Contract analysis

I. Executive Summary This memorandum summarizes and flags the principal substantive issues identified in our review of the first draft credit agreement (the "Draft" or "Draft Credit Agreement") circulated by Whitmore, Jennings & Alcott LLP ("WJA") on behalf of Meridian Atlantic Bank, National Association ("Meridian Atlantic" or "MAB"), in its capacity as Sole Lead Arranger, Sole Bookrunner, and Administrative Agent,

1. SOFR Fallback Mechanics (Section II);

2. Mandatory Prepayment Waterfall (Section III);

3. Material Adverse Change Definition (Section IV);

4. Change of Control Trigger (Section V);

5. Vessel Sale Proceeds Application (Section VI);

6. Restricted Payments Basket (Section VII); and

7. Events of Default (Section VIII). Additional observations regarding conditions precedent, voting and amendment mechanics, and swingline and letter of credit provisions are addressed in Section IX. Recommended next steps are set forth in Section X, and a summary table of key issues is appended as Section XI.

II. SOFR Fallback Mechanics (Article II — Interest Rate Provisions) A. Benchmark Replacement Framework WJA's Draft pegs interest on borrowings under the Facility to Term SOFR (as published by CME Group Benchmark Administration Limited) plus an applicable margin ranging from 225 basis points to 325 basis points, determined by reference to a consolidated net leverage ratio pricing grid. This pricing structure is consis

Section 2.14(d) of the Draft grants the Administrative Agent broad authority to make "Conforming Changes" in connection with any benchmark replacement. The term "Conforming Changes" is defined in Section 1.01 as: "any technical, administrative, or operational changes (including changes to the definition of 'Base Rate,' the definition of 'Business Day,' the definition of 'Interest Period,' timing and frequency of dete

III. Mandatory Prepayment Waterfall (Section 2.11) A. Asset Sale Proceeds

Section 2.11(a) of the Draft requires mandatory prepayment from 100% of net cash proceeds from the sale, transfer, or other disposition of any vessel owned by any Loan Party, regardless of whether such vessel constitutes a "Mortgaged Vessel" (i.e., a vessel subject to a first-priority ship mortgage in favor of the Administrative Agent securing the obligations under the Facility). This provision is significantly broad

Section 2.11(b) of the Draft requires 100% of all insurance and casualty loss proceeds received by any Loan Party with respect to any Mortgaged Vessel to be applied to mandatory prepayment. This provision does not distinguish between partial casualty losses (where the vessel remains operational and can be repaired) and total losses (where the vessel is a constructive or actual total loss). We note that the requiremen

Section 2.11(c) of the Draft requires 100% of net cash proceeds from the incurrence of any indebtedness by any Loan Party to be applied to mandatory prepayment of outstanding revolving loans. This provision is drafted without exception and would capture proceeds from any debt issuance, including ordinary course vessel financings, capital leases, and refinancings of existing indebtedness of the Thalassa group. C&H's R

Section 2.11(d) of the Draft specifies the order of application of mandatory prepayments as follows: First, to outstanding swingline loans under the $15,000,000 swingline sublimit; Second, to outstanding revolving loans; Third, to cash collateralize outstanding letters of credit up to 103% of the aggregate undrawn face amount of all outstanding letters of credit (subject to the $20,000,000 LC sublimit); and Fourth, a

IV. Material Adverse Change Definition (Section 1.01 — Definitions) A. Breadth of Definition The Draft defines "Material Adverse Change" (also referred to as "Material Adverse Effect" or "MAE") in Section 1.01 as follows: "any event, development, circumstance, change, effect, or condition that has had or could reasonably be expected to have a material adverse effect on (i) the business, operations, property, assets,

V. Change of Control Trigger (Section 8.01 — Events of Default) A. WJA's Proposed Definition

Section 1.01 of the Draft defines "Change of Control" as the occurrence of any of the following events: (a) Nikolaos Karadimitriou and his Family Members (defined to include his spouse, children, grandchildren, and trusts established for the benefit of any of the foregoing) cease to beneficially own, directly or indirectly, at least 51% of the outstanding equity interests of the Borrower (on a fully diluted basis); (

VI. Vessel Sale Proceeds Application (Section 7.05 / Section 2.11) A. Current Draft Treatment The treatment of vessel sale proceeds in the Draft is addressed in two separate provisions that must be read together: Section 2.11 (Mandatory Prepayments), discussed in Section III above, and Section 7.05 (Asset Sales), a negative covenant that imposes substantive restrictions on the Borrower's ability to dispose of vessels

Section 7.05 of the Draft prohibits any Loan Party from selling, transferring, leasing, or otherwise disposing of any vessel except in accordance with the following conditions: (a) Individual Vessel Threshold: The fair market value of the vessel being disposed of must not exceed $10,000,000 (as determined by the most recent appraisal or, if no appraisal has been conducted within the prior twelve months, by an indepen

VII. Restricted Payments Basket (Section 7.06) A. WJA's Draft Provisions

Section 7.06 of the Draft restricts the ability of the Borrower and its Subsidiaries to declare or pay dividends, make distributions, repurchase equity interests, or make other "Restricted Payments" (as defined in the Draft). Restricted Payments are permitted only if all three of the following conditions are satisfied: (a) no Default or Event of Default exists at the time of such Restricted Payment or would result th

VIII. Events of Default (Section 8.01)

Section 8.01 of the Draft sets forth the Events of Default under the Facility. We have identified the following issues, each of which is discussed in turn. A. Payment Default

Section 8.01(a) provides that it shall be an Event of Default if the Borrower fails to pay (i) any amount of principal when due, with no grace period, or (ii) any amount of interest, fees, or other amounts payable under the Loan Documents within three (3) Business Days after the date on which such payment becomes due. C&H's Recommended Position. We recommend extending the grace period to three (3) Business Days for p

Section 8.01(b) provides that it shall be an Event of Default if any representation or warranty made or deemed made by any Loan Party in or in connection with any Loan Document shall prove to have been "incorrect in any respect" when made or deemed made. Issue. The absence of a materiality qualifier is a significant concern. Many of the representations in Article V of the Draft do not contain an embedded materiality

Section 8.01(c) provides that it shall be an Event of Default if the Borrower fails to observe or perform any financial covenant set forth in Section 7.11, with no notice requirement and no cure period. The financial covenants in Section 7.11 include: (i) Maximum consolidated net leverage ratio of 4.50:1.00, stepping down to 4.00:1.00 beginning with the first fiscal quarter ending on or after the third anniversary of

Section 8.01(g) provides that it shall be an Event of Default upon the entry of one or more final, non-appealable judgments or orders for the payment of money in an aggregate amount exceeding $5,000,000 against the Borrower or any Subsidiary. C&H's Recommended Position. Consistent with our recommendation on the cross-default threshold, we recommend increasing the judgment default threshold from $5,000,000 to $10,000,

Section 8.01(i) of the Draft includes standard U.S. ERISA-related default triggers, including the occurrence of any ERISA Event (as defined in the Draft to include the occurrence of a reportable event under Section 4043 of ERISA, the filing of a notice of intent to terminate a pension plan, the institution of proceedings to terminate a pension plan by the PBGC, the failure to meet minimum funding standards, the impos