THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Horizon Lines, Inc. (HRZ)

4/24/2006 Proxy Information

Initial Public Offering of Common Shares and Use of Proceeds

On September 30, 2005, the Company issued and sold 12,500,000 shares, or the Initial Shares, of its Common Stock in the initial public offering, at a net price of $9.30 per share, representing the initial public offering price to the public of $10.00 per share, less the underwriters’ discount of 7% per share. The net proceeds to the Company from the sale of these shares were $116.5 million (net of underwriter discounts and commissions). Other fees and expenses associated with the initial public offering totaled approximately $5.7 million, of which approximately $4.5 million was paid prior to or on September 30, 2005. On September 30, 2005, $44.7 million of these net proceeds were contributed to H-Lines Finance and $43.6 million of these net proceeds were contributed, via H-Lines Finance, to Horizon Lines Holding, and, immediately thereafter, Horizon Lines Holding paid a dividend of $40.0 million to H-Lines Finance, which then remitted such funds, as a dividend, to the Company, which, using such funds and a portion of the proceeds of the initial public offering, redeemed, for a total redemption price of $62.2 million, all of its outstanding shares of its Series A preferred stock. In addition, on September 30, 2005, Horizon Lines Holding and Horizon Lines submitted a redemption notice to the indenture trustee for the 9% senior notes for the voluntary redemption, on November 2, 2005, of $40.0 million of the then outstanding aggregate principal amount of the 9% senior notes with the proceeds from the issuance and sale of the Initial Shares. Also, on September 30, 2005, H-Lines Finance submitted a redemption notice to the indenture trustee for the 11% senior discount notes for the voluntary redemption, on November 2, 2005, of $40.3 million of accreted value or $52.3 million of aggregate principal amount at maturity of the 11% senior discount notes with the proceeds from the issuance and sale of the Initial Shares.

On October 14, 2005, the Company issued and sold 1,875,000 additional shares of Common Stock, or the Additional Shares, to the underwriters of its initial public offering at a net price of $9.30 per share, representing the initial public offering price to the public of $10.00 per share, less the underwriters’ discount of 7% per share. These shares were issued and sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares from the Company granted to them with respect to the initial public offering. The net proceeds to the Company from the sale of these shares were $17.4 million (net of underwriter discounts and commissions). On October 14, 2005, $3.2 million of these net proceeds were contributed to H-Lines Finance and $14.2 million of these net proceeds were contributed, via H-Lines Finance to Horizon Lines Holding. On October 20, 2005, Horizon Lines Holding and Horizon Lines submitted a redemption notice to the indenture trustee for the 9% senior notes for the voluntary redemption, on November 21, 2005, of $2.9 million of the then-outstanding aggregate principal amount of the 9% senior notes with the proceeds from the issuance and sale of the Additional Shares. Also, on October 20, 2005, H-Lines Finance submitted a redemption notice to the indenture trustee for the 11% senior discount notes for the voluntary redemption, on November 21, 2005, of $2.9 million of accreted value or $3.7 million of aggregate principal amount at maturity of the 11% senior discount notes with the proceeds from the issuance and sale of the Additional Shares.

The early redemption of the 9% senior notes and the 11% senior discount notes will result in a reduction of approximately $10.0 million per annum in interest expense during the fiscal year ending December 24, 2006 and will result in a reduction of approximately $11.0 million per annum once the 11% senior discount notes are fully accreted in March 2008.

Management Agreement

At the closing of the acquisition of the Company by The Castle Harlan Group, the Company, Horizon Lines Holding and Horizon Lines entered into a management agreement with Castle Harlan, pursuant to which Castle Harlan on July 7, 2004 agreed to provide business and organizational strategy, financial and investment management, advisory, merchant and investment banking services to the Company, Horizon Lines Holding and Horizon Lines upon the terms and conditions set forth in the management agreement. As consideration for its financial advisory services, including planning and negotiating the acquisition of the Company by The Castle Harlan Group, the Company, Horizon Lines Holding and Horizon Lines paid Castle Harlan, on the terms set forth in the management agreement, a one-time $2.0 million transaction fee upon the closing of such acquisition. Furthermore, the Company, Horizon Lines Holding and Horizon Lines agreed to pay an ongoing annual fee equal to 3% of the equity investments made by CHP IV and its affiliates at the closing of such acquisition as consideration for business and organizational strategy, financial and investment management, advisory and merchant and investment banking services provided by Castle Harlan. The annual fee for the first year of the term of the management agreement was paid at the closing of the acquisition of the Company by The Castle Harlan Group. As of the date hereof, the Company, Horizon Lines Holding and Horizon Lines have made payments in an aggregate amount of $13.7 million to Castle Harlan, of which $13.2 million (including the special payment of $7.5 million referred to below) was paid pursuant to the management agreement and $0.5 million was paid as a financial advisory fee in connection with the issuance of the 11% senior discount notes.

Under the management agreement, the Company, Horizon Lines Holding and Horizon Lines have agreed to indemnify Castle Harlan from and against all liabilities, costs, charges and expenses related to its performance of its duties under the management agreement, other than those of the foregoing that result from Castle Harlan’s gross negligence or willful misconduct.

As of September 7, 2005, Castle Harlan and the Company, Horizon Lines Holding and Horizon Lines amended the management agreement to provide for the termination of the ongoing management services and related fee provisions specified therein, in consideration for a payment of $7.5 million, which was paid on September 7, 2005. Pursuant to the amended management agreement, the Company, Horizon Lines Holding and Horizon Lines agreed to reimburse the out-of-pocket fees and expenses of Castle Harlan for the services performed by Castle Harlan pursuant to the original agreement before the making of such $7.5 million payment as well as for any services performed by Castle Harlan after the making of such payment. Castle Harlan shall not be required to perform any services after the making of such payment, and no fees shall be payable to Castle Harlan in respect of any such services without the prior approval of the Board of the Company. Castle Harlan continues to be entitled to the benefit of indemnification and related obligations of the Company, Horizon Lines Holding and Horizon Lines under the original management agreement.

Severance Agreements

Mr. Zuckerman has entered into a severance agreement with Horizon Lines dated March 1, 2004. The agreement provides that if he is terminated by Horizon Lines without cause, as defined below, within twenty four (24) months following a Liquidity Event, as defined below, Horizon Lines will pay him his annual base salary for one year after the termination date, in accordance with its regular payroll practices, and provide him with the continuation of any medical benefits during the severance period, to run concurrently with coverage under the Consolidated Omnibus Budget Reconciliation Act (referred to as COBRA). During the 24-month period following the termination date, Mr. Zuckerman may not directly or indirectly engage in, have an equity interest in, or manage or operate any entity engaging in any containerized shipping business in the Jones Act trade which competes with (i) any business of Horizon Lines, Horizon Lines Holding, their related entities, or their subsidiaries, or (ii) any entity owned by Horizon Lines, Horizon Lines Holding, their related entities, or their subsidiaries, anywhere in the world. Mr. Zuckerman may, however, acquire a passive stock or equity interest in such a business provided that the stock or equity interest acquired is not more than five percent (5%) of the outstanding interest in the business. During this period, he may not recruit or otherwise solicit any employee, customer, subscriber or supplier of Horizon Lines to change its relationship with Horizon Lines or to establish any relationship with him for any competitive purpose. Upon termination of his employment for any reason, Mr. Zuckerman is required not to disclose or disseminate any important, material and confidential proprietary information or trade secrets of the businesses of Horizon Lines.

A “Liquidity Event” is defined as the first occurrence after March 1, 2004 of any of the following: consummation of the sale, transfer or other disposition of the equity securities of Horizon Lines held by its indirect stockholder, Horizon Lines Holding, in exchange for cash such that immediately following such transaction (or transactions), (i) any entity and/or its affiliates, other than Horizon Lines Holding, acquires more than 50% of the outstanding voting securities of Horizon Lines or (ii) Horizon Lines Holding ceases to hold at least 30% of the outstanding voting securities of Horizon Lines and any entity and its affiliates hold more voting securities of Horizon Lines than Horizon Lines Holding.

In general, Horizon Lines will have “Cause” to terminate Mr. Zuckerman’s employment upon the occurrence of any of the following: (i) the determination by the board of directors of Horizon Lines that he failed to substantially perform his duties or comply in any material respect with any reasonable directive of such board, (ii) his conviction, plea of no contest, or plea of nolo contendere of any crime involving moral turpitude, (iii) his use of illegal drugs while performing his duties, or (iv) his commission of any act of fraud, embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty against Horizon Lines.

Stockholders Agreement

All of the Company’s pre-IPO stockholders are parties to an amended and restated stockholders agreement, which is referred to in this proxy statement as the “stockholders agreement.” As of the date hereof, 19,264,170 outstanding shares of the Company’s Common Stock are subject to the stockholders agreement.

Transfer Restrictions

The stockholders agreement grants each pre-IPO stockholder certain co-sale rights. These co-sale rights entitle each pre-IPO stockholder to participate in one or more sales, other than certain exempted transfers, by any other pre-IPO stockholder of shares of the Company’s Common Stock in an amount that exceeds 25% of such other pre-IPO stockholder’s holdings of shares of the Company’s capital stock at the time of the closing of the acquisition of the Company by The Castle Harlan Group on July 7, 2004.

The exempted transfers include the transfer, pursuant to a plan conforming to Rule 10b5-1(c) under the Securities Exchange of 1934, as amended, by each of the 16 persons identified in the stockholders agreement (consisting of 14 members of our management and 2 of their family members), during the two-year period following the consummation of the initial public offering, in one transaction or a series of transactions, of shares of the Company’s Common Stock in an aggregate amount equal to up to 25% of the number of shares of the Company’s common stock held by such person (including any restricted shares of the Company’s Common Stock as of the date of the listing for trading of shares of the Company’s Common Stock on the NYSE). As of the date hereof, these 16 persons hold in the aggregate 3,463,682 shares of the Company’s Common Stock, on a fully diluted basis, satisfying the above criteria (without regard to such percentage limitation). These shares are referred to in this proxy statement as the “qualified shares.” The number of qualified shares, however, that may be transferred by these persons in the aggregate as exempted transfers in accordance with this paragraph may not exceed the (i) total number of qualified shares held by all of these persons multiplied by a fraction, the numerator of which is the total number of shares (if any) of the Company’s common stock sold by CHP IV and certain affiliated funds in the initial public offering, and the denominator of which is the total number of shares of the Company’s common stock held by CHP IV and such affiliated funds as of such listing date, minus (ii) the number of qualified shares sold in the initial public offering.

In addition, the stockholders agreement requires each pre-IPO stockholder (other than CHP IV and certain affiliated funds) to participate, at the direction of CHP IV, in transactions where more than 50% of the Company’s Common Stock held by CHP IV is sold to one or more independent third parties.

Amendment

Subject to certain further limitations, the stockholders agreement is subject to amendment only with the written consent of a majority in interest held by CHP IV and certain affiliated funds and the holders of 55% of the shares of the Company’s Common Stock held by the other pre-IPO stockholders (other than by CHP IV and such affiliated funds).

Termination

The stockholders agreement (except for the indemnity provisions, which shall remain in full force and effect) will terminate in accordance with its terms upon the first to occur of (i) the failure of CHP IV and certain affiliated funds to maintain ownership of at least 10% of the outstanding shares of the Company’s Common Stock and (ii) the second anniversary of the consummation of the initial public offering.

Registration Rights Agreement

All of the Company’s pre-IPO stockholders are parties to a registration rights agreement with the Company. The registration rights agreement grants all of the Company’s pre-IPO stockholders the right to “piggyback” on public offerings of equity securities of the Company whenever the Company or its stockholders propose to register any shares of the Company’s common stock (whether for the Company’s own account or for any pre-IPO stockholder who is a party to the registration rights agreement) with the SEC under the Securities Act of 1933, as amended. The registration rights agreement also grants CHP IV and its affiliated funds unlimited “demand” registration rights with respect to the shares of the Company’s Common Stock held by them. In addition, the registration rights agreement imposes “lock-up” periods on the Company’s pre-IPO stockholders requiring that they refrain from selling any equity securities of the Company for designated periods both before and after any public offering of equity securities of the Company.

Voting Trust Agreement

All of the Company’s pre-IPO stockholders, other than CHP IV and certain affiliated funds, are parties to a voting trust agreement, referred to in this proxy statement as the “voting trust agreement,” with us and Mr. John K. Castle under which all shares of the Company’s stock held by these stockholders, whether now held or hereafter acquired by them, must be deposited and held in a voting trust arising thereunder of which Mr. Castle, who is the indirect controlling stockholder of CHP IV, is the voting trustee. Under the terms of this voting trust, Mr. Castle, in his capacity as the voting trustee, may, in his discretion but subject to compliance with his fiduciary duties under applicable law, vote, or abstain from voting, all or any of the shares of the Company’s stock held by the voting trust on any matter on which holders of shares of such class or series of the Company’s stock are entitled to vote, including, but not limited to, the election of directors to the Company’s Board, amendments to the Company’s certificate of incorporation or bylaws, changes in the Company’s capitalization, the declaration of a payment or dividend, a merger or consolidation, a sale of substantially all of the Company’s assets, and a liquidation, dissolution or winding up. Under the voting trust agreement, Mr. Castle has agreed, in his capacity as voting trustee, not to amend the Company’s certificate of incorporation or bylaws, or to change the Company’s capitalization, in any manner that would materially and disproportionately adversely affect the rights of any particular pre-IPO stockholder who is a party to the voting trust agreement, in its, his or her capacity as a stockholder, in relation to all of the Company’s other stockholders in respect of the shares held by them of the same class, series or type as held by the adversely affected stockholder, in their capacities as holders of such shares, without the prior consent of such adversely affected stockholder.

The voting trust agreement provides that such agreement shall have the maximum term permitted under applicable law, subject to early termination if the stockholders agreement has terminated or in certain other limited circumstances. Any transferee of shares of the Company’s stock that are subject to the agreement is required, as a condition to the transfer of such shares, to agree that such transferee and the transferred shares shall be bound by the voting trust agreement. As of the date hereof, 7,085,150 shares of the Company’s outstanding common stock on a fully diluted basis, or approximately 21% thereof, are subject to the voting trust agreement.

Stock Issuance and Sale to Non-Employee Directors

On January 28, 2005, the Company issued and sold 26,001 shares of Common Stock and 9,080 Series A preferred shares to Admiral Holloway for an aggregate purchase price of $99,960, and 52,025 shares of Common Stock and 18,168 Series A preferred shares for an aggregate purchase price of $200,008 to each of Messrs. Danner and Cameron.

Stock Issuance and Sale to Executive Officers

On January 14, 2005, the Company issued and sold (i) 689,861 restricted shares to Charles G. Raymond, the President and Chief Executive Officer and a Director of the Company, for an aggregate purchase price of $243,032; (ii) 258,695 restricted shares to John V. Keenan, the Senior Vice President and Chief Transportation Officer of the Company, for an aggregate purchase price of $91,136; and (iii) 258,695 restricted shares to M. Mark Urbania, the Senior Vice President—Finance and Administration, Chief Financial Officer and Assistant Secretary of the Company, for an aggregate purchase price of $91,136. Mr. Raymond paid $121,516 of the aggregate purchase price for his restricted shares in cash and $121,516 through his issuance of a full-recourse promissory note, secured by all of the restricted shares that he purchased, in favor of the Company. Each of Messrs. Keenan and Urbania paid $45,568 of the aggregate purchase price for his restricted shares in cash and $45,568 through his issuance of a full-recourse promissory note, secured by all of the restricted shares that he purchased, in favor of the Company. Interest on each of these promissory notes accrues at a rate of 6% per annum.

On October 18, 2005, the Board approved the vesting in full of all of the 1,724,620 shares of Common Stock that were issued and sold by the Company on January 14, 2005 to members of our management team. The Board’s approval of the vesting in full of these shares was made subject to the rights of the Company with respect to these shares under the respective restricted stock agreements dated as of January 14, 2005 pursuant to which these shares were issued and sold. The Company recorded non-cash compensation charges of $19.0 million during the fiscal year ended December 25, 2005 with respect to the vesting in full of all of these 1,724,620 shares.

On February 28, 2005, the Company sold each of these promissory notes, together with the right to receive the accrued but unpaid interest thereon to its principal stockholder, CHP IV, for an aggregate purchase price equal to the aggregate outstanding principal amount of these notes, plus all accrued and unpaid interest thereon.

Exercise of Horizon Lines Holding Corp. Options

On September 26, 2005, all options outstanding under the Horizon Lines Holding stock option plan, as amended on September 20, 2005, were exercised and all of the resulting shares of common stock of Horizon Lines Holding were exchanged for 952,325 shares of Common Stock and 731,448 shares of Series A preferred stock of the Company pursuant to the provisions of an amended put/call agreement. Immediately following such exchange, all of the shares of the common stock of Horizon Lines Holding that were so acquired by the Company were contributed to H-Lines Finance and, in turn, H-Lines Finance contributed such shares to Horizon Lines Holding. As of the date hereof, all of the outstanding shares of the common stock of Horizon Lines Holding are directly owned by H-Lines Finance and no options are outstanding or issuable under Horizon Lines Holdings’ stock option plan, as amended.

Additional Transactions

The Company and its subsidiaries have entered into transactions with certain of their directors, officers and stockholders, including transactions in connection with the initial capitalization and the acquisition of the Company, the repayment of the 13% promissory notes issued in connection with the acquisition of the Company by The Castle Harlan Group, the Company’s repurchase of its Series A preferred stock and the Company’s issuance and sale of shares of its Common Stock and/or Series A preferred stock.

In addition, from time to time, the Company and its subsidiaries may provide shipping and logistics services for portfolio companies or affiliates of The Castle Harlan Group. Such activities are immaterial to their operations and revenues and are performed on an arms-length basis.