12.	Share-based compensation:

In December 2005, the Company’s Board of Directors adopted the Seaspan Corporation Stock Incentive Plan (the “Plan”), under which our officers, employees and directors may be granted options, restricted shares, phantom shares, and other stock-based awards as may be determined by the Company’s Board of Directors. In December 2015, the Plan, which is administered by the Company’s Board of Directors, was amended to increase the total shares of common stock reserved for issuance under the Plan to 3,000,000 (2014 – 2,000,000). The Plan was also amended to an indefinite term (2014 – ten years) from the date of its adoption. At December 31, 2015, there are 1,418,715 (2014 – 578,598) remaining shares left for issuance under this Plan.

A summary of the Company’s outstanding restricted shares, phantom share units, SARs and restricted stock units as of December 31, 2015 is presented below:

	Restricted shares					Phantom share units					Stock appreciation rights					Restricted stock units
	Number			W.A. grant		Number			W.A. grant		Number of			W.A. grant		Number			W.A. grant
	of shares			date FV		of units			date FV		SARs			date FV		of units			date FV
December 31, 2012		63,653		$	14.17		562,000		$	13.13		5,674,148		$	2.03		—		$	—
Granted		54,990			17.01		95,000			19.30		1,664,457			3.51		—			—
Vested		(65,578	)		14.25		—			—		—			—		—			—
Exercised		—			—		—			—		(241,906	)		3.65		—			—
Cancelled		(4,185	)		17.01		—			—		(23,754	)		3.51		—			—
December 31, 2013		48,880			17.01		657,000			14.02		7,072,945			2.32		—			—
Granted		43,936			22.57		70,000			23.04		—			—		72,314			23.03
Vested		(48,880	)		17.01		—			—		—			—		(37,238	)		23.03
Exercised		—			—		—			—		(1,193,529	)		2.42		—			—
Exchanged		—			—		(20,000	)		19.00		—			—		—			—
Cancelled		—			—		—			—		—			—		—			—
December 31, 2014		43,936			22.57		707,000			14.77		5,879,416			2.30		35,076			23.03
Granted		51,368		18.39			100,000			18.24		—			—		38,142		20.21
Vested		(45,924	)	22.39			—			—		—			—		(35,195	)	22.01
Exchanged		—			—		(110,000	)	16.21			—			—		—			—
Cancelled		(4,433	)	18.39			(49,999	)	19.66			(2,605	)	3.65			(5,195	)	21.86
December 31, 2015		44,947		$	18.39		647,001		$	14.73		5,876,811		$	2.30		32,828		$	21.03

During 2015, the Company recognized $3,928,000 (2014 – $7,701,000; 2013 – $14,004,000) in compensation cost related to the above share-based compensation awards.

At December 31, 2015, there was $1,956,000 (2014 – $3,041,000) of total unrecognized compensation costs relating to unvested share-based compensation awards which are expected to be recognized over a weighted average period of 17 months.

(i)

Restricted shares and phantom share units:

Class A common shares are issued on a one for one basis in exchange for the cancellation of vested restricted shares and phantom share units. The restricted shares generally vest over one year and the phantom share units generally vest over three years. During 2015, the total fair value of restricted shares vested was $1,028,000 (2014 – $831,000; 2013 – $935,000) and the total fair value of shares cancelled was $82,000 (2014 – nil; 2013 – $71,000).

As vested outstanding phantom share units are only exchanged for common shares upon written notice from the holder, the phantom share units that are exchanged for common shares may include units that vested in prior periods. At December 31, 2015, 547,001 (2014 – 560,334) of the outstanding phantom share units were vested and available for exchange by the holder.

(ii)

Share appreciation rights:

On March 27, 2013, the Company granted 1,664,457 SARs to certain members of management (the “Participants”) which vest and become exercisable in three tranches when and if the fair market value of the common shares equals or exceeds the applicable base price for each tranche for any 20 consecutive trading days on or before the expiration date of each tranche. The Participants may exercise each vested tranche of SARs and receive common shares with a value equal to the difference between the applicable base price and the fair market value of the common shares on the exercise date. The common shares received on the exercise of SARs are subject to a retention requirement where the Participant is required to retain ownership of 50% of the net after tax number of shares until the later of March 22, 2018 or 120 days after the exercise date.

The assumptions used in the Monte Carlo model to calculate the grant date fair value of the SARs were as follows:

	2013
Average expected term	3.8 years
Expected volatility		39.73	%
Dividend yield		4.97	%
Average risk free rate		0.50	%

The following table provides information about the three tranches of SARs granted:

				Number of SARs granted
	Base price		Expiration date	2013
Tranche 1	$	21.50	December 7, 2015		531,885
Tranche 2		24.00	December 7, 2016		556,946
Tranche 3		26.50	December 7, 2017		575,626
Total					1,664,457

(iii)

Restricted stock units:

Under the Company’s Cash and Share Bonus Plan, the Company grants restricted stock units to eligible participants. The restricted stock units generally vest over three years, in equal one-third amounts on each anniversary date of the date of the grant. The restricted stock units are valued at the market price of the underlying securities on the grant date and the compensation expense, based on the estimated number of awards expected to vest, is recognized over the three-year vesting period. Upon vesting of the restricted stock units, the participant will receive class A common shares.

(iv)

Other share-based awards:

During 2015, the Company incurred $9,506,000 (2014 – $7,323,000; 2013 – $3,532,000) in transaction fees that were capitalized to vessels of which $4,753,000 (2014 – $3,662,000; 2013 – $1,766,000) were paid in Class A common shares.

During 2015, the Company incurred $8,627,000 (2014 – $4,520,000; 2013 – $6,631,000) in arrangement fees that were primarily capitalized to deferred financing fees of which $4,314,000 (2014 – $2,260,000; 2013 – $2,666,000) were paid in Class A common shares.

The Company also recognized $600,000 (2014 – $600,000; 2013 – $600,000) in share-based compensation expenses related to the accrued portion of performance based bonuses that are expected to be settled in stock-based awards in future periods. The number of shares issued under each of these arrangements is based on volume weighted average share prices as defined in the underlying agreements.