Horizon Lines (HRZ)

9. Subsequent Events

On April 7, 2006, the Compensation Committee of the Board of Directors approved the grant by the Company, pursuant to its Amended and Restated Equity Incentive Plan, of options to certain employees of the Company and its subsidiaries to purchase an aggregate of 617,500 shares of its common stock at a price of $12.54 per share. No option is currently vested or exercisable. Each option is scheduled to vest and become fully exercisable on April 7, 2009, provided the employee who was granted such option is employed by the Company and its subsidiaries on such date. The Company will record stock based compensation expense of approximately $0.5 million per annum over the three year vesting period and will record approximately $0.4 million in stock based compensation expense in 2006.

On April 11, 2006, HL completed a series of agreements with Ship Finance International Limited (“SFL”) and certain of its subsidiaries to charter five container vessels, each with capacity of 2,824 twenty-foot equivalent units (collectively, the “Vessels”). SFL Holdings LLC (“SFL Holdings”), a wholly owned subsidiary of SFL, has entered into five separate memoranda of agreement (collectively, the “MoA’s”) as a buyer with the companies that have existing contracts with Hyundai Mipo Dockyard Co. Ltd. for the construction of the Vessels (collectively, the “Sellers”). The Vessels are scheduled to be delivered over the course of a five-month period commencing at the beginning of 2007. SFL has guarantied the performance by SFL Holdings of its obligations under the MoAs. Upon delivery of each Vessel to SFL Holdings by the applicable seller under the applicable MoA, SFL Holdings will transfer the Vessel to one of the following of its wholly owned subsidiaries (collectively, the “Shipowners”): HL Eagle LLC, HL Falcon LLC, HL Hawk LLC, HL Hunter LLC, and HL Tiger LLC. The Shipowner to whom the Vessel is transferred will in turn bareboat charter the Vessel to HL. The aggregate annual charter hire for the Vessels is approximately $32.0 million based on certain assumptions with respect to final vessel price and interest rates that will be adjusted on the date of the delivery of the particular Vessel. The term of each of the Bareboat Charters is twelve years from the date of delivery of the related Vessel, with a three year renewal option exercisable by HL. The agreement of HL and SFL, SFL Holdings and the Shipowners with respect to the aforementioned transactions is reflected in an Agreement to Acquire and Charter, and a Reimbursement Agreement. In addition, the Company has issued a Guarantee in favor of the Shipowners with respect to the performance by HL of its obligations under the Agreement to Acquire and Charter, the Reimbursement Agreement, the Bareboat Charters, and an Interest and L/C Liability Agreement, among HL, SFL and Fortis. Copies of the Agreement to Acquire and Charter, Guarantee, Reimbursement Agreement, and Interest and L/C Liability Agreement were filed with the Company’s Form 8-K dated April 18, 2006. Additional information regarding this transaction was disclosed within the Company’s Form 8-K dated April 18, 2006.

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HORIZON LINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On April 19, 2006, the Board of Directors voted to declare a cash dividend on its outstanding shares of common stock of $0.11 per share, payable on June 15, 2006, to all stockholders of record as of the close of business on June 1, 2006.

On April 19, 2006, the Compensation Committee of the Board of Directors voted to implement an employee stock purchase plan (“ESPP”) effective July 1, 2006. We have reserved 308,866 shares of our common stock for issuance under the ESPP. Employees generally will be eligible to participate in the ESPP if they are employed before the beginning of the applicable purchase period, have been employed by us, or any subsidiaries that we designate, for two years or more and are customarily employed more than five months in a calendar year and more than twenty hours per week, and are not, and would not become as a result of being granted an option under the ESPP, 5% stockholders of us or our designated subsidiaries. Participation in the ESPP will end automatically upon termination of employment. Eligible employees will be permitted thereunder to acquire shares of our Common Stock through payroll deductions at a 5% discount from the fair market value of our common stock.

The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP will terminate ten years from the date of adoption, on September 16, 2005, of the ESPP by our Board of Directors, unless it is terminated earlier under the terms of the ESPP. Our Board has the authority to amend, terminate or extend the term of the ESPP, except that no action may adversely affect any outstanding options previously granted under the plan and stockholder approval will be required to increase the number of shares that may be issued or to change the terms of eligibility under the ESPP. Our Board of Directors is able to make amendments to the ESPP as it determines to be advisable if the financial accounting treatment for the ESPP changes from the financial accounting treatment in effect on the date the ESPP was adopted by our Board.

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18. Subsequent Events

On January 23, 2006, the Board of Directors of Horizon Lines, Inc. authorized the Company to grant nonqualified stock options under its amended and restated equity incentive plan to members of management to purchase up to 617,500 shares in the aggregate of the Company’s common stock. The nonqualified stock options will be granted in April 2006 and will be issued at a price equal to the fair market value on date of grant. The Company expects to record compensation expense of approximately $0.6 million per annum over a three year vesting period. During 2006, the Company expects to record approximately $0.4 million in stock based compensation expense related to the April 2006 stock option grants.

On January 23, 2006, the Board of Directors voted to declare a cash dividend on its outstanding shares of common stock of $0.11 per share, payable on March 15, 2006 to all stockholders of record as of the close of business on March 1, 2006.

The Company also announced that it will hold its 2006 Annual Stockholder Meeting on Monday, June 5, 2006 in Charlotte, North Carolina.

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