code of Ethics for the benefit of our directors and executive officers on our website. We will provide a hard copy of our Code of Ethics free of charge upon written request of a shareholder. Please contact Sai W. Chu for any such request.

Item 16C.Principal Accountant Fees and Services

Our principal accountant for 20092010 was KPMG LLP, Chartered Accountants.

In 20092010 and 2008,2009, the fees rendered by the auditorsaccountants were as follows:

 

  2009  2008  2010   2009 

Audit Fees

  $399,300  $597,300  $519,500    $399,300  

Audit-Related Fees

   —     —     —       —    

Tax Fees

   221,100   24,700   179,000     221,100  

All Other Fees

   —     —     —       —    
              
  $620,400  $622,000  $698,500    $620,400  
              

Audit Fees

Audit fees for 2010 include fees related to the issuance of our Series B Preferred Shares, the public offering of our Series C Preferred Shares (completed in January 2011), and the annual audit of one of our indirectly wholly owned subsidiaries, in addition to our annual audit, quarterly reviews and accounting consultations. Audit fees for 2009 include fees related to the issuance of the Series A Preferred Shares in addition to our annual audit, quarterly reviews and accounting consultations. Audit fees for 2008 include fees related to our public offering of our common shares completed in April 2008 and the prospectus for the DRIP in addition to our annual audit, quarterly reviews and accounting consultations.

Audit-Related Fees

There were no audit-related fees in 20092010 or 2008.2009.

Tax Fees

Tax fees for 20092010 and 20082009 are primarily for tax consultation services.

The audit committee has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the audit committee or entered into pursuant to detailed

pre-approval policies and procedures established by the audit committee, as long as the audit committee is informed on a timely basis of any engagement entered into on that basis. The audit committee separately pre-approved all engagements and fees paid to our principal accountant in 20092010 and 2008.2009.

 

Item 16D.Exemptions from the Listing Standards for Audit Committees

Not applicable.

 

Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

 

Item 16F.Change in Registrants’ Certifying Accountant

Not applicable.

 

Item 16G.Corporate Governance

The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies:

 

we hold annual meetings of shareholders under the Business Corporations Act of the Republic of the Marshall Islands, similar to NYSE requirements;

in lieu of a nominating committee, the full board of directors regulates nominations as set forth in our bylaws; and

inIn lieu of obtaining shareholder approval prior to the adoption of equity compensation plans, the full board of directors approves such adoption.

Unlike domestic companies listed on the NYSE, foreign private issuers are not required to have a majority of independent directors and the standard for independence applicable to foreign private issuers may differ from the standard that is applicable to domestic issuers. Our board of directors has determined that four of our eight current directors (being John C. Hsu, George H. Juetten, Nicholas Pitts-Tucker and Peter S. Shaerf) satisfy the NYSE’s independence standards for domestic companies. Our board of directors has also determined that Peter Lorange, who has no material relationship with us either directly or as a partner, shareholder or officer of an organization that has a relationship with us, is independent from us. This is the general NYSE independence standard. Our board of directors has not applied the NYSE three-year look-back test relating to Mr. Lorange’s interim service as an officer of certain of our subsidiary companies in deeming Mr. Lorange to be independent.

U.S. issuers are required to have a compensation committee that isand a nominating and corporate governance committee, each comprised entirely of independent directors. Although as a foreign private issuer this rule doesthese rules do not apply to us, we have a compensation committee and a nominating and corporate governance committee that each consists of fourthree directors, all of whom currently satisfy NYSE standards for independence.

PART III

 

Item 17.Item 17.Financial Statements

Not applicable.

 

Item 18.Financial Statements

The following financial statements, together with the report of KPMG LLP, Chartered Accountants thereon, are filed as part of this Annual Report:

 

SEASPAN CORPORATION

  

Management’s Statement of Responsibilities

F-1

Report of Independent Registered Public Accounting Firm

  F-2F-1

Report of Independent Registered Public Accounting Firm

  F-3F-2

Consolidated Balance Sheets as of December 31, 20092010 and 20082009

  F-4F-3

Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 2008 and 20072008

  F-5F-4

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2010, 2009 2008 and 20072008

  F-5F-4

Consolidated Statements of Shareholders’ Equity for the Years Ended December  31, 2010, 2009 2008 and 20072008

  F-6F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 2008 and 20072008

  F-8F-7

Notes to the Consolidated Financial Statements

  F-9F-8

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Consolidated Notes to the Financial Statements and therefore have been omitted.

Item 19.Exhibits

The following exhibits are filed as part of this Annual Report:

 

Exhibit
Number

  

Description

1.1

  Amended and Restated Articles of Incorporation of Seaspan Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Amendment No. 2 to Form F-1 (File No. 333-126762), filed with the SEC on August 4, 2005).

1.2

  Bylaws of Seaspan Corporation (incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

2.1

1.3
  Statement of Designation of the 12% Cumulative Preferred Shares—Series A, dated January 22, 2009 (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on February 2, 2009).

2.2

1.4
Statement of Designation of the Cumulative Preferred Shares—Series B, dated May 27, 2010 (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on June 4, 2010).
1.5Statement of Designation of the 9.5% Cumulative Redeemable Perpetual Preferred Shares—Series C, dated January 27, 2011 (incorporated herein by reference to Exhibit 3.3 to the Company’s Form 8-A12B (File No. 1-32591), filed with the SEC on January 28, 2011).
2.4  Specimen of Share Certificate of Seaspan Corporation (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

2.3

2.5
  Specimen of Share Certificate of Seaspan Corporation 12% Cumulative Preferred Shares – Shares—Series A (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on February 2, 2009).

2.4

2.6
Specimen of Share Certificate of Seaspan Corporation Cumulative Preferred Shares—Series B (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on June 4, 2010).
2.7Specimen of Share Certificate of Seaspan Corporation 9.5% Cumulative Redeemable Perpetual Preferred Shares—Series C (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-A12B (File No. 1-32591), filed with the SEC on January 28, 2011).
4.1  Registration Rights Agreement by and among Seaspan Corporation and the investors named therein dated August 8, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Amendment No. 2 to Form F-1 (File No. 333-126762), filed with the SEC on August 4, 2005).

2.5

4.2
  Registration Rights Agreement by and among Seaspan Corporation and the investors named therein dated January 30, 2009 (incorporated herein by reference to Exhibit 10.3 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on February 2, 2009).

2.6

4.3
  Form of Shareholders Rights Agreement (incorporated herein by reference to Exhibit 10.7 to the Company’s Amendment No. 2 to Form F-1 (File No. 333-126762), filed with the SEC on August 4, 2005).

2.7

4.4
  Amendment No. 1 to Shareholders Rights Agreement dated January 30, 2009 (incorporated herein by reference to Exhibit 10.2 to Form 6-K (File No. 1-32591), filed with the SEC on February 2, 2009.)

4.3

Underwriting Agreement (incorporated herein by reference to Exhibit 1.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on April 11, 2008).

4.4

4.5
  Preferred Stock Purchase Agreement dated January 22, 2009, by and among Seaspan Corporation and certain investors named therein (incorporated herein by reference to Exhibit 10.1 to Form 6-K (File No. 1-32591), filed with the SEC on February 2, 2009.)

4.5Exhibit
Number

Description

4.6    Seaspan Corporation Stock Incentive Plan (incorporated herein by reference to Exhibit 4.2 to the Company’s Form 20-F (File No. 1-32591), filed with the SEC on March 17, 2006).

4.6

4.7*
First Amendment to Seaspan Corporation Stock Incentive Plan, effective October 23, 2010.
4.8    Amended and Restated Management Agreement among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. dated as of May 4, 2007 (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 6-K/A (File No. 1-32591), filed with the SEC on October 10, 2007).

4.7

4.9*
  VesselAmendment to Amended and Restated Management Agreement for 2500 TEU / 3500 TEU Vessels dated as of the 18th day of May, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. (incorporated herein by reference to Exhibit 99.3 to the Company’s Form 6-K/A (File No. 1-32591) filed with the SEC on October 10, 2007).

Exhibit
Number

Description

4.8  

Vessel Management Agreement for 5100 TEU Vessels dated as of the 18th day of May, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. (incorporated herein by reference to Exhibit 99.2 to the Company’s Form 6-K/A (File No. 1-32591) filed with the SEC on October 10, 2007).

4.9  

Vessel Management Agreement for Two 2500 TEU K-Line Vessels / Four 4250 TEU CSAV Vessels / Eight 8500 COSCON Vessels dated as of the 28th day of September, 2007 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. (incorporated by reference to Exhibit 99.1 to the Company’s Form 6-K (File No. 1-32591) filed with the SEC on October 29, 2007).

4.10

Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2177 and Hull No. S452 built by Hyundai Heavy Industries Co., Ltd. And Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. dated as of January 28, 2008 (incorporated herein by reference to Exhibit 4.9 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).August 5, 2008.

4.11

Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2178 and Hull No. S453 built by Hyundai Heavy Industries Co., Ltd. and Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. dated as of March 31, 2008 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. (incorporated herein by reference to Exhibit 99.2 to the Company’s Form 6-K (File No. 1-32591) filed with the SEC on April 4, 2008).

4.12

Vessel Management Agreement for Two 13100 TEU Vessels with Hull No. 2179 and Hull No. S454 built by Hyundai Heavy Industries Co., Ltd. and Hyundai Samho Heavy Industries Co., Ltd. and chartered to COSCO Container Lines Co., Ltd. dated as of March 31, 2008 among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Advisory Services Limited, Seaspan Ship Management Ltd. and Seaspan Crew Management Ltd. (incorporated herein by reference to Exhibit 99.3 to the Company’s Form 6-K (File No. 1-32591) filed with the SEC on April 4, 2008).

4.13

4.10
  Omnibus Agreement by and among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Ship Management Ltd., Seaspan Advisory Services Limited, Norsk Pacific Steamship Company Limited and Seaspan International Ltd. (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

4.14

4.11
  Employment Agreement between Gerry Wang and Seaspan Ship Management Ltd. (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

4.15

4.12
  Amendment No. 1 to Executive Employment Agreement with Gerry Wang, effective as of January 1, 2009, by and between Seaspan Ship Management Ltd. and Gerry Wang (incorporated herein by reference to Exhibit 10.4 to the Company’s Form 6-K (File No. 1-32591) filed with the SEC on February 2, 2009).

4.16

4.13
  Employment Agreement between Graham Porter and Seaspan Advisory Services Limited (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

Exhibit
Number

Description

4.17

4.14
  Form of Indemnification Agreement between Seaspan Corporation and each of Kyle Washington, Gerry Wang, Kevin M. Kennedy, David Korbin, Peter Shaerf, Peter Lorange, Milton K. Wong, Barry R. Pearl, Sai W. Chu, Christa L. Scowby, Ken Low and John Hsu (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-1 (File No. 333-126762), filed with the SEC on July 21, 2005).

4.18

4.15
  Amended and Restated Credit Agreement between Seaspan Corporation and Arranged by Citigroup Global Markets Limited and Fortis Capital, with Citigroup Global Markets Limited, Credit Suisse, Landesbank Hessen-Thüringen, DnB Nor Bank ASA, Fortis Capital Corp. as Mandated Lead Arrangers with Fortis Capital Corp. as Facility Agent, dated as of May 11, 2007 (incorporated herein by reference to Exhibit 1.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on May 23, 2007).

4.19

4.16
  Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000, dated May 19, 2006, among Seaspan Corporation, DnB Nor Bank, ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen- Thüringen as documentation agent (incorporated herein by reference to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on June 12, 2006).

4.20

4.17
  Amendment No. 1 to Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000, dated June 29, 2007, among Seaspan Corporation, DnB Nor Bank, ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen- Thüringen as documentation agent (incorporated herein by reference to Exhibit 99.4 to the Company’s Form 6-K/A (File No. 1-32591), filed with the SEC on October 10, 2007).

Exhibit
Number

Description

4.21

4.18
  Amendment No. 2 to Credit Facility Agreement providing for a Senior Secured Reducing Revolving Credit Facility of up to $365,000,000 dated August 7, 2007 among Seaspan Corporation, DnB Nor Bank, ASA, as Sole Bookrunner, Administrative Agent and Security Agent, Credit Suisse and Fortis Capital Corp., as Mandated Lead Arrangers and Landesbank Hessen- Thüringen as documentation agent (incorporated herein by reference to Exhibit 4.17 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.22

4.19
  U.S. $218,400,000 Credit Facility Agreement, dated October 16, 2006, among Seaspan Corporation, Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Banking Corporation Europe Limited, as Security Trustee and Sumitomo Mitsui Banking Corporation, Brussels Branch as Facility Agent (incorporated herein by reference to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on October 23, 2006).

4.23

4.20
  U.S. $920,000,000 Reducing, Revolving Credit Facility, dated August 8, 2007, among DnB Nor Bank ASA, Credit Suisse, The Export-Import Bank of China, Industrial and Commercial Bank of China Limited and Sumitomo Mitsui Banking Corporation, Brussels Branch (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on August 9, 2007).

4.24

4.21
 ��U.S. $150,000,000 Reducing Revolving Credit Facility Agreement dated December 28, 2007, for Seaspan Finance II Co. Ltd. and Seaspan Finance III Co. Ltd. as borrowers with Seaspan Corporation, as guarantor, arranged by Industrial and Commercial Bank of China Limited with Industrial and Commercial Bank of China Limited as facility Agent (incorporated herein by reference to Exhibit 4.20 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

Exhibit
Number

Description

4.25

4.22
  U.S. $291,200,000 Credit Facility Agreement for Seaspan Corporation as Borrower, arranged by Fortis Bank S.A./N.V., New York Branch and The Export-Import Bank of Korea with Fortis Bank S.A./N.V., New York Branch as Facility Agent and Security Trustee and Fortis Bank S.A./N.V., New York Branch as Swap Agent dated March 17, 2008 (incorporated herein by reference to Exhibit 4.21 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.26

4.23
  U.S. $235,300,000 Credit Facility Agreement dated March 31, 2008 for Seaspan Corporation as borrower, Sumitomo Mitsui Banking Corporation as mandated lead arranger, Sumitomo Banking Corporation, Brussels Branch as original lender, Sumitomo Mitsui Banking Corporation Europe Limited as security trustee, Sumitomo Mitsui Banking Corporation, Brussels Branch as facility agent and Sumitomo Mitsui Banking Corporation, Brussels Branch as agent for the finance parties under the KEIC policies (incorporated herein by reference to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on April 4, 2008).

4.27

4.24
  Lease Agreement in respect of one 4520 TEU Container Carrier to be Built at Samsung Heavy Industries Co., Ltd. with Hull No. 1851 dated December 27, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.22 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.28

4.25
  Lease Agreement in respect of one 4520 TEU Container Carrier to be Built at Samsung Heavy Industries Co., Ltd. with Hull No. 1852 dated December 27, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.23 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.29

4.26
  Lease Agreement in respect of one 4520 TEU Container Carrier to be Built at Samsung Heavy Industries Co., Ltd. with Hull No. 1853 dated December 27, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.24 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

Exhibit
Number

Description

4.30

4.27
  Lease Agreement in respect of one 4520 TEU Container Carrier to be Built at Samsung Heavy Industries Co., Ltd. with Hull No. 1854 dated December 27, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.25 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.31

4.28
  Lease Agreement in respect of one 4520 TEU Container Carrier to be Built at Samsung Heavy Industries Co., Ltd. with Hull No. 1855 dated December 27, 2007, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.26 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.32

4.29
  Amendment Agreement relating to Five Lease Agreements in respect of 4520 TEU Container Carriers to be Built at Samsung Heavy Industries Co., Ltd. with Hull Nos. 1851, 1852, 1853, 1854 and 1855, dated February 4, 2008, among Peony Leasing Limited and Seaspan Finance I Co. Ltd. (incorporated herein by reference to Exhibit 4.27 to the Company’s Form 20-F (File No. 1-32591) filed with the SEC on March 24, 2008).

4.33

4.30
  Form of Securities Indenture (incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form F-3 (File No. 333-137051), filed with the SEC on September 1, 2006).

4.34

4.31
  Seaspan Corporation Change of Control Severance Plan for Employees of Seaspan Ship Management Ltd., effective as of January 1, 2009 (incorporated herein by reference to Exhibit 4.34 to the Company’s Form 20-F (File No. 1-32591), filed with the SEC on March 31, 2009).

8.1  

4.32
  SubsidiariesAmended and Restated Limited Liability Company Agreement of Seaspan CorporationGreater China Intermodal Investments LLC, dated March 14, 2011 (incorporated herein by reference to Exhibit 8.14.1 to the Company’s Form 20-F6-K (File No. 1-32591), filed with the SEC on March 24, 2008)14, 2011).
4.33Right of First Refusal Agreement among Seaspan Corporation, Greater China Intermodal Investments LLC and Blue Water Commerce, LLC, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.2 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.34Right of First Offer Agreement between Seaspan Corporation and Blue Water Commerce, LLC, dated March 14, 2011, previously filed as Exhibit 4.3 to Form 6-K (incorporated herein by reference to Exhibit 4.3 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.35Executive Employment Agreement between Seaspan Corporation and Gerry Wang, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.4 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.36Amended and Restated Executive Employment Agreement between Seaspan Ship Management Ltd. and Gerry Wang, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.5 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.37Transaction Services Agreement between Seaspan Corporation and Gerry Wang, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.6 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.38Financial Services Agreement between Seaspan Corporation and Tiger Ventures Limited, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.7 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).
  4.39Amendment to Omnibus Agreement among Seaspan Corporation, Seaspan Management Services Limited, Seaspan Ship Management Ltd., Seaspan Advisory Services Limited, Norsk Pacific Steamship Company Limited and Seaspan Marine Corporation, dated March 14, 2011 (incorporated herein by reference to Exhibit 4.8 to Form 6-K (File No. 1-32591), filed with the SEC on March 14, 2011).

Exhibit
Number

  

Description

11.1  

  4.40  Code of EthicsGraham Porter Letter Agreement, dated March 14, 2011 (incorporated herein by reference to Exhibit 11.14.9 to the Company’s Form 20-F (File No. 1-32591), filed with the SEC on March 17, 2006).

11.2  

Compensation Committee Annual Report (incorporated herein by reference to the Company’s Form 6-K (File No. 1-32591), filed with the SEC on March 15, 2007)14, 2011).

11.3  

  4.41
  Audit Committee Annual ReportForm of Registration Rights Agreement (incorporated herein by reference to the Company’sExhibit 4.10 to Form 6-K (File No. 1-32591), filed with the SEC on March 15, 2007)14, 2011).

  8.1*

Subsidiaries of Seaspan Corporation.
12.1*

  Rule 13a-14(a)/15d-14(a) Certification of Seaspan’s Chief Executive Officer.

12.2*

  Rule 13a-14(a)/15d-14(a) Certification of Seaspan’s Chief Financial Officer.

13.1*

  Seaspan Corporation Certification of Gerry Wang, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2*

  Seaspan Corporation Certification of Sai W. Chu, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

15.1*

  Consent of KPMG LLP to the incorporation by reference of the consolidated financial statements of the Company for the fiscal year ended December 31, 2009.2010.

 

*Filed herewith.herewith

MANAGEMENT’S STATEMENT OF RESPONSIBILITIES

The management of Seaspan Corporation (the “Company”) is responsible for the preparation of the accompanying consolidated financial statements and the preparation and presentation of information in the Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are considered by management to present fairly the financial position and operating results of the Company.

The Company maintains various systems of internal controls to provide reasonable assurance that transactions are appropriately authorized and recorded, that assets are safeguarded and that financial reports are properly maintained to provide accurate and reliable financial statements.

The Company’s audit committee is comprised entirely of non-management directors and is appointed by the Board of Directors annually. The committee meets periodically with the Company’s management and independent auditors to review the consolidated financial statements and the independent auditors’ report thereon.

The accompanying consolidated financial statements have been reviewed by the audit committee, which has recommended their approval by the Board of Directors. The Company’s independent auditors, KPMG LLP, have examined the consolidated financial statements and their report follows.

/S/ GERRY WANG/S/ SAI W. CHU
Chief Executive OfficerChief Financial Officer

March 4, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Seaspan Corporation

We have audited Seaspan Corporation’s (the “Company”) internal control over financial reporting as of December 31, 2009,2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 section entitled “Management’s Annual Report on Internal Control over Financial Reporting” included in Management’s Discussion and Analysis. 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetssheet of the Company as of December 31, 2009 and 2008,2010, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year periodyear ended December 31, 2009,2010, and our report dated March 4, 201030, 2011 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 4, 201030, 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Seaspan Corporation

We have audited the accompanying consolidated balance sheets of Seaspan Corporation (the “Company”) as of December 31, 20092010 and 20082009 and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-yearthree year period ended December 31, 2009.2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20092010 and 20082009 and the results of its operations and its cash flows for each of the years in the three-yearthree year period ended December 31, 20092010 in conformity with US generally accepted accounting principles.

We also have 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, 2009,2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 4, 201030, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 4, 2010, except for note 15(c), which is as of March 5, 201030, 2011

SEASPAN CORPORATION

Consolidated Balance Sheets

(Expressed in thousands of United States dollars, except number of shares and par value amounts)

December 31, 20092010 and 20082009

 

 

 

  2009 2008   2010 2009 

Assets

      

Current assets:

      

Cash and cash equivalents

  $133,400   $136,285    $34,219   $133,400  

Accounts receivable

   164    172     1,017    164  

Prepaid expenses

   12,489    5,254     11,528    12,489  
              
   146,053    141,711     46,764    146,053  

Vessels (note 4)

   3,485,350    3,126,489     4,210,872    3,485,350  

Deferred charges (note 5)

   21,667    20,306     37,607    21,667  

Other assets (note 6)

   11,377    8,366     81,985    11,377  
              
  $3,664,447   $3,296,872    $4,377,228   $3,664,447  
              

Liabilities and Shareholders’ Equity

      

Current liabilities:

      

Accounts payable and accrued liabilities (note 12(a))

  $20,905   $15,211    $28,394   $20,905  

Deferred revenue

   9,787    8,443     10,696    9,787  

Current portion of other long-term liabilities (Note 8)

   31,281    —    
              
   30,692    23,654     70,371    30,692  

Long-term debt (note 7)

   1,883,146    1,721,158     2,396,771    1,883,146  

Other long-term liabilities (note 8)

   410,598    390,931     512,531    410,598  

Fair value of financial instruments (note 14(c))

   280,445    414,769     407,819    280,445  

Shareholders’ equity:

      

Share capital (note 9):

      

Class A common shares; $0.01 par value; 200,000,000 shares authorized; 67,734,811 shares issued and outstanding (2008—66,800,041)

   

Class B common shares; $0.01 par value; 25,000,000 shares authorized; nil shares issued and outstanding (2008—nil)

   

Class C common shares; $0.01 par value; 100 shares authorized; 100 shares issued and outstanding (2008—100)

   

Preferred shares; $0.01 par value; 65,000,000 shares authorized, of which 315,000 are Series A; 200,000 Series A issued and outstanding (2008—nil); liquidation preference of $214,464 (2008—nil)

   679    668  

Preferred shares; $0.01 par value; 65,000,000 shares authorized

   

Class A common shares; $0.01 par value; 200,000,000 shares authorized; 68,601,240 shares issued and outstanding (2009—67,734,811)

   

Class B common shares; $0.01 par value; 25,000,000 shares authorized; nil shares issued and outstanding (2009—nil)

   

Class C common shares; $0.01 par value; 100 shares authorized; 100 shares issued and outstanding (2009—100)

   691    679  

Additional paid in capital

   1,489,936    1,282,189     1,526,822    1,489,936  

Deficit

   (349,802  (443,081   (469,616  (349,802

Accumulated other comprehensive loss

   (81,247  (93,416   (68,161  (81,247
              
   1,059,566    746,360     989,736    1,059,566  
              
  $3,664,447   $3,296,872    $4,377,228   $3,664,447  
              

Commitments and contingent obligations (note 13)

Subsequent events (note 15)

Approved on behalf of the Board:

/S/ GEORGE H. JUETTEN

Director

/S/ GERRY WANG

Director

See accompanying notes to consolidated financial statements.

SEASPAN CORPORATION

Consolidated Statements of Operations

(Expressed in thousands of United States dollars, except per share amounts)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

  2009 2008 2007   2010 2009 2008 

Revenue

  $285,594   $229,405   $199,235    $407,211   $285,594   $229,405  

Operating expenses:

        

Ship operating (note 3)

   80,162    54,416    46,174     108,098    80,162    54,416  

Depreciation

   69,996    57,448    50,162     99,653    69,996    57,448  

General and administrative

   7,968    8,895    6,006     9,612    7,968    8,895  
                    
   158,126    120,759    102,342     217,363    158,126    120,759  
                    

Operating earnings

   127,468    108,646    96,893     189,848    127,468    108,646  

Other expenses (income):

        

Interest expense

   21,194    33,035    34,062     28,801    21,194    33,035  

Interest income

   (311  (694  (4,074   (60  (311  (694

Undrawn credit facility fees

   4,641    5,251    3,057     4,515    4,641    5,251  

Amortization of deferred charges (note 5)

   2,042    1,825    1,256     3,306    2,042    1,825  

Change in fair value of financial instruments

   (46,450  268,575    72,365     241,033    (46,450  268,575  

Financing fee write-off (note 5)

   —      —      635  

Other expenses (note 8)

   1,100    —      —    

Other expenses

   —      1,100    —    
                    
   (17,784  307,992    107,301     277,595    (17,784  307,992  
                    

Net earnings (loss)

  $145,252   $(199,346 $(10,408  $(87,747 $145,252   $(199,346
                    

Earnings (loss) per shares (note 10):

    

Class A and Class B common share, basic

  $1.94   $(3.12 $(0.20

Class A and Class B common share, diluted

   1.58    (3.12  (0.20

Earnings (loss) per share (note 10(b)):

    

Class A common share, basic

  $(1.70 $1.94   $(3.12

Class A common share, diluted (2009 revised—see note 10(a))

   (1.70  1.75    (3.12

Class C common share, basic and diluted

   —      —      —       —      —      —    
          

Consolidated Statements of Comprehensive Income (Loss)

(Expressed in thousands of United States dollars)

Years ended December 31, 2010, 2009 2008 and 20072008

 

  2009  2008 2007   2010 2009   2008 

Net earnings (loss)

  $145,252  $(199,346 $(10,408  $(87,747 $145,252    $(199,346

Other comprehensive income (loss):

          

Change in fair value of financial instruments designated as cash flow hedging instruments

   —     (40,156  (58,132   —      —       (40,156

Amounts reclassified to earnings (loss) during the period

   12,169   9,084    —    

Amounts reclassified to net earnings (loss) during the period

   13,086    12,169     9,084  
                     

Other comprehensive income (loss)

   12,169   (31,072  (58,132   13,086    12,169     (31,072
                     

Comprehensive income (loss)

  $157,421  $(230,418 $(68,540  $(74,661 $157,421    $(230,418
                     

See accompanying notes to consolidated financial statements.

SEASPAN CORPORATION

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of United States dollars, except number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

  Number of common shares Number of
Preferred
shares
  Common
shares
 Preferred
shares
 Additional
paid-in
capital
  Deficit  Accumulated
other
Comprehensive
income (loss)
  Total
shareholders’
equity
 
  Class A Class B  Class C Series A       

Balance, December 31, 2006

 40,377,250 7,145,000   100  $475 $             $748,410   $(17,658 $(4,212 $727,015  

Class A common shares issued on secondary offering (note 9)

 9,975,000 —     —     100   309,864    —      —      309,964  

Fees and expenses in connection with issuance of common shares

 —   —     —     —     (13,202  —      —      (13,202

Share-based compensation expense (note 11):

          

Restricted class A common shares and phantom share units issued

 44,583 —     —     —     1,340    —      —      1,340  

Net loss

 —   —     —     —     —      (10,408  —      (10,408

Other comprehensive net loss:

          

Change in fair value of financial instruments designated as cash flow hedging instruments

 —   —     —     —     —      —      (58,132  (58,132

Dividends on Class A and B common shares ($1.785 per share)

 —   —     —     —     —      (94,251  —      (94,251
                                

Balance, December 31, 2007

 50,396,833 7,145,000   100   575   1,046,412    (122,317  (62,344  862,326  

Class A common shares issued on public offering (note 9)

 8,713,300 —     —     87   237,350    —      —      237,437  

Shares issued through dividend reinvestment program (note 9)

 440,391 —     —     5   5,836    —      —      5,841  

Fees and expenses in connection with issuance of common shares and dividend reinvestment program

 —   —     —     —     (9,963  —      —      (9,963

Share-based compensation expense (note 11):

          

Restricted class A common shares and phantom share units issued

 104,517 —     —     1   2,554    —      —      2,555  

Conversion of class B common shares to class A common shares at termination of subordination period (note 9)

 7,145,000 (7,145,000 —     —     —      —      —      —    

Net loss

 —   —     —     —     —      (199,346  —      (199,346

Other comprehensive loss

 —   —     —     —     —      —      (31,072  (31,072

Dividends on class A and B common shares ($1.90 per share)

 —   —     —     —     —      (121,418  —      (121,418
                                

Balance, December 31, 2008, carried forward

 66,800,041 —     100   668   1,282,189    (443,081  (93,416  746,360  
                                

  Number of common shares  Number of
preferred shares
  Common
shares
  Preferred
shares
  Additional
paid-in
capital
  Deficit  Accumulated
other

comprehensive
loss
  Total
shareholders’
equity
 
  Class A  Class B  Class C  Series A  Series B       

Balance, December 31, 2007

  50,396,833    7,145,000    100    —      —     $575   $—     $1,046,412   $(122,317 $(62,344 $862,326  

Class A common shares issued on public offering

  8,713,300    —      —      —      —      87    —      237,350    —      —      237,437  

Shares issued through dividend reinvestment program (note 9)

  440,391    —      —      —      —      5    —      5,836    —      —      5,841  

Fees and expenses in connection with issuance of common shares and dividend reinvestment program

  —      —      —      —      —      —      —      (9,963  —      —      (9,963

Share-based compensation expense (note 11):

           

Restricted class A common shares and phantom share units issued

  104,517    —      —      —      —      1    —      2,554    —      —      2,555  

Conversion of class B common shares to class A common shares at termination of subordination period (note 9)

  7,145,000    (7,145,000  —      —      —      —      —      —      —      —      —    

Net loss

  —      —      —      —      —      —      —      —      (199,346  —      (199,346

Other comprehensive loss

  —      —      —      —      —      —      —      —      —      (31,072  (31,072

Dividends on class A and B common shares
($1.90 per share)

  —      —      —      —      —      —      —      —      (121,418  —      (121,418
                                            

Balance, December 31, 2008

  66,800,041    —      100    —       668    —      1,282,189    (443,081  (93,416  746,360  

Series A preferred shares issued

  —      —      —      200,000    —      —      2    199,998    —      —      200,000  

Shares issued through dividend reinvestment program (note 9)

  852,230    —      —      —      —      8    —      7,124    —      —      7,132  

Fees and expenses in connection with issuance of common shares, dividend reinvestment program and preferred shares

  —      —      —      —      —      —      —      (1,558  —      —      (1,558

Share-based compensation expense (note 11):

           

Restricted class A common shares and phantom share units issued

  82,540    —      —      —      —      1    —      2,183    —      —      2,184  

Net earnings

  —      —      —      —      —      —      —      —      145,252    —      145,252  

Other comprehensive income

  —      —      —      —      —      —      —      —      —      12,169    12,169  

Dividends on class A common shares
($0.775 per share)

  —      —      —      —      —      —      —      —      (51,973  —      (51,973
                                            

Balance, December 31, 2009, carried forward

  67,734,811    —      100    200,000    —     $677   $2   $1,489,936   $(349,802 $(81,247 $1,059,566  
                                            

SEASPAN CORPORATION

Consolidated Statements of Shareholders’ Equity — (Continued)

(Expressed in thousands of United States dollars, except number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

  Number of common shares Number of
Preferred
shares
  Common
shares
 Preferred
shares
 Additional
paid-in
capital
  Deficit  Accumulated
other
comprehensive
income (loss)
  Total
shareholders’
equity
 
  Class A Class B Class C Series A       

Balance, December 31, 2008, brought forward

 66,800,041 —   100 —     $668  —   $1,282,189   $(443,081 $(93,416 $746,360  

Series A preferred shares issued

 —   —   —   200,000    —    2  199,998    —      —      200,000  

Shares issued through dividend reinvestment program (note 9)

 852,230 —   —   —         8  —    7,124    —      —      7,132  

Fees and expenses in connection with issuance of common shares, dividend reinvestment program and preferred shares

 —   —   —   —      —    —    (1,558  —      —      (1,558

Share-based compensation expense (note 11):

          

Restricted class A common shares and phantom share units issued

 82,540 —   —   —      1  —    2,183    —      —      2,184  

Net earnings

 —   —   —   —      —    —    —      145,252    —      145,252  

Other comprehensive income

 —   —   —   —      —    —    —      —      12,169    12,169  

Dividends on class A common shares ($0.775 per share)

 —   —   —   —      —    —    —      (51,973  —      (51,973
                               

Balance, December 31, 2009

 67,734,811 —   100 200,000   $677 $2 $1,489,936   $(349,802 $(81,247 $1,059,566  
                               

  Number of common shares  Number of
preferred shares
  Common
shares
  Preferred
shares
  Additional
paid-in
capital
  Deficit  Accumulated
other

comprehensive
loss
  Total
shareholders’
equity
 
  Class A  Class B  Class C  Series A  Series B       

Balance, December 31, 2009, brought forward

  67,734,811    —      100    200,000    —     $677   $2   $1,489,936   $(349,802 $(81,247 $1,059,566  

Series B preferred shares issued

  —      —      —       260,000    —      3    25,997    —      —      26,000  

Fees and expenses in connection with issuance of preferred shares

  —      —      —      —      —      —      —      (104  —      —      (104

Shares issued through dividend reinvestment program
(note 9)

  708,325    —      —      —      —      7    —      7,693    —      —      7,700  

Share-based compensation expense (note 11):

           

Restricted class A common shares and phantom share units issued

  158,104    —      —      —      —      2    —      2,668    —      —      2,670  

Net earnings

  —      —      —      —      —      —      —      —      (87,747  —      (87,747

Other comprehensive income

  —      —      —      —      —      —      —      —      —      13,086    13,086  

Dividends on class A common shares ($0.45 per share)

  —      —      —      —      —      —      —      —      (30,658  —      (30,658

Dividends on Series B preferred shares

  —      —      —      —      —      —      —      632    (1,409  —      (777
                                            

Balance, December 31, 2010

  68,601,240    —      100    200,000    260,000   $686   $5   $1,526,822   $(469,616 $(68,161 $989,736  
                                            

See accompanying notes to consolidated financial statements.

SEASPAN CORPORATION

Consolidated Statements of Cash Flows

(Expressed in thousands of United States dollars)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

  2009 2008 2007   2010 2009 2008 

Cash provided by (used in):

        

Operating activities:

        

Net earnings (loss)

  $145,252   $(199,346 $(10,408  $(87,747 $145,252   $(199,346

Items not involving cash:

        

Depreciation

   69,996    57,448    50,162     99,653    69,996    57,448  

Share-based compensation (note 11)

   2,184    2,555    1,340     2,670    2,184    2,555  

Amortization of deferred charges (note 5)

   2,042    1,825    1,256     3,306    2,042    1,825  

Write-off on debt refinancing (note 5)

   —      —      635  

Amounts reclassified from other comprehensive loss to interest expense

   12,068    2,155    —       12,797    12,068    2,155  

Unrealized change in fair value of financial instruments

   (134,324  253,037    72,365     127,374    (134,324  253,037  

Changes in assets and liabilities:

        

Prepaid expenses and accounts receivable

   (7,227  1,758    (2,756   (4,142  (7,227  1,758  

Other assets and deferred charges

   (3,553  (2,618  (3,975   (8,622  (3,553  (2,618

Accounts payable and accrued liabilities

   5,694    6,695    2,909     7,489    5,694    6,695  

Deferred revenue

   1,344    1,243    1,640     909    1,344    1,243  

Other long-term liabilities (note 8)

   1,100    —      —       (100  1,100    —    
                    

Cash from operating activities

   94,576    124,752    113,168  

Cash provided by operating activities

   153,587    94,576    124,752  
                    

Financing activities:

        

Series A preferred shares issued, net of share issue costs

   198,442    —      —       —      198,442    —    

Common shares issued, net of share issue costs (note 9)

   —      227,474    296,762  

Series B preferred shares issued, net of share issue costs

   25,896    —      —    

Common shares issued, net of share issue costs

   —      —      227,474  

Draws on credit facilities (note 7)

   161,988    764,720    1,025,235     513,625    161,988    764,720  

Other long-term liabilities (note 8)

   —      35,405    53,106     21,250    —      35,405  

Repayment of credit facility

   —      (383,000  (249,000   —      —      (383,000

Financing fees incurred (note 5)

   (3,530  (5,841  (9,409

Financing fees (note 5)

   (7,356  (3,530  (5,841

Dividends on common shares

   (44,841  (115,577  (94,251   (22,958  (44,841  (115,577

Dividends on Series B preferred shares

   (777  —      —    
                    

Cash from financing activities

   312,059    523,181    1,022,443  

Cash provided by financing activities

   529,680    312,059    523,181  
                    

Investing activities:

        

Expenditures for vessels

   (408,557  (626,783  (1,104,469   (715,640  (408,557  (626,783

Cash payments on interest rate swaps

   —      (7,124  —       —      —      (7,124

Restricted cash

   (65,000  —      —    

Intangible assets

   (963  (875  (235   (1,808  (963  (875
                    

Cash used in investing activities

   (409,520  (634,782  (1,104,704   (782,448  (409,520  (634,782
                    

Increase (decrease) in cash and cash equivalents

   (2,885  13,151    30,907     (99,181  (2,885  13,151  

Cash and cash equivalents, beginning of year

   136,285    123,134    92,227     133,400    136,285    123,134  
                    

Cash and cash equivalents, end of year

  $133,400   $136,285   $123,134    $34,219   $133,400   $136,285  
                    

Supplementary information (note 12(b))

See accompanying notes to consolidated financial statements.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

1.General:

Seaspan Corporation (the Company) was incorporated on May 3, 2005 in the Marshall Islands for the purpose of acquiring 10and owns and operates containerships (the Initial Fleet) from 10 existing Republic of Cyprus incorporated wholly owned subsidiaries (collectively, the Predecessor) of Seaspan Container Lines Limited (SCLL) andpursuant to enter into an agreement (the Asset Purchase Agreement)primarily long-term, fixed-rate time charters to acquire 13 additional containerships from 13 other Cyprus incorporated wholly owned subsidiaries of SCLL (all 13 subsidiaries collectively referred to as VesselCos) on completion of their construction, which completion was scheduled to occur between 2005 - 2007 (all 23 containerships collectively referred to as the Contracted Fleet). Subsequent to the completion of the initial public offering (IPO), Seaspan Corporation has also entered into agreements to acquire other containerships. The primary activity of Seaspan Corporation is the ownership and operation of the containerships which are engaged in the deep-seamajor container transportation business.

During the year ended December 31, 2007, Seaspan Corporation incorporated Seaspan Finance I Co. Ltd., Seaspan Finance II Co. Ltd., and Seaspan Finance III Co. Ltd., for the purpose of entering into financing lease and credit facility agreements in connection with the construction of certain containerships. These entities are fully consolidated in the financial statements as at and for the years ended December 31, 2009 and 2008. During the year ended December 31, 2009, Seaspan Corporation incorporated Seaspan (Asia) Corporation for the purpose of entering into lease financing in connection with the construction of certain containerships. This entity is fully consolidated in the financial statements as at and for the year ended December 31, 2009. In these consolidated financial statements, the Company refers to Seaspan Corporation and its wholly owned subsidiaries.liner companies.

 

2.Summary of significant accounting policies:

 

 (a)Basis of presentation:

This summary of significant accounting policies is presented to assist in understanding the consolidated financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) and have been consistently applied in the preparation of the consolidated financial statements.

 

 (b)Principles of consolidation:

The accompanying consolidated financial statements include the accounts of Seaspan Corporation and all of its majority owned subsidiaries, (collectively,which are wholly-owned. The Company’s subsidiaries were formed to secure financing for the Company). Company. As of December 31, 2010, the following subsidiaries, which are directly or indirectly wholly-owned, are counterparties to financing:

Seaspan Finance I Co. Ltd.

Seaspan Containership 2181 Ltd.

Seaspan Containership 2180 Ltd.

The Company also consolidates any variable interest entities (VIEs) of which it is the primary beneficiary. Effective January 1, 2010, as required by revised guidance issued by the Financial Accounting Standards Board, the Company changed the way it evaluates whether it is the primary beneficiary as defined. of, and therefore consolidates, a VIE. The primary beneficiary, under the revised guidance, is the enterprise that has both the power to make decisions that most significantly affect the economic performance of the VIE and has the right to receive benefits or the obligation to absorb losses that in either case could potentially be significant to the VIE. No changes were required to be made to the Company’s financial position, financial performance, or cash flows upon adoption of the revised guidance. The impact of the consolidation of these VIEs is described in note 8.

All significant intercompany balances and transactions have been eliminated inupon consolidation.

 

 (c)Foreign currency translation:Cash equivalents:

The functional and reporting currencyCash equivalents include highly liquid securities with terms to maturity of three months or less when acquired.

(d)Vessels:

Except as described below, vessels are recorded at their cost, which consists of the Company is the United States dollar. Transactions incurred in other currencies are translated into United States dollars using the exchange rate at the time of the transaction. Monetary assetspurchase price, acquisition and liabilities as of the financial reporting date are translated into United States dollars using exchange rates at that date. Exchange gains and losses are included in net earnings.

delivery costs.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

(d)Cash equivalents:

Cash equivalents include highly liquid securities with terms to maturity of three months or less when acquired.

 

(e)Vessels:

Vessels purchased onfrom the predecessor upon completion of the IPO are carriedCompany’s initial public offering were initially recorded at the historicalpredecessor’s carrying value of the Predecessor which includes capitalized interest during construction and other construction, design, supervision and pre-delivery costs.

Vessels purchased pursuant to the Asset Purchase Agreement are recorded at their cost to the Company, reflecting the predetermined purchase price in the agreement.

Vessels acquired in the secondhand market are recorded at their cost to the Company which consists of the purchase price, acquisition and delivery costs.value.

Vessels under construction include deposits, installment payments, interest, financing costs, construction design, supervision costs, and other pre-delivery costs incurred during the construction period.

Depreciation is provided on a straight-line basis over the estimated useful life of each vessel, which is 30 years from the date of initial completion. The Company calculates depreciation based on the remaining useful life and the expected salvage value of the vessel.

Vessels are evaluated for impairment when events or circumstances indicate that their carrying values may not be recovered from future undiscounted cash flows. Such evaluations include comparison of current and anticipated operating cash flows, assessment of future operations and other relevant factors. When the carrying value of the vessels exceeds the undiscounted estimated future cash flows, the vessels would be written down to their fair value.

 

 (e)Dry-dock activities:

Classification rules require that vessels be dry-docked for inspection including planned major maintenance and overhaul activities for ongoing certification. The Company generally dry-docks its vessels once every five years. Dry-docking activities include the inspection, refurbishment and replacement of steel, engine components, electrical, pipes and valves, and other parts of the vessel. The Company has adopted the deferral method of accounting for dry-dock activities whereby costs incurred are deferred and amortized on a straight-line basis over the period until the next scheduled dry-dock activity.

(f)Intangible assets:

For certain vessels where the Company provides lubricants for the operation of such vessels, the Company has a contractual right to have the vessel returned with the same level and complement of lubricants upon termination of the management agreement. This contractual right is recorded as an intangible asset and included in other assets at the historical fair value of the lubricants at the time of delivery. Intangible assets are tested for impairment annually or more frequently due to events or changes in circumstances that indicate the asset might be impaired. An impairment loss is recognized when the carrying amount of the intangible asset exceeds its fair value.

 

 (g)Deferred financing fees:

Deferred financing fees represent the unamortized costs incurred on issuance of the Company’s credit and lease facilities. Amortization of deferred financing fees on leases is provided on the effective interest rate method over the term of the underlying obligation. Amortization of deferred financing fees on credit facilities is provided on a straight-line basis over the term of the facility based on amounts available under the facilities.

(h)Income taxes:

The Company is not subject to taxes on income in any jurisdiction where the Company operates. As a result, no provision for income taxes is recorded in the Company’s consolidated financial statements.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

(h)Income taxes:

There are no taxes on income in the jurisdiction in which the Company is incorporated. The Company is not subject to taxes on income in any other jurisdiction where the Company operates.

The owner of the vessel is responsible for all taxes, fees or other levies charged by countries other than Hong Kong on vessels due to having cargo on board. Under charter party agreements, this responsibility has been assumed by the charterer. Taxes, fees or levies charged by Hong Kong are included in technical services, as part of the Management Agreements (note 3). Any such taxes paid by the Company, as a result of the charterer’s failure to pay, will be recognized when the Company’s obligation is determinable.

 

 (i)Revenue recognition:

Revenue from charter hire services is recognized as services are renderedeach day the vessel is on-hire and when collection is reasonably assured. Any expected losses on shipping contracts are provided for as they become known. Cash received in excess of earned revenue is recorded as deferred revenue.

 

 (j)Derivative financial instruments:

The Company’s hedging policies permit the use of various derivative financial instruments to manage interest rate risk. InterestThe Company has entered into interest rate swapswaps and a swaption agreements have been entered into to reduce the Company’s exposure to market risks from changing interest rates. rates on its credit and lease facilities.

All derivative instrumentsof the Company’s derivatives are measured to their fair value at the end of each period. For derivatives not designated as accounting hedges, changes in their fair value are recorded on the balance sheet at their respective fair values. in earnings.

The Company recognizes thehad previously designated certain of its interest rate swapswaps as accounting hedges and swaption agreementsapplied hedge accounting to those instruments. While hedge accounting was applied, the effective portion of the unrealized gains or losses on the balance sheet at their fair value.those designated interest rate swaps was recorded in other comprehensive income.

OnBy September 30, 2008, the Company had de-designated all of its interest rate swaps as accounting hedges its derivatives to which hedge accounting was applied (note 14(c)).hedges. Subsequent to this date, alltheir de-designation dates, changes in their fair value of the Company’s derivative instruments are recorded in earnings.

IfThe Company evaluates whether the Company electsoccurrence of any of the previously hedged interest payments are considered to apply hedge accounting, to qualify for hedge accounting, derivatives must be highly effective at reducingremote. When the riskpreviously hedged interest payments are not considered remote of occurring, unrealized gains or losses in accumulated other comprehensive income associated with the exposure being hedged and must be formallypreviously designated as a hedge at the inception of the hedging relationship. The Company considers a hedge to be highly effective if the change in fair value of the derivative hedging instrument is within 80% to 125% of the opposite change in the fair value of the hedged item attributable to the hedged risk. For interest rate swap agreements that are formally designated as cash flow hedges, the changes in the fair value of these interest rate swaps are recordedrecognized in other comprehensive income and are reclassified to earnings when and where the hedged transaction is reflected in earnings. Ineffective portions of the hedgesinterest payments are recognized in earnings as they occur.

During the life of the hedge, the Company formally assesses whether each derivative designated as a hedging instrument continues to be highly effective in offsetting changes in the fair value or cash flows of hedged items.recognized. If it is determined that a hedge has ceased to be highly effective, the Company will discontinue hedge accounting prospectively.

If the Company de-designates a hedging relationship and discontinues hedge accounting, the Company evaluates the future settlements to determine whether there are any hedgedsuch interest rate payments that are improbable to occur. When such amounts are identified as being improbable,remote, the accumulated other

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

comprehensive income balance pertaining to these amounts is reversed through earnings immediately. When amounts are not identified as improbable, any balances recorded in accumulated other comprehensive income at the de-designation are recognized in earnings when and where the interest payments will be recognized.

 

 (k)Fair value measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:

 

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

 

Level 2—Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

 (l)Share-based compensation:

Share-based compensation awards may include options,The Company has granted restricted shares and phantom sharesshare units to officers and other share-based awards.directors as compensation. Compensation cost of the Company’s share-based compensation awards is measured at

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

their grant date fair values, based on the quoted market price of the Company’s Class A common shares, and recognized straight-line over the requisite service period.

 

 (m)Earnings per share:

The Company has multiple classes of common shares with different participation rights and applies the two-class method to compute basic earnings per share (EPS). Diluted EPS reflects

The treasury stock method is used to compute the dilutive effect of the Company’s share-based compensation awards for which future serviceawards. Under this method, the incremental number of shares used in computing diluted EPS is required as a conditionthe difference between the number of shares assumed issued and purchased using assumed proceeds.

The if-converted method is used to compute the dilutive effect of the Company’s Series A preferred shares. Under this method, dividends applicable to the deliverySeries A preferred shares are added back to income attributable to common shareholders and the Series A preferred shares and paid-in kind dividends are assumed to have been converted at the share price applicable at the end of the underlying common shares, as well asperiod. The if-converted method is applied to the conversioncomputation of preferred shares.diluted EPS only if the effect is dilutive.

 

 (n)Dry-dock activities:

Classification rules require that vessels be dry-docked for inspection including planned major maintenance and overhaul activities for ongoing certification. The Company dry-docks its vessels once

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

every five years. Dry-docking costs include planned major maintenance and overhaul activities for ongoing certification including the inspection, refurbishment and replacement of steel, engine components, electrical, pipes and valves, and other parts of the vessel. The Company has adopted the deferral method of accounting for dry-dock activities whereby costs incurred are deferred and amortized on a straight line basis over the period until the next scheduled dry-dock activity.

(o)Use of estimates:

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reporting fiscal periods. Areas where accounting judgments and estimates are significant to the Company include the assessment of the vessel lives and the recoverability of the carrying value of vessels which are subject to future market events and the fair value of interest rate derivative financial instruments. Actual results could differ from those estimates.

 

(p)Recent accounting pronouncements:

In June 2009, the FASB issued guidance on the consolidation of variable interest entities that the Company will apply prospectively effective January 1, 2010. The new guidance will change the evaluation of when a variable interest entity should be consolidated and requires additional disclosures about a reporting entity’s involvement in variable interest entities. The Company is currently evaluating the impact of this new guidance.

3.Related party transactions:

The ultimate beneficial owners of Seaspan Management Services Limited (the Manager) also directly and indirectly own common shares, or common shares and preferred shares, of the Company. The Manager and its subsidiaries also hashave certain officers and directors in common with the Company.

The Management Agreement wasCompany has entered into on August 8, 2005 between the Company andManagement Agreements with the Manager for the provision of certain technical, strategic and administrative services for fees. In connection with entering into the agreement to provide the Company with strategic services, the Company issued 100 incentive shares to the Manager (note 9).

Under the Management Agreement, the Manager provides services to the Company for fees which are fixed through December 31, 2011 and thereafter will be subject to renegotiation every three years as follows:fees:

 

Technical Services—The Manager is responsible for providing ship operating expensesservices to the Company in exchange for a fixed fee per day per vessel as described below. The technical services fee does not include certain extraordinary items, as defined in the Management Agreements.

 

Administrative and Strategic Services—The Manager provides administrative and strategic services to the Company for the management of the business for a fixed fee of $72,000 per year. The Company will also reimburse all reasonable expenses incurred by the Manager in providing these services to the Company. In connection with entering into the agreement to provide the Company with strategic services, the Company issued 100 incentive shares to the Manager (note 9).

On May 4, 2007,

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

The following are technical service fees under the Management Agreement (the AmendedAgreements:

Vessel Class

(TEU)          

  

Number of

    Vessels    

   

Weighted-average
Technical Services Fee

(in whole amounts,

    per vessel per day)    

 

2500

   10    $5,132  

3500

   2     5,242  

4250

   24     5,465  

4500

   1     6,916  

4800

   4     7,848  

5100

   4     6,482  

8500

   10     7,268  

9600

   2     7,406  

13100

   7     8,455  

The Company incurred the following costs under the Management Agreement) was amended and restatedAgreements:

For the year ended December 31,

  2010   2009   2008 

Costs incurred under the Management Agreements

      

Technical services

  $108,046    $81,844    $54,623  

Dry-dock activities included in technical services

   4,673     3,575     2,945  

Administrative and strategic services

   72     72     72  

Reimbursed expenses

   3,087     2,458     2,242  

Construction supervision

   1,864     3,106     1,714  

Costs incurred with the Manager and parties related thereto

      

Consulting services

   192     240     40  

Arrangement fee

   1,500     —       —    

4.Vessels:

December 31, 2010

  Cost   Accumulated
depreciation
   Net book
value
 

Vessels

  $3,502,655    $310,921    $3,191,734  

Vessels under construction

   1,019,138     —       1,019,138  
               
  $4,521,793    $310,921    $4,210,872  
               

December 31, 2009

  Cost   Accumulated
depreciation
   Net book
value
 

Vessels

  $2,300,246    $211,557    $2,088,689  

Vessels under construction

   1,396,661     —       1,396,661  
               
  $3,696,907    $211,557    $3,485,350  
               

During the year, the Company capitalized interest costs of $27,871,000 (December 31, 2009—$30,995,880; 2008—$50,052,000) to include the second hand vessels chartered to A.P. Møller Mærsk A/S (the Mærsk vessels). Under the original Management Agreement, the Manager provides technical, administrative and strategic services

under construction.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

(the Services) to the Company for the 23 vessels that made up the Company’s contracted fleet at the time of the IPO (the IPO vessels). These Services will continue to be provided to the Company under the Amended Management Agreement for the IPO vessels, Mærsk vessels, and any other new build or second hand vessel that the Company may, with the prior approval of the Manager, add to the Amended Management Agreement.

Under the Amended Management Agreement, for vessels other than the IPO vessels, the Company will fund at its own expense pre-delivery purchases and services to ensure the seaworthiness and readiness for service and will pay all fees associated with the classification society or registration of the vessel under the relevant flag.

On September 28, 2007, January 28, 2008 and March 31, 2008, the Company entered into separate Management Agreements with the Manager to provide technical services for the vessels that it has acquired to date other than those in its initial contracted fleet or the Mærsk Vessels. Under these Management Agreements, the Company pays to the Manager an initial technical services fee for the management of those vessels once the relevant vessel is delivered.

The initial technical service fee under each of the Management Agreements was fixed through December 31, 2008. During 2008, the Company negotiated the Adjusted Technical Services Fee for the period commencing January 1, 2009 as summarized below. These fees are fixed through December 31, 2011, and thereafter will be subject to renegotiation every three years:

 

Date of Management Agreement

  

Vessels subject to Management Agreement

 Adjusted Technical
Services Fee
(in whole amounts,
per vessel per day)
 Initial Technical
Services Fee
(in whole amounts,
per vessel per day)

May 4, 2007

(Amended Management Agreement)

  

•   23 IPO vessels constructed by Samsung Heavy Industries Co., Ltd., or SHI

  
    
  

- Five 4250 TEU

 $5,526 $4,500
  

- 14 4250 TEU

  5,423  4,500
  

- Two 8500 TEU

  6,699  6,000
  

- Two 9600 TEU

  7,406  6,500
  

•   Four 4800 TEU Mærsk vessels constructed by Odense - Lindo Shipyard Ltd.

  7,848  5,750

May 18, 2007

(2500/3500 Management Agreement)

  

•   Two 3500 TEU vessels constructed by Zhejiang Shipbuilding Co. Ltd.

  5,242  4,200
    
  

•   Eight of the ten 2500 TEU vessels constructed by Jiangsu Yangzijiang Shipbuilding Co., Ltd., or Jiangsu

  5,118  4,000
5.Deferred charges:

   Dry-docking  Financing
fees
  Total 

December 31, 2008

   1,816   $18,490    20,306  

Cost incurred

   1,505    3,530    5,035  

Amortization expensed

   (558  (1,484  (2,042

Amortization capitalized

   —      (1,632  (1,632
             

December 31, 2009

   2,763    18,904    21,667  

Cost incurred

   4,822    16,107    20,929  

Amortization expensed

   (1,373  (1,933  (3,306

Amortization capitalized

   —      (1,683  (1,683
             

December 31, 2010

  $6,212   $31,395   $37,607  
             

6.Other assets:

   2010   2009 

Prepaid expenses

  $9,282    $7,989  

Intangible assets

   5,196     3,388  

Restricted cash(a)

   60,000     —    

Restricted cash(b)

   5,000     —    

Other

   2,507     —    
          

Other assets

  $81,985    $11,377  
          

(a)$60 million has been placed in a deposit account over which the Lessor (note 8) has a first priority interest.

(b)In connection with entering into the lease financing arrangement described in note 8, five million is held in escrow until the vessel delivery, to fund any vessel construction cost overruns.

7.Long-term debt:

   2010   2009 

Long-term debt:

    

$1.3 billion revolving credit facility

  $1,032,745    $1,032,745  

$365.0 million revolving credit facility

   323,566     128,566  

$218.4 million credit facility

   217,661     189,168  

$920.0 million revolving credit facility

   718,723     495,926  

$150.0 million revolving credit facility

   —       —    

$291.2 million credit facility

   —       —    

$235.3 million credit facility

   104,076     36,741  
          

Long-term debt

  $2,396,771    $1,883,146  
          

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

Date of Management Agreement

  

Vessels subject to
Management Agreement

  Adjusted Technical
Services Fee
(in whole amounts,
per vessel per day)
  Initial Technical
Services Fee
(in whole amounts,
per vessel per day)

May 18, 2007

(5100 Management Agreement)

  

•   Four 5100 TEU vessels being constructed by Hyundai Heavy Industries Co., Ltd., or HHI

  6,482  4,800
      

September 28, 2007

(2500/4250/8500
Management Agreement)

  

•   Two 2500 TEU vessels being constructed by Jiangsu

  5,187  4,200
      
  

•   Four 4250 TEU vessels being constructed by Jiangsu New Yangzi Shipbuilding Co., Ltd., or New Jiangsu

  5,411  4,725
  

•   Eight 8500 TEU vessels being constructed by HHI

  7,410  6,000

January 28, 2008

(13100 Management Agreement, Hull no. 2177 and Hull no. S452)

  

•   Two 13100 TEU vessels that will be constructed by HHI and Hyundai Samho Heavy Industries Co., Ltd., or HSHI

  8,336  6,750
      

March 31, 2008

  

•   Two 13100 TEU vessels that will be constructed by HHI and HSHI

  8,336  6,750
(13100 Management Agreement, Hull no. S453 and Hull no. 2178)      

March 31, 2008

  

•   Two 13100 TEU vessels that will be constructed by HHI and HSHI.

  8,336  6,750
(13100 Management Agreement, Hull no. S454 and Hull no. 2179)      

The Company incurred the following costs under the Management Agreements:

   2009  2008  2007

For the year ended December 31:

      

Technical services

  $81,844,000  $54,623,400  $47,956,500

Dry-dock activities included in technical services

   3,575,000   2,945,000   2,566,000

Administrative and strategic services

   72,000   72,000   72,000

Reimbursed expenses

   2,458,000   2,242,000   1,526,000

Construction supervision (under fixed fee arrangements of $250,000 to $350,000 per vessel)

   3,106,000   1,714,000   nil

Consulting services incurred with the Manager and parties related thereto

   240,000   40,000   nil

As of December 31, 2009, amounts due to the Manager totaled $1,235,000 (2008 — $1,799,000).

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

4.Vessels:

December 31, 2009

  Cost  Accumulated
depreciation
  Net book
value

Vessels

  $2,300,246  $211,557  $2,088,689

Vessels under construction

   1,396,661   —     1,396,661
            
  $3,696,907  $211,557  $3,485,350
            

December 31, 2008

  Cost  Accumulated
depreciation
  Net book
value

Vessels

  $1,839,715  $141,662  $1,698,053

Vessels under construction

   1,428,436   —     1,428,436
            
  $3,268,151  $141,662  $3,126,489
            

During the year, the Company capitalized interest costs of $30,995,880 (December 31, 2008—$50,052,000; 2007—$19,030,000) to vessels under construction.

5.Deferred charges:

   Dry-docking  Financing
fees
  Total 

December 31, 2007

  $2,126   $15,114   $17,240  

Cost incurred

   217    5,841    6,058  

Amortization expensed

   (527  (1,298  (1,825

Amortization capitalized

   —      (1,167  (1,167
             

December 31, 2008

   1,816    18,490    20,306  

Cost incurred

   1,505    3,530    5,035  

Amortization expensed

   (558  (1,484  (2,042

Amortization capitalized

   —      (1,632  (1,632
             

December 31, 2009

  $2,763   $18,904   $21,667  
             

During the year ended December 31, 2007, the Company refinanced the $1.0 billion credit facility, as described in note 7. As a result, $635,000 of previously deferred costs incurred in connection with the $1.0 billion credit facility were expensed.

6.Other assets:

   2009  2008

Prepaid expenses

  $7,989  $5,941

Intangible assets

   3,388   2,425
        

Other assets

  $11,377  $8,366
        

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

7.Long-term debt:

   2009  2008

Long-term debt (operating vessels):

    

$1.3 billion revolving credit facility

  $567,461  $608,118

$218.4 million credit facility

   163,061   —  

$365.0 million revolving credit facility

   128,566   95,717

$920.0 million revolving credit facility

   77,706   —  
        

Long-term debt (operating vessels)

  $936,794  $703,835
        

Long-term debt (vessels under construction):

    

$1.3 billion revolving credit facility

  $465,284  $424,627

$920.0 million revolving credit facility

   418,220   450,753

$218.4 million credit facility

   26,107   110,916

$235.3 million credit facility

   36,741   —  

$365.0 million revolving credit facility

   —     31,027

$291.2 million credit facility

   —     —  

$150.0 million revolving credit facility

   —     —  
        

Long-term debt (vessels under construction)

  $946,352  $1,017,323
        

Long-term debt

  $1,883,146  $1,721,158
        

 

 (a)$1.3 billion revolving credit facility:

On May 11, 2007,August 8, 2005, the Company amended and restated its $1.0 billion credit facility dated August 8, 2005. The amended and restated credit agreement isentered into a senior secured $1.3 billion single-tranche senior secured seven-year revolving credit facility (the $1.3 billion revolving credit facility). which was later amended and restated on May 11, 2007.

Borrowings under this facility may be used to financefund vessel acquisitions, to refinance vessels already acquired by the Company and for general corporate purposes. During 2008, the Company exercised its option to extend theThe maturity date by twelve months toof this facility is May 11, 2015.

The Company’s obligations under the $1.3 billion revolving credit facility are secured by the following, among others:

 

First and second priority mortgages on the 23 vessels inof the Company’s initial contracted fleet as well as the four Mærsk vessels; and

 

First-priority assignment of earnings related to the above noted vessels, including time charter revenues, and a first-priority assignment of any insurance proceeds.

Until August 11, 2012, the Company is able to borrow up to $1.3 billion without providing additional collateral provided that the total outstanding balance remains below 70% of the market value of the vessels that are collateralized. Under these restrictions, as of December 31, 2009,2010, the Company is unable to borrow the additionalremaining $267 million under the facility. This restriction does not impact the repayment terms under the facility. In certain circumstances and for a certain period of time, even if the Company’s loan to value ratio exceeds 70%, the Company can borrow under the facility to purchase additional vessels so long as the loan to value ratio does not exceed 80% (the Overadvance Loan). The vessels purchased will then become additional security under the facility.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

Beginning on August 11, 2012, the maximum facility amount will be reduced by $32.5 million per quarter until May 11, 2014. The maximum facility amount will then be reduced by $65.0 million per quarter until its maturity date, when the outstanding loan balance will be due and payable.

Interest is calculated at a rate of one month, two month, three month, or six month LIBOR plus 0.7% per annum, depending on the interest period selected by the Company. In the case of the Overadvance Loan, the interest rate is LIBOR plus 1.0% per annum, depending on the interest period selected by the Company. The weighted average rate of interest including the margin is 0.93%0.96% at December 31, 2009 (2.54%2010 (0.93% at December 31, 2008)2009).

The Company is subject to a commitment fee of 0.2625% per annum calculated on the undrawn amounts under the facility.

The Company may prepay all amounts outstanding without penalty, other than breakage costs in certain circumstances. The Company is required to prepay a portion of the outstanding loans under certain circumstances, including the sale or loss of a vessel where the ratio of the loan to market value of the remaining collateral vessels exceeds a certain percentage. Amounts prepaid in accordance with these provisions may be reborrowed, subject to certain conditions.

The $1.3 billion revolving credit facility contains certain financial covenants including but not limited to covenants requiring the Company to maintain a minimum tangible net worth, and interest and principal coverage ratios.

 

 (b)$365.0 million revolving credit facility:

On May 19, 2006, the Company entered into a $365.0 million senior secured revolving credit facility agreement (the $365.0 million revolving credit facility) with certain lenders.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

The $365.0 million revolving credit facility is divided into two Tranches:

 

 (i)Tranche A, in the maximum amount of $82.0$70.8 million ($74.8 million at December 31, 2009; $78.4 million at December 31, 2008)2009). The Company is using this tranche of the facility for general corporate purposes.

Beginning in March 2008, the amount available under Tranche A began to reduce semiannually by amounts ranging from 2.2% to 3.5% of the total amounts available until the maturity date, at which time Tranche A will terminate. A final payment of approximately 47% of the total amounts available is required upon maturity of the tranche on July 5, 2017. No amounts have been drawn on Tranche A.

 

 (ii)Tranche B, in the maximum amount of $283.0 million.$271.0 million ($283.0 million at December 31, 2009)

Tranche B was used to partially fund the purchase of eight 2500 TEU vessels constructed by Jiangsu in China.vessels. Since the collateral vessels have all been delivered, the Company is using this tranche of the facility for general corporate purposes.

Beginning in March 2010, the principal amount borrowed under Tranche B will be reducedbegan to reduce semiannually by amounts ranging from 2.1% to 3.3% of the total amounts available until the maturity date at which time Tranche B will terminate. A final payment of approximately 49% of the total amounts available is required upon maturity of the tranche on August 31, 2019.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

Interest is calculated as one month, two month, three month, or six month LIBOR plus 0.850% per annum, depending on the interest period selected by the Company, up to the sixth anniversary of the delivery date of the last delivered vessel in each Tranche and LIBOR plus 0.925% per annum thereafter. The weighted average rate of interest including the margin is 1.39%1.34% at December 31, 2009 (2.28%2010 (1.39% at December 31, 2008)2009).

The Company is subject to a commitment fee of 0.3% per annum calculated on the undrawn amounts under the facility.

We may prepay all loans at any time without penalty, other than breakage costs in certain circumstances. Amounts that have been prepaid, may be reborrowed. We are required to prepay a portion of the outstanding loans under certain circumstances, including the sale or loss of a vessel if we do not substitute another vessel.

 

 (c)$218.4 million credit facility:

On October 16, 2006, the Company entered into a secured $218.4 million credit facility for $218.4 millionagreement (the $218.4 million credit facility).

The proceeds of thisthe $218.4 million credit facility are beingwas used to partially financefund the construction of the four 5100 TEU vessels being constructed by HHI.vessels.

Interest is calculated as one month, two month, three month, or six month LIBOR plus 0.6% per annum, depending on the interest period selected by the Company. The weighted average rate of interest including the margin is 0.83%1.06% at December 31, 2009 (2.03%2010 (0.83% at December 31, 2008)2009).

The Company is subject to a commitment fee of 0.3% per annum calculated on the undrawn amounts under the facility.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

Beginning in June 2013, the principal amount borrowed under the facility will be reduced in eighteen semi-annual payments by amounts ranging from 2.7% to 3.3% of the total amounts available until the maturity date. A final repayment of approximately 45% of the amount borrowed is due on the maturity date on December 23, 2021.

The Company may prepay all amounts outstanding without penalty, other than breakage costs in certain circumstances. The Company will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel where the Company elects not to substitute another vessel.

 

 (d)$920.0 million revolving credit facility:

On August 8, 2007, the Company entered into a secured reducing revolving $920.0 million credit facility agreement (the $920.0 million revolving credit facility).

The proceeds of this facility may be used by the Company to partially financefund the construction of two of the Company’s 2500 TEU vessels, being constructed by Jiangsu, four of the Company’s 4250 TEU vessels, being constructed by New Jiangsu, and the Company’s eight 8500 TEU vessels being constructed by HHI.vessels. After delivery of the vessels, the Company may use this facility for general corporate purposes.

The Company may borrow up to the lesser of $920.0 million and 65% of the vessel delivered costs (as defined in the credit agreement) provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1,250,000 per vessel. The facility will be proportionately reduced to the extent that not all vessels are delivered to the Company by June 30, 2011.

Interest is calculated as one month, two month, three month, or six month LIBOR plus 0.5% per annum, depending on the interest period selected by the Company. The weighted average rate of interest including the margin is 0.76%0.79% at December 31, 2009 (2.68%2010 (0.76% at December 31, 2008)2009). The $920.0 million revolving credit facility also requires payment of a commitment fee of 0.2% per annum calculated on the undrawn amounts under the facility. Prior to delivery of a vessel, interest and commitment fees associated with the loans for a vessel may be added to the outstanding loan balance.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

Commencing on the earlier of 36 months after the delivery date of the last vessel and June 30, 2014, the facility will be reduced by eighteen consecutive semiannualsemi-annual reductions in the amounts and on the dates set out in a schedule to the credit agreement, and on each such date the Company must prepay the amount of the outstanding loan that exceeds the amount of the reduced facility. The outstanding loans under the facility must be paid in full by the maturity date.

The maturity date for the $920.0 million revolving credit facility is the earlier of the twelfth anniversary of the delivery date of the last collateral vessel delivered and December 31, 2022.

The Company may prepay all amounts outstanding without penalty, other than breakage costs in certain circumstances. Amounts prepaid voluntarily may be re-borrowed up to the amount of the facility, subject to the required reductions in the $920.0 million revolving credit facility. The Company will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where the Company elects not to substitute another vessel within the time period and on the terms set out in the credit agreement. The Company may also remove a vessel from the facility upon prepayment of the relevant portion of the

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

outstanding loans and substitute another vessel within the time period prescribed and on the terms set out in the $920.0 million revolving credit facility. Amounts prepaid in the circumstance of a sale, loss or removal of a vessel or cancellation of a shipbuilding contract may only be re-borrowed in certain limited circumstances.

 

 (e)$150.0 million revolving credit facility:

On December 28, 2007, the Company entered into a secured reducing revolving $150.0 million credit facility (the $150.0 million revolving credit facility).

The proceeds of this facility are beingwill be used by the Company to financefund the construction of two of the Company’s 13100 TEU vessels, one of which will be built by HHI and the other by HSHI.vessels.

Under this facility, the Company may borrow up to the lesser of $150.0 million and 65% of the vessel delivered costs (as defined in the agreement) provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $2,500,000 per vessel. The facility will be proportionately reduced to the extent that not all vessels are delivered to the Company by November 27, 2012.

Interest is calculated as one month, two month, three month, or six month LIBOR plus 0.8% per annum, depending on the interest period selected by the Company. As no amounts were outstanding under the facility at December 31, 2009,2010, the weighted average rate of interest including the margin is nil at December 31, 20092010 (nil at December 31, 2008)2009). The Company is subject to a commitment fee of 0.2% per annum calculated on the undrawn amounts under the facility.

Commencing on the earlier of six months after the delivery date of the last vessel and October 27, 2012, the facility will reduce by eighteen consecutive semi-annual reductions in the amounts and on the dates set out in a schedule to the credit agreement, and on each such date the Company must prepay the amount of the outstanding loan that exceeds the amount of the reduced facility. TheAny outstanding loans under the facility must be paid in full by the maturity date.

The maturity date for the $150.0 million revolving credit facility is the earlier of the twelfth anniversary of the delivery date of the last vessel delivered and October 17, 2023.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

The Company may prepay all loans without penalty, other than breakage costs in certain circumstances. Amounts prepaid voluntarily may be re-borrowed up to the amount of the facility, subject to the required reductions in the facility. The Company will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where the Company elects not to substitute another vessel within the time period and on the terms set out in the credit agreement. The Company may also remove a vessel from the facility upon prepayment of the relevant portion of the outstanding loans and substitute another vessel within the time period prescribed and on the terms set out in the $150.0 million revolving credit facility. Amounts prepaid in the circumstance of a sale, loss or removal of a Vessel or cancellation of a shipbuilding contract may only be re-borrowed in certain limited circumstances.

 

 (f)$291.2 million credit facility:

On March 17, 2008, the Company entered into a secured $291.2 million credit facility agreement (the $291.2 million credit facility). The proceeds of this facility will be used by the Company to partially financefund the construction of two of the Company’s 13100 TEU vessels.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

Under the $291.2 million credit agreement,facility, the Company may borrow up to the lesser of $291.2 million and 80% of the vessel delivered costs provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1,000,000 per vessel.

The facility has a term loan component of $232,960,000, which is divided into two tranches, and a revolving loan component of $58,240,000. One of the tranches of the term loan portion is guaranteed by the Export-Import Bank of Korea (KEXIM).

The Company can draw the term loans for a specified period of time following the scheduled delivery date of each vessel. After delivery of these vessels, the Company may use the revolving loan for general corporate purposes.

The maturity date for the revolving loan is the earlier of the twelfth anniversary of the delivery date of the last vessel and December 31, 2023 and the maturity date for the term loans is the earlier of the twelfth anniversary of the delivery date of the vessels to which those term loans relate and December 31, 2023.

Interest on the outstanding term loan tranches is calculated as the commercial interest reference rate of KEXIM plus 0.65% per annum for the first tranche and LIBOR plus 0.35% for the second tranche. Interest on the outstanding revolving loan is calculated as one month, two month, three month, or six month LIBOR plus 0.85% per annum, depending on the interest period selected by the Company. As the Company had no amounts drawn under the facility at December 31, 2009,2010, the weighted average rate of interest including the margin is nil at December 31, 20092010 (December 31, 2008 - 2009—nil). The Company is subject to a commitment fee of 0.30% per annum on the undrawn amounts under the facility.

The Company may prepay the term loans on a repayment date without penalty, other than breakage costs and opportunity costs in certain circumstances. The Company may prepay the revolving loan on the last day of any interest period except that the Company is not permitted to prepay a certain portion of the revolving loan during the pre-delivery period. Amounts of the revolving loan that are prepaid

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

voluntarily may be re-borrowed up to the amount of the revolving loan. The Company will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel, the cancellation of a shipbuilding contract or if the guarantee provided by KEXIM ceases to be valid for certain reasons and KEXIM determines that there has been or could be a material adverse effect on the Company’s ability to perform its payment obligations. The Company may also remove a vessel from the facility upon prepayment of the relevant portion of the outstanding loans.

 

 (g)$235.3 million credit facility:

On March 31, 2008, the Company entered into a secured $235.3 million credit facility agreement (the $235.3 million credit facility). The proceeds of this facility will beare being used by the Company to partially financefund the construction of two of the Company’s 13100 TEU vessels.

Under the $235.3 million credit facility, the Company may borrow up to the lesser of $235.3 million and 65% of the vessel delivered costs provided that amounts borrowed in respect of vessel delivered costs that are not covered by the amount of the refund guarantees for the vessels may not exceed $1,500,000 per vessel, except that it may be increased to $2,500,000 per vessel with the consent of the

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

��

lender. The financing will be made available in two loans (the vessel loans). Each vessel loan has a maximum principal amount equal to the lesser of (i) $117,650,000, (ii) 65% of the vessel delivered costs relating to each vessel.

The Company can draw up to the maximum available loan for a specified period of time from the date of the signing of the agreement to the earlier of the delivery date of the 2nd vessel, the date following 210 days after the scheduled delivery date of the 2nd vessel, and February 6, 2012.

The facility is partly insured for both political and economic risks by the Korea Export Insurance Corporation (KEIC). For each vessel loan, KEIC will insure during the pre-delivery period the sum of the KEIC insurance premium plus 56% of the installments paid to the shipyards (the KEIC covered portion). The amount insured will not exceed $94.0 million per vessel on delivery and will reduce progressively down to zero at maturity during the post-delivery period.

The KEIC premium is, for each vessel, the KEIC covered portion multiplied by the KEIC Insurance Premium Rate divided by the difference between 1 minus the Insurance Premium Rate of 1.52%.

The Company must repay the loans over twenty-four semi-annual repayment dates. The first repayment date will be six months after the delivery date of the last vessel to be delivered.

The maturity date for the credit facility is the earlier of the twelfth anniversary of the delivery date of the last delivered vessel and February 6, 2024.

The $235.3 million credit facility requires payment of interest on the outstanding loan at a rate calculated as (i) in respect of the uncovered portion, 1% per annum plus one month, two month, three month, or six month LIBOR, depending on the interest period selected by the Company, and (ii) in respect of the KEIC covered portion, 0.7% per annum plus LIBOR. The weighted average rate of interest including the margin is 0.96%1.00% at December 31, 2009 (nil2010 (0.96% at December 31, 2008 as no amounts had been drawn under the facility)2009). The Company is subject to a commitment fee of 0.35% per annum calculated on the undrawn amounts under the facility.

(g)$235.3 million credit facility (continued):

The Company may prepay the loan in whole or from time to time in part on the last day of any period on which interest payable on a loan or an overdue amount is calculated. The Company may prepay all

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

loans without penalty, other than breakage costs in certain circumstances. No amounts prepaid under the credit agreement may be re-borrowed. The Company will be required to prepay a portion of the outstanding loans in certain circumstances, including the sale or loss of a vessel or the cancellation of a shipbuilding contract where the Company elects not to substitute another vessel within the time period and on the terms set out in the credit agreement or if the KEIC insurance policies (the “KEIC Insurance”) cease to be valid or enforceable in any material respect other than in certain circumstances.

A prepayment must be in a minimum amount of $5,000,000 and then in increments of $1,000,000. No amounts prepaid may be re-borrowed. The Company may also cancel the unutilized amount of the facility in whole or in part. Partial cancellation must be in a minimum amount of $5,000,000 and then in increments of $2,500,000.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

 

 (h)General:

The security for each of the Company’s credit facilities, except for the $1.3 billion revolving credit facility, which is described in note 7(a), includes:

 

A first priority mortgage on the collateral vessels funded by the related credit facility;

 

An assignment of the Company’s time charters and earnings related to the related collateral vessels;

 

An assignment of the insurance on each of the vessels that are subject to a related mortgage;

 

An assignment of the Company’s related shipbuilding contracts; and

 

A pledge of the related retention accounts.

Under each of our credit facilities, in certain circumstances a prepayment may be required as a result of certain events such as a termination or expiration of a charter (and the inability to enter into a charter suitable to lenders within a period of time) or termination of a shipbuilding contract. The amount that must be prepaid may be calculated based on the loan to market value ratio or some other ratio that takes into account the market value of the relevant vessels. In these circumstances, valuations of our vessels are conducted on a “without charter” basis as required under the relevant credit facility agreement.agreement

Each credit facility contains financial covenants requiring the Company to maintain minimum tangible net worth, interest coverage ratios, interest and principal coverage ratios, and debt to assets ratios, as defined. The Company is in compliance with these covenants.

 

 (i)Minimum repayments:

As at December 31, 2009,2010, minimum repayments for the balances outstanding with respect to the credit facilities are as follows:

 

2010

  $5,452

2011

   5,815  $16,069  

2012

   58,656   71,128  

2013

   121,893   138,054  

2014

   223,971   251,501  

2015

   770,922  

Thereafter

   1,467,359   1,149,097  
       
  $1,883,146  $2,396,771  
       

The minimum repayments above are determined based on amounts outstanding at year end, pro-rated to reflect commitment reduction schedules for each related facility as if they were fully drawn. Actual repayments may differ from the amounts presented as repayment timing is impacted by the balance outstanding at each commitment reduction date.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

Minimum repayments are determined based on amounts outstanding at year end, pro-rated to reflect commitment reduction schedules for each related facility. Actual repayments may differ from the amounts presented as repayment timing is impacted by the balance outstanding at each commitment reduction date.

 

8.Other long-term liabilities:

 

   December 31,
2009
  December 31,
2008

Other long-term liability

  $409,498  $390,931

Accrual for additional payments to shipyards (note 13)

   1,100   —  
        

Other long-term liabilities

  $410,598  $390,931
        
   December 31,
2010
  December 31,
2009
 

Other long-term liabilities(a)

  $542,812   $409,498  

Accrued liabilities(b)

   1,000    1,100  
         

Other long-term liabilities

  $543,812   $410,598  

Current portion

   (31,281  —    
         
  $512,531   $410,598  
         

On November 29, 2007 and December 3, 2007,

(a)Other long-term liabilities:

The Company, through certain of its wholly-owned consolidated subsidiaries, has entered into non-recourse or limited recourse sale-leaseback arrangements with financial institutions to fund the construction of certain vessels under existing shipbuilding contracts.

In these arrangements, the Company has agreed to purchase five 4500 TEUtransfer the vessels that will be built by SHI. The contractual purchase price is $82,811,000 per vessel. Theto the lessors and, commencing from the delivery of the vessels are scheduled to be delivered between September 2010 and July 2011. On December 27, 2007,from the Company entered into agreements to novateshipyard, lease the vessel back from the lessor over the applicable lease term. In the arrangements where the shipbuilding contracts are novated to an unrelated special purpose entity (the SPE). On delivery, Seaspan Finance I Co. Ltd. (Finance I) will lease the five 4500 TEU vessels fromlessors, the SPE over a term of five years. Underlessors assume responsibility for the lease, Finance I will be required to make leaseremaining payments totaling 20% ofunder the costshipbuilding contracts.

The leases in these arrangements are capital leases in the consolidated financial statements and, during the construction period, the lessees are the owners of the vessels overunder construction for accounting purposes.

In each of the five-yeararrangements, the lessors are wholly-owned subsidiaries of financial institutions that are VIEs and whose only assets and operations are to hold the Company’s leases and vessels. The Company, through the Management Agreements (note 2), operates the vessels during the lease term and supervises the vessels’ construction before the lease term begins. As a result, the Company is the primary beneficiary of the lessors and consolidates the lessors for financial reporting purposes. No gain or loss is recognized upon initial consolidation of the lessors. The liabilities of the lessor are loans due to the associated financial institutions and are non-recourse to the Company. The amounts funded to the lessors materially match the funding received by the Company’s subsidiaries. As a result, the amounts due by the Company’s subsidiaries to the lessors have been included in Other Long-term Liabilities as representing the lessor’s loans due to the applicable financial institutions.

The terms and atof the leases are as follows:

(i)Leases for five 4500 TEU vessels

The terms of the leases are five years beginning from each vessel’s delivery dates.

At the end of each lease term, the Companyremaining balances ranging from $64 million to $66 million will be required to pay to the SPE the remaining 80% of the cost of the vessels.due. At the end of the lease term, Finance Ithe lessee will also be appointed sales agent by the lessor to sell the vessels; the Companylessee will receive 99.9% of the proceeds from the sale of each vessel and can choose to purchase the vessels.

The SPE is considered a variable interest entity under GAAP. AlthoughIn October 2010, the Company has an interest of approximately 50% of the assets of the SPE, the Company is not considered to be the primary beneficiary and as a result does not consolidate the SPE. The Company’s exposure to the entity is limited to the five 4500 TEU vessels.

Under GAAP, the Company is deemed to be the accounting ownerterms of these vessels under construction duringfive leases were amended such that the construction period. As a result, the Company will continue to recognize the valueamount of the vessels and the liability related to the lease commitment in the financial statements during the construction period and over the subsequent lease period. Finance I’s obligations under the lease that are guaranteed by Seaspan Corporation was reduced to a lower fixed amount, plus amounts for any adjustments to the Company.

Theoutstanding balance underfrom time to time due to changes in certain tax and related assumptions used to compute the leases will be based on the estimated costs of the vessels funded by the SPE. Estimated payments under the leases will be due as follows:

2010

  $400

2011

   28,593

2012

   45,252

2013

   45,252

2014

   45,252

Thereafter

   380,780
    
  $545,529
    
lease payments.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

Also in October 2010, the Company’s five leases were transferred from one wholly-owned subsidiary lessor of the financial institution to another wholly-owned subsidiary lessor of the same financial institution. The new lessor’s only assets and activities are to hold the Company’s leases. The Company’s leases comprised only a portion of the previous lessor’s assets and activities.

The Company has placed $60 million in a cash deposit account over which the lessor has a first priority interest.

As of December 31, 2010, the carrying value of the vessels being funded under this facility is $440,208,000 (2009—$409,991,000).

(ii)Lease for one 13100 TEU vessel

The term of the lease is 12 years beginning from the vessel’s delivery date. The lessor will provide financing in an amount equal to the lower of $150 million or 80% of the vessel cost. Lease payments include an interest component based on three month LIBOR plus a 2.6% margin. At the end of the lease term the outstanding balance of up to $45 million will be due and title of the vessel will transfer to the lessee.

As of December 31, 2010, the carrying value of the vessel being funded under this facility is $108,988,000 (2009—$51,737,000).

(iii)Lease for one 13100 TEU vessel

The term of the lease is 12 years beginning from the vessel’s delivery date. The lessor will provide financing in an amount equal to the lower of $150 million or 80% of the delivery valuation amount. Lease payments include an interest component based on three month LIBOR plus a 3.0% margin. The outstanding balance of the lease at the end of the lease term will be zero and the lessee will have the option to purchase the vessel from the lessor for $1.

As of December 31, 2010, the carrying value of the vessel being funded under this facility is $69,072,000 (2009—$51,737,000).

Based on maximum amounts funded, payments under the leases would be due to the lessors as follows:

2011

  $33,409  

2012

   68,787  

2013

   72,793  

2014

   73,068  

2015

   203,468  

Thereafter

   484,837  
     

Less amounts representing:

  

Interest

   (189,097

Amounts yet to be funded, limited as described above

   (204,453
     
  $542,812  
     

(b)Accrued Liabilities:

In connection with the deferral of 11 vessel deliveries, the Company will pay an additional amount of $1,333,333 or $1,875,000 per vessel, depending on the size of the vessel, at the deferred delivery date

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

for a total aggregate amount of $19,000,000. The $1,100,000 (representing $100,000 for each of the 11 vessels) would have been due to the shipyards in connection with the deferral options had they not been exercised and is considered to represent the cost of entering into the delivery deferral options. Since one of the 11 vessels delivered during the year, the remaining balance is $1,000,000 as at December 31, 2010.

 

9.Share capital:

On November 1, 2008, the 7,145,000 class B common shares were converted to class A common shares. Class B common shares were subordinated to the class A common shares during the period from the completion of the IPO to any quarter after September 30, 2008 where (i) the

(a)Common Shares

The Company paid quarterly dividends of an amount at least equal to $0.425 per share on both class A and class B common shares for the immediately preceding four-quarter fiscal period and (ii) the cash generated from operations available to pay the dividends during such four-quarter fiscal period equaled, on a quarterly basis, was at least $0.425 per share on all of the Company’s common shares calculated on a fully diluted basis during that fiscal period (the Subordination Fiscal period).

The class C common shares are incentive shares that are entitled to share in incremental dividends, based on specified sharing ratios, once dividends on the Company’s class A common shares and class B common shares reach certain specified targets, beginning with the first target of $0.485 per share per quarter, and when the Company has an operating surplus sufficient to pay such a dividend. The class C common shares are not convertible to class A common shares. At December 31, 2009, the incentive shares do not have rights to incremental dividends.

On April 24, 2007, the Company completed an equity offering and issued 5,000,000 common shares at $29.45 per share. On April 30, 2007, an additional 475,000 common shares were issued to the underwriters as part of the over-allotment option granted to them by the Company. The net proceeds of $154,361,000 from this offering were used to fund vessel acquisitions.

On August 17, 2007, the Company completed an equity offering and issued 4,500,000 common shares at $33.05 per share. The net proceeds of $142,401,000 from this offering were used to repay indebtedness under the $1.3 billion revolving credit facility.

On April 16, 2008, the Company completed an equity offering and issued 7,000,000 common shares at a price of $27.25 per share. Certain of the Company’s executive officers and members of the board of directors, certain affiliates of the Manager and certain of their executive officers and an immediate family member of the Chairman of the Board purchased 663,300 common shares directly from the Company at the public offering price concurrently with the closing of this equity offering. On May 5, 2008, an additional 1,050,000 common shares were issued to the underwriters as part of the over-allotment option granted to them by the Company. Net proceeds from the underwritten public offering, including the over-allotment, after underwriting discounts but before offering expenses, and from the concurrent sale were $228,663,000 were used to repay indebtedness under the $1.3 billion revolving credit facility.

During the year ended December 31, 2008, the Company adopted a dividend reinvestment program (DRIP). The program that allows interested shareholders to reinvest all or a portion of cash dividends received inon the Company’s common shares. If new common shares are issued by the Company, the reinvestment price is equal to the average price of the Company’s common shares for the five days immediately prior to the reinvestment, less a discount. The discount rate is set by the Board of Directors and is currently 3%. If common shares are purchased in the open market, the reinvestment price is equal to the average price per share paid. During

The class C common shares are incentive shares that were issued to the year endedManager for strategic services that are entitled to share in incremental dividends, based on specified sharing ratios, once dividends on the Company’s class A common shares reach certain specified targets, beginning with the first target of $0.485 per share per quarter, and when the Company has an operating surplus sufficient to pay such a dividend. The class C common shares are not convertible to class A common shares. At December 31, 2009, an additional 852,2302010, the incentive shares were issued throughdo not have rights to incremental dividends.

(b)Preferred Shares

The Company had the DRIP (December 31, 2008—440,391), representing a non-cash distribution of $7,132,000 (December 31, 2008—$5,841,000).following preferred shares outstanding:

During the year ended December 31, 2009, the Company sold 12% cumulative convertible

            Liquidation preference 
    Shares   December 31,
2010
   December 31,
2009
 

Series

  authorized   issued     

A

   315,000     200,000    $241,382    $214,464  

B

   260,000     260,000     26,000     —    

The Series A preferred stock (the Series A preferred shares) to the Company’s chairman andshares accrue a group of other investors

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except12% non-cash cumulative dividend per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

(the Investors) for $200 million. The first tranche of 100,000 shares for $100 million was issued on January 30, 2009 and the second tranche of 100,000 shares for $100 million was issued on October 1, 2009. The 12% cumulative dividends are non-cash and accrueannum until January 31, 2014.2014, which may increase to 15% per annum thereafter as described below.

The Series A preferred shares automatically convert to Classclass A common shares at a price of $15.00 per share (the Exercise Price) at any time on or after January 31, 2014 if the trailing 30 day average trading price of the common shares is equal to or above the Exercise Price.

If at any time on or after January 31, 2014, the trailing average price of the common shares is less than the Exercise Price, the Company has the option to convert the Series A preferred shares at the Exercise Price and pay the Investors 115% of the difference between the Exercise Price and the trailing 30 day average price of the common shares. The Company has the option to pay the difference in common shares or in cash.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 and 2008

Upon certain triggering events, such as a liquidation, change of control, or merger, amongst others, the investors have the option to convert, in whole or in part, their Series A preferred shares to common shares at the Exercise Price. Depending on the nature of the triggering event, the liquidation preference of the Series A preferred shares will convert at the Exercise Price, or the liquidation preference will convert at the lower of (i) the Exercise PricePrice; or (ii) the price at which the Series A preferred shares are valued in the transaction giving rise to the triggering event.

If the Series A preferred shares have not converted into common shares on or after January 31, 2014, the dividend rate will increase to 15% per annum. The Investors have the option to have the dividend paid in cash or to continue to increase the liquidation valuepreference of the Series A preferred shares by 15% per annum.

The Series B preferred shares were issued for cash and pay cumulative quarterly dividends in cash at a rate of 5% per annum from their issuance date of May 27, 2010 to June 30, 2012, 8% per annum from July 1, 2012 to June 30, 2013 and 10% per annum thereafter. The Series B preferred shares are redeemable at any time at the option of the Company at an amount equal to the liquidation preference plus unpaid dividends. The Series B preferred shares are not convertible into common shares and are not redeemable at the option of the holder.

 

10.Earnings per share:

As there were no dividend arrearages for the class A common shares, and the class B common shares have received the same level of dividends as the class A common shares,

(a)Revision of 2009 diluted earnings per share

Diluted earnings per share (EPS) of class A and class B common shares havefor the year ended December 31, 2009 has been presented as one class for purposesrevised primarily, to correctly record the impact of the two-classconvertible Series A preferred shares on the denominator for only the period they were outstanding during the year. Diluted earnings per share method. On November 1, 2008,for the class B common shares convertedyear ended December 31, 2009 has been revised by an immaterial amount from $1.58 per share (as previously reported) to class A common shares and are no longer a separate class of common shares.$1.75 per share.

(b)Earnings per share computation

To the extent that EPS for class A and class B common shares exceed the first target dividend level of $0.485 per share per quarter, and there is sufficient operating surplus as defined in the Company’s Articles of Incorporation, undistributed earnings would be allocated to class C common shares for the purpose of calculating EPS under the two-class method. Otherwise, class C common shares would not participate in earnings. To date, class C common shares have not participated in earnings. Although the EPS for class A and class B common shares have exceeded the first target dividend level of $0.485 per share per quarter for certain quarters there has not been adequate operating surplus for class C shares to participate in earnings.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

The Company applies the if-converted method to determine the EPS impact for the convertible Series A preferred shares. The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS computations for class Acomputations.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and class B common shares.number of shares)

Years ended December 31, 2010, 2009 and 2008

 

For the year ended

December 31, 2009

  Income
(numerator)
  Shares
(denominator)
  Per share
amount
 

Net earnings

  $145,252     

Less: Series A preferred share dividends

   (14,464   
        

Basic EPS:

     

Income from continuing operations attributable to common shareholders

  $130,788   67,340  $1.94  

Effect of dilutive securities:

     

Convertible Series A preferred shares

   14,464   24,638  

Share-based compensation

   —     37  
            

Diluted EPS:

     

Income attributable to common shareholders plus assumed conversion

  $145,252   92,015  $1.58  
            

For the year ended

December 31, 2008

  Income
(numerator)
  Shares
(denominator)
  Per share
amount
 

Net loss

  $(199,346 63,801  
            

Basic and diluted EPS

     $(3.12
        

For the year ended

December 31, 2007

  Income
(numerator)
  Shares
(denominator)
  Per share
amount
 

Net loss

  $(10,408 53,008  
            

Basic and diluted EPS

     $(0.20
        

For the year ended December 31, 2010

  Income
(numerator)
  Shares
(denominator)
   Per share
amount
 

Net loss

  $(87,747   

Less:

     

Series A preferred share dividends

   (26,918   

Series B preferred share dividends

   (1,409   
              

Basic and diluted EPS (1):

     

Loss from continuing operations attributable to common shareholders

  $(116,074  68,195    $(1.70
              

(1)The convertible Series A preferred shares and share-based payments are not included in the computation of diluted EPS because their effects are anti-dilutive for the period.

For the year ended December 31, 2009

  Income
(numerator)
  Shares
(denominator)
   Per share
amount
 

Net earnings

  $145,252     

Less: Series A preferred share dividends

   (14,464   
        

Basic EPS:

     

Income from continuing operations attributable to common shareholders

  $130,788    67,340    $1.94  

Effect of dilutive securities:

     

Convertible Series A preferred shares
(revised – note 10(a))

   14,464    15,803    

Share-based payments

   —      23    
              

Diluted EPS:

     

Income attributable to common shareholders plus assumed conversion (revised – note (10(a))

  $145,252    83,166    $1.75  
              

For the year ended December 31, 2008

  Income
(numerator)
  Shares
(denominator)
   Per share
amount
 

Net loss

  $(199,346  63,801    
              

Basic and diluted EPS (2)

     $(3.12
        

(2)

The share-based payments are not included in the computation of diluted EPS because their effects are anti-dilutive for the period.

 

11.Share-based compensation:

In December 2005, the Company’s boardBoard of directorsDirectors adopted the Seaspan Corporation Stock Incentive Plan (the Plan), under which our officers, employees and directors may be granted options, restricted shares, phantom shares, and other stock-based awards as may be determined by the Company’s boardBoard of directors.Directors. A total of 1,000,0002,000,000 shares of common stock were(2009 – 1,000,000) are reserved for issuance under the Plan, which is administered by the Company’s boardBoard of directors.Directors. The Plan expires ten years from the date of its adoption.

Upon vesting of restricted shares and phantom share units, class A common shares are issued in exchange for their cancellation. The restricted shares generally vest over one year and the phantom share units generally vest over three years.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

Class A common shares are issued in exchange for the cancellation of vested restricted shares and phantom share units. The restricted shares generally vest over one year and the phantom share units generally vest over three years.

A summary of the Company’s outstanding restricted shares and phantom share units as of December 31, 20092010 and for the year then ended is presented below:

Share-based compensation awards

   Restricted shares   Phantom share units 
   Number of
shares
  W.A. grant
date FV
   Number
of shares
  W.A. grant
date FV
 

December 31, 2007

   —     $—       216,333   $24.27  

Granted

   21,350    24.82     —      —    

Vested

   (21,350  24.82     —      —    

Exchanged for common shares

   —      —       (83,167  24.02  
                  

December 31, 2008

   —      —       133,166    24.42  

Granted

   44,374    10.66     177,000    7.75  

Vested

   —      —       —      —    

Exchanged for common shares

   —      —       (38,166  23.35  
                  

December 31, 2009

   44,374    10.66     272,000    13.72  

Granted

   53,104    10.00     177,000    10.22  

Vested

   (51,574  10.51     —      —    

Exchanged for common shares

   —      —       (105,000  16.01  
                  

December 31, 2010

   45,904   $10.06     344,000   $11.22  
                  

As vested outstanding phantom share units are summarized as follows:only exchanged for common shares upon written notice from the holder, the phantom share units that are exchanged for common shares may include units that vested in prior periods. At December 31, 2010, 49,000 (2009—45,000) of the outstanding phantom share units were vested and available for exchange by the holder.

   Restricted shares  Phantom share units
   Number of
shares
  Weighted
average grant
date FV
  Number of
shares
  Weighted
average grant
date FV

December 31, 2006

  14,500   $22.40  99,500   $22.40

Granted

  21,083    24.43  150,000    25.10

Vested

  (25,916  24.43  (33,167  22.40

Cancelled

  (9,667  22.40  —      —  
              

December 31, 2007

  —     $—    216,333   $24.27

Granted

  21,350    24.82  —      —  

Vested

  (21,350  24.82  (83,167  24.02
              

December 31, 2008

  —     $—    133,166   $24.42

Granted

  44,374    10.66  177,000    7.75

Vested

  —      —    (38,166  23.35
              

December 31, 2009

  44,374   $10.66  272,000   $13.72
              

During 2009,2010, the Company recognized a total of $2,185,000 (2008—$2,670,000 (2009—$2,555,000; 2007—2,185,000; 2008—$1,340,000)2,555,000) in share-based compensation expenses. During 2009,2010, the total fair value of shares vested was $357,000 (2008—$542,000 (2009—$1,446,000; 2007—357,000; 2008—$1,435,000)1,446,000). As at December 31, 2009,2010, there was $1,994,000$1,663,000 of total unrecognized compensation costs relating to unvested share-based compensation awards, which are expected to be recognized over a 24 month period.weighted average period of 18 months.

 

12.Other information:

 

 (a)Accounts payable and accrued liabilities:

The principal components of accounts payable and accrued liabilities are:

 

   2009  2008

Due to related parties (note 3)

  $1,235  $1,799

Accrued interest

   11,793   8,348

Other accrued liabilities

   7,877   5,064
        
  $20,905  $15,211
        

   2010   2009 

Due to related parties (note 3)

  $1,450    $1,235  

Accrued interest

   14,205     11,793  

Other accrued liabilities

   12,739     7,877  
          
  $28,394    $20,905  
          

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

 

 (b)Supplementary information to the statement of cash flows consists of:

 

  2009  2008  2007  2010   2009   2008 

Interest paid on debt

  $9,807  $26,963  $34,038  $11,881    $9,807    $26,963  

Interest received

   290   711   4,099   60     290     711  

Undrawn credit facility fee paid

   2,400   3,088   1,473   2,311     2,400     3,088  

Non-cash transactions:

            

Dividends on Series A preferred shares

   14,464   —     —     26,918     14,464     —    

Dividend reinvestment

   7,132   5,841   —     7,700     7,132     5,841  

Increase in other long-term liability for vessels under construction

   18,567   131,722   170,698

Other long-term liabilities for vessels
under construction

   107,214     18,567     131,722  

 

13.Commitments and contingent obligations:

 

 (a)As of December 31, 2009,2010, based on the contractual delivery dates, the Company has outstanding commitments for the purchase of additional vessels and instalmentinstallment payments for vessels under construction, including payments to be made on the Company’s behalf as described in note 8, as follows:

 

2010

  $669,756

2011

   702,797  $ 636,700  

2012

   338,068   338,068  
       
  $1,710,621  $974,768  
       

The Company entered into agreements with shipyards whereby it had options to defer the delivery date for 11 of the vessels that have been contracted for construction. The deferrals range from 2 months to 15 months from the dates that were contracted under the original agreements. The options were exercised in July 2009 and the shipbuilding contracts and time charters have been amended to reflect the deferred delivery dates. As a result of exercising these options, the Company will pay an additional amount of $1,333,333 or $1,875,000 per vessel, depending on the size of the vessel, at the deferred delivery date for a total aggregate amount of $19,000,000 for all 11 vessels. During the year ended December 31, 2009, the Company accrued $1,100,000 as additional payments to the shipyards. The $1,100,000 (representing $100,000 for each of the 11 options) would have been due to the shipyards in connection with the options had they not been exercised and is considered to represent the cost of entering into the delivery deferral options (note 8).

(b)As of December 31, 2009, based on 100% utilization, the minimum future revenues to be received on committed time charter party agreements are approximately:

The Company also amended shipbuilding contracts with two of its shipyards to delay the delivery of five additional vessels that were not subject to option agreements. The shipbuilding contracts and time charters for these five vessels have been amended to allow for the new delivery dates.

2011

  $561,958  

2012

   654,972  

2013

   647,568  

2014

   643,467  

2015

   626,313  

Thereafter

   3,330,387  
     
  $6,464,665  
     

(c)Under the Management Agreements, the Manager provides services to the Company for fixed fees. Based on the contractual delivery dates of the vessels under construction and the negotiated rates in the Management Agreements and for the vessels to be delivered but are not yet subject to management agreements, the fixed payments to the Manager for technical services, construction supervision services, and administrative and strategic services are as follows:

2011

  $138,587  

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

(b)As at December 31, 2009, based on 100% utilization, the minimum future revenues to be received on committed time charter party agreements are approximately:

2010

  $405,546

2011

   547,346

2012

   643,680

2013

   643,669

2014

   642,605

Thereafter

   3,961,640
    
  $6,844,486
    

(c)Under the Management Agreements, the Manager provides services to the Company for fees which are fixed. During 2008, the Company negotiated the Adjusted Technical Services Fee for the period commencing January 1, 2009 and ending on December 31, 2011 (the Period) for the vessels that are subject to the Management Agreements and the initial technical services fee for the vessels to be delivered but are not yet subject to management agreements. Based on the contractual delivery dates of the vessels under construction and the negotiated rates, the fixed payments to the Manager for technical services, construction supervision services, and administrative and strategic services for the Period are as follows:

2010

  $108,185

2011

   136,083
    
  $244,268
    

 

14.Financial instruments:

 

 (a)Concentrations:

The Company’s revenue is derived from the following customers:

 

  2009  2008  2007  2010   2009   2008 

CSCL Asia

  $154,286  $122,549  $102,886  $158,016    $154,286    $122,549  

COSCON

   69,502     13,868     13,871  

HL USA

   59,099   59,283   54,963   58,432     59,099     59,283  

MOL

   41,963     11,865     —    

APM

   34,066   33,702   32,738   33,857     34,066     33,702  

Other

   38,143   13,871   8,648   45,441     12,410     —    
                     
  $285,594  $229,405  $199,235  $407,211    $285,594    $229,405  
                     

 

 (b)Fair value:

The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values because of their short term to maturity. As of December 31, 2009,2010, the fair value of the Company’s long-term debt is equal to $1,715,316,000$2,043,859,000 (December 31, 2008—2009—$1,581,774,000)1,715,316,000). The fair value of long-term debt is estimated based on expected interest and principal repayments, discounted by the forward rates plus a margin.

SEASPAN CORPORATION

Notesmargin appropriate to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousandsthe credit risk of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

the Company.

The Company’s derivative financial instruments which are required to be measured at fair value on a recurring basis. The fair value of the interest rate derivative financial instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore,remeasured to fair value at the Company has categorized these derivative financial instruments as Level 2.end of each reporting period. The fair values of the interest rate derivative financial instruments have been calculated by discounting the future cash flow of both the fixed rate and variable rate interest rate payments. The discount rate was derived from a yield curve created by nationally recognized financial institutions adjusted for the associated credit risk. See note 14 (c) for further information onThe fair values of the Company’s interest rate derivative financial instruments.instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the fair value of these derivative financial instruments as Level 2 in the fair value hierarchy.

 

 (c)Interest rate derivative financial instruments:

The Company uses derivative financial instruments, consisting of interest rate swap agreementsswaps and an interest rate swaption, to manage its exposureinterest rate risk associated with its variable rate debt. Prior to movements2008, the Company applied hedge accounting to certain of its interest rate swaps. In 2008, the Company voluntarily de-designated all such interest rate swaps as accounting hedges such that the Company no longer applies hedge accounting. The amounts in accumulated other comprehensive loss related to the interest rates.rate swaps to which hedge accounting was previously applied will be recognized in earnings when and where the related interest is recognized in earnings.

Counterparties to the derivative financial instruments are major financial institutions. Due to the nature of the counterparties and the fact that all instruments were in favour of counterparties at December 31, 2009,2010, the risk of credit loss related to these counterparties is considered to be immaterial at December 31, 2009.2010.

On

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2007,2010, 2009 and 2008

As of December 31, 2010, the Company had certainthe following outstanding interest rate swaps designated as hedging instruments for accounting purposes. During 2008, all of these interest rate swaps were de-designated. The relevant interest rate swap information and de-designation dates are as follows:derivatives:

 

Fixed per
annum rate
swapped
for LIBOR
  Notional
amount
as at
December 31,
2009
  Maximum
notional
amount(1)
  Effective date  Ending date Date of
prospective
de-designation
  Notional
amount as of
December 31,
2010
 Maximum
notional
amount(1)
 Effective date Ending date 
5.6400% $714,500   $714,500    August 31, 2007    August 31, 2017(3) 
4.6325%  $663,399  $663,399  September 15, 2005  July 16, 2012   September 30, 2008    663,399    663,399    September 15, 2005    July 16, 2012(2) 
5.6400%   535,623   714,500  August 31, 2007  August 31, 2017   January 31, 2008(3) 
5.2500%   200,000   200,000  September 29, 2006  June 23, 2010   September 30, 2008  
5.4200%  314,154    438,462    September 6, 2007    May 31, 2024  
5.6000%  200,000    200,000    June 23, 2010    December 23,  2021(2) 
5.0275%  111,000    158,000    May 31, 2007    September 30, 2015  
5.5950%  106,800    106,800    August 28, 2009    August 28, 2020  
5.2600%   106,800   106,800  July 3, 2006  February 26, 2021 (2)  September 30, 2008    106,800    106,800    July 3, 2006    February 26,  2021(4) (2) 
5.2000%  96,000    96,000    December 18, 2006    October 2, 2015  
5.5150%   59,700   59,700  February 28, 2007  July 31, 2012   September 30, 2008    59,700    59,700    February 28, 2007    July 31, 2012(2) 
5.6000%   —     200,000  June 23, 2010  December 23, 2021   September 30, 2008  
5.3150%   —     106,800  August 15, 2006  August 28, 2009(4)  January 31, 2008(3) 
5.1700%  24,000    55,500    April 30, 2007    May 29, 2020  
5.1750%  —      663,399    July 16, 2012    July 15, 2016  
5.8700%  —      620,390    August 31, 2017    November 28, 2025  
5.4975%  —      59,700    July 31, 2012    July 31, 2019  

 

 (1)

Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional during the term of the swap.

 (2)Prospectively de-designated as an accounting hedge on September 30, 2008.
(3)Prospectively de-designated as an accounting hedge on January 31, 2008.
(4)The Company has entered into a swaption agreement with a bank (Swaption Counterparty) whereby the Swaption Counterparty has the option to require the Company to enter into an interest rate swap to pay LIBOR and receive a fixed rate of 5.26%. This is a European option and is open for a two hour period on February 26, 2014 after which it expires. The notional amount of the underlying swap is $106,800,000 with an effective date of February 28, 2014 and an expiration of February 26, 2021. If the Swaption Counterparty exercises the swaption, the underlying swap effectively offsets the Company’s 5.26% pay fixed LIBOR swap from February 28, 2014 to February 26, 2021.

The following provides information about the Company’s interest rate derivatives:

Fair value of liability derivatives:

Balance sheet location

  December 31,
2010
   December 31,
2009
 

Fair value of financial instruments

  $407,819    $280,445  

Gain (loss) recognized in income on derivatives:

Location

  December 31,
2010
  December 31,
2009
 

Change in fair value of financial instruments

  $(241,033 $46,450  

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2010, 2009 2008 and 20072008

 

 

(3)The impact of these de-designations resulted in recognition of a charge of $1,647,000 to earnings out of accumulated other comprehensive loss at the date of de-designation.
(4)Expired during the year.

The amounts in accumulated other comprehensive loss related to these interest rate swaps will be recognized in earnings when and where the related interest settlements will be recognized.

In addition, the Company holds the following interest rate swaps at the balance sheet date that were not designated as hedges during the year ended December 31, 2009:

 

Fixed per
annum rate
swapped
for LIBOR

  Notional
amount as at
December 31,
2009
  Maximum
notional
amount(1)
  Effective date  Ending date

5.4200%

  $224,467  $438,462  September 6, 2007  May 31, 2024

5.0275%

   111,000   158,000  May 31, 2007  September 30, 2015

5.5950%

   106,800   106,800  August 28, 2009  August 28, 2020

5.2000%

   96,000   96,000  December 18, 2006  October 2, 2015

5.1700%

   45,510   55,500  April 30, 2007  May 29, 2020

5.1750%

   —     663,399  July 16, 2012  July 15, 2016

5.8700%

   —     620,390  August 31, 2017  November 28, 2025

5.4975%

   —     59,700  July 31, 2012  July 31, 2019

During the year ended December 31, 2009, the Company recorded losses of nil (2008—$1,611,111; 2007—$136,000), respectively, to change in fair value of financial instruments for ineffectiveness on interest rate swaps designated as hedges.

The fair value of these liability derivative financial instruments not designated as hedging instruments at December 31, 2009 is summarized below:Gain (loss) reclassified from AOCI into income (1):

 

  Balance sheet
location
 Fair value 

Interest rate swaps and interest rate swaption

 Fair value of financial
instruments
 $280,445  

December 31, 2009

 Location of gain or
(loss) recognized
in earnings
 Amount of gain or
(loss) recognized in
earnings
 

Interest rate swaps and interest rate rate swaption

 Change in fair value
of financial
instruments
 $46,450  

December 31, 2009

 Location of gain or
(loss) reclassified
from AOCI into earnings
 Amount of gain or
(loss) reclassified from
AOCI into earnings
 

Interest rate swaps

 Interest expense $(12,068) (1) 
 Depreciation  (101) (1) 

Location

  December 31,
2010
  December 31,
2009
 

Interest expense

  $(12,797 $(12,068

Depreciation

   (289  (101

 

 (1)The effective portion of changes in unrealized loss on interest rate swaps was recorded in accumulated other comprehensive income until September 30, 2008 when these contracts were de-designated as accounting hedges. The amounts in accumulated other comprehensive income will be recognized in earnings when and where the previously hedged interest is recognized in earnings.

SEASPAN CORPORATION

Notes to Consolidated Financial Statements — (Continued)

(Tabular amounts in thousands of United States dollars, except per share amount and number of shares)

Years ended December 31, 2009, 2008 and 2007

 

15.Subsequent events:

 

 (a)On January 8, 2010, the Company accepted delivery of the MOL Empire from HHI.

(b)On January 22, 2010,20, 2011, the Company declared a dividend of $0.10$0.125 per common share, representing a total distribution of $6,783,000.$8,581,000. The dividend was paid on February 12, 201011, 2011 to all shareholders of the Company’s class A common stock of record on February 1, 2010.January 28, 2011. Of the $6,783,000$8,581,000 distribution, $5,147,000$6,251,000 was paid in cash and $1,636,000$2,330,000 was reinvested through the DRIP.

 

 (b)On January 25, 2011, the Company accepted delivery of the Brevik Bridge from Samsung Heavy Industries Co., Ltd. (SHI).

(c)On January 28, 2011, the Company accepted delivery of the Bilbao Bridge from SHI.

(d)On January 28, 2011, the Company issued 10,000,000 Series C preferred shares at $25 per share for gross proceeds of $250 million. Dividends will be payable on the Series C preferred shares at an initial rate of 9.5% per annum of the stated liquidation preference.

(e)On February 28, 2011, the Company entered into a letter of intent with a leading Chinese shipyard for a significant order of New Panamax 10000 TEU vessels. Any order resulting from this letter of intent will be made available to Greater China Intermodal Investments LLC (note 15(f)), and that any vessels ordered thereunder will be subject to the Company’s right of first refusal.

(f)On March 5, 2010,14, 2011, the Company entered into an agreement to participate in Greater China Intermodal Investments LLC, (the Vehicle), an investment vehicle established by an affiliate of The Carlyle Group. The Vehicle will invest up to $900 million equity capital in containership assets strategic to the People’s Republic of China, Taiwan, Hong Kong, and Macau. The Company has agreed to make a minority investment in the Vehicle of up to $100 million during the investment period, which is anticipated to be up to five years.

(g)On March 21, 2011, the Company accepted delivery of the COSCO Japan and the Guayaquil BridgePrince Rupert from HHI and Jiangsu, respectively.Heavy Hyundai Industries Co., Ltd.

SIGNATURE

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.

 

SEASPAN CORPORATION

By:

 /S/    SAI W. CHU        
  
 Sai W. Chu
 

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: March 18, 201030, 2011