**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

**FORM 20-F**

**o**                                  REGISTRATIONSTATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIESEXCHANGE ACT OF 1934

**OR**

**x**                               ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

**OR**

**o**                                  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**OR**

**o**                                  SHELL COMPANYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934

**Date of event requiring this shell companyreport                                **

**For the transition period from                       to                       **

**Commission file number 001-33060**

**DANAOSCORPORATION**

(Exactname of Registrant as specified in its charter)

**Not Applicable**(Translation of Registrant’s name into English)

**Republic of The Marshall Islands**(Jurisdiction of incorporation or organization)

**14Akti Kondyli185 45 PiraeusGreece**

(Addressof principal executive offices)

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

| **Title  of each class**                    | ** ** | **Name of each exchange on which registered** |
|---------------------------------------------|------------|-----------------------------------------------|
| **Common stock, $0.01 par value per share** |       | **New York Stock Exchange**                   |
| **Preferred stock purchase rights**         |       | **New York Stock Exchange**                   |

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act: **None.**

Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act: **None.**

Asof December 31, 2006, there were 54,557,500 shares of the registrant’scommon stock outstanding.

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

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

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x   No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
|--------------------------------|--------------------------|------------------------------|

 

Indicateby check mark which financial statement item the registrant has elected tofollow. Item 17 o   Item 18 x

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

 

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**TABLEOF CONTENTS**
|                              | ** ** | **Page**                                                                      |
|------------------------------|------------|-------------------------------------------------------------------------------|
| FORWARD-LOOKING  INFORMATION |       | ii                                                                            |   |
| PART I                  |       | 1                                                                             |   |
| Item 1.                      |       | Identity  of Directors, Senior Management and Advisers                        |   | 1 |   |
| Item 2.                      |       | Offer  Statistics and Expected Timetable                                      |   | 1 |   |
| Item 3.                      |       | Key  Information                                                              |   | 2 |   |
| Item 4.                      |       | Information  on the Company                                                   |   | 24 |   |
| Item 4A.                     |       | Unresolved  Staff Comments                                                    |   | 41 |   |
| Item 5.                      |       | Operating  and Financial Review and Prospects                                 |   | 41 |   |
| Item 6.                      |       | Directors,  Senior Management and Employees                                   |   | 63 |   |
| Item 7.                      |       | Major  Shareholders and Related Party Transactions                            |   | 70 |   |
| Item 8.                      |       | Financial  Information                                                        |   | 78 |   |
| Item 9.                      |       | The Offer  and Listing                                                        |   | 79 |   |
| Item 10.                     |       | Additional  Information                                                       |   | 80 |   |
| Item 11.                     |       | Quantitative  and Qualitative Disclosures About Market Risk                   |   | 101 |   |
| Item 12.                     |       | Description  of Securities Other than Equity Securities                       |   | 104 |   |
| PART II                 |       | 105                                                                           |   |
| Item 13.                     |       | Defaults,  Dividend Arrearages and Delinquencies                              |   | 105 |   |
| Item 14.                     |       | Material  Modifications to the Rights of Security Holders and Use of Proceeds |   | 105 |   |
| Item 15.                     |       | Controls  and Procedures                                                      |   | 105 |   |
| Item 16A.                    |       | Audit  Committee Financial Expert                                             |   | 106 |   |
| Item 16B.                    |       | Code of  Ethics                                                               |   | 106 |   |
| Item 16C.                    |       | Principal  Accountant Fees and Services                                       |   | 106 |   |
| Item 16D.                    |       | Exemptions  from the Listing Standards for Audit Committees                   |   | 107 |   |
| Item 16E.                    |       | Purchases  of Equity Securities by the Issuer and Affiliated Purchasers       |   | 107 |   |
| PART III                |       | 107                                                                           |   |
| Item 17.                     |       | Financial  Statements                                                         |   | 107 |   |
| Item 18.                     |       | Financial  Statements                                                         |   | 107 |   |
| Item 19.                     |       | Exhibits                                                                      |   | 108 |   |

 

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**FORWARD-LOOKINGINFORMATION**

This Annual Reporton Form 20-F contains forward-looking statements based on beliefs ofour management. Any statements contained in this Annual Report on Form 20-Fthat are not historical facts are forward-looking statements as defined in Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. We have based theseforward-looking statements on our current expectations and projections aboutfuture events, including:

·       futureoperating or financial results;

·       pendingacquisitions and dispositions, business strategies and expected capitalspending;

·       operatingexpenses, availability of crew, number of off-hire days, drydockingrequirements and insurance costs;

·       generalmarket conditions and shipping market trends, including charter rates andfactors affecting supply and demand;

·       ourfinancial condition and liquidity, including our ability to obtain financing inthe future to fund capital expenditures, acquisitions and other generalcorporate activities;

·       ourexpectations about the availability of ships to purchase, the time that it maytake to construct new ships, or the useful lives of our ships;

·       ourcontinued ability to enter into multi-year, fixed-rate time charters with ourcustomers;

·       ourexpectations relating to dividend payments and our ability to make suchpayments;

·       ourability to leverage to our advantage our manager’s relationships and reputationin the containership and drybulk shipping sectors of the international shippingindustry;

·       changesin governmental rules and regulations or actions taken by regulatoryauthorities; and

·       potentialliability from future litigation.

The words “anticipate,” “believe,” “estimate,” “expect,”“forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will”and similar expressions as they relate to us are intended to identify suchforward-looking statements. Such statements reflect our current views andassumptions and all forward-looking statements are subject to various risks anduncertainties that could cause actual results to differ materially fromexpectations. The factors that could affect our future financial results arediscussed more fully under “Item 3. Key Information—Risk Factors,” as well aselsewhere in this Annual Report on Form 20-F and in our otherfilings with the U.S. Securities and Exchange Commission, or SEC. We cautionreaders of this annual report not to place undue reliance on theseforward-looking statements, which speak only as of their dates. We undertake noobligation to publicly update or revise any forward-looking statements.

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**PART I**

Danaos Corporation is a corporation domesticated in the Republic of The Marshall Islands thatis referred to in this Annual Report on Form 20-F, together with itssubsidiaries, as “Danaos Corporation,” “the Company,” “we,” “us,” or “our.”This report should be read in conjunction with our consolidated financialstatements and the accompanying notes thereto, which are included in Item 18 tothis annual report.

We use the term “Panamax”to refer to vessels capable of transiting the Panama Canal and “Post-Panamax”to refer to vessels with a beam of more than 32.31 meters that cannot transitthe Panama Canal. We use the term “twenty foot equivalent unit,” or “TEU,” theinternational standard measure of containers, in describing the capacity of ourcontainerships. We use the term “deadweight tons,” or “dwt,” in describing thesize of drybulk carriers. Unless otherwise indicated, all references tocurrency amounts in this annual report are in U.S. dollars.

**Item1.**                        Identityof Directors, Senior Management and Advisers

Not Applicable.

**Item2.**                        OfferStatistics and Expected Timetable

Not Applicable.

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**Item3.**                        KeyInformation

**Selected FinancialData**

The following tablepresents selected consolidated financial and other data of Danaos Corporationfor each of the five years in the five year period ended December 31,2006. The table should be read together with “Item 5. Operating and FinancialReview and Prospects.” The selected consolidated financial data of DanaosCorporation is a summary of, is derived from, and is qualified by reference to,our consolidated financial statements and notes thereto which have beenprepared in accordance with U.S. generally accepted accounting principles, orU.S. GAAP, and have been audited for the years ended December 31, 2002,2003, 2004, 2005 and 2006 by PricewaterhouseCoopers S.A., an independent registered public accounting firm.

Ouraudited consolidated statements of income, stockholders’ equity and cash flowsfor the years ended December 31, 2004, 2005 and 2006, and the consolidatedbalance sheets at December 31, 2005 and 2006, together with the notesthereto, are included in “Item 18. Financial Statements” and should be read intheir entirety. 

| ** **                                                    | ** ** | **Year Ended December 31,**                       | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2002**                                                         | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **In thousands, except per share data** | ** ** |
| **STATEMENT OF INCOME**                                       |       |                                                             |       |   |   |   |   |   |   |   |   |
| Operating revenues                                            |       | $                                                                | 103,939    |   | $ | 146,118 |   | $ | 208,268 |   | $ | 241,381 |   | $ | 245,588 |   |
| Voyage expenses                                               |       | (3,400                                                           | )          | (5,031 | ) | (6,314 | ) | (7,525 | ) | (7,282 | ) |
| Vessel operating expenses                                     |       | (31,692                                                          | )          | (41,860 | ) | (46,247 | ) | (53,883 | ) | (60,742 | ) |
| Depreciation                                                  |       | (24,567                                                          | )          | (29,201 | ) | (31,694 | ) | (27,114 | ) | (31,111 | ) |
| Amortization of deferred  drydocking and special survey costs |       | (857                                                             | )          | (1,279 | ) | (2,096 | ) | (3,922 | ) | (5,425 | ) |
| Bad debt expense                                              |       | (893                                                             | )          | (67 | ) | (429 | ) | (200 | ) | (421 | ) |
| General and administrative  expenses                          |       | (3,281                                                           | )          | (4,132 | ) | (4,050 | ) | (5,058 | ) | (7,574 | ) |
| Gain/(loss) on sale of  vessels                               |       | (2,198                                                           | )          | 6,765 |   | 7,667 |   | — |   | 14,954 |   |
| Income from operations                                        |       | 37,051                                                           |       | 71,313 |   | 125,105 |   | 143,679 |   | 147,987 |   |
| Interest income                                               |       | 1,382                                                            |       | 1,207 |   | 2,638 |   | 6,345 |   | 3,605 |   |
| Interest expense                                              |       | (8,952                                                           | )          | (8,792 | ) | (11,559 | ) | (23,415 | ) | (29,240 | ) |
| Other finance costs, net                                      |       | (699                                                             | )          | (406 | ) | 1,424 |   | (7,081 | ) | 1,938 |   |
| Other income/(expense),  net                                  |       | 281                                                              |       | 647 |   | 1,076 |   | 491 |   | (16,580 | ) |
| (Loss)/gain on fair value  of derivatives                     |       | —                                                           |       | (4,115 | ) | (2,225 | ) | 2,831 |   | (6,628 | ) |
| Total other  income/(expenses), net                           |       | (7,988                                                           | )          | (11,459 | ) | (8,646 | ) | (20,829 | ) | (46,905 | ) |
| Net income                                                    |       | $                                                                | 29,063     |   | $ | 59,854 |   | $ | 116,459 |   | $ | 122,850 |   | $ | 101,082 |   |
| **PER SHARE DATA***                                           |       |                                                             |       |   |   |   |   |   |   |   |   |
| Basic and diluted net  income per share of common stock  |       | $                                                                | 0.66       |   | $ | 1.35 |   | $ | 2.63 |   | $ | 2.77 |   | $ | 2.16 |   |
| Basic and diluted  weighted average number of shares     |       | 44,308                                                           |       | 44,308 |   | 44,308 |   | 44,308 |   | 46,751 |   |
| **CASH FLOW DATA**                                            |       |                                                             |       |   |   |   |   |   |   |   |   |
| Net cash provided by  operating activities                    |       | $                                                                | 95,420     |   | $ | 85,218 |   | $ | 129,056 |   | $ | 162,235 |   | $ | 151,578 |   |
| Net cash used in  investing activities                        |       | (165,915                                                         | )          | (226,435 | ) | (154,747 | ) | (40,538 | ) | (330,099 | ) |
| Net cash provided by/  (used in) financing activities         |       | 64,670                                                           |       | 187,332 |   | 45,133 |   | (180,705 | ) | 183,596 |   |
| Net (decrease)/ increase  in cash and cash equivalents   |       | (5,825                                                           | )          | 46,115 |   | 19,442 |   | (59,008 | ) | 5,075 |   |
| **BALANCE SHEET DATA**                                        |       |                                                             |       |   |   |   |   |   |   |   |   |
| Total current assets                                          |       | $                                                                | 44,311     |   | $ | 102,543 |   | $ | 129,540 |   | $ | 64,012 |   | $ | 59,700 |   |
| Total assets                                                  |       | 583,235                                                          |       | 837,017 |   | 1,005,981 |   | 945,758 |   | 1,297,190 |   |
| Total current liabilities                                     |       | 42,162                                                           |       | 60,983 |   | 77,602 |   | 70,484 |   | 45,714 |   |
| Total long-term  debt, including current portion              |       | 345,867                                                          |       | 532,071 |   | 601,400 |   | 666,738 |   | 662,316 |   |
| Total stockholders’  equity                              |       | 225,586                                                          |       | 288,666 |   | 384,468 |   | 262,725 |   | 565,852 |   |
| Basic and diluted  weighted average number of shares*    |       | 44,308                                                           |       | 44,308 |   | 44,308 |   | 44,308 |   | 46,751 |   |
| Common stock*                                                 |       | 44,308                                                           |       | 44,308 |   | 44,308 |   | 44,308 |   | 54,558 |   |
| Share capital*                                                |       | 443                                                              |       | 443 |   | 443 |   | 443 |   | 546 |   |

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*                      As adjusted for 88,615-for-1stock split effected on September 18, 2006.

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As a privately heldcompany, we paid aggregate dividends of $19.0 million, $7.5million, $12.4 million and$244.6 million in 2002, 2003, 2004 and 2005, respectively. We paid no dividends in 2006. We paid our firstquarterly dividend since becoming a public company in October 2006, of$0.44 per share, on February 14, 2007, and our second quarterly dividend,of $0.44 per share, on May 18, 2007. Our payment of dividends is subjectto the discretion of our Board of Directors. Our loan agreements and theprovisions of Marshall Islands law also contain restrictions that could affectour ability to pay dividends. See “Item 3. Risk Factors—Risks Inherent in Ourbusiness—Our ability to pay dividends may be limited by the amount of cash wegenerate from operations following the payment of fees and expenses, by theestablishment of any reserves and by additional factors unrelated to ourprofitability” and “Item 8. Financial Information—Dividend Policy.”

**Capitalization and Indebtedness**

Not Applicable.

**Reasons for the Offer and Use of Proceeds**

Not Applicable.

**Risk Factors**

**RisksInherent in Our Business**

***Our growth dependsupon continued growth in demand for containerships. The ocean-goingcontainer shipping industry may have been at or near the peak of its upwardtrend and charter hire rates have already been at or near historical highs.These factors may lead to reductions and volatility in charter hire rates andprofitability.***

The ocean-goingcontainer shipping industry is both cyclical and volatile in terms of charterhire rates and profitability. Over the past year charter-hire rates havedropped. The industry’s upward trend may have passed its peak, as charter hirerates have been falling from recent historically high levels despiteindications of stabilization in recent months. In the future, rates may contractfurther. Fluctuations in charter rates result from changes in the supply anddemand for ship capacity and changes in the supply and demand for the majorproducts internationally transported by containerships. Although in the lastfew decades there has been a trend toward liner companies chartering-incontainership capacity from charter owners, such as us, if this trend changes,demand for our containerships could be reduced. This and other factorsaffecting the supply and demand for containerships and supply and demand forproducts shipped in containers are outside of our control, and the nature,timing and degree of changes in industry conditions are unpredictable.

Thefactors that influence demand for containership capacity include:

·       supplyand demand for products suitable for shipping in containers;

·       changesin global production of products transported by containerships;

·       thedistance container cargo products are to be moved by sea;

·       theglobalization of manufacturing;

·       globaland regional economic and political conditions;

·       developmentsin international trade;

·       changesin seaborne and other transportation patterns, including changes in thedistances over which container cargoes are transported;

·       environmentaland other regulatory developments;

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·       currencyexchange rates; and

·       weather.

The factors that influence the supply of containershipcapacity include:

·       thenumber of newbuilding deliveries;

·       thescrapping rate of older containerships;

·       theprice of steel and other raw materials;

·       changesin environmental and other regulations that may limit the useful life ofcontainerships;

·       thenumber of containerships that are out of service; and

·       portcongestion.

Our ability to recharterour containerships upon the expiration or termination of their current chartersand the charter rates payable under any renewal or replacement charters willdepend upon, among other things, the prevailing state of the charter market forcontainerships. If the charter market is depressed when our vessels’ charters expire,we may be forced to recharter our vessels at reduced rates or even possibly arate whereby we incur a loss, which may reduce our earnings or make ourearnings volatile. The same issues will exist if we acquire additional vesselsand attempt to obtain multi-year time charter arrangements as part of ouracquisition and financing plan.

***Due to our lack ofdiversification following the sale of our drybulk carriers, adversedevelopments in the containership transportation business could reduce ourability to meet our payment obligations and our profitability.***

In August 2006, weagreed to sell the six drybulk carriers in our fleet, with an aggregatecapacity of 342,158 deadweight tons, or dwt, for an aggregate of$143.5 million. In the first quarter of 2007, we delivered five of thesevessels to the purchaser, which is not affiliated with us, for an aggregate of$118.0 million. Pursuant to the terms of this agreement we also delivered theremaining vessel to the purchaser for $25.5 million when its charter expired inthe second quarter****of 2007.Subject to market conditions, including the availability of suitably configuredvessels, we intend to reinvest in the drybulk sector of the shipping industry.Although we continue to evaluate potential investments in the drybulk sector,we do not believe current vessel prices in such sector, which are at highlevels, present attractive investment opportunities at this time. However, wehave not yet identified any specific drybulk carriers to purchase. Until weacquire replacement drybulk carriers, we will rely exclusively on the cashflows generated from our charters that operate in the containership sector ofthe shipping industry. Due to our lack of diversification, an adversedevelopment in the container shipping industry would have a significantlygreater impact on our financial condition and results of operations than if wemaintained more diverse assets or lines of business.

***An economicslowdown in the Asia Pacific region could have a material adverse effect on ourbusiness, financial position and results of operations.***

A number of the port callsmade by our vessels are in the Asia Pacific region. As a result, a negativechange in economic conditions in any Asia Pacific country, particularly inChina or Japan, may have an adverse effect on our business and results ofoperations, as well as our future prospects. In particular, in recent years,China has been one of the world’s fastest growing economies in terms of grossdomestic product. We cannot assure you that such growth will be sustained orthat the Chinese economy will not experience negative growth in the future.Moreover, any slowdown in the economies of the United States, the EuropeanUnion or certain Asian countries could adversely affect economic growth in Chinaand elsewhere. Our business, financial position and results of operations, aswell as our future prospects, would likely be materially and adversely affectedby an economic downturn in any of these countries.

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***Charter hire ratesin the drybulk sector were recently near historically high levels and futuregrowth will depend on continued economic growth in the world economy thatexceeds the capacity of the growing world drybulk fleet’s ability to match it.***

The drybulk shippingsector, in which we anticipate reinvesting,****is cyclicalwith attendant volatility in profitability, charter rates and vessel values.Charter hire rates for the drybulk sector reached near historically high levelsin late 2004 and then declined significantly during 2005, before recoveringsomewhat in 2006. We anticipate that future demand for any as yet unidentifieddrybulk carriers in which we invest, and in turn the future charter hire ratesfor any drybulk carriers we acquire, will be dependent upon continued economicgrowth in the world’s economy, particularly in China and India, and will beinfluenced by seasonal and regional changes in demand and changes in thecapacity of the world’s drybulk fleet. We believe the capacity of the world’s drybulkfleet will increase and there can be no assurance that economic growth willcontinue. A decline in demand for commodities transported in drybulk carriersor an increase in supply of drybulk carriers could cause a decline in charterhire rates which could have a material adverse effect on the return on anyinvestment we make in the drybulk sector.

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

The market supply ofcontainerships has been increasing, and the number of containerships on orderhas recently reached historic highs. These newbuildings began being deliveredin significant numbers at the beginning of 2007. An over-supply ofcontainership capacity could result in a reduction of charter hire rates. We donot hedge against such risk. As such, if such a reduction occurs upon theexpiration or termination of our containerships’ current charters when weexpect to have to charter three of the vessels in our fleet, we may only beable to recharter those containerships at reduced or unprofitable rates or wemay not be able to charter our vessels at all.

***We may have difficulty properly managing our growththrough acquisitions of additional vessels.***

We intend to growour business by ordering newbuildings and through selective acquisitions ofadditional vessels. Our future growth will primarily depend on:

·       locatingand acquiring suitable vessels;

·       identifyingand consummating vessel acquisitions or joint ventures relating to vesselacquisitions;

·       enlargingour customer base;

·       developmentsin the charter markets in which we operate that make it attractive for us toexpand our fleet;

·       managingour expansion;

·       theoperations of the shipyard building any newbuildings we may order; and

·       obtainingrequired financing on acceptable terms.

During periods in whichcharter hire rates are high, vessel values generally are high as well, and itmay be difficult to acquire vessels at favorable prices. In addition, growingany business by acquisition presents numerous risks, such as managingrelationships with customers and integrating newly acquired assets intoexisting infrastructure. We cannot give any assurance that we will besuccessful in executing our growth plans or that we will not incur significantexpenses and losses in connection with our future growth efforts.

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***Delays indeliveries of our additional 27 newbuilding containerships or the onesecondhand containership we have agreed to acquire could harm our operatingresults.***

The additional 27****newbuilding and one****secondhandcontainership we have agreed to acquire are expected to be delivered to us atvarious times between 2007 and 2010. Delays in the delivery of these vessels, or any othernewbuildings we may order or secondhand vessels we may agree to acquire, woulddelay our receipt of revenues under the arranged time charters and couldpossibly result in the cancellation of those time charters, and thereforeadversely affect our anticipated results of operations.

The delivery of thenewbuildings could be delayed because of, among other things:

·       workstoppages or other labor disturbances or other events that disrupt theoperations of the shipyard building the vessels;

·       qualityor engineering problems;

·       changesin governmental regulations or maritime self-regulatory organization standards;

·       lackof raw materials;

·       bankruptcyor other financial crisis of the shipyard building the vessel;

·       ourinability to obtain requisite financing or make timely payments;

·       abacklog of orders at the shipyard building the vessel;

·       hostilities,political or economic disturbances in the countries where the containershipsare being built;

·       weatherinterference or catastrophic event, such as a major earthquake or fire;

·       ourrequests for changes to the original vessel specifications;

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

·       ourinability to obtain requisite permits or approvals; or

·       adispute with the shipyard building the vessel.

The delivery of thesecondhand containerships we have agreed to acquire could be delayed becauseof, among other things, hostilities or political disturbances, non-performanceof the purchase agreement with respect to the vessels by the seller, ourinability to obtain requisite permits, approvals or financing or damage to ordestruction of the vessels while being operated by the seller prior to thedelivery date.

***Certain of thecontainerships in our current and contracted fleet are subject to purchaseoptions held by the charterers of the respective vessels, which, if exercised,could reduce the size of our containership fleet and reduce our futurerevenues.***

The charter with respect to the *APL Belgium* includes an option for thecharterer, APL-NOL, to purchase the vessel in January 2008 at a price of$44.0 million or in January 2010 at a price of $39.0 million. Althoughwhen negotiated the option exercise prices with respect to this vesselreflected market prices at the time the options become exercisable, whichapproximated the vessel’s book value net of depreciation, we currently estimatethat the $44.0 million and $39.0 million option exercise prices willbe below the fair market value of the vessel. We delivered the *APL England* to APL-NOL on March 7, 2007,pursuant to its exercise of an option to purchase the *APL England*from us for $44.0 million. APL-NOL has recently exercised itsoptions to purchase the *APL Scotland*and the *APLHolland* from us for $44.0 million each upon theexpiration of the vessels’ current charters in June 2007 and July 2007,respectively. Although when negotiated the option exercise prices with respectto these three vessels reflected market prices at the 

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time the options becameexercisable, which approximated the vessels’ book values net of depreciation,the $44.0 million option exercise prices were below the fair market valueof the vessels at the time the options were exercised. The sales of these threevessels have, and will, reduce the size of our fleet and if APL-NOL were toexercise its option with respect to the *APL Belgium*,the size of our fleet would be further reduced. We have not yet, and may not beable to, replace these vessels at a cost equal to the option prices paid byAPL-NOL. As a result, our revenues and results of operations may be adverselyaffected.

In addition, thechartering arrangements with respect to the *HN S4001,*the *HN S4002,*the*HN S4003,*the *HN S4004*and the *HN S4005*include options for thecharterer, CMA-CGM, to purchase the vessels eight years after the commencementof the respective charters, which, based on the respective expected deliverydates for these vessels, is expected to fall in April 2017, June 2017,August 2017, October 2017 and December 2017, respectively, eachfor $78.0 million. The option exercise prices with respect to these vesselsreflect an estimate of market prices, which are in excess of the vessels’ bookvalues net of depreciation, at the time the options become exercisable. The$78.0 million option prices reflect an estimate of the fair market valueof the vessels at the time we would be required to sell the vessels uponexercise of the options. If CMA-CGM were to exercise these options with respectto any or all of these vessels, the expected size of our combined containershipfleet would be reduced and, due to the scarcity of secondhand containershipsavailable for acquisition and the delay in delivery associated withcommissioning newbuildings, we may be unable to replace these vessels withother comparable vessels, or any other vessels, quickly or, if containershipvalues were higher than currently anticipated at the time we were required tosell these vessels, at a cost equal to the purchase price paid by CMA-CGM. As aresult, if these purchase options were to be exercised, the expected size ofour combined containership fleet would be reduced, and as a result ouranticipated level of revenues would be reduced.

***Operating older vessels may result in increasedoperating costs and reduced fleet utilization.***

In general, the costs to maintain a vessel in goodoperating condition increase with the age of the vessel. Older vessels aretypically less fuel-efficient than more recently constructed vessels due toimprovements in engine technology.

Governmental regulations,safety and other equipment standards related to the age of vessels may requireexpenditures for alterations or the addition of new equipment to some of ourvessels, and may restrict the type of activities in which these vessels mayengage. We cannot assure you that, as our vessels age, market conditions willjustify such expenditures or will enable us to profitably operate our vesselsduring the remainder of their estimated useful lives.

***Over time,containership values may fluctuate substantially and, if these values are lowerat a time when we are attempting to dispose of a vessel, we may incur a loss.***

Containershipvalues can fluctuate substantially over time due to a number of differentfactors, including:

·       prevailingeconomic conditions in the markets in which containerships operate;

·       asubstantial or extended decline in world trade;

·       increasesin the supply of containership capacity;

·       prevailingcharter rates; and

·       thecost of retrofitting or modifying existing ships, as a result of technologicaladvances in vessel design or equipment, changes in applicable environmental orother regulations or standards, or otherwise.

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In the future, if themarket values of our vessels deteriorate significantly, we may be required torecord an impairment charge in our financial statements, which could adverselyaffect our results of operations. If a charter terminates, we may be unable tore-charter the vessel at an acceptable rate and, rather than continue to incurcosts to maintain and finance the vessel, may seek to dispose of it. Ourinability to dispose of the containership at a reasonable price could result ina loss on its sale and adversely affect our results of operations and financialcondition.

***Our growth dependson our ability to expand relationships with existing charterers and to obtainnew time charterers, for which we will face substantial competition.***

One of ourprincipal objectives is to acquire additional containerships in conjunctionwith entering into additional multi-year, fixed-rate time charters for theseships. The process of obtaining new multi-year time charters is highlycompetitive and generally involves an intensive screening process andcompetitive bids, and often extends for several months. Container shippingcharters are awarded based upon a variety of factors relating to the vesseloperator, including:

·       shippingindustry relationships and reputation for customer service and safety;

·       containershipping experience and quality of ship operations (including costeffectiveness);

·       qualityand experience of seafaring crew;

·       theability to finance containerships at competitive rates and financial stabilityin general;

·       relationshipswith shipyards and the ability to get suitable berths;

·       constructionmanagement experience, including the ability to obtain on-time delivery of newships according to customer specifications;

·       willingnessto accept operational risks pursuant to the charter, such as allowingtermination of the charter for force majeure events; and

·       competitivenessof the bid in terms of overall price.

We expect substantialcompetition from a number of experienced companies, including state-sponsoredentities and major shipping companies. Some of these competitors havesignificantly greater financial resources than we do, and can therefore operatelarger fleets and may be able to offer better charter rates. We anticipate thatan increasing number of marine transportation companies will enter thecontainership sector, including many with strong reputations and extensiveresources and experience. This increased competition may cause greater pricecompetition for time charters. As a result of these factors, we may be unableto expand our relationships with existing customers or to obtain new customerson a profitable basis, if at all, which would have a material adverse effect onour business, results of operations and financial condition and our ability topay dividends to our stockholders.

***We may have moredifficulty entering into multi-year, fixed-rate time charters if a more activeshort-term or spot container shipping market develops.***

One of our principalstrategies is to enter into multi-year, fixed-rate containership time chartersin both strong and weak charter rate environments, although in weaker charterrate environments we would generally expect to target somewhat shorter charterterms of three to six years. As more vessels become available for the spot orshort-term market, we may have difficulty entering into additional multi-year,fixed-rate time charters for our containerships due to the increased supply ofcontainerships and the possibility of lower rates in the spot market and, as aresult, our cash flows may be subject to instability in the long-term. A moreactive short-term or spot market may require us to enter into charters based onchanging market rates, as opposed to contracts based on a fixed rate, whichcould result in a decrease in 

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our cashflows and net income in periods when the market for container shipping isdepressed or insufficient funds are available to cover our financing costs forrelated containerships.

***In the highlycompetitive international container shipping industry and, followingreinvestment by us in the drybulk sector, drybulk shipping industry, we may notbe able to compete for charters with new entrants or established companies withgreater resources.***

We employ our containerships, and expect to employ anydrybulk carriers we acquire in the future, in highly competitive markets thatare capital intensive and highly fragmented.****Competitionarises primarily from other vessel owners, some of whom, particularly in thedrybulk sector, have substantially larger fleets than we do.

Competition for the transportation of drybulk cargoescan be intense and depends upon price, location, size, age, condition andacceptability of the vessel and its managers to the charterers. Due in part tothe highly fragmented market, competitors with greater resources could enterthe market and operate larger fleets through consolidations or acquisitions andmay be able to offer more competitive prices and vessels.

A number of our competitorsin the containership sector have been financed by the German KG(Kommanditgesellschaft) system, which provided tax benefits to privateinvestors. Although the German tax law has been amended recently tosignificantly restrict the tax benefits to taxpayers who invest after November 5,2005, the tax benefits afforded to all investors in the KG-financed entitieswill continue to be significant, and such entities will continue to beattractive investments. These tax benefits allow the KG-financed entitiesmore flexibility in offering lower charter rates to liner companies. As aresult of the flexibility to offer lower charter rates, KG-financedcontainership owners comprise a substantial portion of the containershipcharter market. Further, since the charter rate is generally considered to beone of the principal factors in a charterer’s decision to charter a vessel, therates offered by these sizeable competitors can reduce the rates throughout thecharter market.

***We depend upon alimited number of customers for a large part of our revenues. The loss of thesecustomers could adversely affect our financial performance.***

Our customers in thecontainership sector consist of a limited number of liner operators. Thepercentage of our revenues derived from these customers has varied in pastyears. In the past several years APL-NOL, Hanjin Shipping and HMM Korea haverepresented substantial amounts of our revenue. During 2005, two customers,APL-NOL and China Shipping, generated 24% of our revenues and in 2006, 26% of ourrevenues were generated by two customers, APL-NOL and China Shipping. We expect that alimited number of liner companies may continue to generate a substantialportion of our revenues. If these liner operators cease doing business or donot fulfill their obligations under the charters for our vessels, our resultsof operations and cash flows could be adversely affected. Further, if weencounter any difficulties in our relationships with these charterers, ourresults of operations, cash flows and financial condition could be adverselyaffected.

***We will derivesubstantially all of our revenues from time charters and the loss of any timecharter could result in a significant loss of revenue and cash flows.***

Most of our vessels are chartered to charterers underlong-term time charters, and these charterers’ payments will be ourprimary source of operating cash flow.

We could lose acharterer or the benefits of a time charter if:

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

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·       thecharterer exercises certain specific limited rights to terminate the charter;or

·       thecharterer terminates the charter because the ship fails to meet certainguaranteed speed and fuel consumption requirements and we are unable to rectifythe situation or otherwise reach a mutually acceptable settlement.

If we lose a time charter, we may be unable to re-deploythe related vessel on terms as favorable to us. In the worst case, we may notreceive any revenues from that vessel, but we may be required to pay expensesnecessary to maintain the vessel in proper operating condition.

The loss of any of ourcharterers, time charters or vessels, or a decline in payments under ourcharters, could have a material adverse effect on our business, results ofoperations and financial condition and our ability to pay dividends to ourstockholders.

***Our ability to paydividends may be limited by the amount of cash we generate from operationsfollowing the payment of fees and expenses, by the establishment of anyreserves and by additional factors unrelated to our profitability.***

We intend to payregular quarterly dividends. The amount of dividends we will be able to paywill depend upon the amount of cash we generate from our operations. We maynot, however, have sufficient cash available each quarter to pay dividends, asa result of insufficient levels of profit, restrictions on the payment ofdividends and the decisions of our management and directors. The amount of cashwe will have available for dividends may fluctuate based upon, among otherthings:

·       therates we obtain from our charters as well as the rates obtained upon theexpiration of our existing charters;

·       thelevel of our operating costs;

·       thenumber of unscheduled off-hire days and the timing of, and number of daysrequired for, scheduled drydocking of our containerships;

·       vesselacquisitions and related financings, such as restrictions in our creditfacilities and in any future debt programs;

·       prevailingglobal and regional economic and political conditions;

·       theeffect of governmental regulations and maritime self-regulatory organizationstandards on the conduct of our business; and

·       changesin the basis of taxation of our activities in various jurisdictions.

The actual amountof cash we will have available for dividends will also depend on many factors,including:

·       changesin our operating cash flows, capital expenditure requirements, working capitalrequirements and other cash needs;

·       ourfleet expansion strategy and associated uses of our cash and our financingrequirements;

·       modificationor revocation of our dividend policy by our board of directors;

·       theamount of any cash reserves established by our board of directors; and

·       restrictionsunder Marshall Islands law.

The amount of cash wegenerate from our operations may differ materially from our net income or lossfor the period, which will be affected by non-cash items. We may incur otherexpenses or liabilities that could reduce or eliminate the cash available fordistribution as dividends. Our credit facilities also restrict 

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ourability to declare and pay dividends if an event of default has occurred and iscontinuing or if the payment of the dividend would result in an event ofdefault. In addition, Marshall Islands law generally prohibits the payment ofdividends other than from surplus (retained earnings and the excess ofconsideration received for the sale of stock above the par value of the stock),or while a company is insolvent or if it would be rendered insolvent by thepayment of such a dividend, and any such dividend may be discontinued at thediscretion of our board of directors. As a result of these and the otherfactors mentioned above, we may pay dividends during periods when we recordlosses and may not pay dividends during periods when we record net income.

***We are a holdingcompany and we depend on the ability of our subsidiaries to distribute funds tous in order to satisfy our financial obligations and to make dividend payments.***

We are a holding companyand our subsidiaries conduct all of our operations and own all of our operatingassets. We have no significant assets other than the equity interests in oursubsidiaries. As a result, our ability to make dividend payments depends on oursubsidiaries and their ability to distribute funds to us. The ability of asubsidiary to make these distributions could be affected by a claim or otheraction by a third party, including a creditor, or by the law of theirrespective jurisdictions of incorporation which regulates the payment of dividendsby companies. If we are unable to obtain funds from our subsidiaries, our boardof directors may exercise its discretion not to declare or pay dividends. We donot intend to seek to obtain funds from other sources to pay dividends.

***Our creditfacilities or other financing arrangements contain restrictive covenants thatmay limit our liquidity and our ability to expand our fleet.***

Our creditfacilities impose, and our future financing arrangements may impose, operatingand financial restrictions on us. These restrictions may limit our ability to:

·       incuradditional indebtedness;

·       createliens on our assets;

·       sellcapital stock of our subsidiaries;

·       makeinvestments;

·       engagein mergers or acquisitions;

·       paydividends; or

·       makecapital expenditures.

Certain of ourcredit facilities require us to maintain specified financial ratios and satisfyfinancial covenants. These financial ratios and covenants include requirementsthat we:

·       maintaina market value adjusted net worth of at least $400.0 million and stockholders’equity of at least $250.0 million;

·       ensurethat the aggregate market value of the vessels in our fleet exceeds 145.0% ofour net consolidated debt at all times;

·       maintainadjusted stockholders’ equity in excess of 30.0% of our total assets;

·       ensurethat our outstanding bank debt does not exceed 75.0% of the aggregate value ofour vessels mortgaged under the relevant credit facility;

·       ensurethat our total liabilities, at all times, will be no more than 70.0% of themarket value of our adjusted total assets;

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·       maintainat least $30.0 million in cash or cash equivalents; and

·       maintaina ratio of EBITDA to net interest expense of no less than 2.5 to 1.0.

A failure to meet ourpayment and other obligations could lead to defaults under our secured creditfacilities. Our lenders could then accelerate our indebtedness and foreclose onthe vessels in our fleet securing those credit facilities. The loss of thesevessels would have a material adverse effect on our operating results andfinancial condition.

***We will be exposedto fluctuations in the value of the British pound if the put options withrespect to certain vessels in our containership fleet are not exercised and ifrecent changes in U.K. law have the expected adverse affect on our counterpartiesto the transaction if the put option is exercised.***

We have entered into leasing arrangements with respectto six containerships in our current fleet, the *CSCL Europe*, the *CSCLAmerica*, the *Maersk Derby*(ex *P&O Nedlloyd Caracas*),the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* and the *CSCL Le Havre*(ex *HN 1561*). Pursuant to these arrangements, apartnership, formed by a Lloyds Bank subsidiary, its major stockholder, andsubsidiaries of Allocean Maritime Limited, holds legal title to the vesselsand, as to each vessel, has a put option exercisable upon an event of default,the total loss of a vessel or 61¤2 years intothe term of the lease to sell its 99.996% interest in the partnership owningthe vessel to Allco Finance (UK) Limited. Allco Finance (UK) Limited then hasthe option to put such interest to us and has written an option in favor of us(with a substantially similar exercise price) to acquire such interest, each ofwhich options are exercisable only after the Lloyds Bank subsidiary hasexercised its put option.

As part of these leasing arrangements, we made adeposit with The Royal Bank of Scotland, or RBS, as issuer of a letter ofcredit that supports our purchase obligations with respect to each of thesevessels. In relation to this deposit we will receive a pre-set amount,denominated in British pounds, which is expected to represent, after 61¤2years, approximately 75% of the original purchase price of each vessel shouldthe put option to sell these vessels not be exercised. If the value of theBritish pound declines against the dollar we may receive less compensation forthese vessels than anticipated. Although we have entered into forward contractsto economically hedge our exposure to currency fluctuations in connection withcertain aspects of the leasing transactions, we have not hedged againstfluctuations in the value of the British pound against the dollar with respectto the value of the deposit to which we would be entitled if the put option isnot exercised. As a result, our operating results could be affected if thevalue of the British pound against the dollar were to deteriorate at the timethese amounts were available to us.

If the put options are not exercised we would also beentitled to charter-in the vessels for an additional 12 years at ratesadjusted to market no less than every two years at our option, rather than atthe nominal rate in effect for the first 61¤2 years of theleasing arrangement. In this case we would also expect to exercise options thatwould entitle us to approximately 49% of the amount in excess fees over thepre-set level of the charter-in rate. However, under these arrangements anddepending on market conditions, we may, for certain periods, be forced to payhigher rates to charter-in these vessels than those at which we charter thesevessels to our customers. As a result, we could operate these vessels at a lossand our net income could be adversely affected.

On July 19, 2006,legislation was enacted in the United Kingdom that is expected to result in aclaw-back or recapture of certain of the benefits that were expected to beavailable to the counterparties to these transactions at their inception.Accordingly, the put option price is expected to be increased to compensate thecounterparties for the loss of these benefits. We currently expect the increasein the put option price we will be obligated to pay if the put is exercisedwill be approximately £46 million, although the increase in this put pricecould vary. In 2006 we recognized an expense of approximately $13 million,which is the amount by which we currently expect the increase in the put priceto exceed the cash benefits we expect to receive, and had expected to retain,from these transactions.

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***Because we generateall of our revenues in United States dollars but incur a significant portion ofour expenses in other currencies, exchange rate fluctuations could hurt ourresults of operations.***

We generate all of ourrevenues in United States dollars and for the year ended December 31,2006, we incurred approximately 43.1% of our vessels’ expenses incurrencies other than United States dollars. This difference could lead tofluctuations in net income due to changes in the value of the United Statesdollar relative to the other currencies, in particular the Euro. Expensesincurred in foreign currencies against which the United States dollar falls invalue could increase, thereby decreasing our net income. We have not hedgedthese risks. Our operating results could suffer as a result.

***Our manager haspled to one count of negligent discharge of oil from the Henry (ex APLGuatemala) and one count of obstruction of justice, based on a charge ofattempted concealment of the source of the discharge. Any violation of theterms under our plea agreement, or any penalties or heightened environmentalcompliance plan requirements imposed as a result of any alleged discharge fromany other vessel in our fleet calling at U.S. ports could negatively affect ouroperations and business.***

In the summer of 2001, oneof our vessels, the *Henry (ex APLGuatemala),* experienced engine damage at sea that resulted in anaccumulation of oil and oily water in the vessel’s engine room. The U.S. CoastGuard found oil in the overboard discharge pipe from the vessel’s oily waterseparator. Subsequently, on July 2, 2001, when the vessel was at anchor inLong Beach, California, representatives of our manager notified authorities ofthe presence of oil on the water on the starboard side of the vessel. On July 3,2001, oil was found in an opening through which seawater is taken in to coolthe vessel’s engines. The U.S. Attorney’s Office for the Central District ofCalifornia conducted a criminal investigation into both of these matters thatshifted from the conditions observed in June 2001 to the July 2release and the events that followed it. Our manager entered into a pleaagreement with the U.S. Attorney, on behalf of the government, which was filedwith the U.S. District Court on June 20, 2006, pursuant to which ourmanager agreed to plead guilty to one count of negligent discharge of oil andone count of obstruction of justice, based on a charge of attempted concealmentof the source of the discharge. Consistent with the government’s practice insimilar cases, our manager agreed to develop and implement a third-partyconsultant monitored environmental compliance plan and to designate an internalcorporate compliance manager. This compliance plan would require our manager toprepare an environmental compliance plan manual for approval by such third-partyenvironmental consultant and the U.S. government. The program would alsorequire our manager to arrange for, fund and complete a series of audits of itsfleet management offices and of waste streams of the vessels it manages,including all of the vessels in our fleet that call at U.S. ports, as well asan independent, third-party focused environmental compliance plan audit.Our manager also agreed to a probation period of three years under the pleaagreement. Our manager further agreed to pay an aggregate of $500,000 inpenalties in connection with the charges of negligent discharge and obstructionof justice under the plea agreement, with half of the penalties to be appliedto community service projects that will benefit, restore or preserve theenvironment and ecosystems in the central California area. On August 14,2006, the court accepted our manager’s guilty plea to the two counts and, on December 4,2006, sentenced our manager in accordance with the terms of the plea agreement.****Any violation of this environmental compliance plan or ofthe terms of our manager’s probation or any penalties, restitution orheightened environmental compliance plan requirements that are imposed relatingto alleged discharges in any other action involving our fleet or our managercould negatively affect our operations and business.

***We are subject toregulation and liability under environmental laws that could requiresignificant expenditures and affect our cash flows and net income.***

Our business and the operation of our vessels arematerially affected by environmental regulation in the form of international,national, state and local laws, regulations, conventions and standards in forcein international waters and the jurisdictions in which our vessels operate, aswell as in the country or 

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countries of theirregistration, including those governing the management and disposal ofhazardous substances and wastes, the cleanup of oil spills and othercontamination, air emissions, water discharges and ballast water management.Because such conventions, laws, and regulations are often revised, we cannotpredict the ultimate cost of complying with such requirements or the impactthereof on the resale price or useful life of our vessels. Additional conventions,laws and regulations may be adopted that could limit our ability to do businessor increase the cost of doing business and which may materially and adverselyaffect our operations. We are required by various governmental and quasi-governmentalagencies to obtain certain permits, licenses, certificates and financialassurances with respect to our operations. Many environmental requirements aredesigned to reduce the risk of pollution, such as oil spills, and ourcompliance with these requirements can be costly.

Environmental requirements can also affect the resalevalue or useful lives of our vessels, could require a reduction in cargocapacity, ship modifications or operational changes or restrictions, could leadto decreased availability of insurance coverage for environmental matters orresult in the denial of access to certain jurisdictional waters or ports, ordetention in certain ports. Under local, national and foreign laws, as well asinternational treaties and conventions, we could incur material liabilities,including cleanup obligations and natural resource damages liability, in theevent that there is a release of petroleum or other hazardous material from ourvessels or otherwise in connection with our operations. We could also become subjectto personal injury or property damage claims relating to the release ofhazardous materials associated with our existing or historic operations.Violations of, or liabilities under, environmental requirements can result insubstantial penalties, fines and other sanctions, including in certaininstances, seizure or detention of our vessels.

The operation of our vessels is also affected by therequirements set forth in the International Maritime Organization’s, or IMO’s,International Management Code for the Safe Operation of Ships and PollutionPrevention, or the ISM Code. The ISM Code requires shipowners and bareboatcharterers to develop and maintain an extensive “Safety Management System” thatincludes the adoption of a safety and environmental protection policy settingforth instructions and procedures for safe operation and describing proceduresfor dealing with emergencies. Failure to comply with the ISM Code may subjectus to increased liability, may decrease available insurance coverage for the affectedships, and may result in denial of access to, or detention in, certain ports.

In addition, in complyingwith existing environmental laws and regulations and those that may be adopted,we may incur significant costs in meeting new maintenance and inspectionrequirements and new restrictions on air emissions from our containerships, indeveloping contingency arrangements for potential spills and in obtaininginsurance coverage. Government regulation of vessels, particularly in the areasof safety and environmental requirements, can be expected to become stricter inthe future and could require us to incur significant capital expenditures onour vessels to keep them in compliance, or even to scrap or sell certainvessels altogether. As a result of accidents such as the November 2002 oilspill relating to the loss of the *m.t.Prestige*, a 26-year old single-hull product tanker unrelatedto us, we believe that regulation of the shipping industry will continue tobecome more stringent and more expensive for us and our competitors.Substantial violations of applicable requirements or a catastrophic release ofbunker fuel from one of our vessels could have a material adverse impact on ourfinancial condition, results of operations and our ability to pay dividends toour stockholders.

***Increasedinspection procedures, tighter import and export controls and new securityregulations could cause disruption of our containership business and of thebusiness of any drybulk carriers we acquire in the future.***

International container and drybulk shipping aresubject to security and customs inspection and related procedures in countriesof origin, destination, and certain trans-shipment points. Theseinspection procedures can result in cargo seizure, delays in the loading, offloading,trans-shipment, or delivery of 

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containers, and thelevying of customs duties, fines or other penalties against exporters orimporters and, in some cases, charterers and charter owners.

Since the events of September 11, 2001, U.S.authorities have more than doubled container inspection rates to over 5% of allimported containers. Government investment in non-intrusive container scanningtechnology has grown and there is interest in electronic monitoring technology,including so-called “e-seals” and “smart” containers, that would enableremote, centralized monitoring of containers during shipment to identifytampering with or opening of the containers, along with potentially measuringother characteristics such as temperature, air pressure, motion, chemicals,biological agents and radiation.

It is unclear whatchanges, if any, to the existing inspection procedures will ultimately beproposed or implemented, or how any such changes will affect the industry. Itis possible that such changes could impose additional financial and legalobligations, including additional responsibility for inspecting and recordingthe contents of containers. Changes to the inspection procedures and containerand drybulk security could result in additional costs and obligations oncarriers and may, in certain cases, render the shipment of certain types ofgoods by container uneconomical or impractical. Additional costs may arise fromcurrent inspection procedures or future proposals may not be fully recoverablefrom customers through higher rates or security surcharges.

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

A government of a ship’sregistry could requisition for title or seize our vessels. Requisition for titleoccurs when a government takes control of a ship and becomes the owner. Also, agovernment could requisition our containerships for hire. Requisition for hireoccurs when a government takes control of a ship and effectively becomes thecharterer at dictated charter rates. Generally, requisitions occur during aperiod of war or emergency. Government requisition of one or more of ourvessels may negatively impact our revenues and results of operations.

***Terrorist attacks and international hostilities couldaffect our results of operations and financial condition.***

Terrorist attacks such as the attacks on the UnitedStates on September 11, 2001, and the continuing response of the UnitedStates to these attacks, as well as the threat of future terrorist attacks,continue to cause uncertainty in the world financial markets and may affect ourbusiness, results of operations and financial condition. The recent conflict inIraq may lead to additional acts of terrorism, regional conflict and otherarmed conflicts around the world, which may contribute to further economicinstability in the global financial markets. These uncertainties could alsoadversely affect our ability to obtain additional financing on terms acceptableto us, or at all.

Terrorist attacks targeted at sea vessels, such as theOctober 2002 attack in Yemen on the *VLCC Limburg*,a ship not related to us, may in the future also negatively affect ouroperations and financial condition and directly impact our containerships orour customers. Future terrorist attacks could result in increased volatility ofthe financial markets in the United States and globally and could result in aneconomic recession affecting the United States or the entire world. Any ofthese occurrences could have a material adverse impact on our operatingresults, revenue and costs.

Changing economic,political and governmental conditions in the countries where we are engaged inbusiness or where our vessels are registered could affect us. In addition,future hostilities or other political instability in regions where our vesselstrade could also affect our trade patterns and adversely affect our operationsand performance.

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***Risks inherent inthe operation of ocean-going vessels could affect our business andreputation, which could adversely affect our expenses, net income and stockprice.***

The operation ofocean-going vessels carries inherent risks. These risks include thepossibility of:

·       marinedisaster;

·       environmentalaccidents;

·       grounding,fire, explosions and collisions;

·       cargoand property losses or damage;

·       businessinterruptions caused by mechanical failure, human error, war, terrorism,political action in various countries, or adverse weather conditions;

·       workstoppages or other labor problems with crew members serving on ourvessels, substantially all of whom are unionized and covered by collectivebargaining agreements; and

·       piracy.

Such occurrences couldresult in death or injury to persons, loss of property or environmental damage,delays in the delivery of cargo, loss of revenues from or termination ofcharter contracts, governmental fines, penalties or restrictions on conductingbusiness, higher insurance rates, and damage to our reputation and customerrelationships generally. Any of these circumstances or events could increaseour costs or lower our revenues, which could result in reduction in the marketprice of our shares of common stock. The involvement of our vessels in anenvironmental disaster may harm our reputation as a safe and reliable vesselowner and operator.

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

The operation of any vessel includes risks such asmechanical failure, collision, fire, contact with floating objects, propertyloss, cargo loss or damage and business interruption due to politicalcircumstances in foreign countries, hostilities and labor strikes. In addition,there is always an inherent possibility of a marine disaster, including oilspills and other environmental mishaps. There are also liabilities arising fromowning and operating vessels in international trade. We procure insurance forour fleet against risks commonly insured against by vessel owners and operators.Our current insurance includes (i) hull and machinery insurance coveringdamage to our vessels’ hull and machinery from, among other things, contactwith free and floating objects, (ii) war risks insurance covering lossesassociated with the outbreak or escalation of hostilities and (iii) protectionand indemnity insurance (which includes environmental damage and pollutioninsurance) covering third-party and crew liabilities such as expensesresulting from the injury or death of crew members, passengers and other thirdparties, the loss or damage to cargo, third-party claims arising fromcollisions with other vessels, damage to other third-party property,pollution arising from oil or other substances and salvage, towing and otherrelated costs and loss of hire insurance for the *CSCL Europe*, the *CSCLAmerica*, the *CSCL Pusan(ex HN 1559)* and the *CSCL Le Havre*(ex*HN 1561*).

We can give no assurance that we are adequatelyinsured against all risks or that our insurers will pay a particular claim.Even if our insurance coverage is adequate to cover our losses, we may not beable to obtain a timely replacement vessel in the event of a loss. Under theterms of our credit facilities, we will be subject to restrictions on the useof any proceeds we may receive from claims under our insurance policies.Furthermore, in the future, we may not be able to obtain adequate insurancecoverage at reasonable rates for our fleet. We may also be subject to calls, orpremiums, in amounts based not only on our own claim records but also the claimrecords of all other members of the protection and indemnity associations 

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through which we receiveindemnity insurance coverage for tort liability. Our insurance policies alsocontain deductibles, limitations and exclusions which, although we believe arestandard in the shipping industry, may nevertheless increase our costs.

In addition, we do notcarry loss of hire insurance (other than for the *CSCL Europe*, the *CSCL America*,the *CSCL Pusan (ex HN 1559)*and the *CSCL Le Havre*(ex *HN 1561*) to satisfy our loan agreement requirements). Loss of hireinsurance covers the loss of revenue during extended vessel off-hire periods,such as those that occur during an unscheduled drydocking due to damage to thevessel from accidents. Accordingly, any loss of a vessel or any extended periodof vessel off-hire, due to an accident or otherwise, could have a materialadverse effect on our business, results of operations and financial conditionand our ability to pay dividends to our stockholders.

***Maritime claimants could arrest our vessels, whichcould interrupt our cash flows.***

Crew members, suppliers of goods and services to avessel, shippers of cargo and other parties may be entitled to a maritime lienagainst that vessel for unsatisfied debts, claims or damages. In manyjurisdictions, a maritime lienholder may enforce its lien by arresting a vesselthrough foreclosure proceedings. The arrest or attachment of one or more of ourvessels could interrupt our cash flows and require us to pay large sums of moneyto have the arrest lifted.

In addition, in somejurisdictions, such as South Africa, under the “sister ship” theory ofliability, a claimant may arrest both the vessel that is subject to theclaimant’s maritime lien and any “associated” vessel, which is any vessel ownedor 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 ourships.

***The aging of ourfleet may result in increased operating costs in the future, which couldadversely affect our earnings.***

In general, the cost ofmaintaining a vessel in good operating condition increases with the age of thevessel. As our fleet ages, we will incur increased costs. Older vessels aretypically less fuel efficient and more costly to maintain than more recentlyconstructed vessels. Cargo insurance rates also increase with the age of avessel, making older vessels less desirable to charterers. Governmentalregulations and safety or other equipment standards related to the age of avessel may also require expenditures for alterations or the addition of newequipment to our vessels and may restrict the type of activities in which ourvessels may engage. Although our current fleet of 31 containerships had anaverage age (weighted by TEU capacity) of approximately 11.6 yearsas of May 15, 2007, we cannot assure you that, as our vessels age, marketconditions will justify such expenditures or will enable us to profitablyoperate our vessels during the remainder of their expected useful lives.

***Compliance withsafety and other requirements imposed by classification societies may be verycostly and may adversely affect our business.***

The hull and machinery of every commercial vessel mustbe classed by a classification society authorized by its country of registry.The classification society certifies that a vessel is safe and seaworthy inaccordance with the applicable rules and regulations of the country ofregistry of the vessel and the Safety of Life at Sea Convention, and all vesselsmust be awarded ISM certification.

A vessel must undergo annual surveys, intermediatesurveys and special surveys. In lieu of a special survey, a vessel’s machinerymay be on a continuous survey cycle, under which the machinery would besurveyed periodically over a five-year period. Each of the vessels in our fleetis on a special survey cycle for hull inspection and a continuous survey cyclefor machinery inspection.

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If any vessel does notmaintain its class or fails any annual, intermediate or special survey, and/orloses its certification, the vessel will be unable to trade between ports andwill be unemployable, and we could be in violation of certain covenants in ourloan agreements. This would negatively impact our operating results andfinancial condition.

***Our business depends upon certain employees who maynot necessarily continue to work for us.***

Our future success dependsto a significant extent upon our chief executive officer, Dr. JohnCoustas, and certain members of our senior management and that of our manager. Dr. Coustashas substantial experience in the container and drybulk shipping industries andhas worked with us and our manager for many years. He and others employed by usand our manager are crucial to the execution of our business strategies and tothe growth and development of our business. If the individuals were no longerto be affiliated with us or our manager, or if we were to otherwise cease to receiveadvisory services from them, we may be unable to recruit other employees withequivalent talent and experience, and our business and financial condition maysuffer as a result.

***The provisions inour employment arrangements with our chief executive officer restricting hisability to compete with us, like restrictive covenants generally, may not beenforceable.***

In connection with hisemployment agreement with us, Dr. Coustas, our chief executive officer,has entered into a restrictive covenant agreement with us under which he isprecluded during the term of his employment and for one year thereafter fromowning and operating drybulk ships or containerships larger than 2,500 TEUs andfrom acquiring or investing in a business that owns or operates such vessels.Courts generally do not favor the enforcement of such restrictions,particularly when they involve individuals and could be construed as infringingon their ability to be employed or to earn a livelihood. Our ability to enforcethese restrictions, should it ever become necessary, will depend upon thecircumstances that exist at the time enforcement is sought. We cannot beassured that a court would enforce the restrictions as written by way of aninjunction or that we could necessarily establish a case for damages as aresult of a violation of the restrictive covenants.

***We depend on our manager to operate our business.***

Pursuant to the management agreement and theindividual ship management agreements, our manager and its affiliates mayprovide us with certain of our officers and will provide us with technical,administrative and certain commercial services (including vessel maintenance,crewing, purchasing, shipyard supervision, insurance, assistance withregulatory compliance and financial services). Our operational success willdepend significantly upon our manager’s satisfactory performance of theseservices. Our business would be harmed if our manager failed to perform theseservices satisfactorily. In addition, if the management agreement were to beterminated or if its terms were to be altered, our business could be adverselyaffected, as we may not be able to immediately replace such services, and evenif replacement services were immediately available, the terms offered could beless favorable than the ones currently offered by our manager.

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

·       renewexisting charters upon their expiration;

·       obtainnew charters;

·       successfullyinteract with shipyards during periods of shipyard construction constraints;

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·       obtainfinancing on commercially acceptable terms;

·       maintainsatisfactory relationships with our charterers and suppliers; or

·       successfullyexecute our business strategies.

If our ability to do anyof the things described above is impaired, it could have a material adverseeffect on our business and affect our profitability.

***Our manager is a privately held company and there islittle or no publicly available information about it.***

The ability of our managerto continue providing services for our benefit will depend in part on its ownfinancial strength. Circumstances beyond our control could impair our manager’sfinancial strength, and because it is a privately held company, informationabout its financial strength is not available. As a result, our stockholdersmight have little advance warning of problems affecting our manager, eventhough these problems could have a material adverse effect on us. As part ofour reporting obligations as a public company, we will disclose informationregarding our manager that has a material impact on us to the extent that webecome aware of such information.

***We are a MarshallIslands corporation, and the Marshall Islands does not have a well developedbody of corporate law.***

Our corporate affairs aregoverned by our articles of incorporation and bylaws and by the MarshallIslands Business Corporations Act, or BCA. The provisions of the BCA aresimilar to provisions of the corporation laws of a number of states in theUnited States. However, there have been few judicial cases in the Republic ofThe Marshall Islands interpreting the BCA. The rights and fiduciaryresponsibilities of directors under the law of the Republic of The MarshallIslands are not as clearly established as the rights and fiduciaryresponsibilities of directors under statutes or judicial precedent in existencein certain U.S. jurisdictions. Stockholder rights may differ as well.While the BCA does specifically incorporate the non-statutory law, or judicialcase law, of the State of Delaware and other states with substantially similarlegislative provisions, our public stockholders may have more difficulty inprotecting their interests in the face of actions by the management, directorsor controlling stockholders than would stockholders of a corporationincorporated in a U.S. jurisdiction.

***It may be difficultto enforce service of process and enforcement of judgments against us and ourofficers and directors.***

We are a Marshall Islands corporation, and ourexecutive offices are located outside of the United States in Piraeus,Greece. A majority of our directors and officers reside outside of the United States,and a substantial portion of our assets and the assets of our officers anddirectors are located outside of the United States. As a result, you may havedifficulty serving legal process within the United States upon us or any ofthese persons. You may also have difficulty enforcing, both in and outside ofthe United States, judgments you may obtain in the U.S. courts against us orthese persons in any action, including actions based upon the civil liabilityprovisions of U.S. federal or state securities laws.

There is also substantialdoubt that the courts of the Marshall Islands or Greece would enter judgmentsin original actions brought in those courts predicated on U.S. federal or statesecurities laws.

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**Risks Relating toOur Common Stock**

***We are a “controlledcompany” under the New York Stock Exchange rules, and as such we are entitledto exemption from certain New York Stock Exchange corporate governancestandards, and you may not have the same protections afforded to stockholdersof companies that are subject to all of the New York Stock Exchange corporategovernance requirements.***

We are a “controlledcompany” within the meaning of the New York Stock Exchange corporate governancestandards. Under the New York Stock Exchange rules, a company of which morethan 50% of the voting power is held by another company or group is a “controlledcompany” and may elect not to comply with certain New York Stock Exchangecorporate governance requirements, including (1) the requirement that amajority of the board of directors consist of independent directors, (2) therequirement that the nominating committee be composed entirely of independentdirectors and have a written charter addressing the committee’s purpose andresponsibilities, (3) the requirement that the compensation committee becomposed entirely of independent directors and have a written charteraddressing the committee’s purpose and responsibilities and (4) therequirement of an annual performance evaluation of the nominating and corporategovernance and compensation committees. We may utilize these exemptions. As aresult, non-independent directors, including members of our management who alsoserve on our board of directors, may serve on the compensation or thenominating and corporate governance committees of our board of directors which,among other things, fix the compensation of our management, make stock and optionawards and resolve governance issues regarding us. Accordingly, you may nothave the same protections afforded to stockholders of companies that aresubject to all of the New York Stock Exchange corporate governancerequirements.

***The requirements of being a public company may strainour resources and distract management.***

As a public company, we are subject to the reportingrequirements of the Securities Exchange Act of 1934, as amended, and theSarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These requirements mayplace a burden on our systems and resources. The Securities Exchange Act of1934, as amended, requires that we file annual and current reports with respectto our business and financial condition. The Sarbanes-Oxley Act, among other things,requires that we maintain effective disclosure controls and procedures andinternal controls for financial reporting. In order to maintain and improve theeffectiveness of our disclosure controls and procedures and internal controlover financial reporting, significant resources and management oversight arerequired. This may divert management’s attention from other business concerns,which could have a material adverse effect on our business, financialcondition, results of operations and cash flows.

Inaddition, if we fail to maintain effective controls and procedures, wemay be unable to provide the financial information that publicly tradedcompanies are required to provide in a timely and reliable fashion. Any suchdelays or deficiencies could limit our ability to obtain financing, either inthe public capital markets or from private sources, and could thereby impedeour ability to implement our growth strategies. In addition, any such delays ordeficiencies could result in failure to meet the requirements for continuedlisting of our common stock on the New York Stock Exchange, which wouldadversely affect the liquidity of our common stock.

***Future sales of our common stock could cause themarket price of our common stock to decline.***

Sales of a substantial number of shares of our commonstock in the public market, or the perception that these sales could occur, maydepress the market price for our common stock. These sales could also impairour ability to raise additional capital through the sale of our equitysecurities in the future.

Although we do notcurrently have any plans to sell additional shares of our common stock, we mayissue additional shares of our common stock in the future and our stockholdersmay elect to sell large 

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numbersof shares held by them from time to time. The number of shares of common stockavailable for sale in the public market will be limited by restrictionsapplicable under securities laws and agreements that our chief executiveofficer, John Coustas, and the Coustas Family Trust entered into with theunderwriters of our initial public offering. Subject to certain exceptions,these agreements generally restrict our chief executive officer and the CoustasFamily Trust from directly or indirectly offering, selling, pledging, hedgingor otherwise disposing of our equity securities or any security that isconvertible into or exercisable or exchangeable for our equity securities andfrom engaging in certain other transactions relating to such securities until October 5,2008, without the prior written consent of Merrill Lynch, Pierce, Fenner &Smith Incorporated and Citigroup Global Markets Inc., the leadunderwriters in our initial public offering.

***The Coustas Family Trust, our principal existingstockholder, controls the outcome of matters on which our stockholders areentitled to vote and its interests may be different from yours.***

The Coustas Family Trust,under which our chief executive officer is both a beneficiary, together withother members of the Coustas Family, and the protector (which is analogous to atrustee), through Danaos Investments Limited, a corporation wholly-ownedby Dr. Coustas, owns, directly or indirectly, approximately 80.0% of ouroutstanding common stock.****This stockholder is able to controlthe outcome of matters on which our stockholders are entitled to vote,including the election of our entire board of directors and other significantcorporate actions. The interests of this stockholder may be different fromyours.

***Anti-takeover provisions in our organizationaldocuments could make it difficult for our stockholders to replace or remove ourcurrent board of directors or could have the effect of discouraging, delayingor preventing a merger or acquisition, which could adversely affect the marketprice of the shares of our common stock.***

Several provisions of ourarticles of incorporation and bylaws could make it difficult for ourstockholders to change the composition of our board of directors in any oneyear, preventing them from changing the composition of our management. Inaddition, the same provisions may discourage, delay or prevent a merger oracquisition that stockholders may consider favorable.

Theseprovisions:

·       authorizeour board of directors to issue “blank check” preferred stock without stockholderapproval;

·       providefor a classified board of directors with staggered, three-year terms;

·       prohibitcumulative voting in the election of directors;

·       authorizethe removal of directors only for cause and only upon the affirmative vote ofthe holders of at least 66 2¤3% of the outstanding stockentitled to vote for those directors;

·       prohibitstockholder action by written consent unless the written consent is signed byall stockholders entitled to vote on the action;

·       establishadvance notice requirements for nominations for election to our board ofdirectors or for proposing matters that can be acted on by stockholders atstockholder meetings; and

·       restrictbusiness combinations with interested stockholders.

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

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These anti-takeoverprovisions, including the provisions of our stockholder rights plan, couldsubstantially impede the ability of public stockholders to benefit from achange in control and, as a result, may adversely affect the market price ofour common stock and your ability to realize any potential change of controlpremium.

**Tax Risks**

In addition to thefollowing risk factors, you should read “Item 10. Additional Information—TaxConsiderations—Marshall Islands Tax Considerations,” “Item 10. AdditionalInformation—Tax Considerations—Liberian Tax Considerations,” and “Item 10. AdditionalInformation—Tax Considerations—United States Federal Income Tax Considerations”for a more complete discussion of expected material Marshall Islands, Liberianand U.S. federal income tax consequences of owning and disposing of our commonstock.

***We may have to pay tax on U.S.-source income,which would reduce our earnings.***

Under the United States Internal Revenue Code of 1986,as amended, 50% of the gross shipping income of a ship owning or charteringcorporation, such as ourselves, that is attributable to transportation thatbegins or ends, but that does not both begin and end, in the United States ischaracterized as U.S.-source shipping income and as such is subject to a4% U.S. federal income tax without allowance for deduction, unless that corporationqualifies for exemption from tax under Section 883 of the Code and theTreasury Regulations promulgated thereunder.

We expect that we do and will continue to qualify forthis statutory tax exemption and we currently intend to take this position forU.S. federal income tax return reporting purposes. However, there are factualcircumstances beyond our control that could cause us to lose the benefit ofthis tax exemption and thereby become subject to U.S. federal income tax on ourU.S.-source income. For example, 5% stockholders owned the majority ofour outstanding stock. This would preclude us from being eligible for the Section 883exemption based on the trading of our stock unless we can establish that 5%stockholders that are qualified stockholders for purposes of Section 883(and who comply with specified certification requirements) own, directly orunder applicable attribution rules, a sufficient portion of the shares held byour 5% stockholders so as to preclude the shares held by the 5% stockholdersthat are not so owned from representing 50% or more of our stock for more thanhalf of the number of days during the taxable year. There can be no assurancethat a sufficient number of our stockholders will be qualified stockholders forpurposes of Section 883 to enable us to continue to be eligible for the Section 883exemption.

If we or our subsidiariesare not entitled to this exemption under Section 883 for any taxable year,we or our subsidiaries would be subject for those years to a 4% U.S. federalincome tax on our gross U.S. source shipping income. The imposition ofthis taxation could have a negative effect on our business and would result indecreased earnings available for distribution to our stockholders. A number ofour charters contain provisions that obligate the charterers to reimburse usfor the 4% gross basis tax on our U.S. source shipping income.

***If we were treatedas a “passive foreign investment company,” certain adverse U.S. federal incometax consequences could result to U.S. stockholders.***

A foreign corporation will be treated as a “passiveforeign investment company,” or PFIC, for U.S. federal income tax purposesif at least 75% of its gross income for any taxable year consists of certaintypes of “passive income,” or at least 50% of the average value of thecorporation’s assets produce or are held for the production of those types of “passiveincome.” For purposes of these tests, “passive income” includes dividends,interest, and gains from the sale or exchange of investment property and rentsand royalties other than rents and royalties that are received from unrelatedparties in connection with the active conduct of a trade or business. Forpurposes of these tests, income derived from the performance of 

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services does not constitute“passive income.” U.S. stockholders of a PFIC are subject to a disadvantageousU.S. federal income tax regime with respect to the income derived by the PFIC,the distributions they receive from the PFIC, and the gain, if any, they derivefrom the sale or other disposition of their shares in the PFIC. If we aretreated as a PFIC for any taxable year, we will provide information to U.S.stockholders to enable them to make certain elections to alleviate certain ofthe adverse U.S. federal income tax consequences that would arise as a resultof holding an interest in a PFIC.

While there are legaluncertainties involved in this determination, we believe we should not betreated as a PFIC for the taxable year ending December 31, 2006. There isno assurance that the nature of our assets, income and operations will notchange or that we can avoid being treated as a PFIC for subsequent years.

***The enactment ofproposed legislation could affect whether dividends paid by us constitutequalified dividend income eligible for the preferential rate.***

Legislation has beenintroduced that would deny the preferential rate of federal income taxcurrently imposed on qualified dividend income with respect to dividendsreceived from a non-U.S. corporation, unless the non-U.S. corporation either iseligible for benefits of a comprehensive income tax treaty with the UnitedStates or is created or organized under the laws of a foreign country which hasa comprehensive income tax system. Because the Marshall Islands has not enteredinto a comprehensive income tax treaty with the United States and imposes onlylimited taxes on corporations organized under its laws, it is unlikely that wecould satisfy either of these requirements. Consequently, if this legislationwere enacted in its current form the preferential rate of federal income taxdiscussed at “Item 10. Additional Information—Tax Considerations—United StatesFederal Income Tax Considerations—United States Federal Income Taxation ofUnited States Holders—Distributions” may no longer be applicable to dividendsreceived from us. As of the date of this annual report, it is not possible topredict with certainty whether or in what form the proposed legislation will beenacted.

***If the regulationsregarding the exemption from Liberian taxation for non-resident corporationsissued by the Liberian Ministry of Finance were found to be invalid, the netincome and cash flows of our Liberian subsidiaries and therefore our net incomeand cash flows, would be materially reduced.***

A number of our subsidiaries are incorporated underthe laws of the Republic of Liberia. The Republic of Liberia enacted a newincome tax act effective as of January 1, 2001 (the “New Act”) which doesnot distinguish between the taxation of “non-resident” Liberian corporations,such as our Liberian subsidiaries, which conduct no business in Liberia andwere wholly exempt from taxation under the income tax law previously in effectsince 1977, and “resident” Liberian corporations which conduct business inLiberia and are, and were under the prior law, subject to taxation.

In 2004, the Liberian Ministry of Finance issuedregulations exempting non-resident corporations engaged in internationalshipping, such as our Liberian subsidiaries, from Liberian taxation under theNew Act retroactive to January 1, 2001. It is unclear whether theseregulations, which ostensibly conflict with the express terms of the New Actadopted by the Liberian legislature, are valid. However, the Liberian Ministryof Justice issued an opinion that the new regulations are a valid exercise ofthe regulatory authority of the Ministry of Finance. The Liberian Ministry ofFinance has not at any time since January 1, 2001 sought to collect taxesfrom any of our Liberian subsidiaries.

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

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**Item4.**                        Informationon the Company

**History andDevelopment of the Company**

Danaos Corporation is an international owner ofcontainerships, chartering its vessels to many of the world’s largest linercompanies. We are a corporation domesticated in the Republic of The MarshallIslands on October 7, 2005, under the Marshall Islands BusinessCorporations Act, after having been incorporated as a Liberian company in 1998in connection with the consolidation of our assets under Danaos HoldingsLimited. In connection with our domestication in the Marshall Islands wechanged our name from Danaos Holdings Limited to Danaos Corporation. Ourmanager, Danaos Shipping Company Limited, or Danaos Shipping, was founded byDimitris Coustas in 1972 and since that time it has continuously providedseaborne transportation services under the management of the Coustas family. Dr. JohnCoustas, our chief executive officer, assumed responsibility for our managementin 1987. Dr. Coustas has focused our business on chartering containershipsto liner companies and has overseen the expansion of our fleet from three multi-purposevessels in 1987 to the 31****containershipscomprising our current containership fleet. In October 2006, we completed aninitial public offering of our common stock in the United States and our commonstock began trading on the New York Stock Exchange. We maintain our principalexecutive offices at 14 Akti Kondyli, 185 45 Piraeus, Greece. Our telephonenumber at that address is +30 210 419 6480.

Our company operatesthrough a number of subsidiaries incorporated in Liberia, Cyprus or Singapore,all of which are wholly-owned by us and either directly or indirectly ownthe vessels in our fleet. A list of our active subsidiaries as of May 15,2007, and their jurisdictions of incorporation, is set forth in Exhibit 8to this annual report on Form 20-F.

**Business Overview**

We are an internationalowner of containerships, chartering our vessels to many of the world’s largestliner companies. We currently have a fleet of 31 containerships aggregating138,931 TEUs, making us among the ten largest containership charter ownersin the world, based on total TEU capacity. Our strategy is to charter ourcontainerships under multi-year, fixed-rate time charters to ageographically diverse group of liner companies, including many of the largestsuch companies globally, as measured by TEU capacity. Currently, thesecustomers include Maersk, COSCO, Hapag-Lloyd, CMA-CGM, Hyundai, APL-NOL,Norasia, Yang Ming, Wan Hai and China Shipping. Our charters range from one to15 years for the vessels in our current fleet and up to 18 years for ourcontracted vessels, which provide us with stable cash flows and highutilization rates. In August 2006, we agreed to sell the six drybulkcarriers in our fleet, with an aggregate capacity of 342,158 dwt, for anaggregate of $143.5 million. In the first quarter of 2007, we deliveredfive of these vessels to the purchaser, which is not affiliated with us, for anaggregate of $118.0 million. Pursuant to the terms of this agreement we alsodelivered the remaining vessel to the purchaser after its charter expired inthe second quarter of 2007 for $25.5 million. Although we have sold all thevessels of our dry bulk fleet, we intend to reinvest in the drybulk sector withthe acquisition of more recently built drybulk carriers with configurationsbetter suited to employment in the current drybulk charter market, subject tomarket conditions, including the availability of suitable vessels to purchase. Althoughwe continue to evaluate potential investments in the drybulk sector, we do notbelieve current vessel prices in such sector, which are at high levels, presentattractive investment opportunities at this time. In anticipation of ourpotential reinvestment in this sector, our manager intends to retain itsemployees dedicated to our drybulk operations. In addition, our senior securedcredit facilities with RBS and with Aegean Baltic Bank and HSH Nordbank providefor the use of borrowings to finance the acquisition of drybulk carriers aswell as containerships.

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**Our Fleet**

***General***

We deploy ourcontainership fleet principally under multi-year charters with major linercompanies that operate regularly scheduled routes between large commercialports. Our containership fleet is currently comprised of 27 containershipsdeployed on time charters and four containerships deployed on bareboatcharters. The average age (weighted by TEU) of the 31 vessels in ourcontainership fleet was approximately 11.6 years as of May 15, 2007and, upon delivery of all of our contracted vessels as of the end of 2010, theaverage age (weighted by TEU) of the 52 vessels in our containership fleet (assumingno other acquisitions or dispositions, other than the *APL Scotland*and the *APL Holland* as well as vessels thatreach 30 years of age, which are assumed to be scrapped) will be approximately 6.4 years.As of May 15, 2007, the average remaining duration of the charters for ourcontainership fleet, including 24 contracted vessels for which we have arrangedcharters, and excluding the *APL Scotland*andthe *APL Holland*, was 11.5 years (weighted by aggregatecontracted charter hire).

***Characteristics***

The table below providesadditional information about our current fleet of 31 containerships, each ofwhich is a cellular containership.

| **Vessel Name**                           | ** ** | ** ** | ** ** | **Year  Built** | ** ** | **Vessel  Size  (TEU)** | ** ** | **Time  Charter  Term(1)** | ** ** | **Expiration of  Charter(1)** | ** ** | **Daily  Charter  Rate** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-------------------------|------------|----------------------------|------------|------------------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **              | ** ** | ** **                 | ** ** | **(in thousands)**            | ** ** |
| **Post-Panamax**                          | ** ** | ** ** | ** ** | ** **      | ** ** | ** **              | ** ** | ** **                 | ** ** |                               | ** ** | ** **               |       |
| *CSCL Le Havre(2)*                        |       | 2006       |       | 9,580           |       | 12 years                |       | November 2018         |       |                               | $          | 34.0                     | ** ** |   |
| *CSCL Pusan(2)*                           |       | 2006       |       | 9,580           |       | 12 years                |       | September 2018        |       |                               | 34.0       | ** **               |       |
| *CSCL America(3)*                         |       | 2004       |       | 8,468           |       | 12 years           |       | November 2016         |       |                               | 29.5       | ** **               |       |
| *CSCL Europe(3)*                          |       | 2004       |       | 8,468           |       | 12 years           |       | August 2016           |       |                               | 29.5       | ** **               |       |
| *APL Belgium(4)*                          |       | 2002       |       | 5,506           |       | 6 years            |       | January 2008          |       |                               | 25.5       | ** **               |       |
| *APL Holland(4)(5)*                       |       | 2001       |       | 5,506           |       | 6 years            |       | July 2007             |       |                               | 25.5       | ** **               |       |
| *APL Scotland(4)(6)*                      |       | 2001       |       | 5,506           |       | 6 years            |       | June 2007             |       |                               | 25.5       | ** **               |       |
| *Maersk Marathon*                         |       | 1991       |       | 4,814           |       | 5 years                 |       | December 2011         |       |                               | 23.5       | ** **               |       |
| *Maersk Messologi*                        |       | 1991       |       | 4,814           |       | 5 years                 |       | December 2011         |       |                               | 23.5       | ** **               |       |
| *Maersk Mytilini*                         |       | 1991       |       | 4,814           |       | 5 years                 |       | December 2011         |       |                               | 23.5       | ** **               |       |
| *Hyundai Commodore*                       |       | 1992       |       | 4,651           |       | 8 years            |       | May 2013              |       |                               | 20.0       | ** **               |       |
| *Hyundai Duke*                            |       | 1992       |       | 4,651           |       | 8 years            |       | April 2013            |       |                               | 20.0       | ** **               |       |
| *MOL Confidence*                          |       | 1994       |       | 4,651           |       | 6.5 years          |       | November 2012         |       |                               | 20.8       | ** **               |       |
| **Panamax**                               |       |       |       |            |       |                    |       |                       |       |                               |       | ** **               |       |
| *YM Colombo (ex Norasia Integra)(7)* |       | 2004       |       | 4,300           |       | 12 years                |       | May 2019              |       |                               | 27.8       | ** **               |       |
| *Maersk Derby*                            |       | 2004       |       | 4,253           |       | 5 years            |       | April 2009            |       |                               | 20.6       | ** **               |       |
| *Vancouver Express*                       |       | 2004       |       | 4,253           |       | 5 years            |       | March 2009            |       |                               | 20.6       | ** **               |       |
| *Norasia Hamburg*                         |       | 1989       |       | 3,908           |       | 5 years            |       | March  2008           |       |                               | 20.8       | ** **               |       |
| *YM Yantian*                              |       | 1989       |       | 3,908           |       | 5 years            |       | September 2011        |       |                               | 30.5       | ** **               |       |
| *YM Milano*                               |       | 1988       |       | 3,129           |       | 1.5 years          |       | July 2008             |       |                               | 21.3       | ** **               |       |
| *Victory I*                               |       | 1988       |       | 3,098           |       | 3 years            |       | July 2007             |       |                               | 25.1       | ** **               |       |
| *Independence*                            |       | 1986       |       | 3,045           |       | 3 years            |       | June 2007             |       |                               | 23.6       | ** **               |       |
| *Henry*                                   |       | 1986       |       | 3,039           |       | 3 years            |       | May 2007              |       |                               | 23.6       | ** **               |       |
| *CMA CGM Elbe*                            |       | 1991       |       | 2,917           |       | 5 years            |       | August 2010           |       |                               | 20.4       | ** **               |       |
| *CMA CGM Kalamata*                        |       | 1991       |       | 2,917           |       | 5 years            |       | August 2010           |       |                               | 20.4       | ** **               |       |
| *CMA CGM Komodo*                          |       | 1991       |       | 2,917           |       | 5 years            |       | August 2010           |       |                               | 20.4       | ** **               |       |
| *Pacific Bridge*                          |       | 1984       |       | 2,130           |       | 3 years            |       | March 2008            |       |                               | 27.0       | ** **               |       |
| *Eagle Express*                           |       | 1977       |       | 1,704           |       | 2.5 years          |       | October 2007          |       |                               | 22.0       | ** **               |       |
|                                           |            |            |            |                 |            |                         |            |                            |            |                                    |            |                          |            |  |  |  |

 

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| ** **           | ** ** | ** ** | ** ** | ** ** | *** *** | **Bareboat  Charter  Term(1)** | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|------------|--------------|--------------------------------|------------|--------------------|------------|------------|------------|------------|------------|
| **Panamax**          |       |       |       |       |         |                           |       |               |       |       |       | ** ** |       |
| *Maersk  Constantia* |       | 1979       |       | 3,101      |         | 2.0 years                 |       | April 2008    |       |       | 10.0       | ** ** |       |
| *S.A.  Helderberg*   |       | 1977       |       | 3,101      |         | 2.0 years                 |       | December 2007 |       |       | 10.0       | ** ** |       |
| *S.A.  Sederberg*    |       | 1978       |       | 3,101      |         | 2.0 years                 |       | January 2008  |       |       | 10.0       | ** ** |       |
| *S.A. Winterberg*    |       | 1978       |       | 3,101      |         | 2.0 years                 |       | March 2008    |       |       | 10.0       | ** ** |       |

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(1)          Earliest date charterscould expire. Most charters include options to extend their term.

(2)          Daily charter rate forthe first six years of the charter. The daily charter rate for the sevenththrough twelfth years of the charter is $34,500.

(3)          Daily charter rate forthe first six years of the charter. The daily charter rate for seventh throughtwelfth years of the charter is $29,800.

(4)          Daily charter rate forthe first five years of the charter. The daily charter rate is $26,770 for thesixth year of the charter.

(5)          The charterer of thisvessel, APL-NOL, has exercised its option to purchase this vessel from usfor $44.0 million upon expiration of the current charter in July 2007.

(6)          The charterer of thisvessel, APL-NOL, has exercised its option to purchase this vessel from us for$44.0 million upon expiration of the current charter in June 2007.

(7)          On May 8, 2007 the *Norasia Integra* was renamed the *YM Colombo*at the request of the charterer of this vessel.

Our contracted vessels have been or are being builtbased upon designs from Samsung Hyundai Heavy Industries, Hanjin HeavyIndustries, Jiangnan Changxing Heavy Industry and Sungdong. In some casesdesigns are enhanced by us and our manager, Danaos Shipping Co. Ltd., inconsultation with the charterers of the vessels and two classificationsocieties, Det Norske Veritas and the Lloyds Register of Shipping. Thesedesigns, which include certain technological advances and customizedmodifications, make the containerships efficient with respect to both voyagespeed and loading capability when compared to many vessels operating in thecontainership sector.

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Ourcontracted vessels consist of 27 containerships currently underconstruction and one****2004-built secondhandcontainership. The specifications of our contracted vessels are as follows:

| **Newbuildings** | ** ** | ** ** | ** ** | **Year  Built** | ** ** | **Vessel  Size  (TEU)**    | ** ** | **Expected  Delivery  Date** | ** ** | **Time  Charter  Term** | ** ** | **Expiration  of Charter** | ** ** | **Daily  Charter  Rate** | ** ** |
|------------------|------------|------------|------------|-----------------|------------|----------------------------|------------|------------------------------|------------|-------------------------|------------|---------------------------------|------------|--------------------------|------------|
| ** **       | ** ** | ** ** | ** ** | ** **      | ** ** | ** **                 | ** ** | ** **                   | ** ** | ** **              | ** ** | **(in thousands)**         | ** ** |
| HN 1639     |       | 2007       |       | 4,253           |       | September 2007        |       | 12 years                |       |                    | 2019       |                            |       |                     | $          | 26.1 |   |   |
| HN 1640     |       | 2007       |       | 4,253           |       | November 2007         |       | 12 years                |       |                    | 2019       |                            |       |                     | 26.1       |   |   |
| HN 1670     |       | 2008       |       | 4,253           |       | July 2008             |       | 12 years                |       |                    | 2020       |                            |       |                     | 22.8       |   |   |
| HN 1671     |       | 2008       |       | 4,253           |       | September 2008        |       | 12 years                |       |                    | 2020       |                            |       |                     | 22.8       |   |   |
| HN 1672     |       | 2008       |       | 4,253           |       | November 2008         |       | 12 years                |       |                    | 2020       |                            |       |                     | 22.8       |   |   |
| HN 1673     |       | 2008       |       | 4,253           |       | December 2008         |       | 12 years                |       |                    | 2020       |                            |       |                     | 22.8       |   |   |
| HN 1698     |       | 2009       |       | 4,253           |       | March 2009            |       | 12 years                |       |                    | 2021       |                            |       |                     | 22.8       |   |   |
| HN S4001    |       | 2009       |       | 6,500           |       | April 2009            |       | 12 years                |       |                    | 2021       |                            | * *   | * *                 | 34.4       | (1) |   |
| HN 1699     |       | 2009       |       | 4,253           |       | June 2009             |       | 12 years                |       |                    | 2021       |                            |       |                     | 22.8       |   |   |
| HN S4002    |       | 2009       |       | 6,500           |       | June 2009             |       | 12 years                |       |                    | 2021       |                            | * *   | * *                 | 34.4       | (1) |   |
| HN S4003    |       | 2009       |       | 6,500           |       | August 2009           |       | 12 years                |       |                    | 2021       |                            |       |                     | 34.4       | (1) |   |
| HN S4004    |       | 2009       |       | 6,500           |       | October 2009          |       | 12 years                |       |                    | 2021       |                            |       |                     | 34.4       | (1) |   |
| HN S4005    |       | 2009       |       | 6,500           |       | December 2009         |       | 12 years                |       |                    | 2021       |                            |       |                     | 34.4       | (1) |   |
| HN N-214         |       | 2009       |       | 6,500           |       | November 2009         |       | 18 years                |       |                    | 2027       |                            |       |                     | n/a        | (3) |   |
| HN N-219         |       | 2009       |       | 3,400           |       | December 2009         |       | 10 years                |       |                    | 2019       |                            |       |                     | n/a        | (3) |   |
| HN N-215         |       | 2010       |       | 6,500           |       | January 2010          |       | 18 years                |       |                    | 2027       |                            |       |                     | n/a        | (3) |   |
| HN N-216         |       | 2010       |       | 6,500           |       | March 2010            |       | 15 years                |       |                    | 2025       |                            |       |                     | 34.3       |   |   |
| HN N-217         |       | 2010       |       | 6,500           |       | May 2010              |       | 15 years                |       |                    | 2025       |                            |       |                     | 34.3       |   |   |
| HN N-218         |       | 2010       |       | 6,500           |       | July 2010             |       | 15 years                |       |                    | 2025       |                            |       |                     | 34.3       |   |   |
| HN N-220         |       | 2010       |       | 3,400           |       | February 2010         |       | 10 years                |       |                    | 2020       |                            |       |                     | n/a        | (3) |   |
| HN N-221         |       | 2010       |       | 3,400           |       | April 2010            |       | 10 years                |       |                    | 2020       |                            |       |                     | n/a        | (3) |   |
| HN N-222         |       | 2010       |       | 3,400           |       | June 2010             |       | 10 years                |       |                    | 2020       |                            |       |                     | n/a        | (3) |   |
| HN N-223         |       | 2010       |       | 3,400           |       | August 2010           |       | 10 years                |       |                    | 2020       |                            |       |                     | n/a        | (3) |   |
| HN Z00001        |       | 2010       |       | 6,800           |       | June 2010             |       | n/a                          |       |                    | n/a        |                            |       |                     | n/a        |   |   |
| HN Z00002        |       | 2010       |       | 6,800           |       | July 2010             |       | n/a                          |       |                    | n/a        |                            |       |                     | n/a        |   |   |
| HN Z00003        |       | 2010       |       | 6,800           |       | August 2010           |       | n/a                          |       |                    | n/a        |                            |       |                     | n/a        |   |   |
| HN Z00004        |       | 2010       |       | 6,800           |       | August 2010           |       | n/a                          |       |                    | n/a        |                            |       |                     | n/a        |   |   |
| **Secondhand**   | ** ** | ** ** | ** ** | ** **      | ** ** | ** **                 | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| E.R. Wellington  |       | 2004       |       | 4,300           |       | September-October 200 | 7          | 12 years                |       |                    | 2019       |                            |       |                     | 27.8       | (2) |   |
|                  |            |            |            |                 |            |                            |            |                              |            |                         |            |                                 |            |                          |            |  |  |  |  |  |  |  |  |  |  |

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(1)          Vessel subject tocharterer’s option to purchase vessel after first eight years of time charterterm for $78.0 million.

(2)          Daily charter rate forthe first four years of the charter. The daily charter rate for fifth throughtwelfth years of the charter is $26,300.

(3)          Vesselunder charter, however, immediate release of information restricted byconfidentiality agreement with charterer.

***Containership Charterers***

As the container shipping industry has grown, themajor liner companies have increasingly contracted for containership capacity.Our diverse group of customers in the containership sector currently includesMaersk, COSCO, Hapag-Lloyd, CMA-CGM, Hyundai, APL-NOL, Norasia, YangMing, Wan Hai and China Shipping. Nine of these customers are publicly listedcompanies and one other of these customers 

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has investment grade ratedsecurities by Moody’s according to Bloomberg LP. In addition, we have arrangedmulti-year, fixed-rate charters with certain of these customers, as well aswith Zim Integrated Shipping Services (“Zim”), a state-owned Israelientity, for 24 of the 28 additional containerships we have agreed to purchase.Our two 4,253 TEU newbuildings expected to be delivered in the second halfof 2007 will be chartered to Yang Ming, and our four 4,253 TEUnewbuildings expected to be delivered in the second half of 2008 and two4,253 TEU newbuildings expected to be delivered in the first half of 2009will be chartered to Zim, each under 12-year charters and our five6,500 TEU newbuildings expected to be delivered during 2009 will bechartered to CMA-CGM, each under 12-year charters, subject topurchase options after the first eight years of their respective charters. Theone 4,300 TEU secondhand vessel we have agreed to purchase will be subjectto existing charter at the time of delivery, which will have a remaining termof three months. We have agreed to charter this vessel to Yang Ming under 12-yearagreement commencing immediately upon the expiration of the charter to whichthe vessel will be subject at the time of its delivery.

The containerships in our combined containership fleetare or, upon their delivery to us, will be deployed under multi-year,fixed-rate time charters having initial terms that range from one to18 years. These charters expire at staggered dates ranging from the firstquarter of 2008 to the last quarter of 2027, with no more than 12expiring in any 12-month period. The staggered expiration of themulti-year, fixed-rate charters for our vessels is both a strategy pursued byour management and a result of the growth in our fleet over the past severalyears. We believe the staggered expiration dates provide us with stable cash flowsand high utilization rates and should mitigate the impact a downturn in thecontainership sector might have on our revenues during any period ofre-chartering and our ability to fully employ our containership fleet in thefuture. Under our time charters, the charterer pays voyage expenses such asport, canal and fuel costs and we pay for vessel operating expenses, whichinclude crew costs, provisions, deck and engine stores, lubricating oil,insurance, maintenance and repairs. We are also responsible for each vessel’sintermediate and special survey costs.

Under the time charters,when the vessel is “off-hire” or not available for service, the charterer isgenerally not required to pay the hire rate, and we are responsible for allcosts. A vessel generally will be deemed to be off-hire if there is anoccurrence preventing the full working of the vessel due to, among otherthings, operational deficiencies, drydockings for repairs, maintenance orinspection, equipment breakdown, delays due to accidents, crewing strikes,labor boycotts, noncompliance with government water pollution regulations oralleged oil spills, arrests or seizures by creditors or our failure to maintainthe vessel in compliance with required specifications and standards. Inaddition, under our time charters, if any vessel is off-hire for more than acertain amount of time (generally between 10-20 days), the chartererhas a right to terminate the charter agreement for that vessel. Charterers alsohave the right to terminate the time charters in various other circumstances,including but not limited to, outbreaks of war or a change in ownership of thevessel’s owner or manager without the charterer’s approval.

***LeasingArrangements—CSCL Europe, CSCL America, Maersk Derby (ex P&O Nedlloyd Caracas),Vancouver Express (ex P&O Nedlloyd Caribbean), CSCL Pusan(ex HN 1559) and CSCL Le Havre (ex HN 1561)***

We have entered into leasing arrangements with asubsidiary of Lloyds Bank, Allco Finance Limited, a U.K.-based financingcompany, Allco Finance UK Limited, a U.K.-based financing company, andAllocean Maritime Limited, or AML, a U.K.-based ship financing company,with respect to six containerships in our current fleet, the *CSCL Europe*, the *CSCL America*, the *Maersk Derby*(ex *P&O Nedlloyd Caracas*), the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* and the *CSCL Le Havre*(ex *HN 1561*). As part of these leasingarrangements, a separate limited partnership formed by a Lloyds Bank subsidiary(which provides the financing) and the Allco companies purchased each of thesevessels. We charter-in these vessels from AML, which charters them in from theapplicable 

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partnership, and we thensub-charter the vessels to liner companies. We pay a fixed rate, which duringthe first 61¤2years of the leasing arrangements is a nominal amount, to charter-in thesevessels from AML and we, in turn, are entitled to retain all of the charterrevenue we earn from sub-chartering these vessels to our liner companycustomers.

Under the terms of these leasing arrangements, upon anevent of default, total loss of a vessel or 61¤2 yearsinto the term of the lease, which will fall on April 14, 2011 with respectto the *CSCL Europe*, the *CSCL America*, *Maersk Derby* (ex *P&ONedlloyd Caracas*) and the *VancouverExpress* (ex *P&O NedlloydCaribbean)*, and will fall on April 14, 2013 with respect to the*CSCL Pusan (ex HN 1559)*and the *CSCL Le Havre*(ex *HN 1561*), the Lloyds Bank subsidiary has a put option to sell its99.996% interest in the partnership owning each respective vessel to AllcoFinance (UK) Limited. Allco Finance (UK) Limited has the option to put suchinterest to us and has written an option in favor of us (with a substantiallysimilar exercise price) to acquire such interest. Each of Allco Finance (UK)Limited’s put option to us and our purchase option are exercisable only if theLloyds Bank subsidiary has exercised its put option.

If, however, the put option is not exercised we wouldbe entitled to charter-in the vessels for an additional 12 years at ratesadjusted to market no less than every two years at our option, rather than atthe nominal rate in effect for the first 61¤2 years ofthe leasing arrangement. In that case we would also expect to exercise optionsthat would entitle us to approximately 49% of the amount in excess of a pre-setlevel of the charter-in rate. Further, we would continue to be entitled toretain all of the charter revenue we earn from chartering-out these vessels toour liner company customers. As part of the leasing arrangements, we made adeposit with respect to each of these vessels, which is denominated in Britishpounds, in an amount expected to represent, after 61¤2 years,approximately 75% of the original purchase price of the applicable vessel. Thiscash deposit with RBS collateralizes the entire amount of a letter of creditissued by RBS to secure our obligation to pay the put option price. If the putoption is not exercised and, as a result, the letter of credit with respect toany of these vessels is not called, this deposit would be returned to us.

On July 19, 2006, legislation was enacted in theUnited Kingdom that is expected to result in a claw-back or recapture ofcertain of the benefits that were expected to be available to thecounterparties to these transactions at their inception. Accordingly, the putoption price is expected to be increased to compensate the counterparties forthe loss of these benefits. We currently expect the increase in the put optionprice we will be obligated to pay if the put is exercised will be approximately£46 million, although the increase in this put price could vary. In 2006we recognized an expense of approximately $13 million, which is the amountby which we currently expect the increase in the put price to exceed the cash benefitswe expect to receive, and had expected to retain, from these transactions.

We currently haveoperational control over these six vessels. Even if the put option is notexercised, we will continue to have operational control over each of thesevessels under the terms of the leasing arrangements during the period wecharter-in these vessels from AML. We consider each of the vessels subject tothese leasing arrangements to be an asset for our financial reporting purposes,and each vessel is reflected as such in our consolidated financial statementsincluded elsewhere herein.

***Purchase Options***

The charters with respect to the *APL Scotland*, the *APL Holland* and the *APL Belgium* include options for thecharterer, APL-NOL, to purchase each vessel for $44.0 million in May 2007,July 2007 and January 2008, respectively, or for $39.0 millionin May 2009, July 2009 and January 2010, respectively. In eachcase, the option to purchase the vessel must be exercised six months prior tothe acquisition dates described in the foregoing sentence. We currently believethat the $44.0 million and $39.0 million option prices will be belowthe fair market value of the *APL Belgium* atthe time the options become exercisable. We delivered the *APL England*to APL-NOL on March 7, 2007, pursuant to its exercise of an optionto purchase the *APL England* from us for $44.0million. APL-NOL has recently exercised its options to 

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purchase the *APL Scotland*and the *APL Holland*from us for $44.0 million each upon the expiration of the vessels’ currentcharters in May 2007 and July 2007, respectively. The$44.0 million option exercise prices were below the fair market value ofeach of these three vessels at the time the options were exercised. The salesof these three vessels have, and will, reduce the size of our fleet and ifAPL-NOL were to exercise its option with respect to the *APL Belgium*,the size of our fleet would be further reduced. We have not yet, and may not beable to, replace these vessels at a cost equal to the option prices paid byAPL-NOL.

The charters with respectto the *HN S4001*, the *HN S4002*, the *HN S4003*, the *HN S4004* and the *HN S4005* include an option for thecharterer, CMA-CGM, to purchase the vessels eight years after the commencementof the respective charters, which, based on the respective expected deliverydates for these vessels, are expected to fall in April 2017, June 2017,August 2017, October 2017 and December 2017, respectively, eachfor $78.0 million. In each case, the option to purchase the vessel must beexercised 15 months prior to the acquisition dates described in thepreceding sentence. The $78.0 million option prices reflect an estimate ofthe fair market value of the vessels at the time we would be required to sellthe vessels upon exercise of the options. If CMA-CGM were to exercise theseoptions with respect to any or all of these vessels, the expected size of ourcombined containership fleet would be reduced, and as a result our anticipatedlevel of revenues after such sale would be reduced.

***Drybulk Carriers***

In August 2006, we agreed to sell the six drybulkcarriers in our fleet, with an aggregate capacity of 342,158 dwt, for anaggregate of $143.5 million. In the first quarter of 2007, we deliveredfive of these vessels to the purchaser, which is not affiliated with us, for anaggregate of $118.0 million. Pursuant to the terms of this agreement we alsodelivered the remaining vessel to the purchaser for $25.5 million when itscharter expired in the second quarter****of 2007.

During the time prior tothe respective deliveries of the drybulk carriers to the purchaser, wecontinued to operate the vessels and, accordingly, received the revenues andincurred the expenses associated with such operation. We decided to sell thesevessels due to the opportunity to sell all six 1994-built drybulk carriers inone transaction at the high vessel valuations prevailing in the drybulk sector,which is inherently volatile in terms of both charter rates and vesselvaluations, combined with the advancing age and less than optimum configurationof our drybulk fleet. Subject on market conditions and availability of suitablevessels to purchase we intend to reinvest in the drybulk sector with theacquisition of more recently built drybulk carriers with configurations bettersuited to employment in the current drybulk charter market. Although wecontinue to evaluate potential investments in the drybulk sector, we do notbelieve current vessel prices in such sector, which are at high levels, presentattractive investment opportunities at this time. However, in anticipation ofour reinvestment in this sector, our manager intends to retain its employeesdedicated to our drybulk operations. In addition, our senior secured creditfacilities with RBS and with Aegean Baltic Bank and HSH Nordbank provide for theuse of borrowings to finance the acquisition of drybulk carriers as well ascontainerships. We have used and intend to use the proceeds from the sale ofthe drybulk carriers to fund contracted vessel acquisitions.

**Management of OurFleet**

Our chief executive officer, chief operating officerand chief financial officer provide strategic management for our company whilethese officers also supervise, in conjunction with our board of directors, themanagement of these operations by Danaos Shipping Co. Ltd., our manager. Wehave a management agreement pursuant to which our manager and its affiliatesprovide us and our subsidiaries with technical, administrative and certaincommercial services for an initial term expiring on December 31, 2008,with automatic one year renewals for an additional 12 years at our option.Our manager reports to us and our board of directors through our chiefexecutive officer, chief operating officer and chief financial officer.

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Our manager is regarded as an innovator in operationaland technological aspects in the international shipping community. DanaosShipping’s strong technological capabilities derive from employing highlyeducated professionals, its participation and assumption of a leading role inEuropean Community research projects related to shipping, and its closeaffiliation to Danaos Management Consultants, a leading ship-managementsoftware and services company. Danaos Management Consultants provides softwareservices to two of our charterers, CMA-CGM and P&O Nedlloyd.

Danaos Shipping achieved early ISM certification ofits container fleet in 1995, well ahead of the deadline, and was the firstGreek company to receive such certification from Det Norske Veritas, a leadingclassification society. In 2004, Danaos Shipping received the Lloyd’s ListTechnical Innovation Award for advances in internet-basedtelecommunication methods for vessels. Danaos Shipping maintains the quality ofits service by controlling directly the selection and employment of seafarersthrough its crewing offices in Piraeus, Greece as well as in Odessa andMariupol in the Ukraine. Investments in new facilities in Greece by DanaosShipping Co. Ltd., enable enhanced training of seafarers and highly reliableinfrastructure and services to the vessels.

Historically, Danaos Shipping Co. Ltd., onlyinfrequently managed vessels other than those in our fleet and currently itdoes not actively manage any other company’s vessels other than providingcertain management services to Castella Shipping Inc., in which our chiefexecutive officer has an investment. Danaos Shipping Co. Ltd., also does notarrange the employment of other vessels and has agreed that, during the term ofour management agreement, it will not provide any management services to anyother entity without our prior written approval, other than with respect toCastella Shipping Inc. and other entities controlled by Dr. Coustas, ourchief executive officer, which do not operate within the containership (largerthan 2,500 TEUs) or drybulk sectors of the shipping industry or in thecircumstances described below. Other than Castella Shipping Inc., Dr. Coustasdoes not currently control any such vessel-owning entity. We believe wewill derive significant benefits from our exclusive relationship with DanaosShipping Co. Ltd., our administrative, technical, and commercial manager.

Dr. Coustas has also personally agreed to thesame restrictions on the provision, directly or indirectly, of managementservices during the term of our management agreement. In addition, our chiefexecutive officer (other than in his capacities with us) and our manager haveseparately agreed not, during the term of our management agreement and for oneyear thereafter, to engage, directly or indirectly, in (i) the ownershipor operation of containerships of larger than 2,500 TEUs or (ii) theownership or operation of any drybulk carriers or (iii) the acquisition ofor investment in any business involved in the ownership or operation ofcontainerships of larger than 2,500 TEUs or any drybulk carriers.Notwithstanding these restrictions, if our independent directors decline theopportunity to acquire any such containerships or to acquire or invest in anysuch business, our chief executive officer will have the right to make,directly or indirectly, any such acquisition or investment during thefour-month period following such decision by our independent directors, so longas such acquisition or investment is made on terms no more favorable than thoseoffered to us. In this case, our chief executive officer and our manager willbe permitted to provide management services to such vessels.

Under our managementagreement, Danaos Shipping will manage our fleet for an initial term thatexpires at the end of 2008. The management agreement automatically renews for aone-year period and will be extended in additional one-year increments if we donot provide 12 months’ notice of termination. For providing itscommercial, chartering and administrative services our manager receives a feeof $500 per day. For its technical management of our ships, our managerreceives a management fee of $250 per vessel per day for vessels on bareboatcharter and $500 per vessel per day for the remaining vessels in our fleetunder the first three years of our agreement, each pro rated for the number ofcalendar days we own each vessel. Thereafter these fees will be adjustedannually by agreement between us and our manager. For its chartering servicesrendered to us by its Hamburg-based office, our manager also receives acommission of 0.75% on all freight, charter hire, ballast bonus and demurragefor each vessel. Further, our manager 

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receivesa commission of 0.5% based on the contract price of any vessel bought or sold byit on our behalf, excluding newbuilding contracts. We will also pay our managera flat fee of $400,000 per newbuilding vessel, which we will capitalize, forthe on premises supervision of our newbuilding contracts by selected engineersand others of its staff.

**Competition**

We operate in markets that are highly competitive andbased primarily on supply and demand. Generally, we compete for charters basedupon price, customer relationships, operating expertise, professionalreputation and size, age and condition of the vessel. Competition for providingcontainership and drybulk carrier services comes from a number of experiencedshipping companies. In the containership sector, these companies include ZodiacMaritime, Seaspan Corporation and Costamare. A number of our competitors in thecontainership sector have been financed by the German KG(Kommanditgesellschaft) system, which was based on tax benefits provided toprivate investors. While the German tax law has been amended to significantlyrestrict the tax benefits available to taxpayers who invest after November 5,2005, the tax benefits afforded to all investors in the KG-financed entitieswill continue to be significant and such entities will continue to beattractive investments. These tax benefits allow these KG-financed entities tobe more flexible in offering lower charter rates to liner companies.

The containership sector of the international shippingindustry is characterized by the significant time necessary to develop theoperating expertise and professional reputation necessary to obtain and retaincustomers and the relative scarcity of secondhand containerships, necessitatingreliance on newbuildings which can take a number of years to complete. We focuson larger TEU capacity containerships, which we believe have fared better thansmaller vessels during global downturns in the containership sector. We believelarger containerships, even older containerships if well maintained, provide uswith increased flexibility and more stable cash flows than smaller TEU capacitycontainerships.

In the past, we have been able to address the scarcityof secondhand containerships available for acquisition in the open marketthough the acquisition of containerships from our liner company customers inprivately negotiated sales. In connection with these acquisitions we thentypically charter back the vessels to these customers. We believe theopportunity to make these privately negotiated acquisitions was available to usdue to our strong customer relations, which we do not believe new entrantshave.

We have****also competed, and following potential reinvestment in thedrybulk sector in the future will compete, in the drybulk sector, which ischaracterized by relatively low barriers to entry. According to Clarkson ResearchServices Limited, ownership of drybulk carriers is highly fragmented and isdivided among hundreds of drybulk carrier owners, many of which have largerfleets of drybulk carriers than we are likely to acquire. We attempt to exploitthe cyclicality and volatility inherent in the drybulk market. We believe thestability afforded by our containership operations gives us the capability tocompete in the drybulk sector by allowing us to take advantage of our abilityto operate with higher leverage ratios than most drybulk owners are able to do.

**Crewing andEmployees**

We have three shore-basedemployees, our chief executive officer, our chief financial officer and ourchief operating officer. As of December 31, 2006, 815 people served onboard the vessels in our fleet and Danaos Shipping, our manager, employedapproximately 73 people, all of whom were shore-based. In addition, ourmanager is responsible for recruiting, either directly or through a crewingagent, the senior officers and all other crew members for our vessels. Webelieve the streamlining of crewing arrangements through our manager ensuresthat all of our vessels will be crewed with experienced crews that have thequalifications and licenses required by international regulations and shippingconventions.

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**Permits andAuthorizations**

We are required by variousgovernmental and other agencies to obtain certain permits, licenses andcertificates with respect to our vessels. The kinds of permits, licenses andcertificates required by governmental and other agencies depend upon severalfactors, including the commodity being transported, the waters in which thevessel operates, the nationality of the vessel’s crew and the age of a vessel.All permits, licenses and certificates currently required to permit our vesselsto operate have been obtained. Additional laws and regulations, environmentalor otherwise, may be adopted which could limit our ability to do business orincrease the cost of doing business.

**Inspection byClassification Societies**

Every seagoing vessel must be “classed” by aclassification society. The classification society certifies that the vessel is“in class,” signifying that the vessel has been built and maintained inaccordance with the rules of the classification society and complies withapplicable rules and regulations of the vessel’s country of registry andthe international conventions of which that country is a member. In addition,where surveys are required by international conventions and corresponding lawsand ordinances of a flag state, the classification society will undertake themon application or by official order, acting on behalf of the authoritiesconcerned.

The classification society also undertakes on requestother surveys and checks that are required by regulations and requirements ofthe flag state. These surveys are subject to agreements made in each individualcase and/or to the regulations of the country concerned.

For maintenance of the class, regular andextraordinary surveys of hull and machinery, including the electrical plant,and any special equipment classed are required to be performed as follows:

*AnnualSurveys.**  *Forseagoing ships, annual surveys are conducted for the hull and the machinery,including the electrical plant, and where applicable, on special equipmentclassed at intervals of 12 months from the date of commencement of theclass period indicated in the certificate.

*IntermediateSurveys.**  *Extendedannual surveys are referred to as intermediate surveys and typically areconducted two and one-half years after commissioning and each class renewal.Intermediate surveys may be carried out on the occasion of the second or thirdannual survey.

*Class RenewalSurveys.**  *Class renewalsurveys, also known as special surveys, are carried out on the ship’s hull andmachinery, including the electrical plant, and on any special equipment classedat the intervals indicated by the character of classification for the hull.During the special survey, the vessel is thoroughly examined, including audio-gaugingto determine the thickness of the steel structures. Should the thickness befound to be less than class requirements, the classification society wouldprescribe steel renewals. The classification society may grant a one-year graceperiod for completion of the special survey. Substantial amounts of funds mayhave to be spent for steel renewals to pass a special survey if the vesselexperiences excessive wear and tear. In lieu of the special survey every fouror five years, depending on whether a grace period is granted, a shipowner hasthe option of arranging with the classification society for the vessel’s hullor machinery to be on a continuous survey cycle, in which every part of thevessel would be surveyed within a five-year cycle. At an owner’s application,the surveys required for class renewal may be split according to an agreedschedule to extend over the entire period of class. This process is referred toas continuous class renewal.

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Thefollowing table lists the next drydockings and special surveys scheduled forthe vessels in our current containership fleet:

| **Vessel Name**                                 | ** ** | ** **     | ** ** | **Next Survey** | ** **     | **Next Drydocking** | ** ** |
|------------------------------------------------------|------------|----------------|------------|----------------------|----------------|--------------------------|------------|
| *Victory I*                                          |       | Jan. 2009 |       |                 | Jan. 2009 |                     |       |
| *Hyundai Commodore*                                  |       | Jun. 2007 |       |                 | Jun. 2007 |                     |       |
| *Pacific Bridge*                                     |       | Jun. 2007 |       |                 | Dec. 2007 |                     |       |
| *MOL Confidence*                                     |       | Jul. 2007 |       |                 | Feb. 2008 |                     |       |
| *Hyundai Duke*                                       |       | Oct. 2007 |       |                 | Aug. 2009 |                     |       |
| *S.A. Helderberg*                                    |       | Nov. 2007 |       |                 | Nov. 2007 |                     |       |
| *Eagle Express*                                      |       | Mar. 2008 |       |                 | Mar. 2008 |                     |       |
| *S.A. Sederberg*                                     |       | May 2008  |       |                 | Mar. 2008 |                     |       |
| *YM Milano*                                          |       | Aug. 2008 |       |                 | Aug. 2008 |                     |       |
| *S.A. Winterberg*                                    |       | Jan. 2009 |       |                 | Jan. 2008 |                     |       |
| *Maersk Constantia*                                  |       | Feb. 2009 |       |                 | May 2008  |                     |       |
| *Vancouver Express (ex P&O  Nedlloyd Caribbean)* |       | Mar. 2009 |       |                 | Mar. 2009 |                     |       |
| *Maersk Derby (ex P&O  Nedlloyd Caracas)*        |       | Apr. 2009 |       |                 | Apr. 2009 |                     |       |
| *YM Yantian*                                         |       | Jan. 2007 |       |                 | Mar. 2009 |                     |       |
| *Norasia Hamburg*                                    |       | Feb. 2007 |       |                 | May 2007  |                     |       |
| *CSCL Europe*                                        |       | Aug. 2007 |       |                 | Aug. 2009 |                     |       |
| *CSCL America*                                       |       | Nov. 2009 |       |                 | Nov. 2009 |                     |       |
| *CMA CGM Kalamata*                                   |       | Mar. 2010 |       |                 | Mar. 2010 |                     |       |
| *Independence*                                       |       | Mar. 2009 |       |                 | Mar. 2009 |                     |       |
| *APL Scotland**                                      |       | Nov. 2008 |       |                 | Jan. 2009 |                     |       |
| *APL Holland***                                      |       | Jan. 2009 |       |                 | Feb. 2009 |                     |       |
| *CMA CGM Komodo*                                     |       | Feb. 2009 |       |                 | Jul. 2009 |                     |       |
| *CSCL Pusan  (ex HN 1559)*                 |       | Sep. 2008 |       |                 | Sep. 2011 |                     |       |
| *CSCL Le Havre (ex HN 1561)*                         |       | Nov. 2008 |       |                 | Nov. 2011 |                     |       |
| *Henry*                                              |       | Apr. 2009 |       |                 | Sep. 2009 |                     |       |
| *CMA CGM Elbe*                                       |       | Feb. 2009 |       |                 | Aug. 2009 |                     |       |
| *APL Belgium*                                        |       | Jul. 2009 |       |                 | Jan. 2010 |                     |       |
| *Maersk Marathon*                                    |       | Jun. 2009 |       |                 | Jul.. 2007     |                     |       |
| *Maersk Messologi*                                   |       | Mar. 2008 |       |                 | Mar. 2009 |                     |       |
| *Maersk Mytilini*                                    |       | Mar. 2008 |       |                 | Jan. 2009 |                     |       |
| *YM Colombo*                                         |       | Mar. 2009 |       |                 | Mar. 2009 |                     |       |

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*                    APL-NOLhas exercised its option to purchase this vessel from us upon expiration of thecurrent charter in June 2007.

**             APL-NOLhas exercised its option to purchase this vessel from us upon expiration of thecurrent charter in July 2007.

All areas subject tosurveys as defined by the classification society are required to be surveyed atleast once per class period, unless shorter intervals between surveys areotherwise prescribed. The period between two subsequent surveys of each areamust not exceed five years.

Most vessels are alsodrydocked every 30 to 36 months for inspection of their underwater partsand for repairs related to such inspections. If any defects are found, theclassification surveyor will issue a “recommendation” which must be rectifiedby the shipowner within prescribed time limits.

Most insurance underwriters make it a condition forinsurance coverage that a vessel be certified as “in class” by a classificationsociety which is a member of the International Association of ClassificationSocieties. All of our vessels are certified as being “in class” by LloydsRegister of Shipping, Bureau Veritas, NKK, Det Norske Veritas, the AmericanBureau of Shipping and RINA SpA.

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**Risk of Loss andLiability Insurance**

***General***

The operation of any vessel includes risks such asmechanical failure, collision, property loss, cargo loss or damage and businessinterruption due to political circumstances in foreign countries, hostilitiesand labor strikes. In addition, there is always an inherent possibility ofmarine disaster, including oil spills and other environmental mishaps, and theliabilities arising from owning and operating vessels in international trade. TheU.S. Oil Pollution Act of 1990, or OPA, which imposes virtually unlimitedliability upon owners, operators and demise charterers of vessels trading inthe United States exclusive economic zone for certain oil pollution accidentsin the United States, has made liability insurance more expensive forshipowners and operators trading in the United States market.

While we maintain hull and machinery insurance, warrisks insurance, protection and indemnity coverage for our containershipfleet  in amounts that we believe to beprudent to cover normal risks in our operations, we may not be able to maintainthis level of coverage throughout a vessel’s useful life. Furthermore, while webelieve that our insurance coverage will be adequate, not all risks can beinsured, and there can be no guarantee that any specific claim will be paid, orthat we will always be able to obtain adequate insurance coverage at reasonablerates.

Dr. John Coustas, ourchief executive officer, is a member of the Board of Directors of The SwedishClub, our primary provider of insurance, including a substantial portion of ourhull & machinery, war risk and protection and indemnity insurance.

***Hull & Machinery, Loss of Hire and War RisksInsurance***

We maintain marine hull and machinery and war risksinsurance, which covers the risk of particular average, general average, 4/4thscollision liability, contact with fixed and floating objects (FFO) and actualor constructive total loss in accordance with Swedish conditions for all of ourvessels. Our vessels will each be covered up to at least their fair marketvalue after meeting certain deductibles per incident per vessel.

We carry a minimum loss ofhire coverage only with respect to the *CSCLAmerica*, the *CSCL Europe*,the *CSCL Pusan**(ex HN 1559)* and the *CSCL LeHavre*(ex *HN 1561*) to cover standard requirements ofKEXIM, the bank providing financing for our acquisition of these vessels. We donot and will not obtain loss of hire insurance covering the loss of revenueduring extended off-hire periods for the other vessels in our fleet because webelieve that this type of coverage is not economical and is of limited value tous, in part because historically our fleet has had a very limited number ofoff-hire days.

***Protection and Indemnity Insurance***

Protection and indemnity insurance covers our third-partyand crew liabilities in connection with our shipping activities. This includesthird-party liability, crew liability and other related expensesresulting from the injury or death of crew, passengers and other third parties,the loss or damage to cargo, third-party claims arising from collisionswith other vessels, damage to other third-party property, pollutionarising from oil or other substances and salvage, towing and other relatedcosts, including wreck removal. Our protection and indemnity insurance, otherthan our 4¤4 thscollision and fixed and floating object insurance (which is covered under ourhull insurance policy), is provided by mutual protection and indemnityassociations, or P&I associations. Insurance provided by P&Iassociations is a form of mutual indemnity insurance. Unless otherwise providedby the international conventions that limit the liability of shipowners andsubject to the “capping” discussed below, our coverage under insurance providedby the P&I associations, except for pollution, will be unlimited.

Our protection andindemnity insurance coverage in accordance with the International Group ofP&I Club Agreement for pollution will be $1.0 billion per vesselper incident. Our P&I war risk coverage 

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will be $500.0 millionper vessel per incident. The fourteen P&I associations that comprise theInternational Group insure approximately 90% of the world’s commercialblue-water tonnage and have entered into a pooling agreement to reinsure eachassociation’s liabilities. As a member of a P&I association, which is amember of the International Group, we will be subject to calls payable to theassociations based on the International Group’s claim records as well as theclaim records of all other members of the individual associations.

**Environmental andOther Regulations**

Government regulation significantly affects theownership and operation of our vessels. They are subject to internationalconventions, national, state and local laws, regulations, convention and standardsin force in international waters and the countries in which our vessels mayoperate or are registered, including those governing the management anddisposal of hazardous substances and wastes, the cleanup of oil spills andother contamination, air emissions, water discharges and ballast watermanagement. These laws and regulations include the U.S. Oil Pollution Act of1990, the U.S. Comprehensive Environmental Response, Compensation, andLiability Act (CERCLA), the U.S. Clean Water Act, the International Conventionfor Prevention of Pollution from Ships, regulations adopted by the IMO and theEuropean Union, various volatile organic compound air emission requirements andvarious Safety of Life at Sea (SOLAS) amendments, as well as other regulationsdescribed below. Compliance with these laws, regulations and other requirementsentails significant expense, including vessel modifications and implementationof certain operating procedures.

A variety of governmental and private entities subjectour vessels to both scheduled and unscheduled inspections. These entitiesinclude the local port authorities (U.S. Coast Guard, harbor master orequivalent), classification societies, flag state administration (country ofregistry) and charterers, particularly terminal operators. Certain of theseentities require us to obtain permits, licenses and certificates for theoperation of our vessels. Failure to maintain necessary permits or approvalscould require us to incur substantial costs or temporarily suspend operation ofone or more of our vessels.

We believe that theheightened level of environmental and quality concerns among insuranceunderwriters, regulators and charterers is leading to greater inspection andsafety requirements on all vessels and may accelerate the scrapping of oldervessels throughout the industry. Increasing environmental concerns have createda demand for vessels that conform to the stricter environmental standards. Weare required to maintain operating standards for all of our vessels that will emphasizeoperational safety, quality maintenance, continuous training of our officersand crews and compliance with U.S. and international regulations. We believethat the operation of our vessels is in substantial compliance with applicableenvironmental laws and regulations; however, because such laws and regulationsare frequently changed and may impose increasingly stricter requirements, suchfuture requirements may limit our ability to do business, increase ouroperating costs, force the early retirement of our vessels, and/or affect theirresale value, all of which could have a material adverse effect on ourfinancial condition and results of operations.

***Environmental Regulation—International MaritimeOrganization (“IMO”)***

Our vessels are subject to standards imposed by theInternational Maritime Organization, or IMO (the United Nations agency formaritime safety and the prevention of pollution by ships). The IMO has adoptedregulations that are designed to reduce pollution in international waters, bothfrom accidents and from routine operations. These regulations address oildischarges, ballasting and unloading operations, sewage, garbage, and airemissions. For example, Annex III of the International Convention for thePrevention of Pollution from Ships, or MARPOL, regulates the transportation ofmarine pollutants, and imposes standards on packing, marking, labeling,documentation, stowage, quantity limitations and pollution prevention. Theserequirements have been expanded by the International Maritime Dangerous 

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Goods Code, which imposesadditional standards for all aspects of the transportation of dangerous goodsand marine pollutants by sea.

In September 1997, the IMO adopted Annex VIto the International Convention for the Prevention of Pollution from Ships toaddress air pollution from vessels. Annex VI, which came into effect on May 19,2005, sets limits on sulfur oxide and nitrogen oxide emissions from vesselexhausts and prohibits deliberate emissions of ozone depleting substances, suchas chlorofluorocarbons. Annex VI also includes a global cap on the sulfurcontent of fuel oil and allows for special areas to be established with morestringent controls on sulfur emissions. Annex VI has been ratified bysome, but not all IMO member states, including the Marshall Islands. Pursuantto a Marine Notice issued by the Marshall Islands Maritime Administrator asrevised in March 2005, vessels flagged by the Marshall Islands that aresubject to Annex VI must, if built before the effective date, obtain anInternational Air Pollution Prevention Certificate evidencing compliance withAnnex VI not later than either the first dry docking after May 19,2005, but no later than May 19, 2008. All vessels subject to Annex VIand built after May 19, 2005 must also have this Certificate. We haveobtained International Oil Pollution Prevention certificates for all of ourvessels, and believe that maintaining compliance with Annex VI will nothave an adverse financial impact on the operation of our vessels. Additional ornew conventions, laws and regulations may be adopted that could adverselyaffect our ability to manage our vessels.

The operation of ourvessels is also affected by the requirements set forth in the IMO’sInternational Management Code for the Safe Operation of Ships and PollutionPrevention, or the ISM Code, which were adopted in July 1998. The ISM Coderequires shipowners and bareboat charterers to develop and maintain anextensive “Safety Management System” that includes the adoption of a safety andenvironmental protection policy setting forth instructions and procedures forsafe operation and describing procedures for dealing with emergencies. The ISMCode requires that vessel operators obtain a Safety Management Certificate foreach vessel they operate. This certificate evidences compliance by a vessel’smanagement with code requirements for a Safety Management System. No vessel canobtain a certificate unless its operator has been awarded a document ofcompliance, issued by each flag state, under the ISM Code. The failure of ashipowner or bareboat charterer to comply with the ISM Code may subject suchparty to increased liability, decrease available insurance coverage for theaffected vessels and result in a denial of access to, or detention in, certain ports.Currently, each of the vessels in our fleet is ISM code-certified. However,there can be no assurance that such certification will be maintainedindefinitely.

***Environmental Regulation—The U.S. Oil Pollution Act of1990 (“OPA”)***

The U.S. Oil Pollution Act of 1990, or OPA,established an extensive regulatory and liability regime for the protection andcleanup of the environment from oil spills. OPA applies to discharges of anyoil from a vessel, including discharges of fuel and lubricants. OPA affects allowners and operators whose vessels trade in the United States, its territoriesand possessions or whose vessels operate in U.S. waters, which includes theUnited States’ territorial sea and its two hundred nautical mile exclusiveeconomic zone. While we do not carry oil as cargo, we do carry fuel oil (orbunkers) in our vessels, making our vessels subject to the OPA requirements.

Under OPA, vesselowners, operators and bareboat charterers are “responsible parties” and arejointly, severally and strictly liable (unless the discharge of pollutantsresults solely from the act or omission of a third party, an act of God or anact of war) for all containment and clean-up costs and other damages arisingfrom discharges or threatened discharges of pollutants from their vessels. OPAdefines these other damages broadly to include:

·       naturalresources damage and the costs of assessment thereof;

·       realand personal property damage;

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·       netloss of taxes, royalties, rents, fees and other lost revenues;

·       lostprofits or impairment of earning capacity due to property or natural resourcesdamage; and

·       netcost of public services necessitated by a spill response, such as protectionfrom fire, safety or health hazards, and loss of subsistence use of naturalresources.

Amendments to OPA signed into law on July 11,2006 increased the limits of the liability of responsible parties to thegreater of $950 per gross ton or $800,000 per non-tank vessel (subject toperiodic adjustment for inflation). These limits of liability do not apply ifan incident was directly caused by violation of applicable U.S. federal safety,construction or operating regulations or by a responsible party’s grossnegligence or willful misconduct, or if the responsible party fails or refusesto report the incident or to cooperate and assist in connection with oilremoval activities.

We currently maintain, for each of our vessels, oilpollution liability coverage insurance in the amount of $1 billion perincident. In addition, we carry hull and machinery and protection and indemnityinsurance to cover the risks of fire and explosion. Given the relatively smallamount of bunkers our vessels carry, we believe that a spill of oil from thevessels would not be catastrophic. However, under certain circumstances, fireand explosion could result in a catastrophic loss. While we believe that ourpresent insurance coverage is adequate, not all risks can be insured, and therecan be no guarantee that any specific claim will be paid, or that we willalways be able to obtain adequate insurance coverage at reasonable rates. Ifthe damages from a catastrophic spill exceeded our insurance coverage, it woulda severe effect on us and could possibly result in our insolvency.

OPA requires owners and operators of vessels toestablish and maintain with the United States Coast Guard evidence of financialresponsibility sufficient to meet their potential liabilities under the OPA. InDecember 1994, the U.S. Coast Guard implemented regulations requiringevidence of financial responsibility for non-tank vessels in the amountof $900 per gross ton, which includes the then-applicable OPA limitation onliability of $600 per gross ton and the U.S. CERCLA liability limit of $300 pergross ton, as described below. We expect that the U.S. Coast Guard willincrease the amount of required evidence of financial responsibility to $1,250per gross ton, to reflect the increase in liability limits under OPA asdescribed above. Under the U.S. Coast Guard regulations implementing OPA,vessel owners and operators may evidence their financial responsibility byshowing proof of insurance, surety bond, self-insurance, or guaranty. Under theOPA regulations, an owner or operator of a fleet of vessels is required only todemonstrate evidence of financial responsibility in an amount sufficient tocover the vessels in the fleet having the greatest maximum liability under OPA.

The U.S. Coast Guard’s regulations concerningcertificates of financial responsibility provide, in accordance with OPA, thatclaimants may bring suit directly against an insurer or guarantor thatfurnishes certificates of financial responsibility. In the event that suchinsurer or guarantor is sued directly, it is prohibited from asserting anycontractual defense that it may have had against the responsible party and islimited to asserting those defenses available to the responsible party and thedefense that the incident was caused by the willful misconduct of theresponsible party. Certain organizations, which had typically provided certificatesof financial responsibility under pre-OPA 90 laws, including the majorprotection and indemnity organizations, have declined to furnish evidence ofinsurance for vessel owners and operators if they are subject to direct actionsor required to waive insurance policy defenses. This requirement may have theeffect of limiting the availability of the type of coverage required by theCoast Guard and could increase the costs of obtaining this insurance for us andour competitors.

The U.S. Coast Guard’s financial responsibilityregulations may also be satisfied by evidence of surety bond, guaranty or byself-insurance. Under the self-insurance provisions, the shipowner or operatormust have a net worth and working capital, measured in assets located in theUnited States against liabilities located anywhere in the world, that exceedsthe applicable amount of financial responsibility. We have 

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complied with the U.S.Coast Guard regulations by providing a financial guaranty evidencing sufficientself-insurance.

Title VII of the Coast Guard and MaritimeTransportation Act of 2004, or the CGMTA, amended OPA to require the owner oroperator of any non-tank vessel of 400 gross tons or more, that carries oil ofany kind as a fuel for main propulsion, including bunkers, to prepare andsubmit 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. The vesselresponse plans include detailed information on actions to be taken by vesselpersonnel to prevent or mitigate any discharge or substantial threat of such adischarge of oil from the vessel due to operational activities or casualties. Wehave approved response plans for each of our vessels. 

OPA specifically permitsindividual states to impose their own liability regimes with regard to oilpollution incidents occurring within their boundaries, and some states haveenacted legislation providing for unlimited liability for oil spills. In somecases, states, which have enacted such legislation, have not yet issuedimplementing regulations defining vessels owners’ responsibilities under theselaws. We intend to comply with all applicable state regulations in the portswhere our vessels call.

***Environmental Regulation—CERCLA***

The U.S. ComprehensiveEnvironmental Response, Compensation, and Liability Act, or CERCLA, governsspills or releases of hazardous substances other than petroleum or petroleumproducts. CERCLA imposes joint and several liability, without regard to fault,on the owner or operator of a ship, vehicle or facility from which there hasbeen a release, along with other specified parties. Costs recoverable underCERCLA include cleanup and removal costs, natural resource damages andgovernmental oversight costs. Liability under CERCLA is generally limited tothe greater of $300 per gross ton or $0.5 million per vessel carryingnon-hazardous substances ($5.0 million for vessels carrying hazardoussubstances), unless the incident is caused by gross negligence, willfulmisconduct or a violation of certain regulations, in which case liability isunlimited. In December 1994, the U.S. Coast Guard implemented regulationsrequiring evidence of financial responsibility for CERCLA liability in theamount of $300 per gross ton.

***Environmental Regulation—The Clean Water Act***

The U.S. Clean Water Act,or CWA, prohibits the discharge of oil or hazardous substances in navigablewaters and imposes strict liability in the form of penalties for anyunauthorized discharges. The CWA also imposes substantial liability for thecosts of removal, remediation and damages and complements the remediesavailable under the more recent OPA and CERCLA, discussed above. Currently,under U.S. Environmental Protection Agency, or EPA, regulations that have beenin place since 1978, vessels are exempt from the requirement to obtain CWApermits for the discharge in U.S. ports of ballast water and other substancesincidental to the normal operation of vessels. However, on March 30, 2005,the United States District Court for the Northern District of California ruledin *Northwest Environmental Advocate v. EPA*,2005 U.S. Dist. LEXIS 5373, that EPA exceeded its authority in creating anexemption for ballast water. On September 18, 2006, the court issued anorder granting permanent injunctive relief to the plaintiffs, invalidating theblanket exemption in EPA’s regulations for all discharges incidental to thenormal operation of a vessel as of September 30, 2008, and directing EPAto develop a system for regulating all discharges from vessels by that date. Underthe court’s ruling, owners and operators of vessels visiting U.S. ports wouldbe required to comply with the CWA permitting program to be developed by EPA orface penalties. EPA has appealed this decision to the Ninth Circuit Court ofAppeals, but we cannot predict the outcome of the litigation. If the districtcourt’s order is ultimately upheld, our vessels will be subject to CWApermitting requirements that could include ballast water treatment. While we donot believe that the costs associated with complying with such requirementswould be material, it is difficult to predict the overall impact of any CWApermitting requirements on the business.

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***Environmental Regulation—Other EnvironmentalInitiatives***

The European Union is considering legislation thatwill affect the operation of vessels and the liability of owners for oilpollution. It is difficult to predict what legislation, if any, may bepromulgated by the European Union or any other country or authority.

The U.S. National Invasive Species Act, or NISA, wasenacted in 1996 in response to growing reports of harmful organisms beingreleased into U.S. ports through ballast water taken on by ships in foreignports. Under NISA, the U.S. Coast Guard adopted regulations in July 2004imposing mandatory ballast water management practices for all vessels equippedwith ballast water tanks entering U.S. waters. These requirements can be met byperforming mid-ocean ballast exchange, by retaining ballast water on board theship, or by using environmentally sound alternative ballast water managementmethods approved by the U.S. Coast Guard. (However, mid-ocean ballast exchangeis mandatory for ships heading to the Great Lakes or Hudson Bay, orvessels engaged in the foreign export of Alaskan North Slope crude oil.)Mid-ocean ballast exchange is the primary method for compliance with the CoastGuard regulations, since holding ballast water can prevent ships fromperforming cargo operations upon arrival in the United States, andalternative methods are still under development. Vessels that are unable toconduct mid-ocean ballast exchange due to voyage or safety concerns maydischarge minimum amounts of ballast water (in areas other than the Great Lakesand the Hudson River), provided that they comply with record keepingrequirements and document the reasons they could not follow the requiredballast water management requirements. The Coast Guard has been developing aproposal to establish ballast water discharge standards, which could setmaximum acceptable discharge limits for various invasive species, and/or leadto requirements for active treatment of ballast water. Legislation has beenrecently introduced in the U.S. Senate that would require all vessels enteringU.S. ports beginning in 2012 to conduct active treatment of ballast water inaccordance with legislatively-mandated maximum discharge limits for invasivespecies unless the Coast Guard and EPA adopt alternative equivalent standardsbefore then.

At the international level, the IMO adopted anInternational Convention for the Control and Management of Ships’ Ballast Waterand Sediments, or the BWM Convention, in February 2004. The Convention’simplementing regulations call for a phased introduction of mandatory ballastwater exchange requirements (beginning in 2009), to be replaced in time withmandatory concentration limits. The BWM Convention will not enter into forceuntil 12 months after it has been adopted by 30 states, the combinedmerchant fleets of which represent not less than 35% of the gross tonnage ofthe world’s merchant shipping. As of March 31, 2007, the BWM Conventionhas been adopted by eight states, representing 3.21% of world tonnage.

If the mid-ocean ballastexchange is made mandatory throughout the United States or at the internationallevel, or if water treatment requirements or options are instituted, the costof compliance could increase for ocean carriers. Although we do not believethat the costs of compliance with a mandatory mid-ocean ballast exchange wouldbe material, it is difficult to predict the overall impact of such arequirement on the business.

**Seasonality**

Our containerships operateunder multi-year charters and therefore are not subject to the effect ofseasonal variations in demand. 

**Properties**

We have no freehold or leaseholdinterest in any real property. We occupy office space at 14 Akti Kondyli,185 45 Piraeus, Greece that is owned by our manager, Danaos Shipping, and whichis provided to us as part of the services we receive under our managementagreement.

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**Item4A.**                Unresolved StaffComments

Not applicable.

**Item5.**                        Operatingand Financial Review and Prospects

*The following discussion of our financial conditionand results of operations should be read in conjunction with the financialstatements and the notes to those statements included elsewhere in this annualreport. This discussion includes forward-looking statements that involve risksand uncertainties. As a result of many factors, such as those set forth under “Item3. Key Information—Risk Factors” and elsewhere in this annual report, ouractual results may differ materially from those anticipated in theseforward-looking statements.*

**Overview**

Our business is to provide international seabornetransportation services by operating vessels primarily in the containershipsector of the shipping industry. Our fleet currently consists of 31containerships and, as described below, we have newbuilding contracts for anadditional 27 containerships and have agreed to acquire one secondhandcontainership, built in 2004, all of which we expect will be delivered to us bythe end of 2010. In August 2006, we agreed to sell the six drybulkcarriers in our fleet, with an aggregate capacity of 342,158 dwt, for anaggregate of $143.5 million. In the first quarter of 2007, we delivered fiveof these vessels to the purchaser, which is not affiliated with us, for anaggregate of $118.0 million. Pursuant to the terms of this agreement wedelivered the remaining vessel to the purchaser for $25.5 million as itscharter expired in the second quarter of 2007. Subject to market conditions andavailability of suitable vessels to purchase, we intend to reinvest in thedrybulk sector with the acquisition of more recently built drybulk carrierswith configurations better suited to employment in the current drybulk chartermarket,. Although we continue to evaluate potential investments in the drybulksector, we do not believe current vessel prices in such sector, which are athigh levels, present attractive investment opportunities at this time. However,in anticipation of our reinvestment in this sector, our manager intends toretain the employees involved with our drybulk operations. In addition, oursenior secured credit facilities with RBS and with Aegean Baltic Bank and HSHNordbank provide for the use of borrowings to finance the acquisition ofdrybulk carriers as well as containerships. 

We deploy our containerships on multi-year, fixed-ratetime charters to take advantage of the stable cash flows and high utilizationrates typically associated with multi-year time charters. Our containershipfleet is currently comprised of 27 containerships employed on time charters and4 containerships employed on bareboat charters. Time-chartered containershipsare generally employed on multi-year charters to large liner companies thatcharter-in vessels on a multi-year basis as part of their business expansionstrategies. We deployed the drybulk carriers we have sold  primarily under short-term time charters ofup to one year in the spot market to take advantage of market opportunities.

The average number ofcontainerships and drybulk carriers in our fleet for the three years ended December 31,2006 are set forth in the table below.

**AverageNumber of Vessels in Our Fleet**

| ** **                              | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|
| ** **                              | ** ** | ** 2004**                             | ** ** | ** 2005** | ** ** | **2006** | ** ** |
| **Average  number of containerships**   |       |                                       | 24.0       |   |   |   | 25.0 |   |   | 26.3 |   |
| **Average number of drybulk  carriers** |       |                                       | 7.0        |   |   |   | 7.0 |   |   | 6.4 |   |

 

We have newbuilding contracts with Samsung for anadditional seven containerships, which consist of one 4,253 TEU vessel expectedto be delivered in the second half of 2007, four 4,253 TEU vessels expected tobe delivered in the second half of 2008 and two 4,253 TEU vessels expected tobe delivered in the first 

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half of 2009. We have alsoentered into newbuilding contracts with Sungdong, for an additional five 6,500TEU containerships expected to be delivered during 2009, and we have agreed toacquire one 4,300 TEU containership, built in 2004, which we expect to bedelivered in the second half of 2007. We have also entered into newbuildingcontracts with Hanjin Heavy Industries Co., Ltd, for an additional 10 vessels,which consist of five 6,500 TEU containerships expected to be delivered in late2009 and in 2010 and five 3,400 TEU containerships expected to be deliveredfrom November 2009 through June 2010. We have also entered intonewbuilding contracts with China Shipbuilding Trading Company for an additionalfour 6,800 TEU containerships to be built by Jiangnan Changxing Heavy Industryand expected to be delivered during the second and third quarter of 2010.

After delivery of these 28 containerships by the endof 2010, our containership fleet will have a total capacity of 261,335 TEU,assuming we do not acquire any additional vessels or dispose of any of ourvessels, other than the *APL Scotland*and the *APL Holland*,**forwhich APL-NOL has exercised its option to purchase these vessels at the end oftheir respective charters, as well as vessels that reach 30 years of age, whichare assumed to be scrapped.

Our containership fleet iscurrently under time charters with 10 charterers including Maersk, COSCO, Hapag-Lloyd,CMA-CGM, Hyundai, APL-NOL, Norasia, Yang Ming, Wan Hai and China Shipping. Inaddition, we have arranged 12-year time charters with Yang Ming for the two4,253 TEU newbuildings expected to be delivered in the second half of 2007 andfor the one secondhand, 2004-built, 4,300 TEU containership expected to bedelivered to us in 2007, and with Zim Integrated Shipping Services for the four4,253 TEU newbuildings expected to be delivered to us throughout the secondhalf of 2008 and for the two 4,253 TEU newbuildings expected to be delivered tous in the first half of 2009. We have also chartered each of the five 6,500 TEUcontainerships expected to be delivered during 2009 to CMA-CGM for12 years, subject to purchase options after the first eight years of thesechartering arrangements. Further, we have also arranged for 10 year charterswith an accredited charterer, for the five 3,400 TEU containerships expected tobe delivered in 2009 and 2010 and we have also arranged for 15 year charterswith Yang Ming, for three 6,500 TEU containerships expected to be delivered in2009 and 2010 for $34,325 per day each. Further, we have also arranged for 18-yearbareboat charters with an accredited charterer, for the remaining two 6,500 TEUcontainerships expected to be delivered in 2009 and 2010.

**Purchase Options**

The charter with respect to the *APL Belgium* includes an option for thecharterer, APL-NOL, to purchase the vessel in January 2008 at a price of$44.0 million or in January 2010 at a price of $39.0 million. Althoughwhen negotiated the option exercise prices with respect to this vesselreflected market prices at the time the options become exercisable, whichapproximated the vessel’s book value net of depreciation, we currently estimatethat the $44.0 million and $39.0 million option exercise prices willbe below the fair market value of the vessel. On March 7,****2007, we delivered the *APL England* toAPL-NOL for $44.0 million pursuant to the option contained in the charter forthat vessel. In addition, APL-NOL has recently exercised its options topurchase the *APL Scotland*and the *APL Holland*for $44.0 million each in May 2007 and July 2007,respectively. Although when negotiated the option exercise prices with respectto these three vessels reflected market prices at the time the options becameexercisable, which approximated the vessels’ book values net of depreciation,the $44.0 million option exercise prices were below the fair market valueof the vessels at the time the options were exercised. The sales of these threevessels have, and will, reduce the size of our fleet and if APL-NOL were toexercise its option with respect to the *APL Belgium*,the size of our fleet would be further reduced. We have not yet, and may not beable to, replace these vessels at a cost equal to the option prices paid byAPL-NOL.

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The charters with respectto the *HN S4001*, the *HN S4002*, the *HN S4003*, the *HN S4004*and the *HN S4005* include anoption for the charterer, CMA-CGM, to purchase the vessels eight years afterthe commencement of the respective charters, which, based on the respectiveexpected delivery dates for these vessels, are expected to fall in April 2017,June 2017, August 2017, October 2017 and December 2017,respectively, each for $78.0 million. In each case, the option to purchasethe vessel must be exercised 15 months prior to the acquisition datesdescribed in the preceding sentence. The $78.0 million option pricesreflect an estimate of the fair market value of the vessels at the time wewould be required to sell the vessels upon exercise of the options. If CMA-CGM wereto exercise these options with respect to any or all of these vessels, theexpected size of our combined containership fleet would be reduced, and as aresult our anticipated level of revenues would be reduced.

**Our Manager**

Our operations are managedby Danaos Shipping Co. Ltd., our manager, under the supervision of ourmanagement and our board of directors. We have a management agreement pursuantto which our manager and its affiliates provide us and our subsidiaries withtechnical, administrative and certain commercial services for an initial termexpiring on December 31, 2008, with automatic one-year renewals for anadditional 12 years at our option. Our manager is ultimately owned byDanaos Investments Limited as Trustee of the 883 Trust, which we refer to asthe Coustas Family Trust. Danaos Investments Limited, a corporation wholly-ownedby our chief executive officer, is the protector (which is analogous to atrustee) of the Coustas Family Trust, of which Dr. Coustas and othermembers of the Coustas family are beneficiaries. The Coustas Family Trust isalso our largest stockholder.

**Factors AffectingOur Results of Operations**

Our financialresults are largely driven by the following factors:

·       *Number of Vessels in Our Fleet.  *Thenumber of vessels in our fleet is the primary factor in determining the levelof our revenues. Aggregate expenses also increase as the size of our fleetincreases. Vessel acquisitions and dispositions will have a direct impact onthe number of vessels in our fleet. On March 7, 2007 we delivered the *APL England*,a 5,506 TEU containership, to APL-NOL pursuant to the terms of a purchaseoption contained in the charter for the vessel. Options to purchase twoof the containerships in our current fleet, the *APL Scotland* andthe *APL Holland*, wererecently exercised by APL-NOL with delivery scheduled for May 2007 and July 2007,respectively, which will decrease the size of our fleet. In addition, if thepurchase option with respect to one other containership in our current fleet,the *APL Belgium*, is exercised the size ofour fleet will be further decreased. Five of our newbuildings, which have anaggregate capacity of 32,500 TEUs, are also subject to arrangementspursuant to which the charterer has options to purchase the vessels atstipulated prices on specified dates expected, based on the respective expecteddelivery dates for these vessels, to fall in 2017. If these purchase optionswere to be exercised, the expected size of our combined containership fleet wouldbe reduced, and as a result our anticipated level of revenues would be reduced.

·       *Drybulk Fleet.  *In August 2006,we agreed to sell the six drybulk carriers in our fleet, with an aggregatecapacity of 342,158 dwt, for an aggregate of $143.5 million. In the firstquarter of 2007, we delivered five of these vessels to the purchaser, which isnot affiliated with us, for an aggregate of $118.0 million, 10% of which amounthad been paid to us in August 2006 upon entering into the sale agreement. Pursuantto the terms of this agreement we also delivered the remaining vessel to thepurchaser for $25.5 million as its charter expired in the second quarter****of 2007, 10% of which amount had been paid to us in August 2006upon entering into the sale agreement. We have decided to sell these vesselsdue to the opportunity to sell all six drybulk carriers in one transaction atthe high vessel valuations prevailing in the drybulk sector, which isinherently volatile in terms of 

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both charter rates andvessel valuations, combined with the advancing age and less than optimumconfiguration of our drybulk fleet. Subject to market conditions and theavailability of suitable vessels to purchase, we intend to reinvest in thedrybulk sector with the acquisition of more recently built drybulk carrierswith configurations better suited to employment in the current drybulk chartermarket,. Although we continue to evaluate potential investments in the drybulksector, we do not believe current vessel prices in such sector, which are at highlevels, present attractive investment opportunities at this time. However, inanticipation of our reinvestment in this sector, our manager intends to retainthe employees involved with our drybulk operations. In addition, our seniorsecured credit facilities with RBS and with Aegean Baltic Bank and HSH Nordbankprovide for the use of borrowings to finance the acquisition of drybulkcarriers as well as containerships. We have used and intend to use the proceedsfrom the sale of the drybulk carriers to fund contracted newbuildings. ** **Our drybulkoperations contributed approximately 27.1% of our revenues for the year ended December 31,2005 and approximately 16.5% of our revenues for the year ended December 31,2006.

·       *Charter Rates.  *Aside from the numberof vessels in our fleet, the charter rates we obtain for these vessels,particularly for our containerships, are the principal drivers of our revenues.Charter rates are based primarily on demand for capacity as well as theavailable supply of containership capacity and, with respect to the drybulkcarriers we have agreed to sell as well as the drybulk carriers we acquire inthe future, drybulk capacity, at the time we enter into the charters for ourvessels. As a result of macroeconomic conditions affecting trade flow betweenports served by liner companies and economic conditions in the industries whichuse liner shipping services, charter rates can fluctuate significantly.Although the multi-year charters on which we deploy our containerships make usless susceptible to cyclical containership charter rates than vessels operatedon shorter-term charters, we are exposed to varying charter rate environmentswhen our current chartering arrangements expire and we seek to deploy our containershipsunder new charters. The staggered maturities of our containership charters alsoreduce our exposure to any one stage in the shipping cycle.

Unlike our containerships, we deployed our drybulkcarriers on short-term time charters in the spot market. Drybulk charter ratesin the spot market are volatile and fluctuate on a seasonal and year-to-yearbasis. The fluctuations are caused by imbalances in the availability of cargoesfor shipment and the number of vessels available at any given time to transportthese cargoes. The charter rates we are able to obtain for the containershipsin our fleet, and were able to obtain for the drybulk carriers we have sold, aswell as drybulk carriers we acquire in the future, are also affected bycompetition for charters from a number of experienced shipping companies basedupon price, customer relationships, operating expertise, professionalreputation and size, age and condition of the vessel. Any adjustment incontainership charter rates or, for periods following our reinvestment in thedrybulk sector, drybulk carrier charter rates, would affect our financialresults.

·       *Utilization of Our Fleet.  *Due to themulti-year charters under which they are operated, our containerships haveconsistently been deployed at or near full utilization. Nevertheless the amountof time our vessels spend in drydock undergoing repairs or undergoingmaintenance and upgrade work affects our results of operations. Historically,our fleet has had a limited number of off-hire days. For example, there wereless than seven total off-hire days for our entire fleet during 2006 other thanfor scheduled drydockings and special surveys. However, an increase in annualoff-hire days could reduce our utilization. For the periods prior to theirsale, we deployed the drybulk carriers we have sold on short-term timecharters. The efficiency with which suitable employment is secured, the abilityto minimize off-hire days and the amount of time spent positioning vessels alsoaffects our results of operations. Furthermore, for the periods prior to thesale of the drybulk carriers, our results of operations were affected by theamount of time spent by such vessels making 

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off-hire voyages toembarkment points for their next hired voyages, both due to the lack of hirerevenue earned during such voyages as well as due to the costs, which are borneby us, of such voyages. If the utilization patterns of our containership fleetchanges our financial results would be affected.

·       *Expenses.  *Our ability to control our fixed andvariable expenses, including those for commission expenses, crew wages andrelated costs, the cost of insurance, expenses for repairs and maintenance, thecost of spares and consumable stores, tonnage taxes and other miscellaneousexpenses also affects our financial results. In addition, factors beyond ourcontrol, such as developments relating to market premiums for insurance and thevalue of the U.S. dollar compared to currencies in which certain of ourexpenses, primarily crew wages, are denominated can cause our vessel operatingexpenses to increase.

***Operating Revenues***

Our operating revenues are driven primarily by thenumber of vessels in our fleet, the number of operating days during which ourvessels generate revenues and the amount of daily charter hire that our vesselsearn under time charters which, in turn, are affected by a number of factors,including our decisions relating to vessel acquisitions and dispositions, theamount of time that we spend positioning our vessels, the amount of time thatour vessels spend in drydock undergoing repairs, maintenance and upgrade work,the age, condition and specifications of our vessels and the levels of supplyand demand in the containership charter market, and for the periods prior tothe sale of the drybulk carriers and following our reinvestment in the drybulksector, the drybulk charter market. Vessels operating in the spot market, suchas the drybulk carriers we have sold, generate revenues that are lesspredictable but can allow increased profit margins to be captured duringperiods of improving charter rates.

Revenues from long-term time charters, primarilyrelating to our containership operations, comprised 72.9% of our revenues forthe year ended December 31, 2005 and 83.5% of our revenues for the yearended December 31, 2006. The revenues relating to our multi-year charterswill be affected by the delivery dates of our contracted containerships and anyadditional vessels subject to multi-year charters we may acquire in the future,as well as by the disposition of any such vessel in our fleet. Our revenueswill also be affected if any of our charterers cancel a multi-year charter.Each of our current vessel construction agreements and secondhand vesselacquisition agreements has a contracted delivery date. A change in the date ofdelivery of a vessel will impact our revenues and results of operations. Ourmulti-year charter agreements have been contracted in varying rate environmentsand expire at different times. Generally, we do not employ our vessels undervoyage charters under which a shipowner, in return for a fixed sum, agrees totransport cargo from one or more loading ports to one or more destinations andassumes all vessel operating costs and voyage expenses.

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Ourexpected revenues, based on contracted charter rates, from our current charterarrangements for our containerships having initial terms of more than12 months is shown by class size in the below table. Although theseexpected revenues are based on contracted charter rates, any contract issubject to performance by the counterparties. If the charterers are unable tomake charter payments to us, our results of operations and financial conditionwill be materially adversely affected*.*

**ContractedRevenue from Multi-Year Charters as of December 31, 2006**(1) (amounts in millions of U.S. dollars)

| **Vessel  type/size** | ** ** | ** ** | ** ** | **Number  of  Vessels(2)** | ** ** | **1 year  (2007)** | ** ** | **1 to 3  years  (2008-2009)** | ** ** | **3 to 5  years  (2010-2011)** | ** ** | **5 to 10  years  (2012-2016)** | ** ** | **More than 10  years  (2017-2022)** | ** ** | **Total** | ** ** |
|-----------------------|------------|------------|------------|----------------------------|------------|-------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------------|------------|-----------|------------|
| **Containerships**    | ** ** |       | ** ** | ** **                 |       | ** **              | ** ** |                                     | ** ** | ** **                               |       |                                      | ** ** | ** **                                     |       |      | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Post-Panamax          | ** ** |       | 20         | (3)(4)(6)                  |       | $                       | 116.6      | (5)                                      |       | $                                        | 212.6      | ** **                                |       |                                           | $          | 402.2     | ** ** |   |   | $ | 828.3 | ** ** |   |   | $ | 858.2 | (7) |   | $ | 2,417.9 |   |
| Panamax               |       |       | 32         | ** **                 |       | 132.4                   |       |                                     | 273.5      | ** **                               |       |                                      | 286.3      | ** **                                     |       |      | 628.9      | ** ** |   |   | 421.4 | ** ** |   | 1,742.5 |   |
| **Total**             | ** ** |       | **52**     | ** **                 |       | **$**                   | **249.0**  | ** **                               |       | **$**                                    | **486.1**  | ** **                                |       |                                           | **$**      | **688.5** | ** ** |   |   | **$** | **1,457.2** | ** ** |   |   | **$** | **1,279.6** | ** ** |   | **$** | **4,160.4** | ** ** |

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(1)           Annual revenue calculations are based on an assumed 364 revenue days per annumrepresenting contracted fees (net of commissions), based on contracted charterrates from our current charter agreement. Although these fees are based oncontractual charter rates, any contract is subject to performance by thecounter parties and ourselves. Additionally, the fees above reflect an estimateof off-hire days to perform periodic maintenance. If actual off-hire days aregreater than estimated, these would decrease the level of revenues above.

(2)           Includes two 4,253 TEU newbuildings expected to bedelivered in the second half of 2007; two 4,300 TEU vessels, built in 2004, oneof which was delivered on March 12, 2007 and the other of which isexpected to be delivered in the second half of 2007; four 4,253 TEUnewbuildings expected to be delivered to us during the second half of 2008; andtwo 4,253 TEU newbuildings expected to be delivered to us in the first half of2009. Includes 10 newbuilding containerships, the *HN N-214*,the *HN N-219*, the HN N-215, the *HN N-216*, the *HN N-217*,the *HN N-218,* the *HN N-220*, the *HN N-221*,the *HN N-222* and the *HN N-223*, for which we arranged charters during 2007.

(3)           Includes three 5,506 TEU containerships, the *APL Scotland*, the *APL Holland* and the *APL Belgium*, which are subject to optionsfor the charterer to purchase each vessel in****May 2007,July 2007 and January 2008, respectively, each for$44.0 million, and in May 2009, July 2009 and January 2010,respectively, each for $39.0 million. Accordingly, no revenue with respectto the *APL Scotland*, the *APL Holland* and the *APL Belgium* is included in the tablefollowing****May 2007, July 2007 and January 2008,respectively.****APL-NOL has recentlyexercised its options to purchase the *APLScotland*and the *APL Holland* from us, each for$44.0 million, upon expiration of these vessels’ respective currentcharters in May 2007 and July 2007, respectively.

(4)           Does not include one 5,506 TEU containership, the *APL England*, which we delivered to APL-NOL on March 7,2007 pursuant to the terms of an exercised purchase option for this vessel.

(5)           Includes $1.7 million in contracted revenues from thecharter for the *APL England* for the period from January 1,2007 to March 7, 2007, the day on which we delivered the *APL England* to APL-NOL pursuant to the terms of an exercisedpurchase option for this vessel.

(6)           Includes five 6,500 TEU containerships, the *HN S4001*, the *HN S4002*, the *HN S4003*,the *HN S4004* and the *HN S4005*, which are subject tooptions for the charterer to purchase the vessels eight years after thecommencement of the respective charters, which, based on the respectiveexpected delivery dates for these vessels, are expected to fall in April 2017,June 2017, August 2017, October 2017 and December 2017,respectively, each for $78.0 million. The $78.0 million option pricesreflect an estimate of the fair market value of the vessels at the time wewould be required to sell the vessels upon exercise of the options.

(7)           An aggregate of $246.0 million ($49.2 millionwith respect to each vessel) of revenue with respect to the *HN S4001*, the *HN S4002*, the *HN S4003*, the *HN S4004*and the *HN S4005*, following April 2017,June 2017, August 2017, October 2017 and December 2017,respectively, is included in the table because we cannot now predict thelikelihood of these options being exercised.

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The revenues fromshort-term charters primarily relate to the operation of the drybulk carrierswe have sold comprised 27.1% of our revenues for the year ended December 31,2005 and 16.5% of our revenues for the year ended December 31, 2006.Vessels operating in the spot market generate revenues that are lesspredictable than vessels on period charters, although this chartering strategycan enable vessel-owners to capture increased profit margins duringperiods of improvements in charter rates. Deployment of vessels in the spotmarket creates exposure, however, to the risk of declining charter rates, whichmay be higher or lower than those rates at which a vessel could have been timechartered for a longer period.

***Voyage Expenses***

Voyage expenses includeport and canal charges, bunker (fuel) expenses, address commissions andbrokerage commissions. Under multi-year time charters and bareboat charters,such as those on which we charter our containerships and under short-term timecharters, such as those on which we chartered the drybulk carriers we havesold, the charterers bear the voyage expenses other than brokerage and addresscommissions. As such, voyage expenses represent a relatively small portion ofour vessels’ overall expenses.

From time to time, inaccordance with industry practice and in respect of the charters for ourcontainerships we pay brokerage commissions of approximately 0.5% to 2.5% ofthe total daily charter hire rate under the charters to unaffiliated shipbrokers associated with the charterers, depending on the number of brokersinvolved with arranging the charter. We also pay address commissions of up to3.75% to some of our charterers. We also from time to time paid suchcommissions with respect to the drybulk carriers we have sold. Our manager willalso receive a commission of 0.5% based on the contract price of any vesselbought or sold by it on our behalf, excluding newbuilding contracts.

Further, until March 2004,we paid a commission of 0.45% on all freight, charter hire, ballast bonus anddemurrage for each vessel in our fleet to Nedlloyd Schiffsmakler, which wasuntil that time performing chartering services for our fleet. We did not pay acommission with respect to freight, charter hire, ballast bonus and demurrageduring the period from March 2004 to June 30, 2005. Since July 1,2005, we have paid and will pay commissions to our manager of 0.75% on allfreight, charter hire, ballast bonus and demurrage for each vessel.

***Vessel OperatingExpenses***

Vessel operating expensesinclude crew wages and related costs, the cost of insurance, expenses for repairsand maintenance, the cost of spares and consumable stores, tonnage taxes andother miscellaneous expenses. Aggregate expenses increase as the size of ourfleet increases. Factors beyond our control, some of which may affect theshipping industry in general, including, for instance, developments relating tomarket premiums for insurance, may also cause these expenses to increase. Inaddition, a substantial portion of our vessel operating expenses, primarilycrew wages, are in currencies other than the U.S. dollar and any gain or losswe incur as a result of the U.S. dollar fluctuating in value against thesecurrencies is included in vessel operating expenses. We fund our managermonthly in advance with amounts it will need to pay our fleet’s vessel operatingexpenses.

Under multi-year timecharters, such as those on which we charter 27 of the containerships in ourcurrent fleet, and under short-term time charters, such as those on which wechartered the drybulk carriers we have sold, we pay for vessel operatingexpenses. Under bareboat charters, such as those on which we charter four ofthe containerships in our current fleet, our charterers bear most vesseloperating expenses, including the costs of crewing, insurance, surveys,drydockings, maintenance and repairs.

***Amortization ofDeferred Drydocking and Special Survey Costs***

We follow the deferralmethod of accounting for special survey and drydocking costs, whereby actualcosts incurred are deferred and are amortized on a straight-line basis over theperiod until the next 

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scheduledsurvey, which is two and a half years. If special survey or drydocking isperformed prior to the scheduled date, the remaining unamortized balances areimmediately written off. We capitalize the total costs associated with drydockings,special surveys and intermediate surveys and amortize these costs on astraight-line basis over 30 months.

***Depreciation***

We depreciate ourcontainerships, and the drybulk carriers for the periods prior to their sale,on a straight-line basis over their estimated remaining useful economic lives.Historically, we estimated this to be 25 years. As of January 1,2005, we determined the estimated useful lives of our containerships to be30 years, whereas for drybulk carriers we continued to estimate their usefullives to be 25 years. Depreciation is based on cost, less the estimatedscrap value of the vessels.

***General andAdministrative Expenses***

Historically, while wewere a privately-owned company, we paid Danaos Shipping, our manager, amonthly management fee of $2,750 for the management of our affairs. We alsopaid our manager a fixed management fee of $150 to $500 per day for each vesselin our fleet depending on its size and the charter arrangements. In order tobring the fees we pay to our manager to a level similar to those that would bepaid to an unaffiliated manager we adjusted the fees we pay to our manager asof July 1, 2005.

From July 1, 2005 to December 31,2008, we have paid and will pay our manager a fee of $500 per day for providingits commercial, chartering and administrative services, a daily management feeof $250 per vessel per day for its technical management of vessels on bareboatcharter and $500 per vessel per day for the remaining vessels in our fleet, prorated for the calendar days we own each vessel. We will also pay our manager aflat fee of $400,000 per newbuilding vessel for the on-premises supervision ofour newbuilding contracts by selected engineers and others of its staff.

Our consolidated financialstatements for periods prior to our initial public offering in October 2006show our results of operations as a private company when we did not pay anycompensation to our directors and officers other than amounts corresponding todividends, and compensation paid to our officers, but not directors, during theperiod from January 1, 2006 to our initial public offering in October 2006.As a public company since October 2006, we expect to incur additionalgeneral and administrative expenses going forward. We expect that the primarycomponents of general and administrative expenses, other than the managementfees described above, will consist of the expenses associated with being apublic company, which include the preparation of disclosure documents, legaland accounting costs, incremental director and officer liability insurancecosts, director and executive compensation, costs related to compliance withthe Sarbanes-Oxley Act of 2002 and the listing of our common stock on theNew York Stock Exchange.

***Interest Expense,Interest Income and Other Finance Costs***

We incur interest expenseon outstanding indebtedness under our credit facilities which we include ininterest expenses. We also incurred financing costs in connection withestablishing those facilities, which is included in our finance costs. Further,we earn interest on cash deposits in interest bearing accounts and on interestbearing securities, which we include in interest income. We will incuradditional interest expense in the future on our outstanding borrowings andunder future borrowings.

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**Results ofOperations**

***Year ended December 31, 2006 compared to the yearended December 31, 2005***

During the year ended December 31,2006, we had an average of 26.3 containerships and 6.4 drybulk carriers in ourfleet. During the year ended December 31, 2005, we had an average of 25.0containerships and 7.0 drybulk carriers in our fleet. We took delivery of one4,651 TEU containership on March 23, 2006, one 9,580 TEU containership on September 82006, one 9,580 TEU containership on November 20, 2006, one 4,814 TEUcontainership on December 13, 2006, one 4,814 TEU containership on December 18,2006 and one 4,814 TEU containership on December 22, 2006 and sold onedrybulk carrier on May 12, 2006.

*Operating Revenue*

Operating revenueincreased 1.7%, or $4.2 million, to $245.6 million in the year ended December 31,2006, from $241.4 million in the year ended December 31, 2005. Theincrease was a result of  the addition toour fleet of six vessels, a 4,651 TEU containership on March 23, 2006,chartered at $20,750 per day, a 9,580 TEU vessel on September 8, 2006,chartered at $34,000 per day, a 9,580 TEU vessel on November 20, 2006,chartered at $34,000 per day, and three 4,814 TEU vessels, on December 13,18 and 22 of 2006, respectively, each chartered at $23,450 per day, whichcollectively contributed revenues of $13.4 million in 2006, which was offset by$9.2 million less revenue generated by the rest of our fleet, mainlyattributable to lower charter rates at which our drybulk carriers wheredeployed and the effect of the sale of the*Sofia III*.

*Voyage Expenses*

Voyage expenses were$7.3 million in the year ended December 31, 2006, representing andecrease of $0.2 million, or 2.7%, from $7.5 million in the year ended December 31,2005. Commissions charged by related and third parties which form part of thevoyage expenses amounted to $6.8 million in the year ended December 31,2006, an increase of $0.7 million, or 11.5%, compared to $6.1 million in theyear ended December 31, 2005. Such increase was mainly attributable to ournew management agreement which came into effect on July 1, 2005, accordingto which we pay commissions to our manager of 0.75% on all freight, charterhire, ballast bonus and demurrage for each vessel, a commission of 0.5% basedon the contract price on any vessel bought and sold on our behalf, as well asincreased revenues on which we paid commissions for the year ended December 31,2006, offset by a $0.9 million decrease in other voyage expenses such as portand canal charges, bunker expenses and address commissions, related to theoperation of our drybulk fleet.

*Vessel OperatingExpenses*

Vessel operating expensesincreased 12.6% or $6.8 million, to $60.7 million in the year ended December 31,2006, from $53.9 million in the year ended December 31, 2005. Thisincrease was due to the increase in the average number of vessels in our fleetwhich contributed approximately $3.0 million in vessel operating expenses inthe year  ended December 31, 2006compared to the year ended December 31, 2005 and a general increase inrunning costs experienced by the industry, more specifically with respect tolubricant oil costs, maintenance costs and seafarers wages, which contributedapproximately a further $3.8 million.

*Amortization ofDeferred Drydocking and Special Survey Costs*

Amortization of deferreddrydocking and special survey costs expense increased 38.5%, or $1.5 million,to $5.4 million in the year ended December 31, 2006, from$3.9 million in the year ended December 31, 2005. This was due to thecosts of drydocking and special surveys conducted for nine of our vessels in2006, for which amortization commenced during 2006.

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*Depreciation*

Depreciation expenseincreased 14.8%, or $4.0 million, to $31.1 million in the year ended December 31,2006, from $27.1 million for the year ended December 31, 2005. Thisincrease was due to the increase in the average number of vessels in our fleetduring the year ended December 31, 2006.

*General andAdministrative Expenses*

General and administrativeexpenses increased 49.0%, or $2.5 million, to $7.6 million in the yearended December 31, 2006 from $5.1 million in the year ended December 31,2005, reflecting $1.4 million of additional directors’ and officers’remuneration expenses which was not applicable in the year ended December 31,2005 and $1.1 million of technical management fees we paid in respect of theadditional vessels that joined our fleet during the year ended December 31,2006.

*Interest Expense,Interest Income, and Other Finance (Costs) Income, Net*

Interest expense increased $5.8 million, or 24.8%, to$29.2 million in the year ended December 31, 2006, from $23.4 millionin the year ended December 31, 2005. Interest income was $3.6 million forthe year ended December 31, 2006, a decrease of $2.7 million, from$6.3 million for the year ended December 31, 2005, and other financeincome (costs), net, increased $9.0 million, to income of $1.9 million in theyear ended December 31, 2006, from a cost of $7.1 million in the yearended December 31, 2005. The change in interest expense was primarily dueto the increase in interest rates by 1.3% to which our indebtedness, on whichwe paid interest, was subject to, while there was no significant change in theaverage indebtedness for the year ended December 31, 2006 as compared tothe year ended December 31, 2005. This resulted in an increase in interestof approximately $8.8 million, partially offset by the financing of ourextensive newbuilding program which resulted in capitalizing $8.3 million ofinterest for year ended December 31, 2006 as opposed to $5.3 millioncapitalized interest for the year ended December 31, 2005. The decrease ininterest income was due to the decreased monthly average bank deposits on whichwe earned interest, offset in part by higher interest rates.

The increase in otherfinance costs, net, was mainly due to foreign exchange differences in respectof the leasing arrangements for the *CSCLEurope*, the *CSCL America*,the *Maersk Derby* (ex *P&O Nedlloyd Caracas*), the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* andthe *CSCL Le Havre*(ex *HN 1561*), which resulted to a gain of $2.8 million during the yearended December 31, 2006 as opposed to a loss of $6.5 million duringthe year ended December 31, 2005.

***Gain/(loss)on sale of vessels***

We recognized a $14.5million gain on the sale of the *Sofia III*during 2006.

*Otherincome/(expense), net*

Other income/(expense),net decreased $17.1 million to  $(16.6)million for the year ended December 31, 2006 from $0.5 million in the yearended December 31, 2005. The decrease was primarily attributable to a nonrecurring expense of approximately $(13) million related to the expectedincrease in the put option price we expect to pay under the leasingarrangements for the *CSCL Europe*,the *CSCL America*, the *Maersk Derby*,the *Vancouver Express*, the *CSCL Pusan* and the *CSCL Le Havre*,if the put option is exercised 61¤2 yearsinto the lease terms, as a result of a change in the United Kingdom taxlegislation enacted in 2006.

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***Year ended December 31, 2005 compared to yearended December 31, 2004***

During the year ended December 31,2005, we had an average of 25.0 containerships and 7.0 drybulk carriers in ourfleet. During the year ended December 31, 2004, we had an average of 24.0containerships and 7.0 drybulk carriers in our fleet. We sold one 3,029 TEUcontainership in January 2004 and took delivery of one 4,253 TEUcontainership in each of March and April 2004, and one 8,468 TEUcontainership in each of August and November 2004.

*Operating Revenue*

Operating revenueincreased 15.9%, or $33.1 million, to $241.4 million in the yearended December 31, 2005, from $208.3 million in the year ended December 31,2004. The increase was due to $20.0 million in revenue generated by theadditional operating days of four new vessels, consisting of two 4,253 TEUcontainerships and two 8,468 TEU containerships acquired during 2004, whichwere operated for a greater number of days in 2005. Each of the 4,253 TEUvessels were chartered at daily rates of $20,600 and each of the 8,468 TEUvessels were chartered at daily rates of $29,500. In addition,$7.2 million in revenue was generated from the higher charter ratesobtained by rechartering certain of our remaining containerships and$5.9 million in revenue was generated from the higher rates our drybulkcarriers earned during the period.

*Voyage Expenses*

Voyage expenses were$7.5 million in the year ended December 31, 2005, representing anincrease of $1.2 million, or 19.0%, from $6.3 million in the yearended December 31, 2004. Commissions charged by related and third partiesin the year ended December 31, 2005 amounted to $6.1 million, anincrease of $1.0 million, or 19.6%, compared to $5.1 million in theyear ended December 31, 2004. In March 2004 we ceased paying acommission of 0.45% on all freight, charter hire, ballast bonus and demurragefor each vessel in our fleet to Nedlloyd Schiffsmakler, which was until thattime performing chartering services for our fleet.

*Vessel OperatingExpenses*

Vessel operating expensesincreased 16.7%, or $7.7 million, to $53.9 million in the year ended December 31,2005, from $46.2 million in the year ended December 31, 2004.Approximately $4.0 million of the increase was due to the increase in theaverage number of vessels in our fleet in 2005, compared to 2004, andapproximately $3.6 million of the increase was due to a general increasein running costs per vessel experienced by the industry.

*Amortization ofDeferred Drydocking and Special Survey Costs*

Amortization of deferreddrydocking and special survey costs expense increased $1.8 million to$3.9 million in the year ended December 31, 2005, from$2.1 million in the year ended December 31, 2004. This was primarilydue to the costs of drydockings and special surveys conducted for ten vesselsin our fleet in 2004, which we began to amortize in the second half of 2004.Therefore these costs are reflected for all of 2005, but only part of 2004.

*Depreciation*

Depreciation expensedecreased 14.5%, or $4.6 million, to $27.1 million in the year ended December 31,2005, from $31.7 million in the year ended December 31, 2004. Thedecrease resulted primarily from the change in our depreciation policy whichbecame effective as of January 1, 2005 and decreased depreciation expenseby $7.7 million in 2005, which was partially offset by increased 

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depreciationof $3.1 million relating to the additional operating days in 2005 withrespect to two 4,253 TEU and two 8,468 TEU containerships acquired in2004.

*General andAdministrative Expenses*

General and administrativeexpenses increased 24.4%, or $1.0 million, to $5.1 million in theyear ended December 31, 2005 from $4.1 million in the year ended December 31,2004, reflecting the higher average number of containerships in our fleetduring 2005 for which we paid management fees, and the new management agreementwhich came into effect beginning on July 1, 2005.

*Interest Expense,Interest Income, and Other Finance Costs, Net*

Interest expense increased$11.8 million, or 101.7%, to $23.4 million in the year ended December 31,2005, from $11.6 million in the year ended December 31, 2004, whileinterest income increased 142.3%, or $3.7 million, to $6.3 million inthe year ended December 31, 2005, from $2.6 million in the year endedDecember 31, 2004, and other finance costs, net, increased$8.5 million from a gain of $1.4 million in the year ended December 31,2004 to a cost of $7.1 million in the year ended December 31,  2005. The change in interest expense wasprimarily due to the increase in interest rates to which our indebtedness, onwhich we paid interest, was subject and the increase in average indebtedness ofapproximately $67.4 million resulting from our debt refinancing in 2005.The increase in other finance costs, net, was due to foreign exchangedifferences in respect of the forward contracts related to the leasingarrangements for the *CSCL Europe*,the *CSCL America*, the *Maersk Derby* (ex *P&O Nedlloyd Caracas*), the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* andthe *CSCL Le Havre*(ex *HN 1561*), which were a loss of $6.5 million during 2005. Theincrease in interest income was primarily due to accreted interest income onthe present value of the cash inflows associated with the leasing arrangementsfor the *CSCL Europe*, the *CSCL America*, the *Maersk Derby* (ex *P&O Nedlloyd Caracas*), the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* andthe *CSCL Le Havre*(ex *HN 1561*), which represented a net increase of $1.4 million during2005. The remaining $2.3 million increase in interest income was due tohigher interest rates and higher average levels of cash deposits in our bankaccounts in 2005. See “—Credit Facilities.”

**Liquidity andCapital Resources**

Historically, our principal source of funds has beenequity provided by our stockholders, operating cash flows, long-term bankborrowings and, more recently, proceeds from our initial public offering in October 2006.Our principal uses of funds have been capital expenditures to establish, growand maintain our fleet, comply with international shipping standards,environmental laws and regulations and to fund working capital requirements.

Our primary short-term liquidity needs are to fund ourvessel operating expenses. Our medium-term liquidity needs primarily relate tothe purchase of the 28 additional containerships for which we have contracted.Our long-term liquidity needs primarily relate to additional vesselacquisitions in the containership and drybulk sectors and debt repayment. Weanticipate that our primary sources of funds will be cash from our creditfacilities, the proceeds from the sale of the drybulk carriers and the proceedsfrom the sales of the *APL England*, the *APLScotland* and the *APL Holland*,cash from operations, debt and, possibly, equity financings, although we do notcurrently have any specific plans with respect to any future equity financing.We believe that these sources of funds, even absent any future equityfinancings, will be sufficient to meet our liquidity needs in the foreseeable futuresince our contracted revenue together with our senior revolving creditfacilities with RBS and Aegean Baltic Bank and HSH Nordbank should besufficient to meet our currently projected liquidity needs.

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We intend to finance a portion of the acquisition ofeach of our 28 contracted vessels with borrowings under our senior securedcredit facilities with RBS and with Aegean Baltic Bank and HSH Nordbank. Wealso borrowed an aggregate amount of $75.0 million ($15.0 millionwith respect to each vessel) under a new credit facility with Seasonal MaritimeCorporation, dated August 14, 2006, to partially finance the acquisitionof the five 6,500 TEU newbuildings we ordered on July 26, 2006. Inaddition, we borrowed an aggregate amount of $25.0 million under anothernew credit facility with Seasonal Maritime Corporation, dated September 25,2006, to finance installment payments on the *HN1670*, the *HN 1671*, the*HN 1672* and the *HN 1673*, made on September 28, 2006.We repaid the entire amount outstanding under these loans on December 28,2006 with borrowings made under our Aegean Baltic-HSH Nordbank credit facility.

In August 2006, we agreed to sell the six drybulkcarriers in our fleet, with an aggregate capacity of 342,158 dwt, for anaggregate of $143.5 million. We have used and intend to use the proceedsfrom this sale to fund contracted vessel acquisitions. We received payment of10% of the aggregate sale price of the six drybulk vessels upon entering intothe sales agreements, the remaining 90% of the sale price was paid to us upondelivery of each vessel to the purchaser upon expiration of the vessel’sthen-existing charter. We delivered all six of these vessels to the purchaserupon expiration of their charters in the first and second quarter of 2007.

We delivered the *APL England* toAPL-NOL on March 7, 2007, pursuant to its exercise of an option topurchase the *APL England* from us for $44.0million. APL-NOL has recently exercised its options to purchasethe *APL Scotland*and the *APLHolland* from us for $44.0 million each upon theexpiration of the vessels’ current charters in May 2007 and July 2007,respectively.

Under our current multi-year charters, we havecontracted revenues of $242.8 million for 2007 and $200.5 million for2008 and, until their expiration, $4.1 billion.

We intend to pay a quarterly dividend of $0.44 pershare, or $1.76 per share per year. We paid our first quarterly dividend as apublic company of $0.44 per share on February 14, 2007 and our secondquarterly dividend of $0.44 per share on May 18, 2007. Our dividend policywill impact our future liquidity needs, however, we currently intend to paydividends in amounts that will allow us to retain a portion of our cash flowsto fund vessel, fleet or company acquisitions that we expect to be accretive toearnings and cash flows, and for debt repayment and drydocking costs, asdetermined by management and our board of directors.

We paid no dividends in 2006. Prior to our initialpublic offering, in 2005 we paid dividends of $244.6 million to our stockholdersfrom our retained earnings.

As of May 15, 2007,we had approximately $1.0 billion of undrawn availability under our creditfacilities.

***Net Cash Provided by Operating Activities***

Net cash flows provided byoperating activities decreased 6.5%, or $10.6 million, to $151.6 millionin the year ended December 31, 2006, compared to $162.2 million forthe year ended December 31, 2005, and increased 25.6%, or$33.1 million, to $162.2 million in the year ended December 31,2005, from $129.1 million in the year ended December 31, 2004. Forthe year ended December 31, 2006, the decrease was primarily a result of achange in working capital requirements by $7.1 million and increased paymentsof $3.5 million, attributed to drydockings in relation to six of our vesselsfor 2006 as opposed to four of our vessels for 2005. The increase in 2005 wasprimarily attributable to the additional operating days in 2005 of two4,253 TEU and two 8,468 TEU containerships acquired in 2004, whichcontributed $17.1 million in net cash, and the higher recharter rates ourdrybulk carriers were able to command, which contributed $5.2 million innet cash.

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***Net Cash Used in Investing Activities***

Net cash flows used ininvesting activities were $330.1 million in the year ended December 31,2006 compared to $40.5 million in the year ended December 31, 2005and $154.7 million in the year ended December 31, 2004. The differencebetween the year ended December 31, 2006 and 2005 period primarilyreflects the funds used to acquire secondhand vessels of $171.8 million in 2006as opposed to $12.4 million in 2005, and installment payments for newbuildingsof $185.1 million in 2006 as opposed to $28.2 million during the year ended December 31,2006. Net cash flows used in investing activities were $154.7 million in2004, reflecting installment payments for newbuildings of $170.1 million, offsetin part by vessel sale proceeds of $15.4 million.

***Net Cash Provided by/(Used in) Financing Activities***

Net cash flows provided byfinancing activities were $183.6 million in the year ended December 31,2006 compared to net cash used in financing activities of $180.7 millionin the year ended December 31, 2005 and net cash provided by financingactivities of $45.1 million in the year ended December 31, 2004. Theyear ended December 31, 2006 and 2005 period results primarily reflect thenet proceeds of $201.3 million to us after completing our initial publicoffering in the United States on October 11, 2006 and the payment of nodividends during the year ended December 31, 2006 as opposed to the yearended December 31, 2005, in which we paid a special dividend of $244.6million prior to the initial public offering to our then-existingstockholders from our retained earnings. Net cash flows provided by financingactivities were $45.1 million in 2004, reflecting, primarily, reduceddrawdowns under our credit facilities of $90.2 million, and increasedrepayments of indebtedness of $28.1 million.

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**Credit Facilities**

We, as guarantor, andcertain of our subsidiaries, as borrowers, have entered into a number of creditfacilities in connection with financing the acquisition of certain vessels inour fleet. The following summarizes certain terms of our credit facilities:****

| **Lender(1)**                          | ** ** | ** **     | ** ** | **Remaining  Available  Principal  Amount** | ** ** | **Outstanding  Principal  Amount(1)** | ** ** | **Interest  Rate**                          | ** ** | **Maturity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Remaining  Repayment  Installments** |
|----------------------------------------|------------|----------------|------------|---------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|
| **HSH NORDBANK(2)**                    |       | 3⁄4         |       | $49.0 million                          |       | LIBOR + 0.775%                        |       | Due March 2014                         |       | 29 quarterly installments: $1.0 million Balloon:  $20.0 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **KEXIM(3)**                           |       | 3⁄4         |       | $101.5 million                         |       | FIXED at 5.0125%                      |       | Due November 2016                      |       | 38 quarterly installments: $2.6 million Plus  installments of $1.0 million, $1.3 million and $0.69 million  payable in August 2016, September 2016 and November 2016,  respectively.                                                                                                                                                                                                                                                                                                                   |
| **KEXIM-FORTIS(4)**                    |       | 3⁄4         |       | $144.0 million                         |       | FIXED at 5.02%                        |       | Due October 2018 and January 2019 |       | 23 semi-annual installments of $5.6 million Plus  installments of $2.09 million, $2.14 million $0.8 million and  $0.7 million plus a balloon payment of $9.0 million payable in  October 2018 and January 2019, respectively.                                                                                                                                                                                                                                                                               |
| **AEGEAN BALTIC BANK-HSH NORDBANK(5)** |       | $410.0 million |       | $290.0 million                              |       | LIBOR + 0.70%                         |       | Due November 14,  2011                 |       | Concerns a loan facility of up to $700.0 million advanced to the vessel  owning companies in order to partially finance the construction of the new  vessels and the repayment of an old loan facility. This revolving credit  facility shall be non-amortizing for the first five years and the repayment  schedule as well as the balloon will be determined based upon, the weighted  average age of the vessels that will comprise the securities portfolio for  this loan at the end of the year five (i.e.,November 14, 2011). |
| **THE ROYAL BANK OF SCOTLAND(6)** |       | 3⁄4         |       | $75.5 million                               |       | LIBOR + 0.8%                          |       | Due in 2013                                 |       | Five consecutive semi-annual installments starting from 2011 of $8.5 million  each, plus a balloon payment of $33.0 million payable with the last  installment in 2013.                                                                                                                                                                                                                                                                                                                                                                   |

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The following vessels inour fleet are unencumbered: the *Pacific Bridge*,the *Eagle Express*, the *APL Scotland*,the *Norasia Hamburg*, the *YM Yantian*, the *YM Milano* andthe *Victory I*.

(1)             As of December 31, 2006.

(2)             Our credit facility with HSH Nordbank AG iscollateralized by mortgages and other security relating to the *Vancouver Express* and the *Maersk Derby*.

(3)             Our KEXIM credit facility is collateralized bymortgages and other security relating to the *CSCLEurope* and the *CSCL America.*

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(4)             Our KEXIM-FORTIS credit facility iscollateralized by mortgages and other security relating to the *CSCL Pusan*and the *CSCL LeHavre*.

(5)             Our credit facility with Aegean Baltic Bank S.A. andHSH Nordbank AG is collateralized by mortgages and other security relating tothe *APL Belgium,*the *CMA CGM Elbe*, the *CMA CGM Kalamata*, the *CMA CGM Komodo*, the *Henry*, the *Hyundai Commodore*,**the *Hyundai Duke*, the *Independence,* the *MaerskMarathon*, the *Maersk Messologi*,the *Maersk Mytilini* and the *MOL Confidence*.

(6)             On February 21, 2007 we used borrowings undercurrent credit facility with RBS, which we entered into on February 20,2007, to repay the entire $75.5 million outstanding under this previous creditfacility with RBS. This repayment was a debt extinguishment under US GAAP andwas treated accordingly in our accounts. Our current credit facility with RBSis for up to $700 million and bears interest at LIBOR plus 0.75%. Principalrepayments begin after five years and are required to be fully repaid by 2022.As of May 15, 2007, there was $150 .0 million outstanding under thecurrent RBS credit facility. Our current credit facility with RBS iscollateralized by mortgages and other security relating to the *APL Holland, SA Helderberg, SA Winterberg, SA Sederberg and MaerskConstantia.*

Our creditfacilities contain financial covenants requiring us to:

·       maintaina market value adjusted net worth of at least $400.0 million andstockholders’ equity of at least $250.0 million;

·       ensurethat the aggregate market value of the vessels in our fleet exceeds 145.0% ofour net consolidated debt at all times;

·       maintainadjusted stockholders’ equity in excess of 30.0% of our total assets;

·       ensurethat our outstanding bank debt does not exceed 75.0% of the aggregate value ofour vessels mortgaged under the relevant credit facility;

·       ensurethat our total liabilities, at all times, will be no more than 70.0% of themarket value of our adjusted total assets;

·       maintainat least $30.0 million in cash or cash equivalents; and

·       maintaina ratio of EBITDA to net interest expense of no less than 2.5 to 1.0.

As of December 31,2006, we were in compliance with each of these financial ratio requirements andfinancial covenants.

**LeasingArrangements**

We have entered into leasing arrangements with asubsidiary of Lloyds Bank, Allco Finance Limited, a U.K.-based financingcompany, Allco Finance (UK) Limited, a U.K.-based financing company, andAllocean Maritime Limited, or AML, a U.K.-based ship financing company,with respect to six containerships in our current fleet, the *CSCL Europe*, the *CSCL America*, the *Maersk Derby* (ex *P&O Nedlloyd Caracas*) and the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), the *CSCL Pusan (ex HN 1559)* andthe *CSCL Le Havre*(ex *HN 1561*). As part of these leasing arrangements, a separate limitedpartnership formed by a Lloyds Bank subsidiary (which provides the financing)and the Allco companies purchased each of these vessels. We charter-in thesevessels from AML, which charters them in from the applicable partnership, andsub-charter the vessels to liner companies. We pay a fixed rate, which duringthe first 61¤2  yearsof the leasing arrangements is a nominal amount, to charter-in these vesselsfrom AML and we, in turn, are entitled to retain all of the charter revenue weearn from sub-chartering these vessels to our liner company customers.

Under the terms of these leasing arrangements, upon anevent of default, total loss of a vessel or 61¤2  yearsinto the term of the lease, which will fall on April 14, 2011 with respectto the *CSCL Europe*, the *CSCL America*, the *Maersk Derby* (ex *P&O Nedlloyd Caracas*) and the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*), and willfall on April 14, 2013 with respect to the *CSCL Pusan (ex HN 1559)* and the *CSCL Le Havre*(ex *HN 1561*), the Lloyds Bank subsidiary has aput option to sell its 99.996% interest in 

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the partnership owningeach respective vessel to Allco Finance (UK) Limited. Allco Finance (UK)Limited has the option to put such interest to us and has written an option infavor of us (with a substantially similar exercise price) to acquire suchinterest. Each of Allco Finance (UK) Limited’s put option to us and ourpurchase option are exercisable only if the Lloyds Bank subsidiary hasexercised its put option.

If, however, the put option is not exercised we wouldbe entitled to charter-in the vessels for an additional 12 years at ratesadjusted to market no less than every two years at our option, rather than atthe nominal rate in effect for the first 61¤2  yearsof the leasing arrangement. In that case we would also expect to exerciseoptions that would entitle us to approximately 49% of the amount in excess of apre-set level of the charter-in rate. Further, we would continue to be entitledto retain all of the charter revenue we earn from chartering-out these vesselsto our liner company customers. As part of the leasing arrangements, we made adeposit with respect to each of these vessels denominated in British pounds, inan amount expected to represent, after 61¤2  years,approximately 75% of the original purchase price of the applicable vessel. Thiscash deposit with RBS collateralizes the entire amount of a letter of creditissued by RBS to secure our obligation to pay the put option price. If the putoption is not exercised and, as a result, the letter of credit with respect toany of these vessels is not called, this deposit would be returned to us.

On July 19, 2006, legislation was enacted in theUnited Kingdom that is expected to result in a claw-back or recapture ofcertain of the benefits that were expected to be available to thecounterparties to these transactions at their inception. Accordingly, the putoption price is expected to be increased to compensate the counterparties forthe loss of these benefits. We currently expect the increase in the put optionprice we will be obligated to pay if the put is exercised will be approximately£46 million, although the increase in this put price could vary. In 2006we recognized an expense of approximately $13 million, which is the amountby which we currently expect the increase in the put price to exceed the cashbenefits we expect to receive, and had expected to retain, from thesetransactions.

We currently have operational control over these sixvessels. Even if the put option is not exercised, we will continue to haveoperational control over each of these vessels under the terms of the leasingarrangements during the period we charter-in these vessels from AML. Weconsider each of the vessels subject to these leasing arrangements to be anasset for our financial reporting purposes, and each vessel is reflected assuch in our consolidated financial statements included elsewhere herein.

As part of theleasing arrangements we have agreed to financial covenants with a subsidiary ofLloyds Bank requiring us to:

·       maintainadjusted stockholders’ equity of at least $100.0 million;

·       ensurethat adjusted stockholders’ equity exceeds 30% of our total assets;

·       maintainat least $5.0 million in cash or cash equivalents;

·       ensurethat our outstanding indebtedness does not exceed 75% of the aggregate marketvalue of the vessels subject to the leasing arrangements; and

·       ensurethat the aggregate market value of the vessels in our fleet exceeds 145% of ournet consolidated debt at all times.

The leasing arrangements also include covenants thatrequire the stockholders of Danaos Corporation prior to our initial publicoffering to continue to hold at least 60% of our outstanding capital stock andthat we continue to own, directly or indirectly, all of the share capital ofour subsidiaries that charter-in the vessels subject to the respective leasingarrangements. Under the leasing arrangements, we are not restricted from payingdividends so long as we remain in compliance with the covenants set forth inthe preceding sentence and the last two bullet points above, our adjustedstockholders’ equity exceeds 35% of our total assets, we maintain cash and cashequivalents of $20.0 million and we maintain a ratio of EBITDA to netinterest expense of no less than 2.5 to 1.0.

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**ContractualObligations**

Ourcontractual obligations as of December 31, 2006 were:

| ** **                                   | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **Total**                                 | ** ** | **Less than  1 year  (2007)** | ** ** | **1-3 years  (2008-  2009)** | ** ** | **3-5 years  (2010-  2011)** | ** ** | **More than  5 years  (After  January 1,  2012)** | ** ** |
| ** **                                   | ** ** | **Dollars in thousands**        | ** ** |
| Long-term  debt obligations(1)               |       | $                                         | 660,024    |   | $ | 22,760 |   | $ | 51,238 |   | $ | 68,238 |   | $ | 517,788 |   |
| Interest on long-term debt obligations(1)(2) |       | 273,416                                   |       | 37,329 |   | 70,743 |   | 65,006 |   | 100,338 |   |
| Payments to our  manager(3)                  |       | 19,348                                    |       | 10,172 |   | 9,176 |   | — |   | — |   |
| Vessel purchase agreements:                  |       |                                      |       |   |   |   |   |   |   |   |   |
| Newbuilding contracts(4)                     |       | 790,000                                   |       | 130,520 |   | 659,480 |   | — |   | — |   |
| Vessel acquisition agreements(5)             |       | 111,150                                   |       | 111,150 |   | — |   | — |   | — |   |
| **Total(6)**                                 |       | $                                         | 1,853,938  |   | $ | 311,931 |   | $ | 790,637 |   | $ | 133,244 |   | $ | 618,126 |   |

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(1)          Includes our obligationsas of December 31, 2006. On February 20, 2007, we entered into a newrevolving credit facility with RBS. As of May 15, 2007, there was $150.0million outstanding under this credit facility with RBS. On February 21,2007, we used borrowings under this credit facility with RBS to repay theentire $75.5 million outstanding under our previous credit facility with RBS,which had a maturity of October 2013 and an interest rate of LIBOR plus0.80%. This repayment was a debtextinguishment under US GAAP and was treated accordingly in our accounts.

(2)          We expect to beobligated to make the interest payments set forth in the above table withrespect to our long-term debt obligations. The interest payments are based onan assumed LIBOR rate of 5.25% with respect to the HSH Nordbank, AegeanBaltic-HSH Nordbank and RBS credit facilities. See “—Credit Facilities.”

(3)          Under our managementagreement with Danaos Shipping Co. Ltd., from July 1, 2005 to December 31,2008, we have paid and will pay it $250 per vessel per day for vessels on abareboat charter and $500 per vessel per day for the remaining vessels in ourfleet. We also pay our manager $500 per day for providing certain commercial,chartering and administrative services. As of December 31, 2006 we had afleet of 37 vessels which decreased with the sale of one containership in March 2007,three drybulk carriers in January 2007, two drybulk carriers in February 2007and one drybulk carrier in April 2007. Our fleet has increased with thedelivery of one secondhand vessel in the first half of 2007, two newbuildingsand one secondhand vessel in the second half of 2007. Expected deliveries ofour contracted fleet will further increase our fleet by four newbuildings inthe second half of 2008, four newbuildings during the first half of 2009 andthree newbuildings during the second half of 2009. Further, in late 2009 and2010, our fleet is expected to increase by another 14 containerships, for whichwe placed orders during the first half of 2007, but are not included in thecalculations as the table refers to a date prior to the signing of theseorders. Our fleet decreased with the sale of one containership on March 7,2007 and will further decrease with the sale of two more containerships in June andJuly 2007. After December 31, 2008, these fees will be adjustedannually by agreement between us and our manager. In addition, we also will payour manager a commission of 0.75% of the gross freight, demurrage and charterhire collected from the employment of our ships, 0.5% of the contract price ofany vessels bought or sold on our behalf and $400,000 per newbuilding vesselfor the supervision of newbuilding contracts. We expect to be obligated to makethe payments set forth in the above table under our management agreement overthe initial term which expires on December 31, 2008, based on ourcurrently contracted revenue, as reflected above under “—Factors Affecting OurResults of Operations—Operating Revenues,” and our currently anticipated vesselacquisitions and 

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dispositions and charteringarrangements described in this annual report. No interest is payable withrespect to these obligations if paid on a timely basis, therefore no interestpayments are included in these amounts.

(4)          In the first and secondquarter of 2007, we entered into contracts for the construction of the *HN N-214*, the *HN N-219*, the *HN N-215*, the *HN N-216*, the *HN N-217*, the *HN N-218*, the *HN N-220*, the *HN N-221*, the *HN N-222*, the *HN N-223*, the *HN Z00001*, the *HN Z00002*, the *HN Z00003* and the *HN Z00004*, foran aggregate price of $1.14 billion, which amount is not included in the table.Of the aggregate $1.14 billion purchase price for these vessels: $256 millionwas payable within one year of December 31, 2006; $296 million was payablebetween two and three years of December 31, 2006; $591 million was payablebetween three and five years of December 31, 2006; and zero was payablemore than five years after December 31, 2006. No interest is payable withrespect to these obligations if paid on a timely basis, therefore no interestpayments are included in the table. 

(5)          Of the aggregate$123.5 million purchase price for the *YM Colombo* andthe *E.R. Wellington,*$111.15 million remained unpaid as of December 31, 2006. On March 12,2007, the *YM Colombo* was delivered to us and we paidthe balance of the purchase price for such vessel of $55.6 million. Theremaining $55.6 million is due upon delivery of the *E.R.Wellington* which is expected in September or October 2007.No interest is payable with respect to this obligation if paid on a timelybasis, therefore no interest payments are included in this amount.

(6)          Doesnot include amounts which are expected to be payable to a subsidiary of LloydsBank in connection with the leasing arrangements for the *CSCL Europe*, the *CSCL America*, the *Maersk Derby*, the *Vancouver Express*, the *CSCL Pusan* and the *CSCL Le Havre,*described in note 9 to our consolidated financial statements includedelsewhere herein. These amounts would be payable on April 14, 2011 withrespect to the *CSCL Europe,* the *CSCL America*, the *Maersk Derby* and the *Vancouver Express* and on April 14,2013 with respect to the *CSCL Pusan*and the *CSCL Le Havre.*

**Research andDevelopment, Patents and Licenses**

We incur from time to timeexpenditures relating to inspections for acquiring new vessels that meet ourstandards. Such expenditures are insignificant and they are expensed as theyincur.

**Trend Information**

Our results of operationsdepend primarily on the charter hire rates that we are able to realize. Charterhire rates paid for containerships are primarily a function of the underlyingbalance between vessel supply and demand and respective charter-party details. Thedemand for containerships is determined by the underlying demand for goodswhich are transported in containerships. Although there can be no assurances,absent a major and sustained downturn in market conditions or significantunforeseeable changes in supply and demand of containerships, charter rates areexpected to remain relatively strong for the remainder of 2007.

**Off-Balance SheetArrangements**

We do not have any othertransactions, obligations or relationships that could be considered materialoff-balance sheet arrangements.

**Critical AccountingPolicies**

We prepare ourconsolidated financial statements in accordance with U.S. GAAP, which requiresus to make estimates in the application of our accounting policies based on ourbest assumptions, judgments and opinions. We base these estimates on theinformation currently available to us and on various other assumptions we believeare reasonable under the circumstances. Actual results may differ from these 

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estimatesunder different assumptions or conditions. Following is a discussion of theaccounting policies that involve a high degree of judgment and the methods oftheir application. For a further description of our material accountingpolicies, please read note 2 to our consolidated financial statementsincluded elsewhere in this annual report.

***Purchase of Vessels***

Vessels are stated at cost, which consists of thecontract purchase price and any material expenses incurred upon acquisition(improvements and delivery expenses). Subsequent expenditures for conversionsand major improvements are also capitalized when they appreciably extend thelife, increase the earning capacity or improve the efficiency or safety of thevessels. Otherwise we charge these expenditures to expenses as incurred. Ourfinancing costs incurred during the construction period of the vessels areincluded in vessels’ cost.

The vessels that we acquire in the secondhand marketare treated as a business combination to the extent that such acquisitionsinclude continuing operations and business characteristics, such as managementagreements, employees and customer base, otherwise we treat an acquisition of asecondhand vessel as a purchase of assets. Where we identify any intangibleassets or liabilities associated with the acquisition of a vessel purchased onthe secondhand market, we record all identified tangible and intangible assetsor liabilities at fair value. Fair value is determined by reference to marketdata and the discounted amount of expected future cash flows. We have in thepast acquired certain vessels in the secondhand market. These acquisitions wereconsidered to be acquisitions of assets. Certain vessels in our fleet that werepurchased in the secondhand market were acquired with existing charters. Wedetermined that the existing charter contracts for these vessels, other thanthe charter for the *MOL Confidence*,do not have a material separate fair value and, therefore, we recorded suchvessels at their fair value, which equaled the consideration paid. In respectof the existing time charter for the *MOLConfidence*, we identified a liability of $14.6 million upon itsdelivery to us in March 2006, which we recorded as unearned revenue in “CurrentLiabilities—Unearned Revenue” and “Long-Term Liabilities—Unearned Revenue, netof current portion” on our balance sheet for the existing charter, which willbe amortized over the remaining period of the time charter.

The determination of thefair value of acquired assets and assumed liabilities requires us to makesignificant assumptions and estimates of many variables, including marketcharter rates, expected future charter rates, future vessel operating expenses,the level of utilization of our vessels and our weighted average cost ofcapital. The use of different assumptions could result in a material change inthe fair value of these items, which could have a material impact on ourfinancial position and results of operations.

***Lease Arrangements***

Although we do not own six of the containerships inour current fleet which may be sold to us pursuant to a put option, we considerthese vessels to be owned by us for financial reporting purposes since thevessels are under our operational control and we retain risks associated withownership. We reflect the indebtedness under which the vessels are mortgaged asa liability on our balance sheet. However, if any holder of the put optionselects not to exercise its option, we would no longer treat the applicablevessels as owned by us for financial reporting purposes. As a result, ourbalance sheet assets and liabilities, as well as the provisions we may make fordepreciation and amortization in our financial statements related to thesevessels, would be affected.

As a result of theexpected increase in the put option price under the leasing arrangements forthe *CSCL Europe*, the *CSCL America*,the *CSCL Le Havre*(ex *HN 1561*),the *Maersk Derby*(ex *NedlloydCaracas*), the *Vancouver Express*(ex*P&O Nedlloyd Caribbean*) and the *CSCL Pusan* (ex *HN 1559*) if theput option is exercised 61¤2 years intothe lease terms, as described above under “—Leasing Arrangements,” 

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anexpense of approximately $13 million for the year ended December 31, 2006,as well as expenses of $0.9 million for revaluation of the pound sterlingliability related to these leasing arrangements and $2.8 million for anaccounting reversal relating to these leasing arrangements were recognized onour statement of income under “Other income/(expense), net.” We will recognizeany changes in the expected amount of these expenses under “Otherincome/(expense), net” in our statement of income.

***Revenue Recognition***

Our revenues and expenses are recognized on theaccrual basis. Revenues are generated from bareboat hire and time charters.Bareboat hire revenues are recorded over the term of the hire on astraight-line basis. Time charter revenues are recorded over the term of thecharter as service is provided. Unearned revenue includes revenue received inadvance.

We have been a member of apool arrangement with respect to two drybulk carriers, the *Alexandra I* and the *MV Achilleas*, which we have sold. Theresulting net revenues of the pool are distributed as time charter hire to eachparticipant in accordance with the pool earning points of the individualvessels in the pool adjusted for any off-hire amount. Distributions of timecharter hire to us have been made every two weeks according to the poolingarrangement. An amount not exceeding four weeks’ time charter hire for each ofour vessels in the pool was permitted to be withheld from us as working capitalfor the pool. For the periods prior to the sale of these vessels, revenuerelated to the pooling arrangements is recognized only when all contingenciesunder the agreements are resolved.

***Special Survey and Drydocking Costs***

We follow the deferralmethod of accounting for special survey and drydocking costs. Actual costsincurred are deferred and are amortized on a straight-line basis over theperiod until the next scheduled survey, which is two and a half years. Ifspecial survey or drydocking is performed prior to the scheduled date, theremaining unamortized balances are immediately written-off.

***Vessel Lives***

Our vessels represent ourmost significant assets and we state them at our historical cost, whichincludes capitalized interest during construction and other construction,design, supervision and predelivery costs, less accumulated depreciation. Wedepreciate our containerships, and for the periods prior to their sale, ourdrybulk carriers, on a straight-line basis over their estimated remaininguseful economic lives. Historically, we estimated this to be 25 years. Asof January 1, 2005, we determined that the estimated useful lives of ourcontainerships is 30 years, whereas for drybulk carriers we continued toestimate their useful lives to be 25 years. Depreciation is based on costless the estimated scrap value of the vessels. Should certain factors orcircumstances cause us to revise our estimate of vessel service lives in thefuture, depreciation expense could be materially lower or higher. Such factorsinclude, but are not limited to, the extent of cash flows generated from futurecharter arrangements, changes in international shipping requirements, and otherfactors many of which are outside of our control.

***Impairment of Long-lived Assets***

We evaluate the netcarrying value of our vessels for possible impairment when events or conditionsexist that cause us to question whether the carrying value of the vessels willbe recovered from future undiscounted net cash flows. An impairment chargewould be recognized in a period if the fair value of the vessels was less thantheir carrying value. Considerations in making such an impairment evaluationwould include comparison of current carrying value to anticipated futureoperating cash flows, expectations with respect to future operations, and otherrelevant factors.

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**Recent AccountingPronouncements**

In September 2006, the SEC issued StaffAccounting Bulletin No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements (‘SAB 108’). SAB No. 108 provides guidance on theconsideration of the effects of prior year misstatements in quantifying currentyear misstatements for the purpose of a materiality assessment. SAB 108establishes an approach that requires quantification of financial statementerrors based on the effects of each of the company’s balance sheet and statementof operations and the related financial statement disclosures. SAB No. 108permits existing public companies to record the cumulative effect of initiallyapplying this approach in the first year ending after November 15, 2006 byrecording the necessary correcting adjustments to the carrying values of assetsand liabilities as of the beginning of that year with the offsetting adjustmentrecorded to the opening balance of retained earnings. Additionally, the use ofthe cumulative effect transition method requires detailed disclosure of thenature and amount of each individual error being corrected through thecumulative adjustment and how and when it arose. The adoption of SAB No. 108has not had any effect on our consolidated financial statements. 

In February 2006, the Financial AccountingStandard Board issued Statement of Financial Accounting Standards No. 155(SFAS 155) “Accounting for Certain Hybrid Instruments—an amendment of FASBStatements No. 133 and 140”. SFAS 155 amends SFAS 133 to permit fair valuemeasurement for certain hybrid financial instruments that contain an embeddedderivative, provides additional guidance on the applicability of SFAS 133 andSFAS 140 to certain financial instruments and subordinated concentrations ofcredit risk. SFAS 155 is effective for the first fiscal year that begins after September 15,2006. The adoption of this Accounting Standard is not expected to have amaterial effect on the consolidated financial statements. This statement iseffective for us for the fiscal year beginning on January 1, 2007.

In March 2006, the Financial Accounting StandardBoard issued Statement of Financial Accounting Standards No. 156 (SFAS156) “Accounting for Servicing of Financial Assets—an amendment of FASBStatement No. 140”. SFAS 156 amends SFAS 140 requiring that all separatelyrecognized servicing assets and servicing liabilities be measured at fairvalue, if practicable. SFAS 156 also permits, but does not require, thesubsequent measurement of servicing assets and servicing liabilities. SFAS 156is effective for the first fiscal year that begins after September 15,2006. The adoption of this Accounting Standard is not expected to have amaterial effect on our consolidated financial statements. This statement iseffective for us for the fiscal year beginning on January 1, 2007.

In September 2006, the FASB issued SFAS 157, FairValue Measurements. This Statement defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles (GAAP),and expands disclosures about fair value measurements. The statement does notrequire new fair value measurements, but is applied to the extent that otheraccounting pronouncements require or permit fair value measurements. Thestatement emphasizes that fair value is a market-based measurement that shouldbe determined based on the assumptions that market participants would use inpricing an asset or liability. Companies will be required to disclose theextent to which fair value is used to measure assets and liabilities, theinputs used to develop the measurements, and the effect of certain of themeasurements on earnings (or changes in net assets) for the period. ThisStatement is effective for fiscal years beginning after November 15, 2007and for interim periods within those fiscal years. Earlier application isencouraged, provided that the entity has not yet issued financial statements,including interim financial statements, for any period of that fiscal year. Weare currently reviewing this issue to measure the potential impact on theconsolidated results of operations, financial position, and cash flows.

In September 2006, the Financial AccountingStandard Board issued Statement of Financial Accounting Standards No. 158(SFAS 158) “Employer’s Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and132(R).” 

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SFAS 158 improvesfinancial reporting by requiring an employer to recognize the overfunded andunderfunded status of a defined benefit retirement plan (other thanmultiemployer plan) as an asset or liability in its statement of financialposition and recognize changes in the funded status in the year in which thechanges occur through comprehensive income of a business entity or changes inunrestricted net assets of a not-for-profit organization. This statement alsoimproves financial reporting by requiring an employer to measure the fundedstatus of a plan as of the date of its year-end statements of financialposition, with limited exceptions. This standard was effective for us as of thefiscal year ended December 31, 2006 and did not have any effect on ourconsolidated financial statements.

In February 2007, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 159(SFAS 159) “The Fair Value Option for Financial Assets and FinancialLiabilities”. SFAS 159 permits the entities to choose to measure many financialinstruments and certain other items at fair value that are not currentlyrequired to be measured at fair value. This Statement is expected to expand theuse of fair value measurement, which is consistent with our long-termmeasurement objectives for accounting for financial instruments. SFAS 159 iseffective as of the beginning of an entity’s first fiscal year that beginsafter November 15, 2007. Early adoption is permitted as of the beginningof a fiscal year on or before November 15, 2007, provided the entity alsoelects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”.The adoption of this policy is not expected to have a material effect on ourconsolidated financial statements.

In April 2006, theFASB issued FSP No. FIN 46(R)-6-Determining the Variability to beConsidered in Applying FASB Interpretation No. 46(R), which addresseswhether certain arrangements associated with variable interest entities shouldbe treated as variable interests or considered as creators of variability, andindicates that the variability to be considered shall be based on an analysisof the design of the entity. FSP FIN 46(R)-6 is required to be appliedprospectively to all entities with which a company first becomes involved andto all entities previously required to be analyzed under FIN 46(R) uponthe occurrence of certain events, beginning the first day of the firstreporting period after June 15, 2006. Early application is permitted forperiods for which financial statements have not yet been issued. Retrospectiveapplication to the date of the initial application of FIN 46(R) ispermitted but not required, however, if elected, it must be completed no laterthan the end of the first annual reporting period after July 15, 2006.This standard was effective for us as of the fiscal year ended December 31,2006 and did not have any effect on our consolidated financial statements.

**Item6.**                        Directors,Senior Management and Employees

Thefollowing table sets forth, as of May 15, 2007, information for each ofour directors and executive officers.

| **Name**                    | ** ** | ** ** | ** ** | **Age** | ** ** | **Position**                                                                      | ** ** |
|-----------------------------|------------|------------|------------|---------|------------|-----------------------------------------------------------------------------------|------------|
| Dr. John  Coustas      |       |       | 51         |    |       | President  and CEO and Class I Director                                      |       |
| Iraklis  Prokopakis         |       |       | 56         |    |       | Vice  President, Treasurer and Chief Operating Officer and Class II Director |       |
| Dimitri J.  Andritsoyiannis |       |       | 42         |    |       | Vice  President and Chief Financial Officer and Class III Director           |       |
| Andrew B. Fogarty           |       |       | 62         |    |       | Class II  Director                                                           |       |
| Miklós Konkoly-Thege   |       |       | 64         |    |       | Class III  Director                                                          |       |
| Myles R. Itkin              |       |       | 59         |    |       | Class I  Director                                                            |       |
| Robert A. Mundell           |       |       | 75         |    |       | Class I Director                                                             |       |

 

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The term of our Class Idirectors expires in 2009, the term of our Class II directors expires in2008 and the term of our Class III directors expires in 2007. Certainbiographical information about each of these individuals is set forth below.

**Dr. John Coustas** is our President, Chief Executive Officer and amember of our board of directors. Dr. Coustas has over 25 years ofexperience in the shipping industry. Dr. Coustas assumed management of ourcompany in 1987 from his father, Dimitris Coustas, who founded Danaos Shippingin 1972, and has been responsible for our corporate strategy and the managementof our affairs since that time. Dr. Coustas is also a member of the boardof directors of Danaos Management Consultants, The Swedish Club, the Union ofGreek Shipowners and the Cyprus Union of Shipowners. Dr. Coustas holds adegree in Marine Engineering from National Technical University of Athens aswell as a Master’s degree in Computer Science and a Ph.D in Computer Controlsfrom Imperial College, London.

**IraklisProkopakis**is our Vice President, Treasurer, ChiefOperating Officer and a member of our board of directors. Mr. Prokopakisjoined us in 1998 and has over 30 years of experience in the shippingindustry. Prior to entering the shipping industry, Mr. Prokopakis was acaptain in the Hellenic Navy. He holds a Bachelor of Science in MechanicalEngineering from Portsmouth University in the United Kingdom, a Master’sdegree in Naval Architecture and a Ship Risk Management Diploma from theMassachusetts Institute of Technology in the United States and a post-graduatediploma in business studies from the London School of Economics. Mr. Prokopakisalso has a Certificate in Operational Audit of Banks from the Management CenterEurope in Brussels and a Safety Risk Management Certificate from Det NorskeVeritas.

**DimitriJ. Andritsoyiannis**is our Vice President, ChiefFinancial Officer and a member of our board of directors. Mr. Andritsoyiannisjoined us in September 2005 and has over 15 years of experience infinance and banking. Prior to joining us, Mr. Andritsoyiannis served asdirector of investment banking and as a member of the board of Alpha Finance,the investment banking arm of Greece’s Alpha Bank. During his years with AlphaFinance from the early 1990s until joining us, Mr. Andritsoyiannis led avariety of financings, mergers and acquisitions, restructurings, privatizationsand public offerings both in Greece and abroad. Mr. Andritsoyiannis holdsa degree in Economics and Political Science from the Economic University ofAthens, an MBA in finance from Columbia University as well as a post-graduatediploma in Ship Risk Management from the Massachusetts Institute of Technology.

**AndrewB. Fogarty**has been a member of our board of directorssince October 2006. Mr. Fogarty has over 16 years of experiencein the transportation industry. After a career in government, including asSecretary of Transportation for the Commonwealth of Virginia, since 1989 Mr. Fogartyhas held various executive positions with CSX Corporation or its predecessors,including as Senior Vice President—Corporate Services of CSX Corporation from2001 to 2005, and his current position as Special Assistant to the Chairman ofCSX since early 2006. Previously, Mr. Fogarty also held the positions ofPresident and CEO of CSX World Terminals, and Senior Vice President and ChiefFinancial Officer of Sea-Land Service, Inc. CSX is one of the world’sleading transportation companies providing rail, intermodal and rail-to-trucktransload services. Mr. Fogarty is the former chairman and current memberof the board of directors of the National Defense Transportation Associationand a fellow of the National Academy of Public Administration. He holds aBachelor of Arts from Hofstra University, a Master’s of Public Administrationfrom the Nelson A. Rockefeller College of Public Affairs & Policyat the State University of New York, and a Ph.D. from Florida State University.

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**MylesR. Itkin**has been a member of our board of directorssince October 2006. Mr. Itkin is the Executive Vice President, ChiefFinancial Officer and Treasurer of Overseas Shipholding Group, Inc.(“OSG”), in which capacities he has served, with the exception of a promotionfrom Senior Vice President to Executive Vice President in 2006, since 1995.Prior to joining OSG in June 1995, Mr. Itkin was employed by AllianceCapital Management L.P. as Senior Vice President of Finance. Prior to that, hewas Vice President of Finance at Northwest Airlines, Inc. Mr. Itkinjoined the board of directors of the U.K. P&I Club in 2006.Mr. Itkin holds a Bachelor’s degree from Cornell University and an MBAfrom New York University.

**MiklósKonkoly-Thege**has been a member of our board ofdirectors since October 2006. Mr. Konkoly-Thege began at DetNorske Veritas (“DNV”), a ship classification society, in 1984. From 1984through 2002, Mr. Konkoly-Thege served in various capacities withDNV including Chief Operating Officer, Chief Financial Officer and CorporateController, Head of Corporate Management Staff and Head of Business Areas.Mr. Konkoly-Thege became President and Chairman of the ExecutiveBoard of DNV in 2002 and served in that capacity until his retirement inMay 2006. Mr. Konkoly-Thege is a member of the board ofdirectors of Wilhelmsen Maritime Services Holding AS. Mr. Konkoly-Thegeholds a Master of Science degree in civil engineering from TechnischeUniversität Hannover, Germany and an MBA from the University of Minnesota.

**Dr. Robert A. Mundell**has been a member of our board of directors since October 2006.Dr. Mundell is the University Professor of Economics at ColumbiaUniversity. Dr. Mundell’s principal occupation since 1967 has been as amember of the faculty of Columbia University. Dr. Mundell has served as amember of the board of directors of Olympus Corporation since 2005. Since 2003,Dr. Mundell has also served as Chairman of the Word Executive Institute inBeijing, China. He has been an adviser to a number of international agenciesand organizations including the United Nations, the IMF, the World Bank, theGovernment of Canada, several governments in Latin America and Europe, theFederal Reserve Board and the U.S. Treasury. In 1999 Dr. Mundell receivedthe Nobel Prize in Economics. Dr. Mundell holds a Bachelor’s degree fromthe University of British Columbia, a Master’s degree from the University ofWashington and a Ph.D. from the Massachusetts Institute of Technology.

**Compensation ofDirectors and Senior Management**

We did not pay our directors prior to our initialpublic offering. Beginning in the fiscal year ending December 31, 2006,non-executive directors received annual fees in the amount of $50,000, plusreimbursement for their out-of-pocket expenses. For the fiscal year ending December 31,2006, these fees were paid pro rata for the period after our non-executivedirectors were first elected, which coincided with our becoming a publiccompany in October 2006. We do not have service contracts with any of ourdirectors, other than the employment agreements with our three directors whoare also executive officers of our company, as described below under “—EmploymentAgreements.”

Prior to 2006, our chiefexecutive officer, chief operating officer and chief financial officer did notreceive any compensation from us. During the year ended December 31, 2006,we paid these executive officers an aggregate amount of $1.3 million. Pursuantto the employment agreements we have entered into with these officers as describedbelow, from time to time we may pay any bonus component of this compensation inthe form of restricted stock, stock options or other awards under our equitycompensation plan, which is described below under “—Equity Compensation Plan.”No equity awards were granted in 2006.

**Employees**

We have three salariedemployees. Approximately 815 officers and crew members served on board thevessels we own as of December 31, 2006, but are employed by our manager.

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**Share ownership**

The common stockbeneficially owned by our directors and executive officers and/or companiesaffiliated with these individuals is disclosed in “Item 7. Major Shareholdersand Related Party Transactions” below. 

**Board of Directors**

At December 31, 2006 we had seven members on ourboard of directors. The board of directors may change the number of directorsto not less than two, nor more than 15, by a vote of a majority of the entireboard. Each director shall be elected to serve until the third succeedingannual meeting of stockholders and until his or her successor shall have beenduly elected and qualified, except in the event of death, resignation orremoval. A vacancy on the board created by death, resignation, removal (whichmay only be for cause), or failure of the stockholders to elect the entireclass of directors to be elected at any election of directors or for any otherreason, may be filled only by an affirmative vote of a majority of theremaining directors then in office, even if less than a quorum, at any specialmeeting called for that purpose or at any regular meeting of the board ofdirectors. 

During the fiscal year ended December 31, 2006,after the completion of our initial public offering in October 2006 thefull new board of directors held one meeting. Each director attended all of themeetings of committees of which the director was a member. All of our current directors, other than Dr. JohnCoustas, Iraklis Prokopakis and Dimitri J. Andritsoyiannis, have beendetermined by our board of directors to be independent.

To promote open discussionamong the independent directors, those directors met once in 2006 in regularlyscheduled executive sessions without participation of our company’s managementand will continue to do so in the remainder of 2007 and in 2008. Mr. AndrewB. Fogarty has served as the presiding director for purposes of these meetings.Stockholders who wish to send communications on any topic to the board ofdirectors or to the independent directors as a group, or to the presidingdirector, Mr. Andrew B. Fogarty, may do so by writing to ourSecretary, Mr. Evangelos Chatzis, Danaos Corporation, 14 Akti Kondyli, 18545 Piraeus, Greece.

**CorporateGovernance**

The board of directors and our company’s managementhave engaged in an ongoing review of our corporate governance practices inorder to oversee our compliance with the applicable corporate governance rules ofthe New York Stock Exchange and the SEC. 

We have adopted a number of key documents that are thefoundation of its corporate governance, including: 

·       aCode of Business Conduct and Ethics for all officers and employees;

·       aCode of Conduct for the chief executive officer and senior financial officers;

·       aCode of Ethics for directors;

·       aNominating and Corporate Governance Committee Charter; 

·       aCompensation Committee Charter; and 

·       anAudit Committee Charter. 

These documents and otherimportant information on our governance, including the board of director’sCorporate Governance Guidelines, are posted on the Danaos Corporation website,and may be viewed at http://www.danaos.com. We will also provide a paper copyof any of these documents upon the 

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writtenrequest of a stockholder. Stockholders may direct their requests to theattention of our Secretary, Mr. Evangelos Chatzis, Danaos Corporation, 14 Akti Kondyli, 185 45 Piraeus, Greece.

**Committees of theBoard of Directors**

***Audit Committee***

Our audit committeeconsists of Myles R. Itkin (chairman), Andrew B. Fogarty andMiklós Konkoly-Thege. Our board of directors has determined that Mr. Itkinqualifies as an audit committee “financial expert,” as such term is defined inRegulation S-K. The audit committee is responsible for (1) the hiringor termination of independent auditors and approving any non-audit workperformed by such auditor, (2) approving the overall scope of the audit, (3) assistingthe board in monitoring the integrity of our financial statements, theindependent accountant’s qualifications and independence, the performance ofthe independent accountants and our internal audit function and our compliancewith legal and regulatory requirements, (4) annually reviewing anindependent auditors’ report describing the auditing firms’ internal quality-controlprocedures, any material issues raised by the most recent internal quality-controlreview, or peer review, of the auditing firm, (5) discussing the annualaudited financial and quarterly statements with management and the independentauditor, (6) discussing earnings press releases, as well as financialinformation and earning guidance provided to analysts and rating agencies, (7) discussingpolicies with respect to risk assessment and risk management, (8) meetingseparately, periodically, with management, internal auditors and theindependent auditor, (9) reviewing with the independent auditor any auditproblems or difficulties and management’s response, (10) setting clearhiring policies for employees or former employees of the independent auditors,(11) annually reviewing the adequacy of the audit committee’s writtencharter, (12) handling such other matters that are specifically delegatedto the audit committee by the board of directors from time to time,(13) reporting regularly to the full board of directors and(14) evaluating the board of directors’ performance. During 2006, therewere two meetings of the audit committee.

***Compensation Committee***

Our compensation committeeconsists of Andrew B. Fogarty (chairman), Miklós Konkoly-Thege andIraklis Prokopakis. The compensation committee is responsible for (1) reviewingkey employee compensation policies, plans and programs, (2) reviewing andapproving the compensation of our chief executive officer and other executiveofficers, (3) developing and recommending to the board of directorscompensation for board members, (4) reviewing and approving employmentcontracts and other similar arrangements between us and our executive officers,(5) reviewing and consulting with the chief executive officer on theselection of officers and evaluation of executive performance and other relatedmatters, (6) administration of stock plans and other incentivecompensation plans, (7) overseeing compliance with any applicablecompensation reporting requirements of the SEC, (8) retaining consultantsto advise the committee on executive compensation practices and policies and (9) handlingsuch other matters that are specifically delegated to the compensationcommittee by the board of directors from time to time. During 2006, there wasone meeting of the compensation committee.

***Nominating and Corporate Governance Committee***

Our nominating andcorporate governance committee consists of Dimitri J. Andritsoyiannis,Myles R. Itkin and Robert A. Mundell (chairman). The nominating andcorporate governance committee is responsible for (1) developing andrecommending criteria for selecting new directors, (2) screening andrecommending to the board of directors individuals qualified to becomeexecutive officers, (3) overseeing evaluations of the board of directors,its members and committees of the board of directors and (4) handling suchother matters that are specifically delegated to the nominating and corporategovernance 

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committeeby the board of directors from time to time. During 2006, there was one meetingof the nominating and corporate governance committee.

**EmploymentAgreements**

***Employment Agreement with Dr. John Coustas***

Our president and chief executive officer, Dr. JohnCoustas, has entered into an employment agreement with us. The employmentagreement provides that Dr. Coustas receives an annual base salary subjectto increases at the discretion of the compensation committee of our board ofdirectors. Dr. Coustas is also eligible for annual bonuses as determinedby the compensation committee, and the employment agreement provides that anybonus may be paid in whole or in part with awards under our equity compensationplan. Pursuant to the employment agreement, Dr. Coustas is required todevote such time and attention to our business and affairs as is reasonablynecessary to the duties of his position, and otherwise may devote a portion ofhis time and attention to our affiliates and to other ventures he controls orin which he invests in accordance with the terms of the non-competitionagreement he has entered into with us as described below. The initial term ofthe agreement will expire on December 31, 2012, however, unless writtennotice is provided 120 days prior to a termination date, the agreementwill automatically extend for additional successive one-year terms.

The terms of the employment agreement also provide forthe payment of severance of two times his annual salary plus bonus (based on anaverage of the prior three years), as well as continued benefits, if any, for24 months if we terminate Dr. Coustas without “cause,” as defined inthe agreement, or he terminates his employment with 30 days’ notice for “goodreason,” as defined in the agreement. In addition, Dr. Coustas willreceive a pro rata bonus for the year in which the termination occurs. If suchtermination without cause or resignation for good reason occurs within twoyears of a “change of control,” as defined in the agreement, Dr. Coustaswould be entitled to the greater of (a) $800,000 or (b)(i)(A) thetotal amount of his salary and bonus (based on an average of the prior threeyears), plus (B) the value on the date of grant of any equity grants madeunder our equity compensation plan during that three-year period (which, forstock options, will be the Black-Scholes value), (ii) multiplied bythree, as well as continued benefits, if any, for 36 months.

Dr. Coustas has alsoentered into a non-competition agreement with us that prohibits his direct orindirect ownership or operation of containerships of larger than 2,500 TEUs ordrybulk carriers, and the provision, directly or indirectly, of commercial ortechnical management services to vessels in these sectors of the shippingindustry or to entities owning such vessels, other than in limitedcircumstances. The terms of the employment agreement also prohibit Dr. Coustasfrom soliciting or attempting to solicit our employees or customers during thetwo-year period following termination of his employment.

***Employment Agreement with Iraklis Prokopakis***

Our vice president, treasurer and chief operatingofficer, Iraklis Prokopakis, has entered into an employment agreement with us.The employment agreement provides that Mr. Prokopakis receives an annualbase salary subject to increases at the discretion of the compensationcommittee of our board of directors. Mr. Prokopakis is also eligible forannual bonuses as determined by the compensation committee, and the employmentagreement provides that any bonus may be paid in whole or in part with awardsunder our equity compensation plan. Pursuant to the employment agreement, Mr. Prokopakisis required to devote his full business time and attention to our business andaffairs, although he may, as directed by our chief executive officer or boardof directors, devote a portion of his time and attention to our affiliates. Theinitial term of the agreement will expire on December 31, 2012, however,unless written notice is provided 120 days prior to a termination date,the agreement will automatically extend for additional successive one-yearterms.

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The terms of the employment agreement also provide forthe payment of severance of two times his annual salary plus bonus (based on anaverage of the prior three years), as well as continued benefits, if any, for24 months if we terminate Mr. Prokopakis without “cause,” as definedin the agreement, or he terminates his employment with 30 days’ notice for“good reason,” as defined in the agreement. In addition, Mr. Prokopakiswill receive a pro rata bonus for the year in which the termination occurs. Ifsuch termination without cause or resignation for good reason occurs within twoyears of a “change of control,” as defined in the agreement, Mr. Prokopakiswould be entitled to the greater of (a) $800,000 or (b)(i)(A) thetotal amount of his salary and bonus (based on an average of the prior threeyears), plus (B) the value on the date of grant of any equity grants madeunder our equity compensation plan during that three-year period (which, forstock options, will be the Black-Scholes value), (ii) multiplied bythree, as well as continued benefits, if any, for 36 months.

The terms of theemployment agreement also prohibit Mr. Prokopakis from soliciting orattempting to solicit our employees or customers during the two-year periodfollowing termination of his employment, and from being substantially involvedin the management or operation of containerships of larger than 2,500 TEUs ordrybulk carriers, if such business is one of our competitors, during the termof the agreement.

***Employment Agreement with Dimitri J. Andritsoyiannis***

Our vice president and chief financial officer,Dimitri J. Andritsoyiannis, has entered into an employment agreement with us.The employment agreement provides that Mr. Andritsoyiannis receives anannual base salary subject to increases at the discretion of the compensationcommittee of our board of directors. Mr. Andritsoyiannis is also eligiblefor annual bonuses as determined by the compensation committee, and theemployment agreement provides that any bonus may be paid in whole or in partwith awards under our equity compensation plan. Pursuant to the employmentagreement, Mr. Andritsoyiannis is required to devote his full businesstime and attention to our business and affairs, although he may, as directed byour chief executive officer or board of directors, devote a portion of his timeand attention to our affiliates. The initial term of the agreement will expireon December 31, 2012, however, unless written notice is provided120 days prior to a termination date, the agreement will automaticallyextend for additional successive one-year terms.

The terms of the employment agreement also provide forthe payment of severance of two times his annual salary plus bonus (based on anaverage of the prior three years), as well as continued benefits, if any, for24 months if we terminate Mr. Andritsoyiannis without “cause,” asdefined in the agreement, or he terminates his employment with 30 days’notice for “good reason,” as defined in the agreement. In addition, Mr. Andritsoyianniswill receive a pro rata bonus for the year in which the termination occurs. Ifsuch termination without cause or resignation for good reason occurs within twoyears of a “change of control,” as defined in the agreement, Mr. Andritsoyianniswould be entitled to the greater of (a) $800,000 or (b)(i)(A) thetotal amount of his salary and bonus (based on an average of the prior threeyears), plus (B) the value on the date of grant of any equity grants madeunder our equity compensation plan during that three-year period (which, forstock options, will be the Black-Scholes value), (ii) multiplied bythree, as well as continued benefits, if any, for 36 months.

The terms of theemployment agreement also prohibit Mr. Andritsoyiannis from soliciting orattempting to solicit our employees or customers during the two-year periodfollowing termination of his employment, and from being substantially involvedin the management or operation of containerships of larger than 2,500 TEUs ordrybulk carriers, if such business is one of our competitors, during the termof the agreement.

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**Equity CompensationPlan**

We have adopted an equity compensation plan, which werefer to as the Plan. The Plan will generally be administered by thecompensation committee of our board of directors, except that the full boardmay act at any time to administer the Plan, and authority to administer anyaspect of the Plan may be delegated by our board of directors or by thecompensation committee to an executive officer or to any other person. The Planallows the plan administrator to grant awards of shares of our common stock orthe right to receive or purchase shares of our common stock (including optionsto purchase common stock, restricted stock and stock units, bonus stock,performance stock, and stock appreciation rights) to our employees, directorsor other persons or entities providing significant services to us or oursubsidiaries, and also provides the plan administrator with the authority toreprice outstanding stock options or other awards. The actual terms of anaward, including the number of shares of common stock relating to the award, anyexercise or purchase price, any vesting, forfeiture or transfer restrictions,the time or times of exercisability for, or delivery of, shares of commonstock, will be determined by the plan administrator and set forth in a writtenaward agreement with the participant. Any options granted under the Plan willbe accounted for in accordance with SFAS 123(R).

The aggregate number of shares of our common stock forwhich awards may be granted under the Plan cannot exceed 6% of the number ofshares of our common stock issued and outstanding at the time any award isgranted. Awards made under the Plan that have been forfeited (including ourrepurchase of shares of common stock subject to an award for the price, if any,paid to us for such shares of common stock, or for their par value) orcancelled or have expired, will not be treated as having been granted forpurposes of the preceding sentence.

The Plan requires that theplan administrator make an equitable adjustment to the number, kind andexercise price per share of awards in the event of our recapitalization,reorganization, merger, spin-off, share exchange, dividend of common stock,liquidation, dissolution or other similar transaction or event. In addition,the plan administrator will be permitted to make adjustments to the terms andconditions of any awards in recognition of any unusual or nonrecurring events.Unless otherwise set forth in an award agreement, any awards outstanding underthe Plan will vest upon a “change of control,” as defined in the Plan. Ourboard of directors may, at any time, alter, amend, suspend, discontinue orterminate the Plan, except that any amendment will be subject to the approvalof our stockholders if required by applicable law, regulation or stock exchangerule and that, without the consent of the affected participant under thePlan, no action may materially impair the rights of such participant under anyawards outstanding under the Plan. The Plan will automatically terminate tenyears after it has been most recently approved by our stockholders.

**Item7.**                        MajorShareholders and Related Party Transactions.

**Related PartyTransactions**

***Management Affiliations***

Danaos Shipping Co. Ltd., which we refer to as ourManager, is ultimately owned by Danaos Investments Limited as Trustee of the883 Trust, which we refer to as the Coustas Family Trust. Danaos InvestmentsLimited is the protector (which is analogous to a trustee) of the CoustasFamily Trust, of which Dr. Coustas and other members of the Coustas familyare beneficiaries. Dr. Coustas has certain powers to remove and replaceDanaos Investments Limited as Trustee of the 883 Trust. The Coustas FamilyTrust is also our largest stockholder. Our Manager has provided services to ourvessels since 1972 and continues to provide technical, administrative andcertain commercial services which support our business, as well ascomprehensive ship management services such as technical supervision andcommercial management, including chartering our vessels pursuant to amanagement agreement which was amended and restated as of September 18,2006.

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***Management Agreement***

Under ourmanagement agreement, our Manager is responsible for providing us withtechnical, administrative and certain commercial services, which include thefollowing:

·       *technical services*, which include managingday-to-day vessel operations, performing general vessel maintenance, ensuringregulatory compliance and compliance with the law of the flag of each vesseland of the places where the vessel operates, ensuring classification societycompliance, supervising the maintenance and general efficiency of vessels,arranging the hire of qualified officers and crew, training, transportation,insurance of the crew (including processing all claims), performing normallyscheduled drydocking and general and routine repairs, arranging insurance forvessels (including marine hull and machinery, protection and indemnity andrisks insurance), purchasing stores, supplies, spares, lubricating oil andmaintenance capital expenditures for vessels, appointing supervisors andtechnical consultants and providing technical support, shoreside support,shipyard supervision, and attending to all other technical matters necessary torun our business;

·       *administrative services*, which include, ineach case, at the direction of our Chief Executive Officer, Chief OperatingOfficer and Chief Financial Officer, assistance with the maintenance of ourcorporate books and records, payroll services, assistance with the preparationof our tax returns and financial statements, assistance with corporate andregulatory compliance matters not related to our vessels, procuring legal andaccounting services (including the preparation of all necessary budgets forsubmission to us), assistance in complying with United States and otherrelevant securities laws, human resources, cash management and bookkeepingservices, development and monitoring of internal audit controls, disclosurecontrols and information technology, assistance with all regulatory andreporting functions and obligations, furnishing any reports or financial informationthat might be requested by us and other non-vessel related administrativeservices, assistance with office space, providing legal and financialcompliance services, overseeing banking services (including the opening,closing, operation and management of all of our accounts including makingdeposits and withdrawals reasonably necessary for the management of ourbusiness and day-to-day operations), arranging general insurance and directorand officer liability insurance (at our expense), providing all administrativeservices required for subsequent debt and equity financings and attending toall other administrative matters necessary to ensure the professionalmanagement of our business (our Manager provides these administrative servicesat its own cost and in return therefore receives the commercial, chartering andadministrative services fees); and

·       *commercial services*, which include chartering our vessels,assisting in our chartering, locating, purchasing, financing and negotiatingthe purchase and sale of our vessels, supervising the design and constructionof newbuildings, and such other commercial services as we may reasonablyrequest from time to time (our Manager provides these commercial services atits own cost and in return therefore receives the commercial, chartering andadministrative services fees).

*Reporting Structure*

Our Manager reports to usand our Board of Directors through our Chief Executive Officer, Chief OperatingOfficer and Chief Financial Officer. Under our management agreement, our ChiefExecutive Officer, Chief Operating Officer and Chief Financial Officer maydirect the Manager to remove and replace any officer or any person who servesas the head of a business unit of our Manager. Furthermore, our Manager willnot remove any person serving as an officer or senior manager without the priorwritten consent of our Chief Executive Officer, Chief Operating Officer andChief Financial Officer.

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*Compensation of OurManager*

For providing its commercial, chartering andadministrative services, our Manager receives a fee of $500 per day. For themanagement of our ships, our Manager receives a management fee of $250 pervessel per day for vessels on bareboat charter and $500 per vessel per day forthe remaining vessels in our fleet for the first three years of our agreement,pro rated for the calendar days we own each vessel. After three years, thesefees will be adjusted annually through mutual agreement between us and ourManager. Should we be unable to agree with our Manager as to the new fees, therate for the next year will be set at an amount that will maintain our Manager’saverage profit margin for the immediately preceding three years. Our Manageralso receives a commission of 0.75% on all gross freight, charter hire, ballastbonus and demurrage with respect to each vessel in our fleet. We also pay ourManager a commission of 0.5% based on the contract price of any vessel boughtor sold by it on our behalf and a flat fee of $400,000 per newbuilding vesselfor the supervision of our newbuilding contracts. We believe these fees andcommissions are no more than the rates we would need to pay an unaffiliatedthird party to provide us with these management services.

We also advance, on amonthly basis, all technical vessel operating expenses with respect to eachvessel in our fleet to enable our Manager to arrange for the payment of suchexpenses on our behalf. To the extent the amounts advanced are greater or lessthan the actual vessel operating expenses of our fleet for a quarter, our Manageror us, as the case may be, will pay the other the difference at the end of suchquarter, although our Manager may instead choose to credit such amount againstfuture vessel operating expenses to be advanced for future quarters.

*Term andTermination Rights*

Subject to the termination rights described below, theinitial term of the management agreement expires on December 31, 2008. Themanagement agreement automatically renews for a one-year period and will beextended in additional one-year increments until December 31, 2020, atwhich point the agreement will expire. In addition to the terminationprovisions outlined below, we are able to terminate the contract at any pointafter the initial term upon 12 months’ notice to our Manager.

*Our Manager’s TerminationRights.**  *OurManager may terminate the management agreement prior to the end of its term inthe two following circumstances:

·       *First*, if any moneys payable by us shallnot have been paid within 60 business days of payment having been demanded inwriting; or

·       *Second,* if at any time we materiallybreach the agreement and the matter is unresolved within 60 days after weare given written notice from our Manager.

*Our Termination Rights.**  *We may terminate the managementagreement prior to the end of its term in the two following circumstances uponproviding the respective notice:

·       *First*, if at any time our Manager neglectsor fails to perform its principal duties and obligations in any materialrespect and the matter is unresolved within 20 days after our Managerreceives written notice of such neglect or failure from us; or

·       *Second,* if any moneys payable by theManager under or pursuant to the management agreement are not promptly paid oraccounted for in full within 10 business days by the Manager in accordance withthe provisions of the management agreement.

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We also mayterminate the management agreement immediately under any of the followingcircumstances:

·       *First*, if either we or our Manager ceasesto conduct business, or all or substantially all of the properties or assets ofeither such party is sold, seized or appropriated;

·       *Second,* if either we or our Manager filesa petition under any bankruptcy law, makes an assignment for the benefit of itscreditors, seeks relief under any law for the protection of debtors or adopts aplan of liquidation, or if a petition is filed against us or our Managerseeking to declare us or it an insolvent or bankrupt and such petition is notdismissed or stayed within 40 business days of its filing, or if our Company orthe Manager admits in writing its insolvency or its inability to pay its debtsas they mature, or if an order is made for the appointment of a liquidator,manager, receiver or trustee of our Company or the Manager of all or asubstantial part of its assets, or if an encumbrancer takes possession of or areceiver or trustee is appointed over the whole or any part of the Manager’s orour Company’s undertaking, property or assets or if an order is made or aresolution is passed for our Manager’s or our winding up;

·       *Third,* if a distress, execution,sequestration or other process is levied or enforced upon or sued out againstour Manager’s property which is not discharged within 20 business days;

·       *Fourth,* if the Manager, other than inconnection with a reconstruction or amalgamation without insolvency previouslyapproved by us, ceases or threatens to cease, either wholly or substantially,to carry on its business; or

·       *Fifth*, if either our Manager or we areprevented from performing any obligations under the management agreement by anycause whatsoever of any nature or kind beyond the reasonable control of us orour Manager respectively for a period of two consecutive months or more.

In addition, we mayterminate any applicable ship management agreement in any of the followingcircumstances:

·       *First*, if we or any subsidiary of oursceases to be the owner of the vessel covered by such ship management agreementby reason of a sale thereof, or if we or any subsidiary of ours ceases to beregistered as the owner of the vessel covered by such ship managementagreement;

·       *Second,* if a vessel becomes an actual orconstructive or compromised or arranged total loss or an agreement has beenreached with the insurance underwriters in respect of the vessel’sconstructive, compromised or arranged total loss or if such agreement with theinsurance underwriters is not reached or it is adjudged by a competent tribunalthat a constructive loss of the vessel has occurred;

·       *Third*, if the vessel covered by such shipmanagement agreement is requisitioned for title or any other compulsoryacquisition of the vessel occurs, otherwise than by requisition by hire; or

·       *Fourth,* if the vessel covered by such ship managementagreement is captured, seized, detained or confiscated by any government orpersons acting or purporting to act on behalf of any government and is notreleased from such capture, seizure, detention or confiscation within 20business days.

***Non-competition***

Our Manager has agreedthat, during the term of the management agreement, it will not provide anymanagement services to any other entity without our prior written approval,other than with respect to entities controlled by Dr. Coustas, our ChiefExecutive Officer, which do not operate within the containership (larger than2,500 twenty foot equivalent units, or TEUs) or drybulk sectors of the shippingindustry or in the circumstances described below. Dr. Coustas does notcurrently control any such vessel-owning entity or have an equityinterest in any such entity, other than Castella Shipping Inc., owner 

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of one1,700 TEU vessel. Dr. Coustas has also personally agreed to the samerestrictions on the provision, directly or indirectly, of management servicesduring this period. In addition, our Chief Executive Officer (other than in hiscapacities with us) and our Manager have separately agreed not, during the termof our management agreement and for one year thereafter, to engage, directly orindirectly, in (i) the ownership or operation of containerships of largerthan 2,500 TEUs or (ii) the ownership or operation of any drybulk carriersor (iii) the acquisition of or investment in any business involved in theownership or operation of containerships larger than 2,500 TEUs or drybulkcarriers. Notwithstanding these restrictions, if our independent directorsdecline the opportunity to acquire any such containerships or drybulk carriersor to acquire or invest in any such business, our Chief Executive Officer willhave the right to make, directly or indirectly, any such acquisition orinvestment during the four-month period following such decision by our independentdirectors, so long as such acquisition or investment is made on terms no morefavorable than those offered to us. In this case, our Chief Executive Officerand our Manager will be permitted to provide management services to suchvessels.

***Sale of Our Manager***

Our Manager has agreedthat it will not transfer, assign, sell or dispose of all or a significantportion of its business that is necessary for the services our Manager performsfor us without the prior written consent of our Board of Directors.Furthermore, in the event of any proposed sale of our Manager, we have a rightof first refusal to purchase our Manager. This prohibition and right of firstrefusal is in effect throughout the term of the management agreement and for aperiod of one year following the expiry or termination of the managementagreement. Our Chief Executive Officer, Dr. John Coustas, or any trustestablished for the Coustas family (under which Dr. Coustas and/or amember of his family is a beneficiary), is required, unless we expressly permitotherwise, to own 80% of our Manager’s outstanding capital stock during theterm of the management agreement and 80% of the voting power of our Manager’soutstanding capital stock. In the event of any breach of these requirements, wewould be entitled to purchase the capital stock of our Manager owned by Dr. Coustasor any trust established for the Coustas family (under which Dr. Coustasand/or a member of his family is a beneficiary).

***The Swedish Club***

Dr. John Coustas, ourChief Executive Officer, is a member of the Board of Directors of The SwedishClub, our primary provider of insurance, including a substantial portion of ourhull & machinery, war risk and protection and indemnity insurance.During the years ended December 31, 2004, 2005 and 2006, we paid premiumsof $2.4 million in the aggregate, $3.5 million in the aggregate and $3.4million in the aggregate, respectively, to The Swedish Club under theseinsurance policies.

***Danaos Management Consultants***

Our Chief ExecutiveOfficer, Dr. John Coustas, co-founded and has a 50.0% ownership interestin Danaos Management Consultants, which provides the ship management softwaredeployed on the vessels in our fleet to our Manager on a complementary basis. Dr. Coustasdoes not participate in the day-to-day management of Danaos ManagementConsultants.

***Payment of Dividend***

We paid no dividends in2006. Prior to our initial public offering, in 2005 we paid dividends of$244.6 million to our stockholders from our retained earnings. 

***Sofia III***

On November 3, 2003,Reynolds Enterprises S.A., our subsidiary and the registered owner of the *AIFOS*, sold the vessel to MagellanMarine Inc., an entity then affiliated with us by virtue of being 

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wholly-ownedby our ultimate principal stockholder, Protector Holdings Inc. MagellanMarine Inc. then bareboat chartered the vessel, which was renamed the *Sofia III,* to LitoNavigation Inc., our subsidiary. The sale of the *AIFOS* to Magellan Marine Inc. wasundertaken because such vessel was not intended to be in a pool in which itotherwise would have been included. On December 31, 2004, the bareboatcharter was terminated and all of the outstanding capital stock of MagellanMarine Inc. was registered to Lito Navigation Inc. MagellanMarine Inc. is the vessel-owning subsidiary of the *Sofia III* and Lito Navigation Inc.,which is wholly-owned by us, is the sole stockholder of MagellanMarine Inc. Each of these transactions was consummated for noconsideration. On April 24, 2006, we sold the *Sofia III* to a third-party drybulk operator for$27.5 million and delivered the vessel to the buyer on May 12, 2006.

***Castella Shipping Inc. and Palmosa ShippingCorporation***

Our Chief ExecutiveOfficer has a 26.0% shareholding interest in Castella Shipping Inc., owner ofone 1,700 TEU feeder containership which provides transport between linervessels and smaller ports in the Mediterranean not directly served by linervessels. Our Chief Executive had owned a 26.0% economic interest and 51.0% ofthe voting power in Castella’s former parent, Palmosa Shipping Corporation, orPalmosa, until December 18, 2006. Castella does not, and Palmosa did not,provide feeder or any other services to us or our fleet. Our Manager arrangescrewing for Castella, and arranged crewing for Palmosa, on a complementary basisin order to gain access to information regarding the vessel’s maintenance andrepair, off hire days, responses to unexpected events arising during voyagesand other factors that are considered to be indicative of crewing performance.This allows our Manager to monitor the operational quality of Castella’s vessel(and previously Palmosa’s vessels), which operate under entirely Ukranian crews arranged by our Manager,thereby providing our Manager with insight into the quality of these crewscompared to differently constituted crews.

***Offices***

We occupy office spacethat is owned by our Manager and which is provided to us as part of theservices we receive under our management agreement.

***Seasonal Maritime Corporation***

Seasonal Maritime Corporation, an entity wholly-ownedby our Chief Executive Officer, funded $30.4 million of the$40.5 million acquisition price of the *MOLConfidence* under a loan agreement, dated March 14, 2006, amongSeasonal Maritime Corporation, as lender, a subsidiary of ours, as borrower,and us, as guarantor. The interest rate for this loan was LIBOR plus 1.0% perannum, with a maturity date of six months after execution of the loanagreement, subject to an option for an additional six months repayment term forthe borrower. In addition, a flat fee of $70,125 was paid upon execution of theloan agreement and a commitment fee of 0.50% per annum was payable quarterly onany undrawn amount, commencing March 14, 2006. On June 16, 2006, werepaid $25.4 million of the amount borrowed under this loan agreement,leaving $5.0 million outstanding as of June 30, 2006, which amountwas repaid in August 2006. This loan was secured by a general assignmentof income from the *MOL Confidence*and an assignment of insurance receivables with respect to the vessel.

We borrowed an aggregate amount of $75.0 million($15.0 million with respect to each vessel) under an unsecured loanagreement, dated August 14, 2006, with Seasonal Maritime Corporation topartially finance the acquisition of the five 6,500 TEU newbuildings weordered on July 26, 2006. This loan bore interest at a rate of LIBOR plus1.0% per annum and matured six months after execution of the loan agreement,with an option for an additional six months repayment term for the borrower. Inaddition, a flat fee of $112,500 was paid upon execution of the loan agreementand a commitment fee of 0.30% per annum was payable quarterly on any undrawnamount, commencing August 14, 2006. We repaid the entire 

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amount outstanding underthis loan on December 28, 2006 with borrowings made under our creditfacility with Aegean Baltic-HSH Nordbank. 

We borrowed an additional aggregate amount of$25.0 million under an unsecured loan agreement, dated September 25,2006, with Seasonal Maritime Corporation, to finance installment payments onthe *HN 1670*, the *HN 1671*, the *HN 1672* and the *HN 1673*,made on September 28, 2006. This loan bore interest at a rate of LIBORplus 1.0% per annum and matured six months after execution of the loanagreement, with an option for an additional six months repayment term for theborrower. In addition, a flat fee of $37,500 was paid upon execution of theloan agreement and a commitment fee of 0.30% per annum was payable quarterly onany undrawn amount, commencing September 25, 2006. We repaid the entireamount outstanding under this loan on December 28, 2006 with borrowingsmade under credit facilities with The Royal Bank of Scotland and AegeanBaltic-HSH Nordbank.

We believe the fees andinterest paid under these loan agreements were no less favorable than those wecould have obtained in arm’s-length negotiations with an unrelated thirdparty.

***Det Norske Veritas***

Until May 2006, Mr. MiklósKonkoly-Thege, a member of our Board of Directors, was President andChairman of the Executive Board of Det Norske Veritas, which provides vesselclassification services to us. During the years ended December 31, 2004,2005 and 2006, we paid $0.5 million, $0.6 million and $0.4 million,respectively, to Det Norske Veritas for these services.

**Major Stockholders**

The following tablesets forth certain information regarding the beneficial ownership of ouroutstanding common stock as of May 15, 2007 held by: 

·       eachperson or entity that we know beneficially owns 5% or more of our common stock;

·       eachof our officers and directors; and 

·       allour directors and officers as a group. 

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

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Beneficialownership does not necessarily imply that the named person has the economic orother benefits of ownership. For purposes of this table, shares subject tooptions, warrants or rights or shares exercisable within 60 days of May 15,2007 are considered as beneficially owned by the person holding those options,warrants or rights. Each stockholder is entitled to one vote for each shareheld. The applicable percentage of ownership of each stockholder is based on54,557,500 shares of common stock outstanding as of May 15, 2007.Information for certain holders is based on their latest filings with the SECor information delivered to us. Except as noted below, the address of allstockholders, officers and directors identified in the table and accompanyingfootnotes below is in care our principal executive offices.

| **Identity of Person or Group**          | ** ** | ** ** | ** ** | **Number of  Shares of  Common  Stock  Owned** | ** ** | **Percentage of  Common Stock** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|-------------------------------------------|------------|
| *Officers and Directors:*                                    | * *   | * *   | * *   |                                                     | * *   | * *                                  |       |
| John Coustas(1)                                              |       | 43,687,195 |       |                                                     | 80.0       | *%*                                       |       |
| Iraklis Prokopakis                                           |       | 443,075    |       |                                                     | *          | * *                                  |       |
| Dimitri J.  Andritsoyiannis                                  |       | 177,230    |       |                                                     | *          | * *                                  |       |
| Andrew B. Fogarty                                            |       | —     |       |                                                     | —     | * *                                  |       |
| Myles R. Itkin                                               |       | —     |       |                                                     | —     | * *                                  |       |
| Miklós Konkoly-Thege                                    |       | 2,000      |       |                                                     | *          | * *                                  |       |
| Robert A. Mundell                                            |       | —     |       |                                                     | —     | * *                                  |       |
| *5% Beneficial Owners:*                                      | * *   | * *   | * *   |                                                     | * *   | * *                                  |       |
| Danaos Investments Limited  as Trustee of the 883 Trust(2)   |       | 43,687,195 |       |                                                     | 80.0       | *%*                                       |       |
| All executive officers and directors as a group (7  persons) |       | 44,309,500 |       |                                                     | 81.2       | *%*                                       |       |

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*                    Lessthan 1%.

(1)          Byvirtue of shares owned indirectly through Danaos Investments Limited as Trusteeof the 883 Trust, which is our principal stockholder. The beneficiaries of thetrust are Dr. Coustas, his wife and his descendants. Dr. Coustas hascertain powers to remove and replace Danaos Investments Limited as Trustee ofthe 883 Trust and, accordingly, he may be deemed to beneficially own the sharesof common stock owned by Danaos Investments Limited as Trustee of the 883Trust.

(2)          According to a Schedule13G jointly filed with the SEC on February 9, 2007 by Danaos Investments Limited as Trustee of the 883 Trustand John Coustas, Danaos Investments Limitedas Trustee of the 883 Trust owns 43,687,195 shares of common stock andhas sole voting power and sole dispositive power with respect to all suchshares. The beneficiaries of the trust are Dr. Coustas,his wife and his descendants. Dr. Coustas has certain powers to remove andreplace Danaos Investments Limited as Trustee of the 883 Trust and,accordingly, he may be deemed to beneficially own these shares of common stock.

In October 2006, wecompleted a registered public offering of our shares of common stock and ourcommon stock began trading on the New York Stock Exchange. Accordingly, certainof our principal stockholders acquired their shares of common stock either ator subsequent to this time. Our major stockholders have the same voting rightsas our other stockholders. As of May 15, 2007, we had approximately fivestockholders of record. Two of these stockholders were located in the UnitedStates and held an aggregate 10,250,000 shares of common stock representingapproximately 18.8% of our outstanding shares of common stock. However, one ofthe United States stockholders of record is CEDEFAST, a nominee of TheDepository Trust Company, which held 10,249,568 shares of our common stock. Accordingly,we believe that the shares held by CEDEFAST include shares of common stockbeneficially owned by both holders in the United States and non-United Statesbeneficial owners. We are not aware of any arrangements the operation of whichmay at a subsequent date result in our change of control.

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The Coustas Family Trust,under which our chief executive officer is both a beneficiary, together withother members of the Coustas Family, and the protector (which is analogous to atrustee), through Danaos Investments Limited, a corporation wholly-owned byDr. Coustas, owns, directly or indirectly, approximately 80.0% of ouroutstanding common stock. This stockholder is able to control the outcome ofmatters on which our stockholders are entitled to vote, including the electionof our entire board of directors and other significant corporate actions.

**Item 8.**                        FinancialInformation

See “Item 18. Financial Statements” below. 

*SignificantChanges.*   No significant change has occurredsince the date of the annual financial statements included in this annual reporton Form 20-F.

*LegalProceedings.**  *In thesummer of 2001, one of our vessels, the *Henry(*ex *APL Guatemala)*,experienced engine damage at sea that resulted in an accumulation of oil andoily water in the vessel’s engine room. After the vessel arrived in Long Beach,California, in June 2001, it was inspected by the U.S. Coast Guard.The Coast Guard found oil in the overboard discharge pipe from the vessel’soily water separator. Our manager posted bonds to cover potential civilpenalties for alleged violations of Annex III of the International Conventionfor the Prevention of Pollution from Ships, or MARPOL, regulations. The CoastGuard subsequently referred the matter to the U.S. Attorney’s Office for theCentral District of California for a criminal investigation into whethermembers of the vessel’s crew bypassed systems designed to prevent discharges ofoil to the water. On June 29, 2001, pursuant to a short-term InternationalOil Pollution Prevention Certificate, our manager pumped oily bilge water fromthe vessel’s engine room into tanks aboard the vessel for subsequent lawfuldisposal.

On July 2, 2001, when the vessel was at anchor inLong Beach, California, representatives of our manager notified authorities ofthe presence of oil on the water on the starboard side of the vessel. On July 3,2001, divers retained by our manager found oil in the vessel’s starboard seachest (an opening through which sea water is taken in to cool the engines). Thediving service removed and containerized the oily water in the sea chest forsubsequent disposal.

The U.S. Attorney’s criminal investigation shiftedfrom the conditions observed in June 2001 to the July 2 release andthe events that followed it. Our manager entered into a plea agreement with theU.S. Attorney, on behalf of the government, which was filed with the U.S.District Court on June 20, 2006, pursuant to which our manager agreed toplead guilty to one count of negligent discharge of oil and one count ofobstruction of justice, based on a charge of attempted concealment of thesource of the discharge. Consistent with the government’s practice in similarcases, our manager agreed to develop and implement a third-partyconsultant monitored environmental compliance plan and to designate an internalcorporate compliance manager. This compliance plan would require our manager toprepare an environmental compliance plan manual for approval by such third-partyenvironmental consultant and the U.S. government. The program would alsorequire our manager to arrange for, fund and complete a series of audits of itsfleet management offices and of waste streams of the vessels it manages,including all of the vessels in our fleet that call at U.S. ports, as well asan independent, third-party focused environmental compliance plan audit.Our manager also agreed to a probation period of three years under the pleaagreement. Our manager further agreed to pay an aggregate of $500,000 inpenalties in connection with the charges of negligent discharge and obstructionof justice under the plea agreement, with half of the penalties to be appliedto community service projects that will benefit, restore or preserve theenvironment and ecosystems in the central California area. On August 14,2006, the court accepted our manager’s guilty plea to the two counts and, on December 4,2006, sentenced our manager in accordance with the terms of the plea agreement.

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In the five years since the detention of the *Henry (*ex *APLGuatemala)*, our vessels have not been subject to any otherdetentions or enforcement proceedings involving alleged releases of oil. Ourmanager has already begun preparation of a proactive management programdesigned to prevent future non-compliance.

We have not been involved in any legal proceedingsthat we believe may have a significant effect on our business, financialposition, results of operations or liquidity, and we are not aware of anyproceedings that are pending or threatened that may have a material effect onour business, financial position, results of operations or liquidity. From timeto time, we may be subject to legal proceedings and claims in the ordinarycourse of business, principally personal injury and property casualty claims.We expect that these claims would be covered by insurance, subject to customarydeductibles. However, those claims, even if lacking merit, could result in theexpenditure of significant financial and managerial resources.

*DividendPolicy.*   We currently intend to pay quarterlydividends of $0.44 per share, or $1.76 per share per year. We paid our firstquarterly dividend of $0.44 per share on February 14, 2007 and our secondquarterly dividend, of $0.44 per share, on May 18, 2007. There can be noassurance, however, that we will pay regular quarterly dividends in the future.We paid no dividends in 2006. Prior to our initial public offering, in 2005 wepaid dividends of $244.6 million to our stockholders from our retainedearnings.

We currently intend to paydividends in amounts that will allow us to retain a portion of our cash flowsto fund vessel, fleet or company acquisitions that we expect to be accretive toearnings and cash flows, and for debt repayment and drydocking costs, asdetermined by management and our board of directors. Declaration and payment ofany dividend is subject to the discretion of our board of directors. The timingand amount of dividend payments will be dependent upon our earnings, financialcondition, cash requirements and availability, fleet renewal and expansion,restrictions in our credit facilities, the provisions of Marshall Islands lawaffecting the payment of distributions to stockholders and other factors. Thepayment of dividends is not guaranteed or assured, and may be discontinued atany time at the discretion of our board of directors. There can be no assurancethat dividends will be paid in the anticipated amounts and frequency set forthin this annual report. Our ability to pay dividends may be limited by theamount of cash we can generate from operations following the payment of feesand expenses and the establishment of any reserves as well as additionalfactors unrelated to our profitability. We are a holding company, and we dependon the ability of our subsidiaries to distribute funds to us in order tosatisfy our financial obligations and to make dividend payments. See “Item 3.Key Information—Risk Factors—Risks Inherent in Our Business” for a discussionof the risks related to our ability to pay dividends.

**Item 9.**                        TheOffer and Listing

Our common stock is listedon the New York Stock Exchange under the symbol “DAC.”

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**Trading on the NewYork Stock Exchange**

Sinceour initial public offering in the United States in October 2006, ourcommon stock has been listed on the New York Stock Exchange under the symbol “DAC.”The following table shows the high and low sales prices for our common stockduring the indicated periods. 

| ** **                                          | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------------------------------------------------|------------|----------|------------|---------|------------|
| 2006 (Annual)                                       |       | $        | 24.10      |    | $          | 19.61 |   |
| *2006*                                              |       |     |       |    |       |
| Fourth Quarter (October 6 to December 31) |       | 24.10    |       | 19.61   |       |
| October (October 6 to October 31)    |       | 21.45    |       | 20.06   |       |
| November                                            |       | 22.69    |       | 19.61   |       |
| December                                            |       | 24.10    |       | 22.09   |       |
| *2007*                                              |       |     |       |    |       |
| First Quarter                                       |       | 26.53    |       | 23.25   |       |
| January                                             |       | 25.23    |       | 23.63   |       |
| February                                            |       | 24.97    |       | 23.25   |       |
| March                                               |       | 26.53    |       | 23.94   |       |
| Second Quarter (through May 25)                |       | 33.55    |       | 26.11   |       |
| April                                               |       | 29.79    |       | 26.11   |       |
| May (through  May 25)                     |       | 33.55    |       | 28.14   |       |
|                                                     |            |          |            |         |            |  |  |

 

**Item 10.**                 AdditionalInformation

**Share Capital**

Under our articles ofincorporation, our authorized capital stock consists of 200,000,000 shares ofcommon stock, $.01 par value per share, of which, as of December 31, 2006and May 15, 2007, 54,557,500 shares were issued and outstanding and fullypaid, and 5,000,000 shares of blank check preferred stock, $.01 par value pershare, of which, as of December 31, 2006 and May 15, 2007, no shareswere issued and outstanding and fully paid. One million shares of the blankcheck preferred stock have been designated Series A ParticipatingPreferred Stock in connection with our adoption of a stockholder rights plan asdescribed below under “—Stockholder Rights Plan.” All of our shares of stockare in registered form.

***Common Stock***

Each outstanding share of common stock entitles theholder to one vote on all matters submitted to a vote of stockholders. Subjectto preferences that may be applicable to any outstanding shares of preferredstock, holders of shares of common stock are entitled to receive ratably alldividends, if any, declared by our board of directors out of funds legallyavailable for dividends. Holders of common stock do not have conversion,redemption or preemptive rights to subscribe to any of our securities. Alloutstanding shares of common stock are fully paid and nonassessable. Therights, preferences and privileges of holders of shares of common stock aresubject to the rights of the holders of any shares of preferred stock which wemay issue in the future.

There were 500 shares ofcommon stock outstanding on October 7, 2005, the date our company wasdomesticated in the Republic of The Marshall Islands. On September 18,2006 we effected an 88,615-for-1 stock split.

***Blank Check Preferred Stock***

Under the terms of ourarticles of incorporation, our board of directors has authority, without anyfurther vote or action by our stockholders, to issue up to 5,000,000 shares ofblank check preferred stock, 

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of which1,000,000 shares have been designated Series A Participating PreferredStock in connection with our adoption of a stockholder rights plan as describedbelow under “—Stockholder Rights Plan.” Our board of directors may issue sharesof preferred stock on terms calculated to discourage, delay or prevent a changeof control of our company or the removal of our management.

***Stockholder Rights Plan***

*General*

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

The rights may have anti-takeover effects. The rightswill cause substantial dilution to any person or group that attempts to acquireus without the approval of our board of directors. As a result, the overalleffect of the rights may be to render more difficult or discourage any attemptto acquire us. Because our board of directors can approve a redemption of therights or a permitted offer, the rights should not interfere with a merger orother business combination approved by our board of directors. The adoption ofthe rights agreement was approved by our stockholders prior to our initialpublic offering.

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

*Detachment of theRights*

The rights areattached to all certificates representing our outstanding common stock and willattach to all common stock certificates we issue prior to the rightsdistribution date that we describe below. The rights are not exercisable untilafter the rights distribution date and will expire at the close of business onthe tenth anniversary date of the adoption of the rights plan, unless we redeemor exchange them earlier as described below. The rights will separate from thecommon stock and a rights distribution date will occur, subject to specifiedexceptions, on the earlier of the following two dates:

·       10 daysfollowing a public announcement that a person or group of affiliated orassociated persons or an “acquiring person” has acquired or obtained the rightto acquire beneficial ownership of 15% or more of our outstanding common stock;or

·       10business days following the start of a tender or exchange offer that wouldresult, if closed, in a person becoming an “acquiring person.”

Existing stockholders and their affiliates areexcluded from the definition of “acquiring person” for purposes of the rights,and therefore their ownership or future share acquisitions cannot trigger therights. Specified “inadvertent” owners that would otherwise become an acquiringperson, including those who would have this designation as a result ofrepurchases of common stock by us, will not become acquiring persons as aresult of those transactions.

Our board of directors may defer the rightsdistribution date in some circumstances, and some inadvertent acquisitions willnot result in a person becoming an acquiring person if the person promptlydivests itself of a sufficient number of shares of common stock.

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Until the rightsdistribution date:

·       ourcommon stock certificates will evidence the rights, and the rights will betransferable only with those certificates; and

·       anynew shares of common stock will be issued with rights and new certificates willcontain a notation incorporating the rights agreement by reference.

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

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

*Flip-In Event*

A “flip-in event” will occur under the rightsagreement when a person becomes an acquiring person. If a flip-in event occursand we do not redeem the rights as described under the heading “—Redemption ofRights” below, each right, other than any right that has become void, asdescribed below, will become exercisable at the time it is no longer redeemablefor the number of shares of common stock, or, in some cases, cash, property orother of our securities, having a current market price equal to two times theexercise price of such right.

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

*Flip-Over Event*

A “flip-over event”will occur under the rights agreement when, at any time after a person hasbecome an acquiring person:

·       weare acquired in a merger or other business combination transaction; or

·       50%or more of our assets, cash flows or earning power is sold or transferred.

If a flip-over eventoccurs, each holder of a right, other than any right that has become void as wedescribe under the heading “—Flip-In Event” above, will have the right toreceive the number of shares of common stock of the acquiring company having acurrent market price equal to two times the exercise price of such right.

*Antidilution*

The number of outstandingrights associated with our common stock is subject to adjustment for any stocksplit, stock dividend or subdivision, combination or reclassification of ourcommon stock occurring prior to the rights distribution date. With someexceptions, the rights agreement does not require us to adjust the exerciseprice of the rights until cumulative adjustments amount to at least 1% of theexercise price. It also does not require us to issue fractional shares of ourpreferred stock that are not integral multiples of one one-hundredth of ashare, and, instead we may make a cash adjustment based on the market price ofthe common stock on the last trading date prior to the date of exercise. Therights agreement reserves us the right to require, prior to the occurrence ofany flip-in event or flip-over event that, on any exercise of rights, that anumber of rights must be exercised so that we will issue only whole shares ofstock.

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*Redemption ofRights*

At any time until10 days after the date on which the occurrence of a flip-in event is firstpublicly announced, we may redeem the rights in whole, but not in part, at aredemption price of $.01 per right. The redemption price is subject toadjustment for any stock split, stock dividend or similar transaction occurringbefore the date of redemption. At our option, we may pay that redemption pricein cash, shares of common stock or any other consideration our board of directorsmay select. The rights are not exercisable after a flip-in event until they areno longer redeemable. If our board of directors timely orders the redemption ofthe rights, the rights will terminate on the effectiveness of that action.

*Exchange of Rights*

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

·       anyperson other than our existing stockholders becoming the beneficial owner ofcommon stock with voting power equal to 50% or more of the total voting powerof all shares of common stock entitled to vote in the election of directors; or

·       the occurrence of aflip-over event.

*Amendment of Termsof Rights*

While the rightsare outstanding, we may amend the provisions of the rights agreement only asfollows:

·       tocure any ambiguity, omission, defect or inconsistency;

·       tomake changes that do not adversely affect the interests of holders of rights,excluding the interests of any acquiring person; or

·       toshorten or lengthen any time period under the rights agreement, except that wecannot change the time period when rights may be redeemed or lengthen any timeperiod, unless such lengthening protects, enhances or clarifies the benefits ofholders of rights other than an acquiring person.

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

**Memorandum andArticles of Association**

Our purpose is to engage in any lawful act or activityrelating to the business of chartering, rechartering or operatingcontainerships, drybulk carriers or other vessels or any other lawful act oractivity customarily conducted in conjunction with shipping, and any otherlawful act or activity approved by the board of directors. Our articles ofincorporation and bylaws do not impose any limitations on the ownership rightsof our stockholders.

Under our bylaws, annualstockholder meetings will be held at a time and place selected by our board ofdirectors. The meetings may be held in or outside of the Marshall Islands.Special meetings may be called by the board of directors or, at the request ofthe holders of a majority of our issued and outstanding stock entitled to voteon the matters proposed to be considered at such meeting, or by our secretary.Our board of directors may set a record date between 15 and 60 days beforethe date of any meeting to determine the stockholders that will be eligible toreceive notice and vote at the meeting.

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***Directors***

Our directors are elected by a plurality of the votescast at each annual meeting of the stockholders by the holders of sharesentitled to vote in the election. There is no provision for cumulative voting.

The board of directors maychange the number of directors to not less than two, nor more than 15, by avote of a majority of the entire board. Each director shall be elected to serveuntil the third succeeding annual meeting of stockholders and until his or hersuccessor shall have been duly elected and qualified, except in the event ofdeath, resignation or removal. A vacancy on the board created by death,resignation, removal (which may only be for cause), or failure of thestockholders to elect the entire class of directors to be elected at anyelection of directors or for any other reason, may be filled only by anaffirmative vote of a majority of the remaining directors then in office, evenif less than a quorum, at any special meeting called for that purpose or at anyregular meeting of the board of directors. The board of directors has theauthority to fix the amounts which shall be payable to the members of our boardof directors for attendance at any meeting or for services rendered to us.

***Dissenters’ Rights of Appraisal and Payment***

Under the Marshall IslandsBusiness Corporations Act, or the BCA, our stockholders have the right todissent from various corporate actions, including any merger or sale of all orsubstantially all of our assets not made in the usual course of our business,and to receive payment of the fair value of their shares. In the event of anyfurther amendment of our articles of incorporation, a stockholder also has theright to dissent and receive payment for his or her shares if the amendmentalters certain rights in respect of those shares. The dissenting stockholdermust follow the procedures set forth in the BCA to receive payment. In theevent that we and any dissenting stockholder fail to agree on a price for theshares, the BCA procedures involve, among other things, the institution ofproceedings in the high court of the Republic of The Marshall Islands in whichour Marshall Islands office is situated or in any appropriate jurisdictionoutside the Marshall Islands in which our shares are primarily traded on alocal or national securities exchange. The value of the shares of thedissenting stockholder is fixed by the court after reference, if the court soelects, to the recommendations of a court-appointed appraiser.

***Stockholders’ Derivative Actions***

Under the BCA, any of ourstockholders may bring an action in our name to procure a judgment in ourfavor, also known as a derivative action, provided that the stockholderbringing the action is a holder of common stock both at the time the derivativeaction is commenced and at the time of the transaction to which the actionrelates.

***Anti-takeover Provisions of our Charter Documents***

Several provisions of ourarticles of incorporation and bylaws may have anti-takeover effects. Theseprovisions are intended to avoid costly takeover battles, lessen ourvulnerability to a hostile change of control and enhance the ability of ourboard of directors to maximize stockholder value in connection with anyunsolicited offer to acquire us. However, these anti-takeover provisions, whichare summarized below, could also discourage, delay or prevent (1) themerger or acquisition of our company by means of a tender offer, a proxycontest or otherwise, that a stockholder may consider in its best interest and(2) the removal of incumbent officers and directors.

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*Blank CheckPreferred Stock*

Under the terms of ourarticles of incorporation, our board of directors has authority, without anyfurther vote or action by our stockholders, to issue up to 5,000,000 shares ofblank check preferred stock, of which 1,000,000 shares have been designated Series AParticipating Preferred Stock in connection with our adoption of a stockholderrights plan as described above under “—Stockholder Rights Plan.” Our board ofdirectors may issue shares of preferred stock on terms calculated todiscourage, delay or prevent a change of control of our company or the removalof our management.

*Classified Board ofDirectors*

Our articles ofincorporation provide for a board of directors serving staggered, three-yearterms. Approximately one-third of our board of directors will be elected eachyear. This classified board provision could discourage a third party frommaking a tender offer for our shares or attempting to obtain control of ourcompany. It could also delay stockholders who do not agree with the policies ofthe board of directors from removing a majority of the board of directors fortwo years.

*Election andRemoval of Directors*

Our articles ofincorporation and bylaws prohibit cumulative voting in the election ofdirectors. Our bylaws require parties other than the board of directors to giveadvance written notice of nominations for the election of directors. Our bylawsalso provide that our directors may be removed only for cause and only upon theaffirmative vote of the holders of at least 662¤3%of the outstanding shares of our capital stock entitled to vote for thosedirectors. These provisions may discourage, delay or prevent the removal ofincumbent officers and directors.

*Calling of SpecialMeetings of Stockholders*

Our bylaws provide thatspecial meetings of our stockholders may be called by our board of directorsor, at the request of holders of a majority of the common stock entitled tovote at such meeting, by our secretary.

*Advance NoticeRequirements for Stockholder Proposals and Director Nominations*

Our bylaws provide that stockholders seeking tonominate candidates for election as directors or to bring business before anannual meeting of stockholders must provide timely notice of their proposal inwriting to the corporate secretary.

Generally, to be timely, astockholder’s notice must be received at our principal executive offices notless than 90 days nor more than 120 days prior to the firstanniversary date of the previous year’s annual meeting. Our bylaws also specifyrequirements as to the form and content of a stockholder’s notice. Theseprovisions may impede stockholders’ ability to bring matters before an annualmeeting of stockholders or to make nominations for directors at an annualmeeting of stockholders.

*Business Combinations*

Although the BCAdoes not contain specific provisions regarding “business combinations” betweencompanies organized under the laws of the Marshall Islands and “interestedstockholders,” we have included these provisions in our articles of incorporation.Specifically, our articles of incorporation prohibit us from engaging in a “businesscombination” with certain persons for three years following the date the personbecomes an interested stockholder. Interested stockholders generally include:

·       anyperson who is the beneficial owner of 15% or more of our outstanding votingstock; or

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·       anyperson who is our affiliate or associate and who held 15% or more of ouroutstanding voting stock at any time within three years before the date onwhich the person’s status as an interested stockholder is determined, and theaffiliates and associates of such person.

Subject to certainexceptions, a business combination includes, among other things:

·       certainmergers or consolidations of us or any direct or indirect majority-ownedsubsidiary of ours;

·       anysale, lease, exchange, mortgage, pledge, transfer or other disposition of ourassets or of any subsidiary of ours having an aggregate market value equal to10% or more of either the aggregate market value of all assets of us,determined on a consolidated basis, or the aggregate value of all theoutstanding stock of us;

·       certaintransactions that result in the issuance or transfer by us of any stock of thecorporation to the interested stockholder;

·       anytransaction involving us or any of our subsidiaries that has the effect ofincreasing the proportionate share of any class or series of stock, orsecurities convertible into any class or series of stock, of ours or any suchsubsidiary that is owned directly or indirectly by the interested stockholderor any affiliate or associate of the interested stockholder; and

·       anyreceipt by the interested stockholder of the benefit directly or indirectly(except proportionately as a stockholder) of any loans, advances, guarantees,pledges or other financial benefits provided by or through us.

These provisions ofour articles of incorporation do not apply to a business combination if:

·       beforea person became an interested stockholder, our board of directors approvedeither the business combination or the transaction in which the stockholderbecame an interested stockholder;

·       uponconsummation of the transaction which resulted in the stockholder becoming aninterested stockholder, the interested stockholder owned at least 85% of ourvoting stock outstanding at the time the transaction commenced, other thancertain excluded shares;

·       ator following the transaction in which the person became an interestedstockholder, the business combination is approved by our board of directors andauthorized at an annual or special meeting of stockholders, and not by writtenconsent, by the affirmative vote of the holders of at least 66 2¤3% of our outstanding voting stock that isnot owned by the interest stockholder;

·       thestockholder was or became an interested stockholder prior to the consummationof the initial public offering of our common stock under the Securities Act;

·       astockholder became an interested stockholder inadvertently and (i) as soonas practicable divests itself of ownership of sufficient shares so that thestockholder ceases to be an interested stockholder; and (ii) would not, atany time within the three-year period immediately prior to a businesscombination between our company and such stockholder, have been an interestedstockholder but for the inadvertent acquisition of ownership; or

·       the business combination isproposed prior to the consummation or abandonment of and subsequent to theearlier of the public announcement or the notice required under our articles ofincorporation which (i) constitutes one of the transactions described inthe following sentence; (ii) is with or by a person who either was not aninterested stockholder during the previous three years or who became aninterested stockholder with the approval of the board; and (iii) isapproved or not opposed by a majority of the members of the board of directorsthen in office (but not less than one) who were directors prior to any personbecoming an interested stockholder during the previous three years or wererecommended for election or elected to succeed such directors by a 

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majority of suchdirectors. The proposed transactions referred to in the preceding sentence arelimited to:

(i)             a merger orconsolidation of our company (except for a merger in respect of which, pursuantto the BCA, no vote of the stockholders of our company is required);

(ii)         a sale, lease, exchange,mortgage, pledge, transfer or other disposition (in one transaction or a seriesof transactions), whether as part of a dissolution or otherwise, of assets ofour company or of any direct or indirect majority-owned subsidiary of ourcompany (other than to any direct or indirect wholly-owned subsidiary orto our company) having an aggregate market value equal to 50% or more of eitherthat aggregate market value of all of the assets of our company determined on aconsolidated basis or the aggregate market value of all the outstanding shares;or

(iii)     aproposed tender or exchange offer for 50% or more of our outstanding votingstock.

**Material Contracts**

The following is asummary of each material contract that we have entered into outside theordinary course of business during the two year period immediately precedingthe date of this Annual Report on Form 20-F. Such summaries are notintended to be complete and reference is made to the contracts themselves,which are exhibits to this Annual Report on Form 20-F.

(a)          Amended and RestatedManagement Agreement, dated September 18, 2006, between Danaos ShippingCompany Limited and Danaos Corporation. For a description of the Amended andRestated Management Agreement between Danaos Shipping Company Limited andDanaos Corporation, please see “Item 7. Major Shareholders and Related PartyTransactions—Management Agreement.”

(b)         Restrictive CovenantAgreement, dated October 11, 2006, between Danaos Corporation and Dr. JohnCoustas. For a description of the Restrictive Covenant Agreement between DanaosCorporation and Dr. John Coustas, please see “Item 7. Major Shareholdersand Related Party Transactions—Non-competition.”

(c)          Stockholder RightsAgreement, dated September 18, 2006, between Danaos Corporation andAmerican Stock Transfer & Trust Company, as Rights Agent. For adescription of the Stockholder Rights Agreement, please see “Item 10. AdditionalInformation—Share Capital—Stockholder Rights Plan.”

(d)         CreditFacilities.

*HSH Nordbank Credit Facility*

On December 17, 2002, we, as guarantor, andcertain of our vessel-owning subsidiaries, as borrowers, entered into a$60.0 million credit facility with HSH Nordbank AG and Dresdner Bank,which we refer to as the HSH Nordbank credit facility, with a term of10 years to finance a portion of the purchase price of the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*) and the *Maersk Derby* (ex *P&O Nedlloyd Caracas*). As of May 15,2007, $48 million was outstanding under this credit facility.

The interest rate on the HSH Nordbank credit facilityis LIBOR plus 0.775%. Beginning on June 11, 2004, we began repaying theprincipal amount of this loan, which is payable in 40 consecutive quarterlyinstallments of $1.0 million together with a balloon payment of$20.0 million payable with the final installment.

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*KEXIM Credit Facility*

On May 13, 2003, we, as guarantor, and certain ofour vessel-owning subsidiaries, as borrowers, entered into a$124.4 million credit facility with the Export-Import Bank of Korea,which we refer to as our KEXIM credit facility, for a term of 12 years tofinance a portion of the purchase price of the *CSCLEurope* and the *CSCL America.*As of May 15, 2007, $98.9 million was outstanding under thiscredit facility.

Interest on borrowings under the KEXIM credit facilityaccrues at a rate of 5.0125%, which includes a fee of 0.3725% per annum.Beginning on December 15, 2004, we began repaying the principal amount ofthis loan in 48 consecutive quarterly installments of $2.6 million (exceptfor the first installment of $1.5 million) plus installments of$1.3 million, $1.0 million and $0.69 million payable in August 2016,September 2016 and November 2016, respectively.

In connection with ourKEXIM facility, on November 15, 2004, we entered into an interest ratehedging transaction with RBS. The transaction is an amortizing interest rateswap, with the end result being the conversion of the fixed rate payable on theloan to a floating rate (U.S. dollar LIBOR). The notional amortizing scheduleof the swap exactly mirrors the amortization schedule of the above loan.

*KEXIM-Fortis Credit Facility*

On January 29, 2004, we, as guarantor, andcertain of our vessel-owning subsidiaries, as borrowers, entered into a$144.0 million credit facility with the Export-Import Bank of Koreaand Fortis Capital, which we refer to as the KEXIM-Fortis creditfacility, repayable over 12 years commencing with the delivery of the *CSCL Pusan (ex HN 1559)*and the *CSCLLe Havre (ex HN 1561)*. As of May 15, 2007, $141.2 millionwas outstanding under this credit facility and there was no undrawn fundsavailable.

The KEXIM-Fortis credit facility is organized intwo tranches, Tranche A and Tranche B. Each of Tranche A and TrancheB is comprised of two parts. One part of Tranche A, consisting of$67.5 million, and Tranche B, consisting of $4.5 million, isattributable to the *CSCL Pusan*.The second part of Tranche A, consisting of $67.5 million, andTranche B, consisting of $4.5 million, is attributable to the *CSCL Le Havre (ex HN 1561)*.The portion of Tranche A attributable to the *CSCL Pusan* (ex *HN 1559*)is repayable in 24 semi-annual installments of $2.8 million each,commencing on March 15, 2007. The portion of Tranche B attributableto the *CSCL Pusan*consists of aballoon payment of $4.5 million payable with the final installment ofTranche A on September 8, 2018. The portion of Tranche A attributableto the *CSCL Le Havre*is repayable in 24semi-annual installments of $2.8 million each, commencing on March 15,2007. The portion of Tranche B attributable to the *CSCL LeHavre*consists of a balloon payment of $4.5 payable with the finalinstallment of Tranche A on March 15, 2019.

Interest on borrowingsunder both tranches of the KEXIM-Fortis credit facility accrues at a rateof 5.02%, which includes a fee of 0.27% per annum. In addition, a commitmentfee of 0.30% per annum has been accruing on the undrawn balance ofTranche A since February 2, 2004, the date of the first drawingthereunder, and a commitment fee of 0.50% per annum has been accruing on theundrawn balance of Tranche B since January 29, 2004.

*Aegean Baltic-HSH Nordbank Credit Facility*

On November 14, 2006, we,as borrower, and certain of our vessel-owning subsidiaries, asguarantors, entered into a $700.0 million revolving and term loan credit facilitywith Aegean Baltic Bank S.A. and HSH Nordbank AG, which we refer to as theAegean Baltic-HSH Nordbank credit facility. The Aegean Baltic-HSHNordbank credit facility is divided into two revolving credit tranches,Tranche A and Tranche B. Tranche A of the credit facility is fora committed amount of 

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$200.0 millionand is collateralized by mortgages and other security relating to the *APL Belgium*, the *CMA CGM Elbe*, the *CMA CGM Kalamata*, the *CMA CGM Komodo*, the *Henry*, the *Hyundai Commodore*,**the *Hyundai Duke* and the *Independence.*We used the borrowings under Tranche A to refinance outstandingindebtedness under our existing credit facility with Aegean Baltic Bank, whichwas collateralized by mortgages and other security relating to the *APL Belgium*, the *APL Scotland*and the *Hyundai Commodore*. Tranche B of theAegean Baltic-HSH Nordbank credit facility is for a maximum amount of$500.0 million. Tranche B is to be used to provide financing forfuture vessel acquisitions, or other ship financing or corporate activities.The interest rate on the Aegean Baltic-HSH Nordbank credit facility is0.75% over LIBOR. The revolving period commenced on November 14, 2006 andwill have a duration of five years. The loan is repayable in up to 20consecutive quarterly installments beginning in 2011 and a balloon payment, ifapplicable, together with the last payment due in 2016. As of May 15,2007, $275.0 million was outstanding under the AegeanBaltic-HSH Nordbank credit facility and $425.0 million of undrawn availabilityremained available under Tranche B to us for future borrowings.

*Royal Bank of Scotland Credit Facility*

On February 20, 2007, we, as borrower,and certain of our vessel-owning subsidiaries, as guarantors, enteredinto a $700.0 million senior revolving credit facility with The Royal Bank ofScotland, which we refer to as the RBS credit facility. The RBS credit facilityis divided into two revolving credit tranches, Tranche A andTranche B. Tranche A of the credit facility is made available in fouradvances. Advance 1 of Tranche A is in an amount of up to$38.0 million and collateralized by the *MOLConfidence*. Advance 2 is in an amount of up to$22.0 million and collateralized by mortgages and other security relatingto the *S.A. Sederberg*, the *S.A. Winterberg*, the *S.A. Helderberg* and the *Maersk Constantia*. Advance 3 is in anamount of up to $46.0 million and collateralized by mortgages and othersecurity relating to the *YM Yantian*and the *Norasia Hamburg*.Advance 4 is in an amount of up to $32.0 million and collateralizedby mortgages and other security relating to the *Victory I* and the *YMMilano*. We used the borrowings under Tranche A for workingcapital and to refinance outstanding indebtedness under our existing creditfacility with RBS, which was collateralized by mortgages and other securityrelating to the *S.A. Sederberg*,the *S.A. Winterberg*, the *S.A. Helderberg* and the *Maersk Constantia*, as well as the *APL Holland*, the *Fivos*, the *Alexandra I*, the *Dimitris C*,the *Roberto C*, the *Maria C*, and the *MV Achilleas*, which we have sold.Tranche B of the RBS credit facility is for a maximum amount of$500.0 million. Tranche B may be used to provide financing for aportion of our contracted fleet, future vessel acquisitions or our other shipfinancing or corporate activities. The revolving period commenced on February 21, 2007 andwill have a duration of five years. The interest rate on the RBS creditfacility is 0.75% over LIBOR. As of May 15, 2007, $150.0 million was outstanding under theRBS credit facility and $550.0 million of undrawn availability remainedavailable ($50 million available under Tranche A and $500 millionavailable under Tranche B) to us for future borrowings.

Sixty-six months after thefirst drawdown, the available credit limit under Advance 1 ofTranche A will be reduced by two semi-annual reductions of$16.7 million, and a balloon reduction of $4.6 million together withthe last reduction. Six months after the first drawdown, the available creditlimit under Advance 2 of Tranche A will be reduced by foursemi-annual reductions of $0.75 million, and a balloon reduction of$19.0 million together with the last reduction. Eighteen months after thefirst drawdown, the available credit limit under Advance 3 ofTranche A will be reduced by four semi-annual reductions of$9.5 million, and a balloon reduction of $8.0 million together withthe last reduction. Six months after the first drawdown, the available creditlimit under Advance 4 of Tranche A will be reduced by foursemi-annual reductions of $6.5 million, and a balloon reduction of$6.0 million together with the last reduction. Each advance made underTranche B for the financing of a newbuilding will have a term of10 years from the first drawdown, and there will be no reductions in 

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theavailable credit limit under each advance until five years after the firstdrawdown under Tranche A. Six months after this five-year period ends, theavailable credit limit under each advance will likewise be reduced by equalsemi-annual reductions, together with a balloon reduction equal to the balloonreduction that will be payable as though Tranche B were a 10-year loanrepayable on an 18-year straight-line basis. Advances under Tranche B forthe purchase of secondhand vessels have similar repayment terms, with slightlyshorter time periods for repayment, depending upon the age of the vessel.

*Seasonal Maritime Corporation Credit Facilities*

We borrowed an aggregate amount of $75.0 million($15.0 million with respect to each vessel) under an unsecured loanagreement, dated August 14, 2006, with Seasonal Maritime Corporation topartially finance the acquisition of the five 6,500 TEU newbuildings we orderedon July 26, 2006. This loan bore interest at a rate of LIBOR plus 1.0% perannum and matured six months after execution of the loan agreement, with anoption for an additional six months repayment term for the borrower. Inaddition, a flat fee of $112,500 was paid upon execution of the loan agreementand a commitment fee of 0.30% per annum was payable quarterly on any undrawnamount, commencing August 14, 2006.

We borrowed an additional aggregate amount of$25.0 million under an unsecured loan agreement, dated September 25,2006, with Seasonal Maritime Corporation, to finance installment payments onthe *HN 1670*, the *HN 1671*, the *HN 1672* and the *HN 1673*,made on September 28, 2006. This loan bore interest at a rate of LIBORplus 1.0% per annum and matured six months after execution of the loanagreement, with an option for an additional six months repayment term for theborrower. In addition, a flat fee of $37,500 was paid upon execution of theloan agreement and a commitment fee of 0.30% per annum was payable quarterly onany undrawn amount, commencing September 25, 2006.

We believe the fees and interest payable under theseloan agreements were no less favorable than those we could obtain in arm’s-lengthnegotiations with an unrelated third party. We repaid the entire amountoutstanding under these loans on December 28, 2006, with borrowings madeunder our RBS and Aegean Baltic-HSH Nordbank credit facilities.

(e)          SecondaryPut and Call Agreements.   We entered into secondary put and callagreements with Allco Finance (UK) Limited with respect to the *Maersk Derby**(ex P&O NedlloydCaracas)*,*Vancouver Express**(ex P&O Nedlloyd Caribbean)*,*CSCLAmerica*,*CSCL Europe*,*CSCL Pusan (ex HN 1559)*and*CSCL Le Havre (ex HN 1561)*on February 18,2004, February 18, 2004, March 11, 2004, March 11, 2004, November 30,2004 and November 30, 2004, respectively. For a descriptionof our secondary put and call agreements, please see “Item 4. Information onthe Company—Our Fleet—Leasing Arrangements—*CSCL Europe,CSCL America, Maersk Derby**(ex P&ONedlloyd Caracas), Vancouver Express (ex P&O Nedlloyd Caribbean), CSCL Pusan (ex HN 1559) and CSCLLe Havre (ex HN 1561).*”

**Exchange Controlsand Other Limitations Affecting Stockholders**

Under Marshall Islands and Greek law, there arecurrently no restrictions on the export or import of capital, including foreignexchange controls or restrictions that affect the remittance of dividends,interest or other payments to non-resident holders of our common stock.

We are not aware of anylimitations on the rights to own our common stock, including rights ofnon-resident or foreign stockholders to hold or exercise voting rights on ourcommon stock, imposed by foreign law or by our articles of incorporation orbylaws.

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**Tax Considerations**

***Marshall Islands Tax Considerations***

We are a Marshall Islands corporation. Because we donot, and we do not expect that we will, conduct business or operations in theMarshall Islands, under current Marshall Islands law we are not subject to taxon income or capital gains and our stockholders will not be subject to MarshallIslands taxation or withholding on dividends and other distributions, includingupon a return of capital, we make to our stockholders. In addition, ourstockholders will not be subject to Marshall Islands stamp, capital gains orother taxes on the purchase, ownership or disposition of common stock, and ourstockholders will not be required by the Republic of The Marshall Islands tofile a tax return relating to the common stock.

Each prospectivestockholder is urged to consult their tax counsel or other advisor with regardto the legal and tax consequences, under the laws of pertinent jurisdictions,including the Marshall Islands, of their investment in us. Further, it is theresponsibility of each stockholder to file all state, local and non-U.S., aswell as U.S. federal tax returns that may be required of them.

***Liberian Tax Considerations***

The Republic of Liberia enacted a new income tax acteffective as of January 1, 2001 (the “New Act”). In contrast to the incometax law previously in effect since 1977, the New Act does not distinguishbetween the taxation of “non-resident” Liberian corporations, such as ourLiberian subsidiaries, which conduct no business in Liberia and were whollyexempt from taxation under the prior law, and “resident” Liberian corporationswhich conduct business in Liberia and are (and were under the prior law)subject to taxation.

In 2004, the Liberian Ministry of Finance issuedregulations exempting non-resident corporations engaged in internationalshipping, such as our Liberian subsidiaries, from Liberian taxation under theNew Act retroactive to January 1, 2001. It is unclear whether theseregulations, which ostensibly conflict with the provisions of the New Act, area valid exercise of the regulatory authority of the Liberian Ministry ofFinance such that the regulations can be considered unquestionably enforceable.However, an opinion dated December 23, 2004 addressed by the Minister ofJustice and Attorney General of the Republic of Liberia to The LISCR Trust Companystated that the regulations are a valid exercise of the regulatory authority ofthe Ministry of Finance. The Liberian Ministry of Finance has not at any timesince January 1, 2001 sought to collect taxes from any of our Liberiansubsidiaries.

If, however, our Liberiansubsidiaries were subject to Liberian income tax under the New Act, they wouldbe subject to tax at a rate of 35% on their worldwide income. As a result,their, and subsequently our, net income and cash flow would be materiallyreduced. In addition, as the ultimate shareholder of the Liberian subsidiarieswe would be subject to Liberian withholding tax on dividends paid by ourLiberian subsidiaries at rates ranging from 15% to 20%.

***United States Federal Income Tax Considerations***

The following discussionof United States federal income tax matters is based on the Internal RevenueCode of 1986, or the Code, judicial decisions, administrative pronouncements,and existing and proposed regulations issued by the United States Department ofthe Treasury, all of which are in effect and available and subject to change,possibly with retroactive effect. Except as otherwise noted, this discussion isbased on the assumption that we will not maintain an office or other fixedplace of business within the United States. We have no current intentionof maintaining such an office. References in this discussion to “we” and “us”are to Danaos Corporation and its subsidiaries on a consolidated basis, unlessthe context otherwise requires.

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*United StatesFederal Income Taxation of Our Company*

*Taxation of Operating Income: In General*

Unless exempt from United States federal incometaxation under the rules discussed below, a foreign corporation is subjectto United States federal income taxation in respect of any income that isderived from the use of vessels, from the hiring or leasing of vessels for useon a time, operating or bareboat charter basis, from the participation in apool, partnership, strategic alliance, joint operating agreement or other jointventure it directly or indirectly owns or participates in that generates suchincome, or from the performance of services directly related to those uses,which we refer to as “shipping income,” to the extent that the shipping incomeis derived from sources within the United States. For these purposes, 50% ofshipping income that is attributable to transportation that begins or ends, butthat does not both begin and end, in the United States constitutes income fromsources within the United States, which we refer to as “United States-sourceshipping income.”

Shipping income attributable to transportation thatboth begins and ends in the United States is generally considered to be 100%from sources within the United States. We do not expect to engage intransportation that produces income which is considered to be 100% from sourceswithin the United States.

Shipping income attributable to transportationexclusively between non-United States ports is generally considered to be 100%derived from sources outside the United States. Shipping income derived fromsources outside the United States will not be subject to any United Statesfederal income tax.

In the absence ofexemption from tax under Section 883 of the Code, our gross United States-sourceshipping income, unless determined to be effectively connected with the conductof a United States trade or business, as described below, would be subject to a4% tax imposed without allowance for deductions as described below.

*Exemption of Operating Income from United States FederalIncome Taxation*

UnderSection 883 of the Code, for taxable years after 2005 we will be exemptfrom United States federal income taxation on our United States-sourceshipping income if:

(1)         we are organized in aforeign country (our “country of organization”) that grants an “equivalentexemption” to corporations organized in the United States; and

(2)         either

(A)  more than 50% ofthe value of our stock is owned, directly or indirectly, by individuals who are“residents” of our country of organization or of another foreign country thatgrants an “equivalent exemption” to corporations organized in the UnitedStates, which we refer to as the “50% Ownership Test”; or

(B)  our stock is“primarily and regularly traded on an established securities market” in ourcountry of organization, in another country that grants an “equivalentexemption” to United States corporations, or in the United States, whichwe refer to as the “Publicly-Traded Test.”

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We believe, based on Revenue Ruling 2001-48, 2001-2C.B. 324, and, in the case of the Marshall Islands, an exchange of notesbetween the United States and the Marshall Islands, 1990-2 C.B. 321, in thecase of Liberia, an exchange of notes between the United States and Liberia,1988-1 C.B. 463, in the case of Cyprus, an exchange of notes between the UnitedStates and Cyprus, 1989-2 C.B. 332 and, in the case of Singapore, an exchangeof notes between the United States and Singapore, 1990-2 C.B. 323, (each an “Exchangeof Notes”) that the Marshall Islands, Liberia, Cyprus and Singapore, thejurisdictions in which we and our ship-owning subsidiaries are incorporated,grant an “equivalent exemption” to United States corporations. Therefore, webelieve that, for taxable years after 2005, we will be exempt from United Statesfederal income taxation with respect to our United States-source shippingincome if either the 50% Ownership Test or the Publicly-Traded Test ismet. For taxable years following 2005, it may be difficult to satisfy the 50%Ownership Test due to the widely-held ownership of our stock. Our ability tosatisfy the Publicly-Traded Test is discussed below.

The Section 883 regulations provide, in pertinentpart, that stock of a foreign corporation will be considered to be “primarilytraded” on an established securities market in a particular country if thenumber of shares of each class of stock that are traded during any taxable yearon all established securities markets in that country exceeds the number ofshares in each such class that are traded during that year on establishedsecurities markets in any other single country. For 2006 our common stock,which is the sole class of our issued and outstanding stock, was “primarilytraded” on the New York Stock Exchange and we anticipate that that will also bethe case for subsequent taxable years.

Under the regulations, our common stock will beconsidered to be “regularly traded” on an established securities market if oneor more classes of our stock representing more than 50% of our outstandingshares, by total combined voting power of all classes of stock entitled to voteand total value, is listed on the market. We refer to this as the listingthreshold. Since our common stock is our sole class of stock we satisfied thelisting requirement for 2006 and expect to continue to satisfy this requirementfor subsequent taxable years.

It is further required that with respect to each classof stock relied upon to meet the listing threshold (i) such class of thestock is traded on the market, other than in minimal quantities, on at least60 days during the taxable year or 1¤6 of the daysin a short taxable year; and (ii) the aggregate number of shares of suchclass of stock traded on such market is at least 10% of the average number ofshares of such class of stock outstanding during such year or as appropriatelyadjusted in the case of a short taxable year. We believe that we satisfied thetrading frequency and trading volume tests years for 2006 and we expect to continueto satisfy these requirements for subsequent taxable years. Even if this werenot the case, the regulations provide that the trading frequency and tradingvolume tests will be deemed satisfied if, as was the case for 2006 and weexpect to be the case with our common stock for subsequent taxable years, suchclass of stock is traded on an established market in the United States and suchstock is regularly quoted by dealers making a market in such stock.

Notwithstanding the foregoing, the regulations provide,in pertinent part, that a class of our stock will not be considered to be “regularlytraded” on an established securities market for any taxable year in which 50%or more of such class of our outstanding shares of the stock is owned, actuallyor constructively under specified stock attribution rules, on more than halfthe days during the taxable year by persons who each own 5% or more of thevalue of such class of our outstanding stock, which we refer to as the “5Percent Override Rule.”

For purposes of being able to determine the personswho own 5% or more of our stock, or “5% Stockholders,” the regulations permitus to rely on those persons that are identified on Schedule 13G andSchedule 13D filings with the United States Securities and Exchange Commission,or the “SEC,” as having a 5% or more beneficial interest in our common stock.The regulations further provide that an investment 

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company which isregistered under the Investment Company Act of 1940, as amended, will not betreated as a 5% Stockholder for such purposes.

More than 50% of our shares of common stock are ownedby 5% stockholders. In such circumstances, we will be subject to the 5%Override Rule unless we can establish that among the shares included inthe closely-held block of our shares of common stock are a sufficient number ofshares of common stock that are owned or treated as owned by “qualifiedstockholders” that the shares of common stock included in such block that arenot so treated could not constitute 50% or more of the shares of our commonstock for more than half the number of days during the taxable year. In orderto establish this, such qualified stockholders would have to comply withcertain documentation and certification requirements designed to substantiatetheir identity as qualified stockholders. For these purposes, a “qualifiedstockholder” includes (i) an individual that owns or is treated as owningshares of our common stock and is a resident of a jurisdiction that provides anexemption that is equivalent to that provided by Section 883 of the Codeand (ii) certain other persons. There can be no assurance that we will notbe subject to the 5 Percent Override Rule with respect to any taxableyear.

Approximately 80.0% of our shares will be treated,under applicable attribution rules, as owned by the Coustas Family Trust whoseownership of our shares will be attributed, during his lifetime, to John Coustas,our chief executive officer, for purposes of Section 883. Dr. Coustashas entered into an agreement with us regarding his compliance, and thecompliance of certain entities that he controls and through which he owns ourshares, with the certification requirements designed to substantiate status asqualified stockholders. In certain circumstances, including circumstances whereDr. Coustas ceases to be a “qualified stockholder” or where the CoustasFamily Trust transfers some or all of our shares that it holds, Dr Coustas’compliance, and the compliance of certain entities that he controls or throughwhich he owns our shares, with the terms of the agreement with us will notenable us to satisfy the requirements for the benefits of Section 883.Following Dr. Coustas’ death, there can be no assurance that our sharesthat are treated, under applicable attribution rules, as owned by the CoustasFamily Trust will be treated as owned by a “qualified stockholder” or that any “qualifiedstockholder” to whom ownership of all or a portion of such ownership isattributed will comply with the ownership certification requirements under Section 883.Accordingly there can be no assurance that we or our subsidiaries will qualifyfor the benefits of Section 883 for any taxable year.

To the extent the benefits of Section 883 areunavailable, our U.S.-source shipping income, to the extent notconsidered to be “effectively connected” with the conduct of a United Statestrade or business, as described below, would be subject to a 4% tax imposed by Section 887of the Code on a gross basis, without the benefit of deductions. Since, underthe sourcing rules described above, we expect that no more than 50% of ourshipping income would be treated as being derived from United States sources,we expect that the maximum effective rate of United States federal income taxon our gross shipping income would never exceed 2% under the 4% gross basis taxregime. Many of our charters contain provisions obligating the charter toreimburse us for amounts paid in respect of the 4% tax with respect to theactivities of the vessel subject to the charter.

To the extent the benefits of the Section 883exemption are unavailable and our United States-source shipping income isconsidered to be “effectively connected” with the conduct of a United Statestrade or business, as described below, any such “effectively connected” U.S.-sourceshipping income, net of applicable deductions, would be subject to the UnitedStates federal corporate income tax currently imposed at rates of up to 35%. Inaddition, we may be subject to the 30% “branch profits” taxes on earningseffectively connected with the conduct of such trade or business, as determinedafter allowance for certain adjustments, and on certain interest paid or deemedpaid attributable to the conduct of our United States trade or business.

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Our U.S.-sourceshipping income, other than leasing income, will be considered “effectivelyconnected” with the conduct of a United States trade or business only if:

·       wehave, or are considered to have, a fixed place of business in the United Statesinvolved in the earning of shipping income; and

·       substantiallyall (at least 90%) of our U.S.-source shipping income, other than leasingincome, is attributable to regularly scheduled transportation, such as theoperation of a vessel that follows a published schedule with repeated sailingsat regular intervals between the same points for operatings that begin or endin the United States.

Our U.S.-sourceshipping income from leasing will be considered “effectively connected” withthe conduct of a U.S. trade or business only if:

·       wehave, or are considered to have a fixed place of business in the United Statesthat is involved in the meaning of such leasing income; and

·       substantiallyall (at least 90%) of our U.S.-source shipping income from leasing isattributable to such fixed place of business.

For these purposes,leasing income is treated as attributable to a fixed place of business wheresuch place of business is a material factor in the realization of such incomeand such income is realized in the ordinary course of business carried on throughsuch fixed place of business. Based on the foregoing and on the expected modeof our shipping operations and other activities, we believe that none of ourU.S.-source shipping income will be “effectively connected” with theconduct of a U.S. trade or business.

*United States Taxation of Gain on Sale of Vessels*

Regardless of whether wequalify for exemption under Section 883, we will not be subject to United Statesfederal income taxation with respect to gain realized on a sale of a vessel,provided the sale is considered to occur outside of the United States underUnited States federal income tax principles. In general, a sale of a vesselwill be considered to occur outside of the United States for this purpose iftitle to the vessel, and risk of loss with respect to the vessel, pass to thebuyer outside of the United States. It is expected that any sale of a vesselwill be so structured that it will be considered to occur outside of the UnitedStates unless any gain from such sale is expected to qualify for exemptionunder Section 883.

*United StatesFederal Income Taxation of United States Holders*

As used herein, the term “United States Holder” meansa beneficial owner of common stock that is a United States citizen or resident,United States corporation or other United States entity taxable as acorporation, an estate the income of which is subject to United States federalincome taxation regardless of its source, or a trust if a court within theUnited States is able to exercise primary jurisdiction over the administrationof the trust and one or more United States persons have the authority tocontrol all substantial decisions of the trust.

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

*Distributions*

Subject to the discussion of passive foreigninvestment companies below, any distributions made by us with respect to ourcommon stock to a United States Holder will generally constitute dividends,which may be taxable as ordinary income or “qualified dividend income” asdescribed in more detail below, to the extent of our current or accumulated earningsand profits, as determined under United States federal 

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income tax principles.Distributions in excess of our earnings and profits will be treated first as anontaxable return of capital to the extent of the United States Holder’s taxbasis in his common stock on a dollar for dollar basis and thereafter ascapital gain. Because we are not a United States corporation, United StatesHolders that are corporations will not be entitled to claim a dividendsreceived deduction with respect to any distributions they receive from us.Dividends paid with respect to our common stock will generally be treated aspassive category income or, in the case of certain types of United StatesHolders, general category income for purposes of computing allowable foreign taxcredits for United States foreign tax credit purposes.

Dividends paid on our common stock to a United StatesHolder who is an individual, trust or estate (a “United States IndividualHolder”) should be treated as “qualified dividend income” that is taxable tosuch United States Individual Holders at preferential tax rates (through 2010)provided that (1) the common stock is readily tradable on an establishedsecurities market in the United States (such as the New York StockExchange); (2) we are not a passive foreign investment company, or PFIC,for the taxable year during which the dividend is paid or the immediatelypreceding taxable year (see the discussion below under “—PFIC Status andMaterial U.S. Federal Tax Consequences”); and (3) the United StatesIndividual Holder owns the common stock for more than 60 days in the121-day period beginning 60 days before the date on which the common stockbecomes ex-dividend. Special rules may apply to any “extraordinarydividend”. Generally, an extraordinary dividend is a dividend in an amountwhich is equal to or in excess of ten percent of a stockholder’s adjusted basis(or fair market value in certain circumstances) in a share of common stock paidby us. If we pay an “extraordinary dividend” on our common stock that istreated as “qualified dividend income,” then any loss derived by a UnitedStates Individual Holder from the sale or exchange of such common stock will betreated as long-term capital loss to the extent of such dividend. There is noassurance that any dividends paid on our common stock will be eligible forthese preferential rates in the hands of a United States Individual Holder. Anydividends paid by us which are not eligible for these preferential rates willbe taxed to a United States Individual Holder at the standard ordinary incomerates.

Legislation has beenintroduced that would deny the preferential rate of federal income taxcurrently imposed on qualified dividend income with respect to dividendsreceived from a non-U.S. corporation, unless the non-U.S. corporation either iseligible for the benefits of a comprehensive income tax treaty with the UnitedStates or is created or organized under the laws of a foreign country which hasa comprehensive income tax system. Because the Marshall Islands has not enteredinto a comprehensive income tax treaty with the United States and imposes onlylimited taxes on corporations organized under its laws, it is unlikely that wecould satisfy either of these requirements. Consequently, if this legislation wereenacted in its current form the preferential rate of federal income taxdescribed above may no longer be applicable to dividends received from us. Asof the date hereof, it is not possible to predict with certainty whether or inwhat form the proposed legislation will be enacted.

*Sale, Exchange or other Disposition of Common Stock*

Assuming we do notconstitute a PFIC for any taxable year, a United States Holder generally willrecognize taxable gain or loss upon a sale, exchange or other disposition of ourcommon stock in an amount equal to the difference between the amount realizedby the United States Holder from such sale, exchange or other disposition andthe United States Holder’s tax basis in such stock. Such gain or loss will betreated as long-term capital gain or loss if the United States Holder’s holdingperiod is greater than one year at the time of the sale, exchange or otherdisposition. Such capital gain or loss will generally be treated as UnitedStates-source income or loss, as applicable, for United States foreigntax credit purposes. A United States Holder’s ability to deduct capitallosses is subject to certain limitations.

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*PFIC Status and Material U.S. Federal Tax Consequences*

Special UnitedStates federal income tax rules apply to a United States Holder that holdsstock in a foreign corporation classified as a passive foreign investmentcompany, or PFIC, for United States federal income tax purposes. In general, wewill be treated as a PFIC in any taxable year in which, after applying certainlook-through rules, either:

·       atleast 75% of our gross income for such taxable year consists of passive income(e.g., dividends, interest, capital gains and rents derived other than in theactive conduct of a rental business); or

·       atleast 50% of the average value of our assets during such taxable year produce,or are held for the production of, passive income.

For purposes of determining whether we are a PFIC, wewill be treated as earning and owning our proportionate share of the income andassets, respectively, of any of our subsidiary corporations in which we own atleast 25% of the value of the subsidiary’s stock. Income earned, or deemedearned, by us in connection with the performance of services will notconstitute passive income. By contrast, rental income will generally constitute“passive income” unless we are treated under specific rules as derivingour rental income in the active conduct of a trade or business.

While there are legal uncertainties involved in thisdetermination, we believe that****we should notbe treated as a PFIC for the taxable year ended December 31, 2006. Webelieve that, although there is no legal authority directly on point, the grossincome that we derive from time chartering activities of our subsidiariesshould constitute services income rather than rental income. Consequently, suchincome should not constitute passive income and the vessels that we or oursubsidiaries operate in connection with the production of such income shouldnot constitute passive assets for purposes of determining whether we are aPFIC. There is legal authority supporting this position consisting of case lawand Internal Revenue Service, or IRS, pronouncements concerning thecharacterization of income derived from time charters as services income forother tax purposes. However, in the absence of any legal authority specificallyrelating to the statutory provisions governing PFICs, the IRS or a court coulddisagree with this opinion. No assurance can be given that this result will notoccur. In addition, although we intend to conduct our affairs in a manner toavoid being classified as a PFIC, we cannot assure you that the nature of ourassets, income and operations will not change, or that we can avoid beingtreated as a PFIC for any taxable year.

As discussed more fullybelow, if we were to be treated as a PFIC for any taxable year, a United StatesHolder would be subject to different taxation rules depending on whetherthe United States Holder makes an election to treat us as a “Qualified ElectingFund,” which election we refer to as a “QEF election.” As an alternative tomaking a QEF election, a United States Holder should be able to make a “mark-to-market”election with respect to our common stock, as discussed below.

*Taxation of United States Holders Making a Timely QEFElection*

If a United States Holdermakes a timely QEF election, which United States Holder we refer to as an “ElectingHolder,” for United States federal income tax purposes each year the ElectingHolder must report his, her or its pro-rata share of our ordinary earnings andour net capital gain, if any, for our taxable year that ends with or within thetaxable year of the Electing Holder, regardless of whether or not distributionswere received from us by the Electing Holder. The Electing Holder’s adjustedtax basis in the common stock would be increased to reflect taxed butundistributed earnings and profits. Distributions of earnings and profits thathad been previously taxed would result in a corresponding reduction in the adjustedtax basis in the common stock and would not be taxed again once distributed. AnElecting Holder would generally recognize capital gain or loss on the sale,exchange or other disposition of our common stock. A United States Holder wouldmake a QEF election with respect to any year that our company is treated as aPFIC by filing one copy of IRS Form 8621 with his, her or its UnitedStates federal income tax 

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returnand a second copy in accordance with the instructions to such form. If we wereto become aware that we were to be treated as a PFIC for any taxable year, wewould notify all United States Holders of such treatment and would provide allnecessary information to any United States Holder who requests such informationin order to make the QEF election described above.

*Taxation of United States Holders Making a “Mark-to-Market”Election*

Alternatively, if we wereto be treated as a PFIC for any taxable year and, as we anticipate, our commonstock is treated as “marketable stock,” a United States Holder would be allowedto make a “mark-to-market” election with respect to our common stock, providedthe United States Holder completes and files IRS Form 8621 in accordancewith the relevant instructions and related Treasury Regulations. If thatelection is made, the United States Holder generally would include as ordinaryincome in each taxable year the excess, if any, of the fair market value of thecommon stock at the end of the taxable year over such holder’s adjusted taxbasis in the common stock. The United States Holder also would be permitted anordinary loss in respect of the excess, if any, of the United States Holder’sadjusted tax basis in the common stock over its fair market value at the end ofthe taxable year, but only to the extent of the net amount previously includedin income as a result of the mark-to-market election. A United States Holder’stax basis in his, her or its common stock would be adjusted to reflect any suchincome or loss amount. Gain realized on the sale, exchange or other dispositionof our common stock would be treated as ordinary income, and any loss realizedon the sale, exchange or other disposition of the common stock would be treatedas ordinary loss to the extent that such loss does not exceed the netmark-to-market gains previously included by the United States Holder.

*Taxation of United States Holders Not Making a TimelyQEF or Mark-to-Market Election*

Finally, if we weretreated as a PFIC for any taxable year, a United States Holder who does notmake either a QEF election or a “mark-to-market” election for that year, whomwe refer to as a “Non-Electing Holder,” would be subject to special rules withrespect to (1) any excess distribution (i.e., the portion of anydistributions received by the Non-Electing Holder on our common stock in ataxable year in excess of 125% of the average annual distributions received bythe Non-Electing Holder in the three preceding taxable years, or, if shorter,the Non-Electing Holder’s holding period for the common stock) and (2) anygain realized on the sale, exchange or other disposition of our common stock.Under these special rules:

·       theexcess distribution or gain would be allocated ratably over the Non-ElectingHolder’s aggregate holding period for the common stock;

·       theamount allocated to the current taxable year would be taxed as ordinary income;and

·       theamount allocated to each of the other taxable years would be subject to tax atthe highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposedwith respect to the resulting tax attributable to each such other taxable year.

If a Non-Electing Holder who is an individual diesbefore January 1, 2010, while owning our common stock, such holder’ssuccessor generally will not receive a step-up in tax basis with respect tosuch stock.

Under recently issued temporary regulations, if aUnited States Holder held our common stock during a period when we were treatedas a PFIC but the United States Holder did not have a QEF election in effectwith respect to us, then in the event that we failed to qualify as a PFIC for asubsequent taxable year, the United States Holder could elect to cease to besubject to the rules described above with respect to those shares bymaking a “deemed sale” or, in certain circumstances, a “deemed dividend”election with respect to our common stock. If the United States Holder makes adeemed sale election, the United States Holder will be treated, for purposes ofapplying the rules described in the preceding paragraph, as having 

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disposed of our commonstock for their fair market value on the last day of the last taxable year forwhich we qualified as a PFIC (the “termination date”). The United States Holderwould increase his, her or its basis in such common stock by the amount of thegain on the deemed sale described in the preceding sentence. Following a deemedsale election, the United States Holder would not be treated, for purposes ofthe PFIC rules, as having owned the common stock during a period prior to thetermination date when we qualified as a PFIC.

If we were treated as a “controlled foreigncorporation” for United States tax purposes for the taxable year that includedthe termination date, then a United States Holder could make a deemed dividendelection with respect to our common stock. If a deemed dividend election ismade, the United States Holder is required to include in income as a dividendhis, her or its pro rata share (based on all of our stock held by the UnitedStates Holder, directly or under applicable attribution rules, on thetermination date) of our post-1986 earnings and profits as of the close of thetaxable year that includes the termination date (taking only earnings andprofits accumulated in taxable years in which we were a PFIC into account). Thedeemed dividend described in the preceding sentence is treated as an excessdistribution for purposes of the rules described in the second precedingparagraph. The United States Holder would increase his, her or its basis in ourcommon stock by the amount of the deemed dividend. Following a deemed dividendelection, the United States Holder would not be treated, for purposes of thePFIC rules, as having owned the common stock during a period prior to thetermination date when we qualified as a PFIC. For purposes of determiningwhether the deemed dividend election is available, we will generally be treatedas a controlled foreign corporation for a taxable year when, at any time duringthat year, United States persons, each of whom owns, directly or underapplicable attribution rules, common stock having 10% or more of the totalvoting power of our common stock, in the aggregate own, directly or underapplicable attribution rules, shares representing more than 50% of the votingpower or value of our common stock.

A deemed sale or deemeddividend election must be made on the United States Holder’s original oramended return for the shareholder’s taxable year that includes the terminationdate and, if made on an amended return, such amended return must be filed notlater than the date that is three years after the due date of the originalreturn for such taxable year. Special rules apply where a person istreated, for purposes of the PFIC rules, as indirectly owning our common stock.

*United StatesFederal Income Taxation of “Non-United States Holders”*

A beneficial owner ofcommon stock that is not a United States Holder and is not treated as apartnership for United States federal income tax purposes is referred to hereinas a “Non-United States Holder.”

*Dividends on Common Stock*

Non-United States Holdersgenerally will not be subject to United States federal income tax orwithholding tax on dividends received from us with respect to our common stock,unless that income is effectively connected with the Non-United States Holder’sconduct of a trade or business in the United States. If the Non-UnitedStates Holder is entitled to the benefits of a United States income tax treatywith respect to those dividends, that income generally is taxable only if it isattributable to a permanent establishment maintained by the Non-United StatesHolder in the United States.

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*Sale, Exchange or Other Disposition of Common Stock*

Non-United StatesHolders generally will not be subject to United States federal income tax orwithholding tax on any gain realized upon the sale, exchange or otherdisposition of our common stock, unless:

·       thegain is effectively connected with the Non-United States Holder’s conduct of atrade or business in the United States. If the Non-United States Holder isentitled to the benefits of an income tax treaty with respect to that gain,that gain generally is taxable only if it is attributable to a permanentestablishment maintained by the Non-United States Holder in the United States;or

·       theNon-United States Holder is an individual who is present in the United Statesfor 183 days or more during the taxable year of disposition and otherconditions are met.

If the Non-United StatesHolder is engaged in a United States trade or business for United Statesfederal income tax purposes, the income from the common stock, includingdividends and the gain from the sale, exchange or other disposition of thestock that is effectively connected with the conduct of that trade or businesswill generally be subject to regular United States federal income tax in thesame manner as discussed in the previous section relating to the taxation ofUnited States Holders. In addition, in the case of a corporate Non-UnitedStates Holder, such holder’s earnings and profits that are attributable to theeffectively connected income, which are subject to certain adjustments, may be subjectto an additional branch profits tax at a rate of 30%, or at a lower rate as maybe specified by an applicable income tax treaty.

*Backup Withholding and Information Reporting*

In general,dividend payments, or other taxable distributions, made within the UnitedStates to a noncorporate United States holder will be subject to informationreporting requirements and backup withholding tax if such holder:

·       failsto provide an accurate taxpayer identification number;

·       isnotified by the IRS that it has failed to report all interest or dividendsrequired to be shown on its federal income tax returns; or

·       incertain circumstances, fails to comply with applicable certificationrequirements.

Non-United States Holders may be required to establishtheir exemption from information reporting and backup withholding by certifyingtheir status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.

If a holder sells our common stock to or through aUnited States office or broker, the payment of the proceeds is subject to bothUnited States backup withholding and information reporting unless the holdercertifies that it is a non-United States person, under penalties of perjury, orthe holder otherwise establishes an exemption. If a holder sells our commonstock through a non-United States office of a non-United States brokerand the sales proceeds are paid outside the United States then informationreporting and backup withholding generally will not apply to that payment.However, United States information reporting requirements, but not backupwithholding, will apply to a payment of sales proceeds, even if that payment ismade outside the United States, if a holder sells our common stock through anon-United States office of a broker that is a United States person or has someother contacts with the United States.

Backup withholding tax isnot an additional tax. Rather, a holder generally may obtain a refund of anyamounts withheld under backup withholding rules that exceed suchstockholder’s income tax liability by filing a refund claim with the IRS.

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**Dividends and Paying Agents**

Not applicable.

**Statement by Experts**

Not applicable.

**Documents on Display**

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

**Item11.**                 Quantitative andQualitative Disclosures About Market Risk

***Interest Rate Risk***

In connection with certainof our credit facilities under which we pay a fixed rate of interest, weentered into interest rate swap agreements designed to decrease our financingcash outflows by taking advantage of the relatively lower interest rateenvironment in recent years. We have recognized these derivative instruments onthe balance sheet at their fair value. Pursuant to the adoption of our RiskManagement Accounting Policy, and after putting in place the formaldocumentation required by SFAS 133 in order to designate these swaps ashedging instruments, as of June 15, 2006, these interest rate swapsqualified for hedge accounting, and, accordingly, since that time, only hedgeineffectiveness amounts arising from the differences in the change in fairvalue of the hedging instrument and the hedged item are recognized in ourearnings. Assessment and measurement of prospective and retrospectiveeffectiveness for these interest rate swaps will be performed on a quarterlybasis, on the financial statement and earnings reporting dates. Prior to June 15,2006, we recognized changes in the fair value of the interest rate swaps incurrent period earnings as these interest rate swap agreements did not qualifyas hedging instruments under the requirements in the accounting literature describedbelow because we had not adopted a hedging policy. These changes would occurdue to changes in market interest rates for debt with substantially similarcredit risk, payment profile and terms. We have not held or issued derivativefinancial instruments for trading or other speculative purposes.

Setforth below is a table of our interest rate swap arrangements as of December 31,2006.

| **Counter-party** | ** ** | ** **                           | ** ** | **Effective  Date** | ** ** | **Termination  Date** | ** ** | **Notional  Amount on  Effective  Date** | ** ** | **Contracted  Rate** | ** ** | **Swap Rate** | ** **            | **Fair Value  December 31,  2006** | ** ** |
|-------------------|------------|--------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------------------------------------|------------|----------------------|------------|--------------------|-----------------------|----------------------------------------------|------------|
| ** **        | ** ** | **(Dollars in thousands)** | ** ** |
| RBS               |       | 12/15/2004                           |       | 8/27/2016           |       |                  | $          | 60,528                                        |       |                 | 5.01% p.a. |               | LIBOR plus 0.84% p.a. |                                         |       | $ | (1,772 | ) |   |
| RBS               |       | 11/17/2004                           |       | 11/2/2016           |       |                  | $          | 62,342                                        |       |                 | 5.01% p.a. |               | LIBOR plus 0.86% p.a. |                                         |       | (1,889 | ) |   |
| RBS               |       | 11/28/2008                           |       | 11/28/2013          |       |                  | $          | 100,000                                       |       |                 | 4.855%p.a. |               | LIBOR                 |                                         |       | 482 |   |   |
| RBS               |       | 11/28/2008                           |       | 11/28/2013          |       |                  | $          | 100,000                                       |       |                 | 4.875%p.a. |               | LIBOR                 |                                         |       | 401 |   |   |
| RBS               |       | 11/28/2008                           |       | 11/28/2013          |       |                  | $          | 100,000                                       |       |                 | 4.780%p.a. |               | LIBOR                 |                                         |       | 786 |   |   |
| HSH               |       | 12/8/2008                            |       | 12/8/2009           |       |                  | $          | 200,000                                       |       |                 | 4.739%p.a. |               | LIBOR                 |                                         |       | 1,292 |   |   |
| HSH               |       | 12/8/2008                            |       | 12/8/2014           |       |                  | $          | 400,000                                       |       |                 | 4.855%p.a. |               | LIBOR                 |                                         |       | 2,872 |   |   |
| Total fair value  | ** ** | ** **                           |       |                |       |                  |       |                                          |       |                 |       |               |                  | ** **                                   | $          | 2,172 |   |   |

 

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SFAS 133, “Accountingfor Derivative Instruments and Hedging Activities,” as amended bySFAS 137, “Accounting for Derivative Instruments and Hedging Activities—Deferralof the Effective Date of SFAS 133,” and SFAS 138, “Accounting forCertain Derivative Instruments and Certain Hedging Activities,” which has beeneffective for us since January 1, 2001, established accounting andreporting standards for derivative instruments, including certain derivativeinstruments embedded in other contracts and for hedging activities. Theyrequire that an entity recognize all derivatives as either assets orliabilities in the balance sheet and measure those instruments at fair value.If certain conditions are met, a derivative may be specifically designated as ahedge, the objective of which is to match the timing of gain or lossrecognition on the hedging derivative with the recognition of (i) thechanges in the fair value of the hedged asset or liability that areattributable to the hedged risk or (ii) the earnings effect of the hedgedforecasted transaction. For a derivative not designated as a hedginginstrument, the gain or loss is recognized in income in the period of change.

*Fair Value InterestRate Swap Hedges*

These interest rate swaps are designed to economicallyhedge the fair value of the fixed rate loan facilities against fluctuations inthe market interest rates by converting its fixed rate loan facilities tofloating rate debt. Pursuant to the adoption of our Risk Management AccountingPolicy, and after putting in place the formal documentation required by SFAS133 in order to designate these swaps as hedging instruments, as of June 15,2006, these interest rate swaps qualified for hedge accounting, and,accordingly, since that time, hedge ineffectiveness amounts arising from thedifferences in the change in fair value of the hedging instrument and thehedged item are recognized in our earnings. We consider our strategic use ofinterest rate swaps to be a prudent method of managing interest ratesensitivity, as it prevents earnings from being exposed to undue risk pose bychanges in interest rates. Assessment and measurement of prospective andretrospective effectiveness for these interest rate swaps are performed on aquarterly basis, on the financial statement and earnings reporting dates.

The total fair valuechange of the interest rate swaps for the period from January 1, 2006until December 31, 2006 amounted to $(0.33) million, and is included inour statement of income in “Gain/(Loss) on Fair Value of Derivatives.” Thetotal fair value change of the interest rate swap from June 15, 2006(inception of the hedge) to December 31, 2006 was $2.64 million. Therelated liability of $3.66 million is shown under “Other Liabilities(long-term)” in our Balance Sheet. The total fair value change of theunderlying hedged debt for the period from June 15, 2006 until December 31,2006 amounted to $(2.29) million and is included in our statement of income in “Gain/(Loss)on Fair Value of Derivatives.” The net ineffectiveness for December 31,2006 amounted to $2.62 million and is shown in our statement of income under “Gain/(Loss)on Fair Value of Derivatives.”

*Cash Flow InterestRate Swap Hedges*

We, according to our long-term strategic plan tomaintain relative stability in our interest rate exposure, have decided to swappart of our interest expenses from floating to fixed. To this effect, we haveentered into five interest rate swap transactions with varying start andmaturity dates, in order to pro-actively and efficiently manage itsfloating rate exposure.

These interest rate swaps are designed to economicallyhedge the variability of interest cash flows arising from floating rate debt,attributable to movements in three-month U.S. Dollar LIBOR. According to ourRisk Management Accounting Policy,and after putting in place the formal documentation required by SFAS 133 inorder to designate these swaps as hedging instruments, as from their inception,these interest rate swaps qualified for hedge accounting, and, accordingly,since that time, only hedge ineffectiveness amounts arising from thedifferences in the change in fair value of the hedging instrument and the hedgeditem are recognized in our earnings. Assessment and measurement of prospectiveand retrospective effectiveness for these interest rate swaps are performed ona quarterly basis. For qualifying 

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cash flow hedges, the fairvalue gain or loss associated with the effective portion of the cash flow hedgeis recognized initially in shareholders’ equity, and recycled to the incomestatement in the periods when the hedged item will affect profit or loss. Anyineffective portion of the gain or loss on the hedging instrument is recognizedin the income statement immediately.

The total fair value change of the interest rate swapsfrom their inception in November and December 2006 until December 31,2006 amounted to $5.8 million, and is included in “Other Comprehensive Income”in our statement of income. There was no ineffective portion for the period ofthe hedge. The estimated amount of the existing gain on December 31, 2006that is expected to be reclassified as earnings in the next twelve months from December 31,2006 is nil.

Assumingno changes to our borrowings or hedging instruments after May 15, 2007, aone-percentage point increase in interest rates would result in a decrease ofapproximately $3 million in earnings and cash flow whileany change in the fair value of our interest rate swap agreements should be neutralizedby a corresponding change in “Other Comprehensive Income” as long as ourhedging is deemed effective.

***Foreign Currency Exchange Risk***

We generate all of our revenues in U.S. dollars, butfor the year ended December 31, 2006 we incurred approximately 43.1% ofour expenses in currencies other than U.S. dollars. As of December 31,2006, approximately 42.4% of our outstanding accounts payable were denominatedin currencies other than the U.S. dollar (mainly in Euro). We have not enteredinto derivative instruments to hedge the foreign currency translation of assetsor liabilities or foreign currency transactions other than as described belowwith respect to expected inflows in connection with the leasing transactionswith respect to vessels in our fleet and we do not use financial instrumentsfor trading or other speculative purposes. We have recognized these financialinstruments on our balance sheet at their fair value. These foreign currencyforward contracts did not qualify as hedging instruments until June 30,2006, and thus, we have recognized changes in their fair value in our currentperiod earnings. As of July 1, 2006 these foreign currency forwardcontracts qualify for hedge accounting and, accordingly, since that timechanges in the fair value of these instruments are not recognized in currentperiod earnings.

In connection with the leasing arrangements withrespect to five containerships in our current fleet, the *CSCL Europe*, the *CSCL America*, the *Maersk Derby* (ex *P&O Nedlloyd Caracas*), the *Vancouver Express* (ex *P&O Nedlloyd Caribbean*) and the *CSCL Pusan (ex HN 1559),*and one 9,580 TEU containership under construction, the *CSCL Le Havre*(ex *HN 1561*), we are entitled to a predeterminedamount denominated in British pounds, expected to be equal to approximately 75%of the original purchase price of each vessel, if the put option to sell theequity interest in the partnership which owns these vessels to an entity whichcan be controlled by us at our option is not exercised with respect to any orall of these vessels. If the value of the British pound declines against thedollar we may have to make provision in our financial statements for foreigncurrency exchange loss. Although we have entered into forward contracts toeconomically hedge our exposure to currency fluctuations in connection withcertain aspects of the leasing transactions as described below, we have nothedged against fluctuations in the value of the British pound against thedollar with respect the value of the deposit to which we would be entitled ifthe put option is not exercised, and as a result our operating results could beaffected if the value of the British pound against the dollar were todeteriorate at the time the deposits are returned to us.

We entered into foreign currency forward contracts in2004 to economically hedge our exposure to fluctuations of anticipated cashinflows in British pounds relating to the leasing arrangements. Under thecontracts, we will convert £29.7 million of cash inflows to U.S. dollarsat the time of maturity (in the years from 2006 to 2012).  These foreign currency forward contracts didnot qualify as hedging instruments until June 30, 2006, and thus, we haverecognized changes in their fair value in our current period earnings. As 

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of July 1, 2006 theseforeign currency forward contracts qualify for hedge accounting and,accordingly, since that time changes in the fair value of these instruments arenot recognized in current period earnings.

The total fair value change of the forward contractsfor the period from July 1, 2006 (inception of the hedge) until December 31,2006 amounted to $(1.92) million of which $(1.89) million is included in “OtherComprehensive Income” and the remaining $(0.028) million net ineffectiveness isshown in our statement of income under “Gain/(Loss) on fair value ofderivatives.” The estimated amount as at December 31, 2006 that isexpected to be reclassified as a loss in the next twelve months is $(0.90)million. The change in fair value of the forward contracts from January 1,2006 to June 30, 2006 amounted to $(3.08) million and is shown in ourstatement of income under “Gain/(Loss) on fair value of derivatives.”

As of December 31, 2006 we had recorded the fairvalue of derivative instrument assets of $5.83 million in “Other assets (noncurrent)” and derivative instrument liabilities of $1.47 million in “Otherliabilities (current)” and $5.78 million in “Other liabilities (non current)”on our balance sheet.

We do not believe that wehave significant risk exposure to foreign currency fluctuations relating to ouroperating expenses.

**Item 12.**                 Descriptionof Securities Other than Equity Securities

Not Applicable.

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**PART II**

**Item 13.**                 Defaults,Dividend Arrearages and Delinquencies

Not Applicable.

**Item 14.**                 MaterialModifications to the Rights of Security Holders and Use of Proceeds

We adopted a stockholder rights plan on September 18,2006 that authorizes the issuance to our existing stockholders of preferredshare rights and additional shares of common stock if any third party seeks toacquire control of a substantial block of our common stock. See “Item 10. AdditionalInformation—Description of Capital Stock—Stockholder Rights Plan” included inthis annual report for a description of the stockholder rights plan.

Our registration statement on Form F-1(Reg. No. 333-137459) relating to our initial public offering of10,250,000 shares of common stock was declared effective by the SEC on October 5,2006 and the offering commenced on that date. Merrill Lynch, Pierce, Fenner &Smith Incorporated and Citigroup Global Markets served as managing underwritersof the offering. The shares of common stock were sold at a public offeringprice of $21.00 for gross offering proceeds of $215,250,000. The discount tothe underwriters was $1.365 per common share for a total underwriting discountof $13,991,250 and we incurred other expenses (including filing, legal andaccounting fees) of approximately $3.0 million, none of which were paid to ourdirectors, officers or their affiliates or to persons owning 10% or more of anyclass of our capital stock. The total net proceeds to us from the offering were$198.2 million.

On October 18, 2006,the net proceeds from this offering were used to repay outstanding indebtednessof $99.1  million under our credit facility with RBS and on October 31,2006, the net proceeds from this offering were used to repay outstandingindebtedness of $99.1 million under our credit facility with Aegean BalticBank. These RBS and Aegean Baltic Bank credit facilities had maturity dates of October 15,2013 and June 30, 2013, respectively, and bore interest at rates of LIBORplus 0.8% and LIBOR plus 0.825%, respectively. These facilities were repaid infull with borrowings under our new credit facilities with RBS and Aegean BalticBank and HSH Nordbank. These new RBS and Aegean Baltic Bank-HSH Nordbank creditfacilities have maturity dates of February 2022 and November 2016,respectively, and bear interest at rates of LIBOR plus 0.75% and LIBOR plus0.75%, respectively.

**Item 15.**                 Controlsand Procedures

**Evaluation ofDisclosure Controls and Procedures**

***Disclosure Controls and Procedures***

An evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures as of December 31, 2006 was carried out by us under thesupervision and with the participation of our management, including the chiefexecutive officer and chief financial officer. Based on that evaluation thechief executive officer and chief financial officer concluded that ourdisclosure controls and procedures have been designed to provide, and areeffective in providing, reasonable assurance that the information required tobe disclosed by us in reports filed under the Securities Exchange Act of 1934,as amended, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. A controls system, nomatter how well designed and operated, cannot provide absolute assurance thatthe objectives of the controls system are met, and no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within a company have been detected.

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***Management’s Annual Report on Internal Control OverFinancial Reporting and Attestation Report of  the Registered Public Accounting Firm***

This annual report doesnot include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of our company’s registered publicaccounting firm due to a transition period established by rules of the SECfor newly public companies.

**Item 16A.**         AuditCommittee Financial Expert

Danaos’ Audit Committeeconsists of three independent directors, Andrew B. Fogarty, Miklos KonkolyThege, and Myles R. Itkin. Our board of directors has determined that Myles R.Itkin, whose biographical details are included in “Item 6. Directors, SeniorManagement and Employees,” qualifies as an audit committee financial expert asdefined under current SEC regulations. Mr. Itkin is a United StatesCertified Public Accountant and independent in accordance with the listingstandards of the New York Stock Exchange.

**Item 16B.**        Codeof Ethics

We have adopted a Code ofBusiness Conduct and Ethics for all officers and employees of our company, aCode of Conduct for the chief executive officer and senior financial officersof our company and a Code of Ethics for directors of our company, copies ofwhich are posted on our website, and may be viewed at http://www.danaos.com.  We will also provide a paper copy of thesedocuments free of charge upon written request by our stockholders. Stockholdersmay direct their requests to the attention of Mr. Evangelos Chatzis,Danaos Corporation, 14 Akti Kondyli, 185 45 Piraeus, Greece. No waivers of theCode of Business Conduct and Ethics, the Code of Conduct or the Code of Ethicshave been granted to any person during the fiscal year ended December 31,2006.

**Item 16C.**        PrincipalAccountant Fees and Services

PricewaterhouseCoopers S.A., orPricewaterhouseCoopers, an independent registered public accounting firm, hasaudited our annual financial statements acting as our independent auditor forthe fiscal years ended December 31, 2004, 2005 and 2006.

Thechart below sets forth the total amount billed and accrued for thePricewaterhouseCoopers services performed in 2005 and 2006 and breaks downthese amounts by the category of service.

| ** **          | ** ** | **2005**                | ** ** | **2006**   | ** ** |
|---------------------|------------|-------------------------|------------|------------|------------|
| ** **          | ** ** | **(In Thousands)** | ** ** |
| Audit fees          |       | $                       | 286.8      |       | $          | 260.0 |   |
| Audit-related  fees |       | 170.0                   |       | 180.8      |       |
| Tax fees            |       | 7.3                     |       | 4.6        |       |
| All other fees      |       | 0                       |       | 0          |       |
| **Total  fees**     | ** ** | **$**                   | **464.1**  | ** ** | **$**      | **445.4** | ** ** |

 

**Audit Fees**

Audit fees paid werecompensation for professional services rendered for the audits of ourconsolidated financial statements.

**Audit-related Fees**

Audit-related fees includeaudit fees in connection with our initial public offering.

106

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**Tax Fees**

The tax fees include theaggregate fees billed for certain tax related consultations and other workwhich are not reported under audit services, including the submission of zerotax returns in Singapore in relation to certain of our vessels owned bySingapore incorporated vessel holding companies.

**Other Fees**

PricewaterhouseCoopers didnot provide any other services that would be classified in this category in2006 or 2005.

**Pre-approvalPolicies and Procedures**

The audit committee charter sets forth our policyregarding retention of the independent auditors, requiring the audit committeeto review and approve in advance the retention of the independent auditors forthe performance of all audit and lawfully permitted non-audit services and thefees related thereto. The chairman of the audit committee or in the absence ofthe chairman, any member of the audit committee designated by the chairman, hasauthority to approve in advance any lawfully permitted non-audit services andfees. The audit committee is authorized to establish other policies andprocedures for the pre-approval of such services and fees. Where non-auditservices and fees are approved under delegated authority, the action must bereported to the full audit committee at its next regularly scheduled meeting.

The Audit Committee approved all of the non-auditservices described above to the extent arising subsequent to the completion ofour initial public offering, and the concurrent establishment of our AuditCommittee, and determined that the provision of the non-audit servicesdescribed above is compatible with maintaining the independence ofPricewaterhouseCoopers.

**Item 16D.**       Exemptionsfrom the Listing Standards for Audit Committees

Not Applicable.

**Item 16E.**        Purchasesof Equity Securities by the Issuer and Affiliated Purchasers

Not Applicable.

107

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**PART III**

**Item 17.**                 FinancialStatements

Not Applicable.

**Item 18.**                 FinancialStatements

Reference is made to pages F-1through F-32 included herein by reference.

**Item 19.**                 Exhibits
| Number | ** ** | ** **                                                                                                                                                                | ** ** | **Description** |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 1.1    |       | Amended  and Restated Articles of Incorporation*                                                                                                                          |
| 1.2    |       | Amended and Restated Bylaws*                                                                                                                                              |
| 4.1    |       | Amended and Restated Management Agreement between  Danaos Shipping Company Limited and Danaos Corporation*                                                                |
| 4.2    |       | Form of Management Agreement between Danaos  Shipping Company Limited and our vessel-owning subsidiaries (See  Appendix I to Exhibit 4.1)*                 |
| 4.3    |       | Form of Restrictive Covenant Agreement between  Danaos Corporation and Dr. John Coustas*                                                                   |
| 4.4    |       | Stockholder  Rights Agreement*                                                                                                                                            |
| 4.5    |       | 2006 Equity Compensation Plan*                                                                                                                                            |
| 4.6    |       | Loan Agreement and Supplemental Agreement, dated  December 17, 2002 and April 21, 2005 respectively, with Aegean  Baltic Bank S.A. and HSH Nordbank AG*         |
| 4.7    |       | Loan Agreement, dated May 13, 2003, with the  Export-Import Bank of Korea*                                                                                           |
| 4.8    |       | Loan Agreement, dated January 29, 2004, with  the Export-Import Bank of Korea and Fortis Capital Corp.*                                                              |
| 4.9    |       | Loan Agreement, dated August 14, 2006, with  Seasonal Maritime Corporation*                                                                                          |
| 4.10   |       | Secondary Put and Call Agreement, dated  February 18, 2004, with Allco Finance (UK) Limited with respect to the *Maersk Derby (ex P&O Nedlloyd Caracas)****      |
| 4.11   |       | Secondary Put and Call Agreement, dated  February 18, 2004, with Allco Finance (UK) Limited with respect to the*Vancouver Express  (ex P&O Nedlloyd Caribbean)** |
| 4.12   |       | Secondary Put and Call Agreement, dated  March 11, 2004, with Allco Finance (UK) Limited with respect to the*CSCL America**                                          |
| 4.13   |       | Secondary Put and Call Agreement, dated  March 11, 2004, with Allco Finance (UK) Limited with respect to the*CSCL Europe**                                           |
| 4.14   |       | Secondary Put and Call Agreement, dated  November 30, 2004, with Allco Finance (UK) Limited with respect to the*CSCL Pusan  (ex HN 1559)**                 |
| 4.15   |       | Secondary Put and Call Agreement, dated  November 30, 2004, with Allco Finance (UK) Limited with respect to the*CSCL Le Havre (ex HN 1561)**                    |
| 4.16   |       | Loan Agreement, dated September 25, 2006, with  Seasonal Maritime Corporation*                                                                                       |
| 4.17   |       | Loan Agreement, dated November 14, 2006, with Aegean Baltic Bank S.A. and HSH Nordbank AG                                                                                 |
| 4.18   |       | Loan Agreement, dated February 20, 2007, with The  Royal Bank of Scotland                                                                                                 |
| 8      |       | Subsidiaries                                                                                                                                                              |
| 11.1   |       | Code of Business Conduct and Ethics                                                                                                                                       |

108

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| 11.2 |   | Code of Conduct                                                                                                                                                                                                |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 11.3 |   | Code of Ethics                                                                                                                                                                                                 |
| 12.1 |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                                                                                        |
| 12.2 |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                                                                                        |
| 13.1 |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18  U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 |
| 13.2 |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18  U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 |
| 15.1 |   | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                      |

----

*                    Previouslyfiled as an exhibit to the Company’s Registration Statement on Form F-1 (Reg.No. 333-137459) filed with the SEC and hereby incorporated by referenceto such Registration Statement.

109

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**SIGNATURES**

Theregistrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf.
|                               |   | DANAOS CORPORATION             |
|-------------------------------|--------|--------------------------------|
|                          |   | /s/ DIMITRI J. ANDRITSOYIANNIS |
|                          |   | Name:                          | Dimitri J. Andritsoyiannis |
|                          |   | Title:                         | Vice President and CFO |
| Date: May 30,  2007 |   |                           |

 

110

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**INDEXTO FINANCIAL STATEMENTS**
| Report of Independent  Registered Public Accounting Firm                                                                                                  |   | F-2 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----|--------|
| Consolidated  Balance Sheets as of December 31, 2005 and 2006                                                                                        |   | F-3 |   |
| Consolidated  Statements of Income for the Years Ended December 31, 2004, 2005 and  2006                                                             |   | F-4 |   |
| Consolidated  Statements of Stockholders’ Equity for the Years Ended December 31,  2004, 2005 and 2006       |   | F-5 |   |
| Consolidated Statements  of Cash Flows for the Years Ended December 31, 2004, 2005 and 2006                                                          |   | F-6 |   |
| Notes to the Consolidated  Financial Statements                                                                                                           |   | F-7 |   |

 

F-1

----

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**To the Shareholders and the Board of Directors ofDanaos Corporation**

We have audited the accompanying consolidated balancesheets of Danaos Corporation and its subsidiaries as of December 31, 2006and December 31, 2005, and the related consolidated statements of income,stockholders’ equity and cash flows for each of the three years in the periodended December 31, 2006. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

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

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Danaos Corporation and itssubsidiaries at December 31, 2006 and December 31, 2005, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2006 in conformity with accountingprinciples generally accepted in the United States of America.

PricewaterhouseCoopers S.A.

March 27, 2007

F-2

----

**DANAOS CORPORATION** CONSOLIDATED BALANCE SHEETS(Expressed in thousands of United States Dollars, except share and per shareamounts)

| ** **                                                                                                                                                                                                       | ** ** | ** ** | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **Notes**  | ** ** | **2005**                                    | ** ** | **2006** | ** ** |
| **ASSETS**                                                                                                                                                                                                       | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| **CURRENT ASSETS**                                                                                                                                                                                               | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                                                                                                                                       |       |       |       | ** **                                  |       | $ | 38,000 | ** ** | $ | 43,075 |   |
| Restricted cash                                                                                                                                                                                                  |       |       | 3          | ** **                                  |       | 724 | ** ** | 2,493 |   |
| Accounts  receivable, net                                                                                                                                                                                        |       |       |       | ** **                                  |       | 14,107 | ** ** | 2,170 |   |
| Inventories                                                                                                                                                                                                      |       |       |       | ** **                                  |       | 2,591 | ** ** | 3,772 |   |
| Prepaid expenses                                                                                                                                                                                                 |       |       |       | ** **                                  |       | 870 | ** ** | 1,338 |   |
| Due from related  parties                                                                                                                                                                                        |       |       | 13         | ** **                                  |       | 4,544 | ** ** | 2,863 |   |
| Net investment in  finance lease, current portion                                                                                                                                                                |       |       |       | ** **                                  |       | 860 | ** ** | — |   |
| Other current  assets                                                                                                                                                                                            |       |       | 8          | ** **                                  |       | 2,316 | ** ** | 3,989 |   |
| **Total  current assets**                                                                                                                                                                                        | ** ** |       | ** ** | ** **                                  |       | **64,012** | ** ** | **59,700** | ** ** |
| **NON-CURRENT ASSETS**                                                                                                                                                                                           | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| Fixed assets, net                                                                                                                                                                                                |       |       | 4,12       | ** **                                  |       | $ | 654,222 | ** ** | $ | 1,016,608 |   |
| Advances for  vessel acquisitions                                                                                                                                                                                |       |       |       | ** **                                  |       | 12,350 | ** ** | 12,350 |   |
| Advances for  vessels under construction                                                                                                                                                                         |       |       | 5          | ** **                                  |       | 161,375 | ** ** | 193,016 |   |
| Accounts  receivable in respect of lease agreements, net of current portion                                                                                                                                      |       |       | 9          | ** **                                  |       | 44,619 | ** ** | — |   |
| Deferred charges,  net                                                                                                                                                                                           |       |       | 6          | ** **                                  |       | 7,758 | ** ** | 9,399 |   |
| Other assets                                                                                                                                                                                                     |       |       |       | ** **                                  |       | 1,422 | ** ** | 6,117 |   |
| **Total  non-current assets**                                                                                                                                                                                    | ** ** |       | ** ** | ** **                                  |       | **881,746** | ** ** | **1,237,490** | ** ** |
| **Total  assets**                                                                                                                                                                                                | ** ** |       | ** ** | ** **                                  |       | **$** | **945,758** | ** ** | **$** | **1,297,190** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                    | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| **CURRENT LIABILITIES**                                                                                                                                                                                          | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| Accounts payable                                                                                                                                                                                                 |       |       | 7          | ** **                                  |       | $ | 6,065 | ** ** | $ | 9,652 |   |
| Accrued  liabilities                                                                                                                                                                                             |       |       | 10         | ** **                                  |       | 2,905 | ** ** | 5,093 |   |
| Long-term debt,  current portion                                                                                                                                                                                 |       |       | 12         | ** **                                  |       | 57,521 | ** ** | 22,760 |   |
| Other current  liabilities                                                                                                                                                                                       |       |       | 11a        | ** **                                  |       | — | ** ** | 1,466 |   |
| Unearned revenue                                                                                                                                                                                                 |       |       |       | ** **                                  |       | 3,993 | ** ** | 6,743 |   |
| **Total  current liabilities**                                                                                                                                                                                   | ** ** |       | ** ** | ** **                                  |       | **70,484** | ** ** | **45,714** | ** ** |
| **LONG-TERM  LIABILITIES**                                                                                                                                                                                       | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| Long-term debt,  net of current portion                                                                                                                                                                          |       |       | 12         | ** **                                  |       | $ | 609,217 | ** ** | $ | 639,556 |   |
| Unearned revenue,  net of current portion                                                                                                                                                                        |       |       | 4c         | ** **                                  |       | — | ** ** | 10,514 |   |
| Other liabilities                                                                                                                                                                                                |       |       | 11b        | ** **                                  |       | 3,332 | ** ** | 35,554 |   |
| **Total  long-term liabilities**                                                                                                                                                                                 | ** ** |       | ** ** | ** **                                  |       | **612,549** | ** ** | **685,624** | ** ** |
| **Total  liabilities**                                                                                                                                                                                           | ** ** |       | ** ** | ** **                                  |       | **$** | **683,033** | ** ** | **$** | **731,338** | ** ** |
| Commitments and  Contingencies                                                                                                                                                                                   |       |       | 18         | ** **                                  |       | — | ** ** | — |   |
| **STOCKHOLDERS’  EQUITY**                                                                                                                                                                                   | ** ** |       | ** ** | ** **                                  |       | ** ** | ** ** | ** ** | ** ** |
| Preferred stock  (5,000,000 preferred shares, par value $.01, authorized and not issued)                                                                                                                         |       |       |       | ** **                                  |       | — | ** ** | — |   |
| Common stock  (200,000,000 common shares, par value $.01, authorized and 44,307,500 and  54,557,500 common shares, par value $.01 issued and outstanding as of  December 31,2005 and December 31,2006) |       |       | 20         | ** **                                  |       | 443 | ** ** | 546 |   |
| Additional paid-in  capital                                                                                                                                                                                      |       |       |       | ** **                                  |       | 90,529 | ** ** | 288,530 |   |
| Other  comprehensive income                                                                                                                                                                                      |       |       |       | ** **                                  |       | — | ** ** | 3,941 |   |
| Retained earnings                                                                                                                                                                                                |       |       |       | ** **                                  |       | 171,753 | ** ** | 272,835 |   |
| **Total  stockholders’ equity**                                                                                                                                                                             | ** ** |       | ** ** | ** **                                  |       | **262,725** | ** ** | **565,852** | ** ** |
| **Total  liabilities and stockholders’ equity**                                                                                                                                                             | ** ** |       | ** ** | ** **                                  |       | **$** | **945,758** | ** ** | **$** | **1,297,190** | ** ** |

 

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

F-3

----

**DANAOS CORPORATION** CONSOLIDATED STATEMENTS OF INCOME(Expressed in thousands of United States Dollars, except share and per shareamounts)

| ** **                                                         | ** ** | ** ** | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| ** **                                                         | ** ** | **Notes**  | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2006** | ** ** |
| **OPERATING  REVENUES**                                            |       |       | 17         |                                        |       | $ | 208,268 |   | $ | 241,381 |   | $ | 245,588 |   |
| **OPERATING  EXPENSES:**                                           |       |       |       |                                        |       |   |   |   |   |   |   |
| Voyage expenses                                                    |       |       |       |                                        |       | (6,314 | ) | (7,525 | ) | (7,282 | ) |
| Vessel operating expenses                                          |       |       |       |                                        |       | (46,247 | ) | (53,883 | ) | (60,742 | ) |
| Depreciation                                                       |       |       | 4          |                                        |       | (31,694 | ) | (27,114 | ) | (31,111 | ) |
| Amortization of deferred drydocking and special survey  costs |       |       | 6          |                                        |       | (2,096 | ) | (3,922 | ) | (5,425 | ) |
| Bad debts expense                                                  |       |       |       |                                        |       | (429 | ) | (200 | ) | (421 | ) |
| General and administration expenses                                |       |       |       |                                        |       | (4,050 | ) | (5,058 | ) | (7,574 | ) |
| Gain on sale of vessels                                            |       |       | 19         |                                        |       | 7,667 |   | — |   | 14,954 |   |
| **Income  From Operations**                                        | ** ** |       |       |                                        | ** ** | **125,105** | ** ** | **143,679** | ** ** | **147,987** | ** ** |
| **OTHER  INCOME (EXPENSE):**                                       |       |       |       |                                        |       |   |   |   |   |   |   |
| Interest income                                                    |       |       |       |                                        |       | 2,638 |   | 6,345 |   | 3,605 |   |
| Interest expenses                                                  |       |       |       |                                        |       | (11,559 | ) | (23,415 | ) | (29,240 | ) |
| Other finance (costs) income , net                                 |       |       |       |                                        |       | 1,424 |   | (7,081 | ) | 1,938 |   |
| Other income (expenses), net                                       |       |       |       |                                        |       | 1,076 |   | 491 |   | (16,580 | ) |
| Gain/(Loss) on fair value of derivatives                           |       |       |       |                                        |       | (2,225 | ) | 2,831 |   | (6,628 | ) |
| **Total  Other Income (Expenses), net**                            | ** ** |       |       |                                        | ** ** | **(8,646** | **)** | **(20,829** | **)** | **(46,905** | **)** |
| **Net Income**                                                     | ** ** |       |       |                                        | ** ** | **$** | **116,459** | ** ** | **$** | **122,850** | ** ** | **$** | **101,082** | ** ** |
| **EARNINGS  PER SHARE**                                            |       |       |       |                                        |       |   |   |   |   |   |   |
| Basic and diluted net income per share                             |       |       |       |                                        |       | $ | 2.63 |   | $ | 2.77 |   | $ | 2.16 |   |
| Basic and diluted  weighted average number of shares               |       |       |       |                                        |       | 44,307,500 |   | 44,307,500 |   | 46,750,651 |   |

 

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

F-4

----

**DANAOS CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Expressed in thousands of UnitedStates Dollars)**

| ** **                                                     | ** ** | ** **        | ** **  | ** **            | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** **        | ** ** | ** **   | ** ** |
|----------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|------------|------------|------------------|------------|-------------------|------------|--------------|------------|
| ** **                                                     | ** ** | ** **        | ** **  | **Common Stock** | ** ** | ** ** | ** ** | **Other**        | ** ** | ** **        | ** ** | ** **   | ** ** |
| ** **                                                     | ** ** | **Comprehensive** | ** **  | **Number of**    | ** ** | **Par**    | ** ** | **Paid in** | ** ** | **Comprehensive** | ** ** | **Retained** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **Income**        | ** **  | **shares**            | ** ** | **value**  | ** ** | **Capital**      | ** ** | **Income**        | ** ** | **Earnings** | ** ** | **Total** | ** ** |
| **Balance  as of January 1,  2004**                       | ** ** |              | **$**       | **—**            |       |       |       | 44,308           |       |              |       | $            | 443        |   |   | $ | 98,824 |   |   | $ | — |   |   | $ | 189,399 |   | $ | 288,666 |   |
| **Changes during the  year ended December 31, 2004** |       |              |        |                  |       |       |       |             |       |              |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                     |       |              | 116,459     |                  |       |       | —     |             |       |              | —     |         |       | — |   |   | — |   |   | 116,459 |   | 116,459 |   |
| Contributions/  (Distributions)                                |       |              | —      |                  |       |       | —     |             |       |              | —     |         |       | (8,295 | ) |   | — |   |   | — |   | (8,295 | ) |
| Dividends                                                      |       |              | —      |                  |       |       | —     |             |       |              | —     |         |       | — |   |   |   |   |   | (12,362 | ) | (12,362 | ) |
| **Balance  as of December 31, 2004**                      | ** ** |              | **116,459** |                  | ** ** | ** ** | **44,308** |             | ** ** | ** **        | **$**      | **443**      |       | ** ** | **$** | **90,529** | ** ** | ** ** | **$** | **—** |   | ** ** | **$** | **293,496** | ** ** | **$** | **384,468** | ** ** |
| **Changes  during the year ended December 31, 2005** |       |              |        |                  |       |       |       |             |       |              |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                     |       |              | 122,850     |                  |       |       | —     |             |       |              | —     |         |       | — |   |   | — |   |   | 122,850 |   | 122,850 |   |
| Dividends                                                      |       |              | —      |                  |       |       | —     |             |       |              | —     |         |       | — |   |   | — |   |   | (244,593 | ) | (244,593 | ) |
| **Balance  as of December 31, 2005**                      | ** ** |              | **122,850** |                  | ** ** | ** ** | **44,308** |             | ** ** | ** **        | **$**      | **443**      |       | ** ** | **$** | **90,529** | ** ** | ** ** | **$** | **—** |   | ** ** | **$** | **171,753** | ** ** | **$** | **262,725** | ** ** |
| **Changes  during the year ended December 31, 2006** |       |              |        |                  |       |       |       |             |       |              |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive  income:                                         |       |              |        |                  |       |       |       |             |       |              |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                     |       |              | 101,082     |                  |       |       | —     |             |       |              | —     |         |       | — |   |   | — |   |   | 101,082 |   | 101,082 |   |
| Unrealised gain on  cash flow hedges-net             |       |              | 3,941       |                  |       |       | —     |             |       |              | —     |         |       | — |   |   | 3,941 |   |   | — |   | 3,941 |   |
| Issuance of common  stock                                      |       |              | —      |                  |       |       | 10,250     |             |       |              | 103        |         |       | 198.001 |   |   | — |   |   | — |   | 198,104 |   |
| **Balance as of December 31,  2006**                      | ** ** |              | **$**       | **105,023**           |       | ** ** | ** ** | **54,558**       |       | ** **        | ** ** | **$**        | **546**    |   | ** ** | **$** | **288,530** | ** ** | ** ** | **$** | **3,941** |   | ** ** | **$** | **272,835** | ** ** | **$** | **565,852** | ** ** |

 

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

F-5

----

**DANAOS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of UnitedStates Dollars)**

| ** **                                                                            | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                            | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Cash Flows from Operating  Activities:**                                            |       |                                        |       |   |   |   |   |
| Net income                                                                            |       | $                                           | 116,459    |   | $ | 122,850 |   | $ | 101,082 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities** |       |                                        |       |   |   |   |   |
| Depreciation                                                                          |       | 31,694                                      |       | 27,114 |   | 31,111 |   |
| Amortization of deferred drydocking and special  survey costs                         |       | 2,096                                       |       | 3,922 |   | 5,425 |   |
| Written off amount of drydocking / special survey                                     |       | —                                      |       | — |   | 385 |   |
| Written off amount of finance costs                                                   |       | —                                      |       | — |   | 396 |   |
| Amortization of finance costs                                                         |       | —                                      |       | 101 |   | 135 |   |
| Payments for drydocking /special survey                                               |       | (5,159                                      | )          | (4,505 | ) | (8,037 | ) |
| Gain on sale of vessels                                                               |       | (7,667                                      | )          | — |   | (14,954 | ) |
| Change in fair value of derivative instruments                                        |       | 1,274                                       |       | (1,939 | ) | 3,440 |   |
| Change in fair value of hedged debt                                                   |       | —                                      |       | — |   | 2,293 |   |
| **(Increase)/Decrease  in:**                                                          |       |                                        |       |   |   |   |   |
| Accounts receivable ,short and long-term                                              |       | (2,773                                      | )          | 4,676 |   | (3,034 | ) |
| Inventories                                                                           |       | (1,092                                      | )          | 156 |   | (1,181 | ) |
| Prepaid expenses                                                                      |       | (753                                        | )          | 520 |   | (468 | ) |
| Due from related parties                                                              |       | 3,043                                       |       | (3,726 | ) | 1,681 |   |
| Net investment in finance lease                                                       |       | 3,494                                       |       | 3,694 |   | 860 |   |
| Other assets, short and long-term                                                     |       | (14,119                                     | )          | 12,673 |   | (1,958 | ) |
| **Increase/(Decrease)  in:**                                                          |       |                                        |       |   |   |   |   |
| Accounts payable                                                                      |       | (1,012                                      | )          | 501 |   | 3,587 |   |
| Accrued liabilities                                                                   |       | 2,676                                       |       | (3,189 | ) | 2,188 |   |
| Unearned revenue (including long-term)                                                |       | 895                                         |       | (613 | ) | (1,152 | ) |
| Other liabilities, short and long term                                                |       | —                                      |       | — |   | 29,779 |   |
| **Net Cash provided by Operating Activities**                                         | ** ** | **129,056**                                 | ** ** | **162,235** | ** ** | **151,578** | ** ** |
| **Cash  Flows from Investing Activities:**                                            |       |                                        |       |   |   |   |   |
| Vessel acquisitions including advances for vessel  acquisitions                       |       | —                                      |       | (12,350 | ) | (171,749 | ) |
| Vessels under construction                                                            |       | (170,128                                    | )          | (28,188 | ) | (185,148 | ) |
| Proceeds from sale of vessels                                                         |       | 15,381                                      |       | — |   | 26,798 |   |
| **Net Cash used in Investing Activities**                                             | ** ** | **(154,747**                                | **)**      | **(40,538** | **)** | **(330,099** | **)** |
| **Cash  Flows from Financing Activities:**                                            |       |                                        |       |   |   |   |   |
| Proceeds from long-term debt                                                          |       | 149,167                                     |       | 400,000 |   | 304,596 |   |
| Proceeds from related party loans                                                     |       | —                                      |       | — |   | 130,375 |   |
| Payments of long-term debt                                                            |       | (82,754                                     | )          | (339,937 | ) | (317,390 | ) |
| Payments of related party loans                                                       |       |                                        |       |   |   | (130,375 | ) |
| Contributions/(Distributions) from/(to) stockholders                                  |       | (8,295                                      | )          | — |   | 201,259 |   |
| Dividends paid                                                                        |       | (12,362                                     | )          | (244,593 | ) | — |   |
| Deferred finance costs                                                                |       | —                                      |       | (791 | ) | (925 | ) |
| Deferred public offering costs                                                        |       | —                                      |       | (980 | ) | (2,175 | ) |
| Decrease/(increase) of restricted cash                                                |       | (623                                        | )          | 5,596 |   | (1,769 | ) |
| **Net Cash(used in)/ provided by Financing  Activities**                              | ** ** | **45,133**                                  | ** ** | **(180,705** | **)** | **183,596** | ** ** |
| **Net Increase/(Decrease) in Cash and Cash  Equivalents**                             |       | 19,442                                      |       | (59,008 | ) | 5,075 |   |
| **Cash and Cash Equivalents, Beginning of Year**                                      |       | 77,566                                      |       | 97,008 |   | 38,000 |   |
| **Cash and Cash Equivalents, End of Year**                                            | ** ** | **$**                                       | **97,008** | ** ** | **$** | **38,000** | ** ** | **$** | **43,075** | ** ** |
| **Supplementary Cash Flow information**                                               |       |                                        |       |   |   |   |   |
| Cash paid for interest                                                                |       | $                                           | 11,084     |   | $ | 24,283 |   | $ | 26,352 |   |
| Non-cash capitalized interest on vessels under  construction                          |       | $                                           | 2,916      |   | $ | 5,275 |   | $ | 6,079 |   |
| Non-cash lease  liability related to vessel acquisition                               |       | —                                      |       | — |   | $ | 14,416 |   |

 

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

F-6

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**1**                    Basisof Presentation and General Information

The accompanying financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States of America (“U.S. GAAP”). The reporting and functional currencyof the Company is the United States Dollar.

Danaos Corporation (“Danaos”), formerly DanaosHoldings Limited, was formed on December 7, 1998 under the laws of Liberiaand is presently the sole owner of all outstanding shares of the companies (the“Danaos Subsidiaries”) listed below. Danaos Holdings Limited was redomiciled in the Marshall Islands on October 7,2005. In connection with the redomiciliation, the Company changed its name toDanaos Corporation. On October 14, 2005 the Company filed and the MarshallIslands accepted Amended and Restated Articles of Incorporation. Under theAmended and Restated Articles of Incorporation, the authorized capital stock ofDanaos Corporation increased to 100,000 shares of common stock with a par valueof $0.01 and 1,000 shares of preferred stock with a par value of $0.01. On September 18,2006, the Company filed and Marshall Islands accepted Amended and RestatedArticles of Incorporation.Under the Amended and Restated Articles ofIncorporation, the authorized capital stock of Danaos Corporation increases to200,000,000 shares of common stock with a par value of $0.01 and 5,000,000shares of preferred stock with a par value of $0.01. See note 20 for additionalinformation regarding stockholders’ equity.

The Company’s vessels operate worldwide, carryingcontainers and dry cargo for many of the world’s leading charterers. TheCompany manages its operations from its offices in Piraeus, Greece.

The Company’s principal business is the acquisitionand operation of vessels. Danaos conducts its operations through the vesselowning subsidiaries whose principal activity is the ownership and operation ofcontainer and dry cargo type vessels (see note 2) that are under the exclusivemanagement of a related party of the Company (see note 13).

The consolidated financial statements have beenprepared to reflect the consolidation of the companies listed below. Thehistorical balance sheets and results of operations of the companies listedbelow have been reflected in the consolidated balance sheets and consolidatedstatements of income, cash flows and stockholders’ equity at and for eachperiod since their respective incorporation dates.

The consolidated companies are referred to as “Danaos,”or “the Company.”

As of December 31,2006, Danaos included the vessel owning companies listed below:

| **Company**                   | ** ** | ** **         | ** ** | **Date of   Incorporation** | ** ** | **Vessel Name** | ** ** | **Vessel   Type** | ** ** | **Year   Built** | ** ** | **DWT** | ** ** | **TEU** |
|-------------------------------|------------|--------------------|------------|-----------------------------|------------|-----------------|------------|-------------------|------------|------------------|------------|---------|------------|---------|
| Deleas Shipping  Ltd.         |       | July 28, 1987 |       | Pacific Bridge              |       | Container       |       | 1984              |       | —           |       | 2,130   |
| Seasenator Shipping Ltd. |       | June 7, 1996  |       | Norasia Hamburg             |       | Container       |       | 1989              |       | —           |       | 3,908   |
| Seacaravel Shipping Ltd. |       | June 7, 1996  |       | YM Yantian                  |       | Container       |       | 1989              |       | —           |       | 3,908   |
| Peninsula Maritime Inc.  |       | June 10, 1997 |       | Eagle Express               |       | Container       |       | 1978              |       | —           |       | 1,704   |
| Appleton Navigation S.A.      |       | May 12, 1998  |       | CMA CGM Komodo              |       | Container       |       | 1991              |       | —           |       | 2,917   |

F-7

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| Geoffrey Shipholding Ltd.          |   | September 22, 1997     |   | CMA CGM Kalamata  |   | Container |   | 1990 |   | — |   | 2,917  |
|------------------------------------|--------|------------------------|--------|-------------------|--------|-----------|--------|------|--------|--------|--------|--------|
| Lacey Navigation Inc.         |   | March 5, 1998     |   | CMA CGM Elbe      |   | Container |   | 1991 |   | — |   | 2,917  |
| Saratoga Trading S.A.         |   | May 8, 1998       |   | YM Milano         |   | Container |   | 1998 |   | — |   | 3,129  |
| Tyron Enterprises S.A.             |   | January 26, 1999  |   | Henry             |   | Container |   | 1986 |   | — |   | 3,039  |
| Ferrous Shipping (Private) Ltd.    |   | December 6, 2000  |   | APL England       |   | Container |   | 2001 |   | — |   | 5,506  |
| Cobaltium  Shipping (Private) Ltd. |   | December 6, 2000  |   | APL Scotland      |   | Container |   | 2001 |   | — |   | 5,506  |
| Lissos Shipping (Private) Ltd.     |   | February 16, 2001 |   | APL Holland       |   | Container |   | 2001 |   | — |   | 5,506  |
| Orchid Navigation Corp.            |   | May 20, 1996      |   | Dimitris C        |   | Dry cargo |   | 1994 |   | 43,814 |   | — |
| Roberto C Maritime Inc.       |   | February 19, 2002 |   | Roberto C         |   | Dry cargo |   | 1994 |   | 45,210 |   | — |
| Alexandra Navigation Inc.          |   | March 5, 2002     |   | Alexandra I       |   | Dry cargo |   | 1994 |   | 69,090 |   | — |
| Mercator Shipping Inc.             |   | April 4, 2002     |   | MV Achilleas      |   | Dry cargo |   | 1994 |   | 69,180 |   | — |
| Ortelius Maritime Inc.             |   | April 4, 2002     |   | Fivos             |   | Dry cargo |   | 1994 |   | 69,659 |   | — |
| Independence Navigation Inc.       |   | October 9, 2002   |   | Independence      |   | Container |   | 1986 |   | — |   | 3,045  |
| Maria C Maritime Inc.              |   | February 19, 2002 |   | Maria C           |   | Dry cargo |   | 1994 |   | 45,205 |   | — |
| Lato Shipping (Private) Ltd.       |   | February 16, 2001 |   | APL Belgium       |   | Container |   | 2002 |   | — |   | 5,506  |
| Victory Shipholding Inc.      |   | October 9, 2002   |   | Victory I         |   | Container |   | 1988 |   | — |   | 3,098  |
| Duke Marine Inc.                   |   | April 14, 2003    |   | Hyundai Duke      |   | Container |   | 1992 |   | — |   | 4,651  |
| Commodore Marine Inc.         |   | April 14, 2003    |   | Hyundai Commodore |   | Container |   | 1992 |   | — |   | 4,651  |
| Helderberg Maritime Inc.      |   | June 11, 2003     |   | S.A. Helderberg   |   | Container |   | 1977 |   | — |   | 3,101  |
| Sederberg Maritime Inc.       |   | June 11, 2003     |   | S.A. Sederberg    |   | Container |   | 1978 |   | — |   | 3,101  |
| Winterberg Maritime Inc.      |   | June 11, 2003     |   | S.A. Winterberg   |   | Container |   | 1978 |   | — |   | 3,101  |

F-8

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| Constantia Maritime Inc.  |       | June 11, 2003     |   | Maersk Constantia                                 |   | Container |   | 1979   |   | — |   | 3,101  |
|--------------------------------|------------|------------------------|--------|---------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|--------|
| Containers Services Inc.  |       | May 30, 2002      |   | Vancouver Express (ex P&O Nedlloyd Caribbean) |   | Container |   | 2004   |   | — |   | 4,253  |
| Containers Lines Inc.     |       | May 30, 2002      |   | Maersk Derby (ex P&O Nedlloyd Caracas)   |   | Container |   | 2004   |   | — |   | 4,253  |
| Oceanew Shipping Ltd.          |       | January 3, 2002   |   | CSCL Europe                                       |   | Container |   | 2004   |   | — |   | 8,468  |
| Oceanprize Navigation Ltd.     |       | January 20, 2003  |   | CSCL America                                      |   | Container |   | 2004   |   | — |   | 8,468  |
| Federal Marine Inc.            |       | February 14,2006  |   | MOL Confidence                                    |   | Container |   | 1994   |   | — |   | 4,651  |
| Karlita Shipping Co. Ltd.      |       | February 21, 2003 |   | CSCL Pusan                                        |   | Container |   | 2006   |   | — |   | 9,580  |
| Ramona Marine Co. Ltd.         |       | February 21, 2003 |   | CSCL Le Havre                                     |   | Container |   | 2006   |   | — |   | 9,580  |
| Boxcarrier (No 6) Corp.        |       | June 27, 2006     |   | Maersk Marathon                                   |   | Container |   | 1991   |   | — |   | 4,814  |
| Boxcarrier (No 7) Corp.        |       | June 27, 2006     |   | Maersk Messologi                                  |   | Container |   | 1991   |   | — |   | 4,814  |
| Boxcarrier (No 8) Corp         |       | November 16, 2006 |   | Maersk Mytilini                                   |   | Container |   | 1991   |   | — |   | 4,814  |
| **Vessels  under contract**    |       |                   |   |                                              |   |      |   |   |   |   |   |   |
| Auckland Marine Inc.           |       | January 27, 2005  |   | Norasia Integra                                   |   | Container |   | 2004   | **     | — |   | 4,300  |
| Wellington Marine Inc.         |       | January 27, 2005  |   | Norasia Atria                                     |   | Container |   | 2004   | ***    | — |   | 4,300  |
| **Vessels under construction** | ** ** | ** **             |   |                                              |   |      |   |   |   |   |   |   |
| Seacarriers Services Inc.      |       | June 28, 2005     |   | Hull No. 1639                                |   | Container |   | 2007   | *      | — |   | 4,253  |
| Seacarriers Lines Inc.         |       | June 28, 2005     |   | Hull No. 1640                                |   | Container |   | 2007   | *      | — |   | 4,253  |

F-9

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| Bayview Shipping Inc.        |   | March 22, 2006 |   | Hull No. 1670  |   | Container |   | 2008 | * | — |   | 4,253 |
|------------------------------|--------|---------------------|--------|---------------------|--------|-----------|--------|------|---|--------|--------|-------|
| Channelview Marine Inc. |   | March 22, 2006 |   | Hull No. 1671  |   | Container |   | 2008 | * | — |   | 4,253 |
| Balticsea Marine  Inc.       |   | March 22, 2006 |   | Hull No. 1672  |   | Container |   | 2008 | * | — |   | 4,253 |
| Continent Marine Inc         |   | March 22, 2006 |   | Hull No. 1673  |   | Container |   | 2008 | * | — |   | 4,253 |
| Medsea Marine   Inc          |   | May 8, 2006    |   | Hull No. 1698  |   | Container |   | 2009 | * | — |   | 4,253 |
| Blacksea Marine   Inc        |   | May 8, 2006    |   | Hull No. 1699  |   | Container |   | 2009 | * | — |   | 4,253 |
| Boxcarrier (No 1) Corp.      |   | June 27, 2006  |   | Hull No. S4001 |   | Container |   | 2009 | * | — |   | 6,500 |
| Boxcarrier (No 2) Corp.      |   | June 27, 2006  |   | Hull No. S4002 |   | Container |   | 2009 | * | — |   | 6,500 |
| Boxcarrier (No 3) Corp.      |   | June 27, 2006  |   | Hull No. S4003 |   | Container |   | 2009 | * | — |   | 6,500 |
| Boxcarrier (No 4) Corp.      |   | June 27, 2006  |   | Hull No. S4004 |   | Container |   | 2009 | * | — |   | 6,500 |
| Boxcarrier (No 5) Corp.      |   | June 27, 2006  |   | Hull No. S4005 |   | Container |   | 2009 | * | — |   | 6,500 |

----

*                    Estimated completiondate

**             Scheduled to bedelivered to the Company in March 2007.

***      Scheduledto be delivered to the Company in September 2007

**2**                    SignificantAccounting Policies

***Principles ofConsolidation:***   The accompanying consolidatedfinancial statements represent the consolidation of the accounts of the Companyand its wholly owned subsidiaries. The subsidiaries are fully consolidated fromthe date on which control is transferred to the Company. They arede-consolidated from the date that control ceases. The Company alsoconsolidates entities that are determined to be variable interest entities asdefined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) ifit determines that it is the primary beneficiary. The Company does not have anyvariable interest entities. Inter-company transaction balances and unrealizedgains on transactions between the companies are eliminated.

***Use of Estimates:******  ***Thepreparation of consolidated financial statements in conformity with U.S. GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

F-10

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Other ComprehensiveIncome (Loss):***   The Company follows theprovisions of Statement of Financial Accounting Standards “Statement ofComprehensive Income” (SFAS 130), which requires separate presentation ofcertain transactions, which are recorded directly as components of stockholders’equity.

***Foreign CurrencyTranslation:******  ***The functional currency of the Companyis the U.S. dollar. Transactions involving other currencies during the year areconverted into U.S. dollars using the exchange rates in effect at the time ofthe transaction. On the balance sheet dates, monetary assets and liabilitiesdenominated in other currencies are translated to reflect the current exchangerates. Resulting gains or losses are reflected in the accompanying consolidatedstatements of income.

***Cash and CashEquivalents:******  ***Cash and cash equivalents consist ofcurrent, call, time deposits and certificates of deposit with original maturityof three months or less which are not restricted for use or withdrawal.

***Restricted Cash:******  ***Cash restricted accountsinclude retention and restricted deposit accounts. Certain of the Company’sloan agreements require the Company to deposit one-third of quarterly andone-sixth of the semi-annual principal installments and interest installments,respectively, due on the outstanding loan balance monthly in a retentionaccount. On the rollover settlement date, both principal and interest are paidfrom the retention account.

***AccountsReceivable:******  ***The amount shown as AccountsReceivable at each balance sheet date includes estimated recoveries fromcharterers for hire and demurrage billings, net of a provision for doubtfulaccounts. At each balance sheet date, all potentially uncollectible accounts areassessed individually for purposes of determing the appropriate provision fordoubtful accounts. Bad debts are written off in the year which they areidentified.

***Insurance:***   Insuranceclaims represent the claimable expenses, net of deductibles, which are expectedto be recovered from insurance companies. Any costs to complete the claims areincluded in accrued liabilities. The Company accounts for the cost of possibleadditional call amounts under its insurance arrangements in accordance with theFASB Statement of Financial Accounting Standards (“SFAS”) 5 “Accounting for Contingencies”**based on the Company’s historicalexperience and the historical experience of the shipping industry.

***Prepaid Expensesand Inventories:***   Prepaid expenses consistmainly of insurance expenses and inventories, which consist of bunkers,lubricants and provisions remaining on board the vessels at each period end,which are valued at the lower of market value or cost as determined using theweighted average method.

***Financing Costs:******  ***Fees incurredfor obtaining new loans are deferred and amortized over the loans’ respectiverepayment periods using the effective interest rate method. These charges areincluded in the balance sheet line item Deferred Charges. Any unamortizedbalance of costs relating to loans repaid or refinanced is expensed in theperiod the repayment or refinancing is made subject to the provisions of EITF96-19, “Debtor’s Accounting for a Modification or Exchange of DebtInstrument” regarding debt extinguishment.

F-11

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Vessels’ Cost:****  *Vesselsare stated at cost, which consists of the contract purchase price and anymaterial expenses incurred upon acquisition (improvements and deliveryexpenses). Subsequent expenditures for conversions and major improvements arealso capitalized when they appreciably extend the life, increase the earningcapacity or improve the efficiency or safety of the vessels. Otherwise theseexpenditures are charged to expenses as incurred. Financing costs incurredduring the construction period of the vessels are included in vessels’ cost.

Vessels acquired in the secondhand market are treatedas a business combination to the extent that such acquisitions includecontinuing operations and business characteristics such as managementagreements, employees and customer base. Otherwise these are treated aspurchase of assets. Where the Company identifies any intangible assets orliabilities associated with the acquisition of a vessel purchased in thesecondhand market, the Company records all identified tangible and intangibleassets or liabilities at fair value. Fair value is determined by reference tomarket data and the discounted amount of expected future cash flows. TheCompany has acquired certain vessels in the secondhand market. Theseacquisitions were considered to be acquisitions of assets. Certain vessels inthe Company’s fleet that were purchased in the secondhand market were acquiredwith existing charters. The company has recognized a liability for a below—marketcharter attached to a vessel acquired in 2006.

***Vessels’Depreciation:******  ***Thecost of the Company’s vessels is depreciated on a straight-line basis over thevessels’ remaining economic useful lives after considering the estimatedresidual value. Management had estimated the useful life of the Company’svessels to be 25 years from the year built. As of January 1, 2005, theCompany changed prospectively the estimated useful life of the containervessels to be 30 years. The change in estimate was based both on the Company’sexperience and the current practice in the shipping industry.

***Accounting forSpecial Survey and Drydocking Costs:***   TheCompany follows the deferral method of accounting for special survey anddrydocking costs, whereby actual costs incurred are deferred and are amortizedon a straight-line basis over the period until the next scheduled survey, whichis two and a half years. If special survey or drydocking is performed prior tothe scheduled date, the remaining unamortized balances are immediately writtenoff.

The amortization periods reflect the estimated usefuleconomic life of the deferred charge, which is the period between each specialsurvey and drydocking.

***Impairment ofLong-lived Assets:***   SFAS 144 “Accounting forthe Impairment or Disposal of Long-lived Assets” addresses financial accountingand reporting for the impairment or disposal of long-lived assets. The Companyadopted SFAS 144 as of January 1, 2002. The standard requires that long-livedassets and certain identifiable intangibles held and used or disposed of by anentity be reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of the assets may not be recoverable. If thefuture net cash flows are less than the carrying value of the asset, animpairment loss is recorded equal to the difference between the asset’scarrying value and fair value. No events or changes in circumstances haveoccurred in the periods presented that would lead to a review for impairment.

***Pension andRetirement Benefit Obligations-Crew:******  ***The crew onboard the companies’ vessels serve in such capacity under short-term contracts(usually up to nine months) and accordingly, the vessel-owning companies arenot liable for any pension or post retirement benefits.

***Accounting forRevenue and Expenses:***   Revenues and expensesare recognized on a straight-line basis and on an accrual basis. Revenuesare generated from bareboat hire and time charters. Bareboat hire 

F-12

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

revenues are recorded overthe term of the hire on a straight-line basis. Time charter revenues arerecorded over the term of the charter as service is provided. Unearned revenueincludes revenue received in advance.

The Company is a member of a pool arrangement with respectto the *MV Achilleas* and the *Alexandra I*. The resulting net revenues of the pool aredistributed as time charter hire to each participant in accordance with thepool earning points of the individual pool vessels, adjusted for any off hireamount. Distributions of time charter hire to the Company are made every twoweeks according to the agreement. An amount not exceeding four weeks’ timecharter hire for the vessel may be withheld from the Company as working capitalfor the pool. The Company recognizes revenue related to the poolingarrangements only when all contingencies under the agreements are resolved.

***General andAdministrative Expenses:***   General andadministrative expenses include management fees paid to the vessels’ manager(see note 13).

***Repairs andMaintenance:***   All repair and maintenanceexpenses including major overhauling and underwater inspection expenses arecharged against income when incurred and are included in vessel operatingexpenses in the accompanying consolidated statements of income.

***Dividends:******  ***Dividends arerecorded in the Company’s financial statements in the period in which they areapproved by the Company’s stockholders.

***Segment Reporting:***   TheCompany reports financial information and evaluates its operations by totalcharter revenues. The Company does not have discrete financial information toevaluate the operating results for each such type of charter. Although revenuecan be identified for these types of charters, management cannot and does notidentify expenses, profitability or other financial information for thesecharters. As a result, management, including the chief operating decisionmakers, reviews operating results solely by revenue per day and operatingresults of the fleet, and thus the Company has determined that it operatesunder one reportable segment.

***DerivativeInstruments:*****  **TheCompany enters into interest rate swap contracts and forward exchange ratecontracts to create economic hedges for its interest rate risks and itsexposure to currency exchange risk on certain foreign currency receivables.(see also note 15). When such derivatives do not qualify for hedge accountingunder SFAS 133 “Accounting for Derivative Instruments and Hedging Activities”,the Company presents these financial instruments at their fair value, andrecognizes the fair value changes thereto in the income statement. When thederivatives do qualify for hedge accounting, depending upon the natureof the hedge, changes in the fair value of derivatives are either offsetagainst the fair value of assets, liabilities or firm commitments throughincome, or recognized in other comprehensive income/(loss) (effective portion)until the hedged item is recognized in income. The ineffective portion of aderivative’s change in fair value is immediately recognized in income.

***Earnings Per Share:******  ***The Companyhas presented net income per share for all periods presented based on thenumber of outstanding shares of common stock of Danaos Corporation at thereported periods taking into account any stock splits. There are no dilutive orpotentially dilutive securities, accordingly there is no difference betweenbasic and diluted net income per share.

F-13

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Recent AccountingPronouncements:***

The recentaccounting pronouncements are the following:

SAB 108—Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements

In September 2006, the SEC issued StaffAccounting Bulletin No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements (‘SAB 108’). SAB No. 108 provides guidance on theconsideration of the effects of prior year misstatements in quantifying currentyear misstatements for the purpose of a materiality assessment. SAB 108establishes an approach that requires quantification of financial statementerrors based on the effects of each of the company’s balance sheet andstatement of operations and the related financial statement disclosures. SAB No. 108permits existing public companies to record the cumulative effect of initiallyapplying this approach in the first year ending after November 15, 2006 byrecording the necessary correcting adjustments to the carrying values of assetsand liabilities as of the beginning of that year with the offsetting adjustmentrecorded to the opening balance of retained earnings. Additionally, the use ofthe cumulative effect transition method requires detailed disclosure of thenature and amount of each individual error being corrected through thecumulative adjustment and how and when it arose. The adoption of SAB No. 108did not have any effect on the Company’s consolidated financial statements.

In February 2006, the Financial Accounting Standard Boardissued Statement of Financial Accounting Standards No. 155 (SFAS 155) “Accountingfor Certain Hybrid Instruments—an amendment of FASB Statements No. 133 and140”. SFAS 155 amends SFAS 133 to permit fair value measurement for certainhybrid financial instruments that contain an embedded derivative, provides additionalguidance on the applicability of SFAS 133 and SFAS 140 to certain financialinstruments and subordinated concentrations of credit risk. SFAS 155 iseffective for the first fiscal year that begins after September 15, 2006.We are currently evaluating the impact SFAS 155 will have on our consolidatedfinancial statements. This statement will be effective for the Company for thefiscal year beginning on January 1, 2007.

In March 2006, the Financial Accounting StandardBoard issued Statement of Financial Accounting Standards No. 156 (SFAS156) “Accounting for Servicing of Financial Assets—an amendment of FASB StatementNo. 140”. SFAS 156 amends SFAS 140 requiring that all separatelyrecognized servicing assets and servicing liabilities be measured at fairvalue, if practicable. SFAS 156 also permits, but does not require, thesubsequent measurement of servicing assets and servicing liabilities. SFAS 156is effective for the first fiscal year that begins after September 15, 2006.The adoption of this Accounting Standard is not expected to have a materialeffect on the consolidated financial statements. This statement will beeffective for the Company for the fiscal year beginning on January 1,2007.

In September 2006, the FASB issued SFAS 157, FairValue Measurements. This Statement defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles (GAAP),and expands disclosures about fair value measurements. The statement does notrequire new fair value measurements, but is applied to the extent that otheraccounting pronouncements require or permit fair value measurements. Thestatement emphasizes that fair value is a market-based measurement that shouldbe determined based on the assumptions that market participants would use inpricing an asset or liability. Companies will be required to disclose theextent to which fair value is used to measure assets and liabilities, theinputs used to develop the measurements, and the effect of certain of themeasurements on earnings (or changes in net assets) for the period. ThisStatement is effective for The Company for fiscal 

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

years beginning after November 15,2007 and for interim periods within those fiscal years. Earlier application isencouraged, provided that the entity has not yet issued financial statements,including interim financial statements, for any period of that fiscal year. TheCompany is currently reviewing this issue to measure the potential impact onthe consolidated results of operations, financial position, and cash flows.

In September 2006, the Financial Accounting Standard Boardissued Statement of Financial Accounting Standards No. 158 (SFAS 158) “Employer’sAccounting for Defined Benefit Pension and Other Postretirement Plans—an amendmentof FASB Statements No. 87, 88, 106 and 132(R)”. SFAS 158 improves financialreporting by requiring an employer to recognize the overfunded and underfundedstatus of a defined benefit retirement plan (other than multiemployer plan) asan asset or liability in its statement of financial position and recognizechanges in the funded status in the year in which the changes occur through comprehensiveincome of a business entity or changes in unrestricted net assets of a not-for-profitorganization. This statement also improves financial reporting by requiring an employerto measure the funded status of a plan as of the date of its year-endstatements of financial position, with limited exceptions. This standard waseffective for the Company as of the fiscal year ended December 31, 2006and did not have any effect on the consolidated financial statements.

In February 2007, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 159 (SFAS 159) “TheFair Value Option for Financial Assets and Financial Liabilities”. SFAS 159 permitsthe entities to choose to measure many financial instruments and certain otheritems at fair value that are not currently required to be measured at fairvalue. This Statement is expected to expand the use of fair value measurement,which is consistent with the Board’s long-term measurement objectives for accountingfor financial instruments. SFAS 159 is effective as of the beginning of anentity’s first fiscal year that begins after November 15, 2007. Earlyadoption is permitted as of the beginning of a fiscal year on or before November 15,2007, provided the entity also elects to apply the provisions of FASB StatementNo. 157, “Fair Value Measurements”. The adoption of this policy is not expectedto have a material effect on the consolidated financial statements.

FSP No. FIN 46(R)-6—Determining theVariability to be Considered in Applying FASB Interpretation No. 46(R)

In April 2006, theFASB issued this FSP which addresses whether certain arrangements associatedwith variable interest entities should be treated as variable interests orconsidered as creators of variability, and indicates that the variability to beconsidered shall be based on an analysis of the design of the entity. FSP FIN46(R)-6 is required to be applied prospectively to all entities withwhich the Company first becomes involved and to all entities previouslyrequired to be analyzed under FIN 46(R) upon the occurrence of certainevents, beginning the first day of the first reporting period afterJune 15, 2006. Early application is permitted for periods for whichfinancial statements have not yet been issued. Retrospective application to thedate of the initial application of FIN 46(R) is permitted but notrequired, however, if elected, it must be completed no later than the end ofthe first annual reporting period after July 15, 2006. This standard waseffective for the Company as of the fiscal year ended December 31, 2006and did not have any effect on the consolidated financial statements.

F-15

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**3**                    RestrictedCash

Restrictedcash is comprised as follows:

| ** **                  | ** ** | **Retention** | ** ** | **Restricted  Deposits** | ** ** | **Total** | ** ** |
|-----------------------------|------------|---------------|------------|--------------------------|------------|-----------|------------|
| **December 31,  2005** |       |          | $          | 642                      |       |      |       | $ | 82 |   |   | $ | 724 |   |
| **December 31, 2006**  |       |          | $          | 2,493                    |       |      |       | — |   |   | $ | 2,493 |   |

 

**4**                    Vessels

Vessels’cost and accumulated depreciation and changes thereto are as follows:

| ** **                  | ** ** | **Vessel  Cost** | ** ** | **Accumulated  Depreciation** | ** ** | **Net Book  Value(b)** | ** ** |
|-----------------------------|------------|------------------|------------|-------------------------------|------------|-----------------------------|------------|
| **January 1,  2005**   |       | $                | 822,739    |                          |       | $                           | (141,403   | ) |   | $ | 681,336 |   |
| Additions                   |       | —           |       |                          | (27,114    | )                           |       | (27,114 | ) |
| **December 31,  2005** |       | $                | 822,739    |                          |       | $                           | (168,517   | ) |   | $ | 654,222 |   |
| Additions(a)(c)             |       | 405,341          |       |                          | (31,111    | )                           |       | 374,230 |   |
| Disposals                   |       | (14,225          | )          |                          | 2,381      |                        |       | (11,844 | ) |
| **December 31, 2006**  |       | $                | 1,213,855  |                          |       | $                           | (197,247   | ) |   | $ | 1,016,608 |   |

----

The residual value(estimated scrap value at the end of the vessels’ useful lives) of the fleetwas estimated at $182.4 million as of December 31, 2006 and $121.4 millionas of December 31, 2005.

a)               Vessels with a costof $419.6 million and net book value of $403 million on December 31, 2006are subject to certain leasing arrangements as explained in Other leasearrangements in note 9.

b)              Includes fourcontainer vessels with a net book value of $44.9 million, $45 million, $45.1million, and $44.9 million at December 31, 2006, for which the charterershave the option to purchase the vessels in February 2007,       2007,July 2007 and January 2008, respectively, each for $44.0 million andin February 2009, June 2009, July 2009 and January 2010,respectively, each for $39.0 million.

c)               On March 23,2006, the Company purchased the *MOL Confidence,*a vessel of 4,651 TEU and 61,152 DWT, built in 1994 for an amount of $40.5million. The vessel was purchased in the secondhand market and was acquiredwith an existing charter with a $20,750 daily rate for a period of 6.5 years,ending in 2012. The value of the vessel on a charter free basis has been valuedat $55.0 million from two independent valuators. The Company has identified aliability of $14.4 million which will be amortized over the period of the timecharter. This amount is included in the financial statement lines Unearned revenue,short and long term.

d)              In August 2006,the Company agreed to sell the Fivos, the Alexandra I, the Dimitris C, theRoberto C, the Maria C and the MV Achilleas to a third-party drybulk operatorfor an aggregate of $143.5 million upon expiration of their current chartersbetween January 2007 and April 2007. Vessels as of December 31,2006 had a cost of $70.2 million and a net book value of $53.9 million.

e)               On September 8,2006 the Company took delivery of the CSCL Pusan (ex. HN 1559), a vessel of9,580 TEU built in 2006 with a cost of $93.0 million.

F-16

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

f)                 On November 20,2006 the Company took delivery of the CSCL Le Havre (ex. HN 1561), a vessel of9,580 TEU built in 2006 with a cost of $ 94.0 million.

g)               On December 13,2006 the Company purchased the Maersk Marathon, a vessel of 4,814 TEU built in1991 for an amount of $ 43.4 million. The vessel was chartered with APLMoller-Maersk Group for five years at a rate of $23,450 per day with fourconsecutive one year options at $22,400, $21,400, $20,400 and $20,400 per dayrespectively.

h)              On December 18,2006 the Company purchased the Maersk Messologi, a vessel of 4,814 TEU built in1991 for an amount of $ 43.5 million. The vessel was chartered with APLMoller-Maersk Group for five years at a rate of $23,450 per day with fourconsecutive one year options at $22,400, $21,400, $20,400 and $20,400 per dayrespectively.

i)                 On December 22,2006 the Company purchased the Maersk Mytilini, a vessel of 4,814 TEU built in1991 for an amount of $ 43.6 million. The vessel was chartered with APLMoller-Maersk Group for five years at a rate of $23,450 per day with fourconsecutive one year options at $22,400, $21,400, $20,400 and $20,400 per dayrespectively.

j)                  APL-NOL hasexercised its option to purchase the APL England from the Company for $44.0million upon expiration of its current charter in February 2007. See alsonote 4b.

k)              APL-NOLhas exercised its option to purchase the APL Scotland from the Company for$44.0 million upon expiration of its current charter in May 2007. See alsonote 4b.

**5**                    Advancesfor Vessels Under Construction

a)     Advances for vessels under construction areas follows:

| ** **                                                                               | ** ** | **December 31,** | ** **  |
|------------------------------------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                                               | ** ** | **2005**              | ** **  | **2006** | ** ** |
| Advance payments  for vessels                                                            |       | $                     | 22,390      |   | $ | 143,780 |   |
| Progress payments  for vessels                                                           |       | 156,744               |        | 46,520 |   |
| Decrease in  vessels under construction values in respect of lease arrangements (note 9) |       | (27,272               | )           | — |   |
| Capitalized  interest                                                                    |       | 8,191                 |        | 2,541 |   |
| Other vessel  related costs                                                              |       | 1,322                 |        | 175 |   |
| **Total**                                                                                | ** ** | **$**                 | **161,375** |   | **$** | **193,016** | ** ** |

 

The Company entered into two construction contracts inJuly 2005 with Samsung Heavy Industries Co. Ltd. for twocontainerships (the *HN 1639* and the*HN 1640*) of 4,253 TEU each. An advanceof $28.0 million ($14.0 million for each vessel) was paid as of December 31,2005. An advance of $7.0 million was also paid on December 19, 2006 for *HN 1639*. The total cost of each vessel is $70.0 million. Theexpected delivery dates for the *HN 1639* and the*HN 1640* are March 31, 2007 and September 30,2007, respectively.

The Company entered into four construction contractson March 28, 2006 with Samsung Heavy Industries Co. Ltd. for fourcontainerships (the *HN 1670*, the *HN 1671*, the *HN 1672* and the*HN 1673*) of 4,253 TEU each. The contractprice of each vessel is $63.8 million. The expected delivery dates are July 2008,October 2008, November 2008 and December 2008, respectively. TheCompany paid an advance 

F-17

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

of $51.0 million duringthe year ended December 31, 2006 in relation to these contracts. TheCompany has agreed to charter each of these containerships under 12-yearcharters at a daily charter rate of $22,785.

The Company entered into two construction contracts onMay 12, 2006 with Samsung Heavy Industries Co. Ltd. for two containerships(the *HN 1698* and the *HN 1699*)of 4,253 TEU each. The contract price of each vessel is $63.8 million. Theexpected delivery dates are March 2009 and June 2009, respectively.The Company paid an advance of $12.76 million on May 22, 2006 in relationto these contracts. The Company has agreed to charter each of thesecontainerships under 12-year charters at a daily charter rate of $22,785.

The Company entered into five construction contractson July 26, 2006 with Sungdong Shipbuilding & Marine EngineeringCo. Ltd. for five containerships (the***HN S400**1*, the***HN S4002*,the***HN S4003*, the***HN S4004***andthe***HN S4005*) of 6,500 TEUeach. The contract price of each vessel is $91.5 million. The expected deliverydates are April 2009, June 2009, August 2009, October 2009and December 2009, respectively. The Company paid an advance of $91.5million on September 18, 2006 in relation to these contracts. The Companyhas agreed to charter each of these containerships under 12-year chartersat a daily charter rate of $34,350.

The chartersarranged by the Company in September 2006 for five newbuildings vesels,the *HN S4001*, the *HN S4002*,the *HN S4003*, the *HN S4004*and the *HN**S4005*, includean option for the charterer to purchase each vessel eight years after thecommencement of the respective charter, which, based on the respective expecteddelivery dates for these vessels, is expected to fall in April 2017, June 2017,August 2017, October 2017 and December 2017, respectively, eachfor $78.0 million.

b)     Advancesfor vessels under construction and transfers to vessels’ cost in 2005 and 2006were as follows:

c)

| **Balance  as of January 1, 2005**   | ** ** | **$**    | **127,912** | ** ** |
|-------------------------------------------|------------|----------|-------------|------------|
| Additions                                 |       | 33,463   |        |
| **Balance  as of December 31, 2005** | ** ** | **$**    | **161,375** | ** ** |
| Additions                                 |       | 218,500  |        |
| Transfer to  vessels’ cost           |       | (186,859 | )           |
| **Balance as of December 31,  2006** | ** ** | **$**    | **193,016** | ** ** |

 

F-18

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**6**                    DeferredCharges

Deferredcharges consist of the following:

| ** **                             | ** ** | **Drydocking and  Special Survey** | ** ** | **Finance  Costs** | ** ** | **Public  Offering  costs** | ** ** | **Total  Deferred  Charges** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------------------|------------|
| **Balance  on January 1, 2005**   | ** ** |                                         | **$**      | **5,505**          | ** ** |                        | **—** | ** **                   | **—** | ** ** | **$** | **5,505** | ** ** |
| Additions                              |       |                                         | 4,505      |               |       | 791                         |       | 980                          |       | 6,276 |   |
| Amortization for  the year             |       |                                         | (3,922     | )                  |       | (101                        | )          | —                       |       | (4,023 | ) |
| **Balance  on December 31, 2005** | ** ** |                                         | **$**      | **6,088**          | ** ** |                        | **690**    | ** **                   | **980**    | ** ** | **$** | **7,758** | ** ** |
| Additions                              |       |                                         | 8,037      |               |       | 925                         |       | 2,175                        |       | 11,137 |   |
| Written off  amounts                   |       |                                         | (385       | )                  |       | (396                        | )          | —                       |       | (781 | ) |
| Amortization for  the year             |       |                                         | (5,425     | )                  |       | (135                        | )          | —                       |       | (5,560 | ) |
| Pre IPO closed to  proceeds            | ** ** |                                         | **—** | ** **         |       | **—**                  |       | (3,155                       | )          | (3,155 | ) |
| **Balance on December 31,  2006** | ** ** |                                         | **$**      | **8,315**          | ** ** |                        | **$**      | **1,084**                    | ** ** | **$** | **—** | ** ** | **$** | **9,399** | ** ** |
|                                        |            |                                              |            |                    |            |                             |            |                              |            |  |  |  |  |  |  |

 

**7**                    AccountsPayable

Accountspayable is comprised of the following:

| ** **                 | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Suppliers,  repairers      |       | $                     | 5,159      |   | $ | 8,105 |   |
| Insurers, agents,  brokers |       | 624                   |       | 664 |   |
| Other creditors            |       | 282                   |       | 883 |   |
| **Total**                  | ** ** | **$**                 | **6,065**  |   | **$** | **9,652** | ** ** |

 

**8**                    OtherCurrent Assets

Insuranceclaims, net of applicable deductibles arising from hull and machinery damagesor other insured risks are expected to be fully collected.

| ** **             | ** ** | **December 31,** | ** ** |
|------------------------|------------|-----------------------|------------|
| ** **             | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Insurance claims       |       | $                     | 652        |   | $ | 1,902 |   |
| Advances to  suppliers |       | 1,664                 |       | 2,063 |   |
| Deferred income        |       | —                |       | 24 |   |
| **Total**              | ** ** | **$**                 | **2,316**  | ** ** | **$** | **3,989** | ** ** |

 

F-19

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9**                    LeaseArrangements

a)     Otherlease arrangements

During 2004, the Company entered into a structuredtransaction with third parties affecting four vessels in its current fleet andtwo vessels under construction whereby such vessels were acquired by counterpartiesto the transaction which then time chartered the vessels to the Company for aperiod of 61¤2 years.At the end of this 61¤2-yearperiod, the counterparties have rights to require the Company to reacquire thevessels for approximately 75% of the vessels’ initial book value. The cost ofbuilding the vessels has been financed with bank loans arranged by the Company.The vessels have been acquired by the counterparties for the same amount thatit cost to have them constructed. No gain or loss was recognized thereon. Theconsideration with respect to the acquisition of these vessels is being held ina deposit account that is not under the control of the Company. The Company isentitled to receive a series of cash payments of amounts released from thedeposit which are expected to equal, in the aggregate, approximately 25% of theinitial deposit over the 61¤2 years.The excess of these payments above the Company’s payment obligations withrespect to chartering-in these vessels is expected to amount to £46 million($79.6 million). If the counterparties do not exercise their rights to requirethe Company to reacquire the vessels, the Company would have the right tocharter-in the vessels for up to an additional 12 years during whichperiod the Company would be entitled to 49% of the charter revenues in excessof a pre-set base level of the charter-in rate. In such a case, the remainingamount on deposit would be payable to the Company. If the Company is requiredto reacquire the vessels, ownership of the vessels would revert to the Companyand the remaining deposit would be used for the price of reacquiring thevessels. The Company expects that the counterparties will exercise their rightsto require the Company to reacquire the vessels.

The Company has not accounted for the transactions assale and lease-backs because the consideration for the vessels is not under theCompany’s control. The vessels are shown as fixed assets on the books of theCompany. The Company reduced the cost basis of the vessels and hulls atinception with the present value of the future cash inflows amounting to $59.6million (£31.9 million), $32.3 million and $27.3 million for the vessels andfor the hulls, respectively, and has recognized this amount as a receivable inrespect of the lease arrangements. The receivable balance is being reduced bythe actual cash inflows over the 61¤2 year term. Thediscount rates used in the present value calculation range from 4.2% to 4.9%,reflecting the GBP applicable interest rate at the time of the inception of thetransactions.

Following proposed changes to U.K. law contained inthe draft U.K. Finance Bill published on April 7, 2006, it is expectedthat the interests of the Company’s counterparties to the transaction describedabove will be adversely affected. As a result the Company estimates that if theput is ultimately exercised it will be required to pay back an estimated amountof $80 million at the end of the leases. The difference between the estimatedliability and the undiscounted cash inflows of $67 million amounting to $13million was expensed in the second quarter of 2006, the period during which itfirst became probable that the draft U.K. Finance Bill proposed on April 7,2006 would be enacted. At the same time the Company reconstituted the originalvessels’ and hulls cost amounting to $32.3 million and $27.3 million,respectively, and wrote-off the remaining receivable in respect of the leaseagreement amounting to $48.5 million. The Company also recognized a liabilityof $27.6 million consisting of the portion of the cash inflows received to datefrom the lease arrangements of $14.6 million and an amount of $13 million asnoted above. This liability will be increased with subsequent cash inflows incontemplation of a repayment of the estimated amount of $80 million at the endof the leases.

F-20

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

On July 19, 2006, the U.K. law in connection withthe leasing arrangements for certain of the Company’s vessels was enacted.

In addition, theCompany has entered into forward currency contracts to convert £29.7 million ofcash inflows to U.S. dollars at the time of maturity.

b)     Charters-out:

Thefuture minimum revenue, net of commissions, expected to be earned onnon-cancelable time charters is as follows (in thousands):

| ** **           | ** ** | **December 31,  2006** | ** ** |
|----------------------|------------|-----------------------------|------------|
| 2007                 |       |                        | $          | 242,627 |   |   |
| 2008                 |       |                        | 201,390    |   |   |
| 2009                 |       |                        | 234,784    |   |   |
| 2010                 |       |                        | 272,441    |   |   |
| 2011                 |       |                        | 242,626    |   |   |
| Thereafter           |       |                        | 1,611,946  |   |   |
| Total future revenue | ** ** | ** **                  | **$**      | **2,805,814** |   |   |

 

Revenues from time charterare not generally received when a vessel is off-hire, including time requiredfor normal periodic maintenance of the vessel. In arriving at the minimumfuture charter revenues, an estimated time off-hire to perform periodicmaintenance on each vessel has been deducted, although there is no assurancethat such estimate will be reflective of the actual off-hire in the future. Theoff-hire assumptions used relate mainly to drydocking and special surveymaintenance carried out approximately every 2.5 years per vessel and which maylast 10-15 days.

**10**             AccruedLiabilities

Accruedliabilities consist of the following:

| ** **       | ** ** | **December 31,** | ** ** |
|------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Accrued payroll  |       | $                     | 754        |   | $ | 472 |   |
| Accrued interest |       | 896                   |       | 3,784 |   |
| Accrued expenses |       | 1,255                 |       | 837 |   |
|             | ** ** | **$**                 | **2,905**  | ** ** | **$** | **5,093** | ** ** |

 

**11**             OtherLiabilities

a)     Other current liabilities consist of thefollowing:

| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Fair value of  forwards | ** ** |                  | —     |   |   | 1,466 |   |
|                    | ** ** |                  | **$**      | **—** |   | ** ** | **$** | **1,466** | ** ** |
|                         |            |                       |            |  |  |  |  |  |  |

 

F-21

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

b)     Other long- term liabilities consist of thefollowing:

| ** **                                                | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Fair value of  swaps                                      |       | $                     | 3,332      |   | $ | 3,661 |   |
| Fair value of  forwards                                   | ** ** | —                |       | 2,114 |   |
| Other liability  in respect of lease arrangement (note 9) | ** ** | —                |       | 29,779 |   |
|                                                      | ** ** | **$**                 | **3,332**  | ** ** | **$** | **35,554** | ** ** |

 

**12**             LongTerm Debt

a)     Long term debt as of December 31, 2006consists of the following bank loans:

| **Lender**                                                                                                                                              | ** ** | ** ** | ** ** | **Balance  December 31,  2006** | ** ** | **Current  Portion** | ** ** | **Long  Term  Portion** | ** ** | **Balance  December 31,  2005** | ** **  | **Current  Portion** | ** ** | **Long  Term  Portion** | ** **  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------|------------|----------------------|------------|-------------------------|------------|--------------------------------------|-------------|----------------------|------------|-------------------------|-------------|
| The Royal Bank of Scotland                                                                                                                              |       |       | 75,500     |                                 |       | —               |       | 75,500                  |       |                                 | 187,750     |                 |       | 24,500                  |        | 163,250 |   |
| HSH Nordbank                                                                                                                                            |       |       | 49,000     |                                 |       | 4,000                |       | 45,000                  |       |                                 | 53,000      |                 |       | 4,000                   |        | 49,000 |   |
| The Export-Import Bank of Korea (“KEXIM”)                                                                                                     |       |       | 101,523    |                                 |       | 10,369               |       | 91,154                  |       |                                 | 111,892     |                 |       | 10,369                  |        | 101,523 |   |
| The Export-Import Bank of Korea (“KEXIM”) & FORTIS Bank                                                                              |       |       | 144,000    |                                 |       | 8,391                |       | 135,609                 |       |                                 | 123,325     |                 |       | —                  |        | 123,325 |   |
| EFG Eurobank Ergasias                                                                                                                                   | ** ** | ** ** | —     |                                 |       | —               |       | —                  |       |                                 | 3,296       |                 |       | 1,952                   |        | 1,344 |   |
| Aegean Baltic Bank HSH Nordbank (Joint arrangers &  co-underwriters) and Citibank, Dresdner Bank, ABN Amro, DVB Bank &  Credit Suisse |       |       | —     |                                 |       | —               |       | —                  |       |                                 | 187,475     |                 |       | 16,700                  |        | 170,775 |   |
| HSH Nordbank AG Aegean Baltic Bank                                                                                                                      |       |       | 290,000    |                                 |       | —               |       | 290,000                 |       |                                 | —      |                 |       | —                  |        | — |   |
| Fair value of  Hedged Debt                                                                                                                              |       |       | 2,293      |                                 |       | —               |       | 2,293                   |       |                                 | —      |                 |       | —                  |        | — |   |
| ** **                                                                                                                                              | ** ** | ** ** | **$**      | **662,316**                          |       | ** **           | **$**      | **22,760**              | ** ** | **$**                                | **639,556** | ** **           | ** ** | **$**                   | **666,738** |   | ** ** | **$** | **57,521** | ** ** | **$** | **609,217** | ** ** |
|                                                                                                                                                         |            |            |            |                                      |            |                      |            |                         |            |                                      |             |                      |            |                         |             |  |  |  |  |  |  |  |  |  |  |

 

F-22

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

b)     The repayment terms of the loansoutstanding as of December 31, 2006 were as follows:
| Lender                      | ** ** | ** **                                                                                                                                                              | ** ** | **Interest   Rate /Vessel**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **Remaining   Repayments** |
|-----------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|
| The Royal Bank of  Scotland |       | 0.8% p.a. over LIBOR  Dimitris C  Alexandra I  Roberto C  Maria C  MV Achilleas  Fivos  S.A. Helderberg  S.A. Sederberg  S.A.Winterberg  Maersk Constantia  APL Holland |       | Concerns a loan facility of $200.0 million advanced to the companies in order  to refinance certain of their vessels. The outstanding loan facility on December 31,  2006 is payable in five consecutive semi-annual installments starting from  2011 of $8.5 million each, plus a balloon payment of $33.0 million  payable with the last installment in 2013.                                                                                                                             |
| KEXIM                       |       | 5.0125% p.a.  Fixed  CSCL America  CSCL Europe                                                                                                                          |       | Concerns a loan  facility of $124.4 million advanced to the vessel owning companies in order  to partially finance the acquisition of their vessels. The outstanding  balance as of December 31, 2006 is payable in 38 quarterly installments  of $2.6 million plus installments of $1.0 million, $1.3 million and  $0.69 million payable in August 2016, September 2016 and  November 2016, respectively.                                                                        |
| KEXIM—Fortis           |       | 5.02% p.a. Fixed  CSCL Pusan  CSCL Le Havre                                                                                                                             |       | Concerns a loan  facility of up to $144.0 million advanced to the vessel owning companies in  order to partially finance their acquisition of their new vessels. The  outstanding balance as of December 31, 2006 is payable in 23  semi-annual installments of $5.6 million plus installments of $2.09 million,  $2.14 million, $0.8 million and $0.7 million plus a balloon payment of  $9.0 million payable with the last installment in October 2018 and  January 2019 . |
| HSH Nordbank                |       | 0.775% p.a. over  LIBOR  Vancouver Express (ex P&O Nedlloyd Caribbean)  Maersk Derby (ex P&O Nedlloyd Caracas)                                                  |       | Concerns a loan  facility of $60.0 million advanced to the vessel owning companies in order to  partially finance the construction of their vessels. The outstanding loan  facility on December 31, 2006 is payable in 29 consecutive quarterly  installments of $1.0 million each, plus a balloon payment of $20.0 million  payable with the last installment in March 2014.                                                                                                               |

F-23

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 
| HSH Nordbank AG Aegean Baltic Bank |   | 0.700% p.a. over LIBOR |   | Concerns a loan facility of up to $700.0 million advanced to the vessel  owning companies in order to partially finance the construction of the new  vessels and the repayment of an old loan facility. This revolving credit  facility shall be non-amortizing for the first five years and the repayment  schedule as well as the balloon will be determined based upon, the weighted  average age of the vessels that will comprise the securities portfolio for  this loan at the end of the year five ie November 14, 2011. |
|------------------------------------|--------|------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

c)               Theannual repayments of the above loans, net of current maturities, as of December 31,2006 were as follows:

| ** **               | ** ** | **December 31,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2006**              | ** ** |
| 2008                     |       |                  | 25,619     |   |   |
| 2009                     |       |                  | 25,619     |   |   |
| 2010                     |       |                  | 25,619     |   |   |
| Thereafter               |       |                  | 560,406    |   |   |
| **Total long-term debt** | ** ** | ** **            | **$**      | **637,263** |   |   |
|                          |            |                       |            |  |  |  |

 

d)              Allof the loans referred to in paragraph (a) above are collateralized byfirst and second preferred mortgages over the vessels financed, generalassignment of all hire freights, income and earnings, the assignment of theirinsurance policies, as well as any proceeds from the sale of mortgaged vesselsand the corporate guarantee of Danaos Corporation.

e)               Theloan agreements also include positive and negative covenants for the Company,the most significant of which are the maintenance of operating accounts,minimum cash deposits and minimum market values. The borrowers are furtherrestricted from incurring additional indebtedness, changing the vessels’ flagsand distributing earnings without the prior consent of the lender. In additionthe Company must maintain the following covenants: Fixed asset to Net Debtratio over 1.45, Total liabilities (excluding Shareholders’ equity) less Cashand cash equivalents not to exceed 70% of the Market value adjusted totalassets less cash and cash equivalents, Minimum cash and cash equivalents of $30million, EBITDA to interest over 2.5, maintain stockholders’ equity (as definedin the agreements) at a minimum of $250 million except for certain bankswhich require a minimum of $100 million and maintain stockholders’ equity inexcess of 30% of total assets (as defined in the agreements).

f)                 Theweighted average effective interest rates on long-term borrowings for theperiods ended December 31, 2006 and 2005 were 5.6% and 4.32%,respectively.

g)               Inthe second half of 2006 the Company extinguished certain loans and refinanced certainloans with the proceeds obtained from the commencement of trading on the NewYork Stock Exchange.

F-24

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13**             RelatedParty Transactions

***ManagementServices:***   Pursuant to a ship managementagreement between each of the vessel owning companies and Danaos ShippingCompany Limited (the “Manager”), the Manager acts as the fleet’s technicalmanager responsible for (i) recruiting qualified officers and crews, (ii) managingday to day vessel operations and relationships with charterers, (iii) purchasingof stores, supplies and new equipment for the vessels, (iv) performinggeneral vessel maintenance, reconditioning and repair, including commissioningand supervision of shipyards and subcontractors of drydock facilities requiredfor such work, (v) ensuring regulatory and classification societycompliance, (vi) performing operational budgeting and evaluation, (vii) arrangingfinancing for vessels and (viii) providing accounting, treasury andfinance services and (ix) providing information technology software andhardware in the support of the Company’s processes.

Prior to July 1, 2005, the Company paid itsmanager a monthly management fee of $2,750 forthe management of its affairs. The Company also paid a fixed management fee of$150 to $500 per day for each vessel in its fleet depending on its size andtype of charterparty. As of July 1, 2005 the new management contractprovides for a fee of $500 per day. In addition, the manager receives amanagement fee of $250 per vessel per day for vessels on bareboat charter and$500 per vessel per day for the remaining vessels in the fleet, pro rated forthe calendar days each vessel is owned. The manager also receives a commissionof 0.75% on gross freight, charter hire, ballast bonus and demurrage withrespect to each vessel in the fleet and a commission of 0.5% based on thecontract price of any vessel bought or sold by the manager on its behalf(excluding newbuildings), and a flat fee of $400,000 per newbuilding vessel forthe supervision of newbuilding contracts.

For the services rendered, the Manager charged eachvessel a daily fee ranging from $250 to $500. Management fees in 2006 amountedto approximately $7.6 million (2005: $5.0 million, 2004: $4.0 million).Therelated expenses are shown under General and Administrative Expenses on theStatement of Income.

The Company pays monthly advances on account of theabove management fees. These prepaid management fees are presented in theBalance sheet under, (Due from related parties).

**Relatedparty loans:****  **On March 14,2006 the Company entered into a new loan agreement with Seasonal MaritimeCorporation, a related party, which amounted to $30.4 million and was payablewithin a six- month period. On June 16, 2006, the Company repaid $25.4million of the amount outstanding under the loan facility. The outstanding loanbalance of $5.0 million was fully paid on August 8, 2006. The loan boreinterest at a margin of 1% pa over LIBOR. Interest expense charged for 2006 was$0.5 million.

On August 14, 2006 the Company entered into a newloan agreement with Seasonal Maritime Corporation, a related party, whichamounted to $75.0 million and was payable within a six-month period from suchdate. The loan bore interest at a margin of 1% pa over LIBOR. The loan wasfully repaid on December 28, 2006. Capitalized interest charged for 2006was $1.5 million.

On September 25, 2006 the Company entered into anew loan agreement with Seasonal Maritime Corporation, a related party, whichamounted to $25.0 million and was payable within a six-month period from suchdate. The loan bore interest at a margin of 1% pa over LIBOR. The loan wasfully repaid on December 28, 2006. Capitalized interest charged for 2006was $0.5 million.

F-25

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**14**             Taxes

Under the laws of the countries of the Company’s shipowning subsidiaries’ incorporation and/or vessels’ registration, the Company’sship operating subsidiaries are not subject to tax on international shippingincome, however, they are subject to registration and tonnage taxes, which havebeen included in Vessel Operating Expenses in the accompanying consolidatedStatements of Income.

Pursuant to the U.S.Internal Revenue Code (the “Code”), U.S.-source income from the internationaloperation of ships is generally exempt from U.S. tax if the company operatingthe ships meets certain requirements. Among other things, in order to qualifyfor this exemption, the company operating the ships must be incorporated in acountry which grants an equivalent exemption from income taxes to U.S. corporations.All of the Company’s ship-operating subsidiaries satisfy these initialcriteria. In addition, these companies must be more than 50% owned byindividuals who are residents, as defined, in the countries of incorporation oranother foreign country that grants an equivalent exemption to U.S. corporations.These companies also currently satisfy the more than 50% beneficial ownershiprequirement. In addition, should the beneficial ownership requirement not bemet, the management of the Company believes that by virtue of a special rule applicableto situations where the ship operating companies are beneficially owned by apublicly traded company like the Company, the more than 50% beneficialownership requirement can also be satisfied based on the trading volume and theanticipated widely-held ownership of the Company’s shares, but no assurance canbe given that this will remain so in the future, since continued compliancewith this rule is subject to factors outside of the Company’s control.

**15**             FinancialInstruments

The principal financial assets of the Company consistof cash and cash equivalents, trade receivables and other assets. The principalfinancial liabilities of the Company consist of long-term bank loans andaccounts payable.

***Interest Rate Risk:******  ***Interest raterisk arises on bank borrowings. The Company monitors the interest rate on borrowingsclosely to ensure that the borrowings are maintained at favorable rates. Theinterest rates relating to the long-term loans are disclosed in note 12.

***Concentration ofCredit Risk:******  ***Financial instruments that potentiallysubject the Company to significant concentrations of credit risk consistprincipally of cash, trade accounts receivable and derivatives. The Companyplaces its temporary cash investments, consisting mostly of deposits, with highcredit qualified financial institutions. The Company performs periodicevaluations of the relative credit standing of those financial institutionsthat are considered in the Company’s investment strategy. The Company does notrequire collateral on these financial instruments. The Company is exposed tocredit risk in the event of non-performance by counterparties to derivativeinstruments, however, the Company limits this exposure by diversifying amongcounterparties with high credit ratings. Credit risk with respect to tradeaccounts receivable is generally diversified due to the large number ofentities comprising the Company’s charterer base and their dispersion acrossmany geographic areas. The Company’s maximum exposure to credit risk is limitedto the carrying value of its derivative instruments. The Company is not a partyto master netting arrangements.

***Fair Value:***   Thecarrying amounts reflected in the accompanying consolidated balance sheets offinancial assets and liabilities excluding long-term bank loans approximatetheir respective fair values due to the short maturity of these instruments.The fair values of long-term floating rate bank loans approximate the recordedvalues, generally due to their variable interest rates. The carrying amount of 

F-26

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

fixed rate bank loans isadjusted by the gain or loss on the debt attributable to the hedged risk, and,for un-hedged loans, their carrying amount approximates their fair value.The fair value of the swap agreements equates to the amount that would be paidby the Company to cancel the swaps.

***Interest Rate Swaps:***   Theoff-balance sheet risk in outstanding swap agreements involves both the risk ofa counter-party not performing under the terms of the contract and the riskassociated with changes in market value. The Company monitors its positions,the credit ratings of counterparties and the level of contracts it enters intowith any one party. The counterparties to these contracts are major financialinstitutions. The Company has a policy of entering into contracts with partiesthat meet stringent qualifications and, given the high level of credit qualityof its derivative counter-parties, the Company does not believe it is necessaryto obtain collateral arrangements.

**1.**                 FairValue Interest Rate Swap Hedges

These interest rate swaps are designed to economicallyhedge the fair value of the fixed rate loan facilities against fluctuations inthe market interest rates by converting its fixed rate loan facilities tofloating rate debt. Pursuant to the adoption of the Company’s Risk ManagementAccounting Policy, and after putting in place the formal documentation requiredby SFAS 133 in order to designate these swaps as hedging instruments, as of June 15,2006, these interest rate swaps qualified for hedge accounting, and,accordingly, since that time, hedge ineffectiveness amounts arising from thedifferences in the change in fair value of the hedging instrument and thehedged item are recognized in the Company’s earnings. The Company considers itsstrategic use of interest rate swaps to be a prudent method of managing interestrate sensitivity, as it prevents earnings from being exposed to undue risk poseby changes in interest rates. Assessment and measurement of prospective andretrospective effectiveness for these interest rate swaps are being performedon a quarterly basis, on the financial statement and earnings reporting dates.

The total fair value change of the interest rate swapsfor the period from January 1, 2006 until December 31, 2006 amountedto $(329), and is included in the Income Statement in Gain/(Loss) on Fair Valueof Derivatives. The total fair value change of the interest rate swap from June 15,2006 (inception of the hedge) to December 31, 2006 was $2,637. The relatedliability of $3,661 is shown under Other Liabilities (long-term) in the BalanceSheet. The total fair value change of the underlying hedged debt for the periodfrom June 15, 2006 until December 31, 2006 amounted to $(2,292) andis included in the Income Statement in Gain/(Loss) on Fair Value ofDerivatives. The net ineffectiveness for December 31, 2006 amountedto $2,621 and is shown in the Income Statement under Gain/(Loss) on fair valueof derivatives.

**2.**                 CashFlow Interest Rate Swap Hedges

The company, according to its long-term strategic planto maintain relative stability in its interest rate exposure, has decided toswap part of its interest expenses from floating to fixed. To this effect, thecompany has entered into five (5) interest rate swap transactions withvarying start and maturity dates, in order to pro-actively and efficiently manageits floating rate exposure.

These interest rate swaps are designed to economicallyhedge the variability of interest cash flows arising from floating rate debt,attributable to movements in three-month USD$ LIBOR. According to the Company’sRisk Management Accounting Policy, and after putting in place the formaldocumentation required by SFAS 133 in order to designate these swaps as hedginginstruments, as from their inception, these interest rate swaps qualified forhedge accounting, and, accordingly, since that time, only hedge ineffectivenessamounts arising from the differences in the change in fair value of the hedginginstrument 

F-27

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

and the hedged item arerecognized in the Company’s earnings. Assessment and measurement of prospectiveand retrospective effectiveness for these interest rate swaps are beingperformed on a quarterly basis. For qualifying cash flow hedges, the fair valuegain or loss associated with the effective portion of the cash flow hedge isrecognized initially in shareholders’ equity, and recycled to the incomestatement in the periods when the hedged item will affect profit or loss. Anyineffective portion of the gain or loss on the hedging instrument is recognizedin the income statement immediately.

The total fair valuechange of the interest rate swaps from their inception in November and December 2006until December 31, 2006 amounted to $5,832, and is included in OtherComprehensive Income. There was no ineffective portion for the period of thehedge, The estimated amount of the existing gain on December 31, 2006 thatis expected to be reclassified as earnings in the next twelve months from December 31,2006 is nil.

**3.**                 ForeignCurrency Forward Contracts—Cash Flow Hedges

The Company entered into foreign currency forwardcontracts in 2004 to economically hedge its exposure to fluctuations of itsanticipated cash inflows in U.K. Pounds relating to certain lease arrangementsas explained in note 9 Under the contracts the Company will convert £29.7million of cash inflows to U.S. dollars at the time of maturity (in the yearsfrom 2006 to 2012). Pursuant to the adoption of the Company’s Risk ManagementAccounting Policy, and after putting in place the formal documentation requiredby SFAS 133 in order to designate these forwards as hedging instruments, as of June 30,2006, these foreign exchange forwards qualified for hedge accounting, and,accordingly, since that time, only hedge ineffectiveness amounts arising fromthe differences in the change in fair value of the hedging instrument and thehedged item are recognized in the Company’s earnings. Assessment andmeasurement of prospective and retrospective effectiveness for these interestrate swaps are being performed on a quarterly basis. For qualifying cash flowhedges, the fair value gain or loss associated with the effective portion ofthe cash flow hedge is recognized initially in shareholders’ equity, andrecycled to the income statement in the periods when the hedged item willaffect profit or loss. Any ineffective portion of the gain or loss on thehedging instrument is recognized in the income statement immediately.

The total fair value change of the forward contractsfor the period from July 1, 2006 (inception of the hedge) until December 31,2006 amounted to $(1,919) of which $(1,891) is included in Other ComprehensiveIncome and the remaining $(28) net ineffectiveness is shown in the IncomeStatement under Gain/(Loss) on fair value of derivatives. The estimated amountas at December 31, 2006 that is expected to be reclassified as a loss inthe next twelve months is $(896). The change in fair value of the forwardcontracts from January 1, 2006 to June 30, 2006 amounted to $(3,083)and is shown in the Income Statement under Gain/(Loss) on fair value ofderivatives.

As of December 31, 2006 the Company has recordedthe fair value of derivative instrument assets of $5,832 in Other assets (noncurrent) and derivative instrument liabilities of $1,466 in Other liabilities(current) and $5,775 in Other liabilities (non current).

F-28

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**16**             OperatingRevenue

Revenue from significant customers (constituting morethan 10% of total revenue), are as follows:

| ** **        | ** ** | **Years ended December 31,** | ** ** |
|-------------------|------------|---------------------------------------------|------------|
| **Charterer**     | ** ** | ** **                                  | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| APL               |       | 19%                                         |       | 16% |   | 15% |   |
| HMM Korea         |       | 11%                                         |       | Under 10 | % | Under 10 | % |
| CSCL              |       | Under 10                                    | %          | Under 10 | % | 11% |   |
| Korea Lines Corp. |       | Under 10                                    | %          | 12% |   | Under 10 | % |
|                   |            |                                             |            |  |  |  |  |  |  |

 

**17**             Revenue by GeographicLocation

| ** **         | ** ** | **Years ended December 31,** | ** **  |
|--------------------|------------|---------------------------------------------|-------------|
| **Continent**      | ** ** | ** **                                  | ** **  | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| AUSTRAL—ASIA  |       | $                                           | 120,082     |   | $ | 154,043 |   | $ | 145,944 |   |
| AMERICA            |       | 17,286                                      |        | 3,266 |   | — |   |
| EUROPE             |       | 70,900                                      |        | 84,072 |   | 99,644 |   |
| **Total  Revenue** | ** ** | **$**                                       | **208,268** | ** ** | **$** | **241,381** | ** ** | **$** | **245,588** | ** ** |
|                    |            |                                             |             |  |  |  |  |  |  |  |  |  |

 

**18**             Commitmentsand Contingencies

*Commitments*

TheCompany, as of December 31, 2005 and December 31, 2006, hadoutstanding commitments of approximately $128.8 million and $790.0 million respectivelyfor the construction of container vessels as follows:

| ** ** | ** ** | **TEU**    | ** ** | **Contract Price** | ** ** | **Outstanding  Commitments as  of December 31,  2005** | ** ** | **Outstanding  Commitments as  of December 31,  2006** | ** ** |
|------------|------------|------------|------------|-------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| Hull 1559  |       | 9,580      |       |                    | $          | 83,900                                                                |       |                                                                  |       | $ | 8,390 |   |   |   | — |   |   |
| Hull 1561  |       | 9,580      |       |                    | $          | 83,900                                                                |       |                                                                  |       | $ | 8,390 |   |   |   | — |   |   |
| Hull 1639  |       | 4,253      |       |                    | $          | 70,000                                                                |       |                                                                  |       | $ | 56,000 |   |   |   | $ | 49,000 |   |   |
| Hull 1640  |       | 4,253      |       |                    | $          | 70,000                                                                |       |                                                                  |       | $ | 56,000 |   |   |   | $ | 56,000 |   |   |
| Hull 1670  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 51,040 |   |   |
| Hull 1671  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 51,040 |   |   |
| Hull 1672  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 51,040 |   |   |
| Hull 1673  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 51,040 |   |   |
| Hull 1698  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 57,420 |   |   |
| Hull 1699  |       | 4,253      |       |                    | $          | 63,800                                                                |       |                                                                  |       | — |   |   |   | $ | 57,420 |   |   |
| Hull S4001 |       | 6,500      |       |                    | $          | 91,500                                                                |       |                                                                  |       | — |   |   |   | $ | 73,200 |   |   |
| Hull S4002 |       | 6,500      |       |                    | $          | 91,500                                                                |       |                                                                  |       | — |   |   |   | $ | 73,200 |   |   |
| Hull S4003 |       | 6,500      |       |                    | $          | 91,500                                                                |       |                                                                  |       | — |   |   |   | $ | 73,200 |   |   |
| Hull S4004 |       | 6,500      |       |                    | $          | 91,500                                                                |       |                                                                  |       | — |   |   |   | $ | 73,200 |   |   |
| Hull S4005 |       | 6,500      |       |                    | $          | 91,500                                                                |       |                                                                  |       | — |   |   |   | $ | 73,200 |   |   |
|       | ** ** | **85,684** | ** ** | ** **              | **$**      | **1,148,100**                                                         |       | ** **                                                            | ** ** | **$** | **128,780** |   | ** ** | ** ** | **$** | **790,000** |   |   |

 

F-29

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

On August 14, 2006the Company signed a commitment letter with The Royal Bank of Scotland for asenior revolving and term loan facility of up to $700 million. The Companyexpects to sign the final loan agreement during the 1st quarter of 2007.

*Contingencies*

There are no materiallegal proceedings to which the Company is a party or to which any of itsproperties are the subject, or other contingencies that the Company is awareof, other than routine litigation incidental to the Company’s business. In theopinion of management, the disposition of the aforementioned lawsuits shouldnot have a significant effect on the Company’s results of operations, financialposition and cash flows.

**19**             Saleof Vessel

The Gain on sale ofvessels of $15.0 million for the year ended December 31, 2006 reflects thesale of the *Sofia III* to a third party drybulkoperator for $27.5 million, (net proceeds of $26.8) representing a gain of$15.0 million over the acquisition cost of such vessel as depreciated to thetime of sale.

**20**             Stockholders’Equity

On October 14, 2005 andSeptember 18, 2006 the Company’s Articles of Incorporation were amended.Under the amended articles of incorporation the Company’s authorized capitalstock consists of 200,000,000 shares of common stock with a par value of $0.01and 5,000,000 shares of preferred stock with a par value of $0.01.

Additionally, on September 18, 2006, the Companyeffected an 88,615-for-1 split of its outstanding common stock. Allcommon stock amounts (and per share amounts) in the accompanying financialstatements have been adjusted to reflect the 88,615-for-1 stocksplit. In the accompanying consolidated balance sheets, the Company hasadjusted its stockholders’ equity accounts as of December 31, 2005 and2006 by increasing the stated capital and decreasing the additional paid-incapital by $443,070 to reflect the increase in outstanding shares from 500shares par value $.01 to 44,307,500 shares par value $.01. In the accompanyingconsolidated statements of income, basic and diluted net income per share andweighted average number of shares has been adjusted for all periods presented.

On October 6, 2006the Company completed its initial public offering in the United States underthe United States Securities Act of 1933, as amended. In this respect10,250,000 shares of common stock at par value of $0.1 were issued for $21 pershare. The net proceeds to the Company totaled $201.3 million.

**21**             SubsequentEvents (prior to the audit report date)

a.                 OnJanuary 8, 2007 the Company delivered *M/V Alexandra I*,a bulk carrier built in 1994 with DWT 69,090 resulting on a net gain of US$15.6 million approximately. The outstanding loan on the vessel was fully repaidon February 21, 2007.

b.                OnJanuary 10, 2007 the Company delivered *M/V Fivos,*abulk carrier built in 1994 with DWT 69,659 resulting on a net gain of US $15.5million approximately. The outstanding loan on the vessel was fully repaid onFebruary 21, 2007.

F-30

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

c.                 Declaration ofDividends: On January 18, 2007, the Company declared dividends amountingto $0.44 per common share for the fourth quarter of 2006 payable onFebruary 14, 2007 to all shareholders of record as of January 29,2007.

d.                APL-NOL onJanuary 18, 2007 has exercised its option to purchase the APL Holland fromthe Company for $44.0 million upon expiration of its current charter .

e.                 OnJanuary 30, 2007 the Company delivered *M/V Dimitris C,*abulk carrier built in 1994 with DWT 43,814 resulting on a net gain of US $13.8million approximately. The outstanding loan on the vessel was fully repaid onFebruary 21, 2007.

f.                   OnFebruary 27, 2007 the Company delivered *M/V RobertoC,*a bulk carrier built in 1994 with DWT 45,210 resulting on a netgain of US $14.0 million approximately. The outstanding loan on the vessel wasfully repaid on February 21, 2007.

g.                 OnFebruary 27, 2007 the Company delivered *M/V Maria C,*a bulk carrier built in 1994 with DWT 45,205 resulting on a net gainof US $13.9 million approximately. The outstanding loan on the vessel was fullyrepaid on February 21, 2007.

h.                On March 7,2007 the Company delivered *M/V APL England*,a container built in 2001 with 5,506 TEU to APL following the exercise of thecall option APL had for this vessel. The sale consideration was $44.6 million.There was no gain or loss on sale associated with this vessel.

i.                   OnMarch 2, 2007 the Company entered into newbuilding contracts with ChinaShipbuilding Trading Company, Limited for four 6,800 TEU containerships. Thevessels will be built by the Shanghai Jiangnan Changxing Heavy Industry CompanyLimited and they are expected to be delivered to Danaos during the second andthird quarter of 2010. The capital expenditure commitment which isapproximately of $400 million will be financed by existing credit facilitiesand own funds according to work in progress under the specific terms of theshipbuilding programs.

k.                On March 12,2007 the Company acquired a 4,300 TEU vessel *M/V NorasiaIntegra*, built in 2004 for $61.75 million. The vessel is currentlyunder charter with Norasia. The Company has not recognized a separate asset orliability for the existing charter due to the short remaining life andimmaterial fair value of such charter. From May 2007 the vessel willcommence its 12 year charter with Yang Ming Group at a daily rate of $27,800per day for the first four years and at a daily rate of $26,300 for theremaining period.

l.                   OnFebruary 20, 2007 the Company entered into a new loan agreement with theRoyal Bank of Scotland for a multi-currency revolving credit facility up to$700 million to refinance certain existing indebtedness and to finance thepurchase price of certain newbuildings. On February 20, 2007 the Companydrew down $75.5 million on this facility. The loan bears interest at therespective LIBOR plus 0.75%. Principal repayments will begin after the firstfive years and will be fully repaid by 2022.

m.            OnMarch 16, 2007 the Company entered into newbuilding contracts with HanjinHeavy Industries & Construction Co, Ltd for five 6,500 TEUcontainerships. The vessels are expected to be delivered to Danaos in late 2009and throughout June 2010. The capital expenditure commitment which isapproximately of $500 million will be financed by existing credit facilitiesand own funds according to work in progress under the specific terms of theshipbuilding 

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**DANAOS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

programs. TheCompany arranged for 15 year charters for three of these vessels with the YangMing Group at a rate of $34,325 per day.

**22.**          SubsequentEvents (Unaudited) occurring after the date of the audit report

a.                 OnApril 11, 2007 the Company entered into newbuilding contracts with HanjinHeavy Industries & Construction Co. Ltd for five 3,400 TEUcontainerships. The vessels are expected to be delivered to the Company in late2009 and throughout June 2010. The capital expenditure commitment which isapproximately $300 million will be financed by existing credit facilities andown funds according to work in progress under the specific terms of theshipbuilding programs. The Company arranged for 10 year charters for all ofthese vessels with a major line company.

b.                OnApril 30, 2007 the Company delivered M/V Achilleas, a bulk carrier builtin 1994 with DWT 69,180 resulting on a net gain of $15.7 million.

c.                 OnMay 24, 2007 the Company secured 18-year bareboat charters for each of two6,500 TEU containerships, recently placed on order with Hanjin HeavyIndustries & Construction Co. Ltd, that are expected to be deliveredto the Company in 2009 and 2010.

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