MARKUP OF DRAFT ASSIGNMENT OF EARNINGS
REDLINE / ANNOTATED MARKUP BY BORROWER'S COUNSEL
PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
Transmitted to:
Priya Subramanian, Esq. Harrison Caldwell, Esq. Whitmore, Jennings & Alcott LLP 51 West 52nd Street New York, NY 10019
PREFATORY MARKUP COVER MEMORANDUM
June 23, 2023
Priya Subramanian, Esq. Whitmore, Jennings & Alcott LLP 51 West 52nd Street New York, NY 10019
Re: Calderwood & Harkness LLP Redline of Draft Assignment of Earnings $150,000,000 Senior Secured Revolving Credit Facility Thalassa Shipping & Logistics SA — Borrower Calderwood & Harkness LLP Matter No. 1044-00002
Dear Priya:
We write on behalf of our client, Thalassa Shipping & Logistics SA (the "Borrower"), to transmit Calderwood & Harkness's redline markup of the draft Assignment of Earnings circulated by Whitmore, Jennings & Alcott LLP on June 16, 2023 (the "WJA Draft"). This marked-up version reflects the Borrower's comments and proposed revisions to the WJA Draft.
This redline is delivered alongside our markups of the following documents, each of which is being transmitted to you under separate cover as of today's date:
(a) the First Preferred Ship Mortgage (C&H redline dated June 23, 2023);
(b) the Share Pledge Agreement (C&H redline dated June 23, 2023); and
(c) the Assignment of Insurances (C&H redline dated June 23, 2023).
Our comments and proposed changes are tracked in redline format throughout the document, with marginal annotations numbered sequentially from Comment No. 1 through Comment No. 47. Certain of these comments are cross-referenced to the near-final Credit Agreement (third draft dated June 2, 2023, as marked up by Calderwood & Harkness on June 9, 2023) and to the form First Preferred Ship Mortgage, in order to ensure consistency among the Loan Documents.
We have identified forty-seven (47) comments and redline changes in total across the document. The principal areas of concern that we believe warrant discussion at the earliest opportunity are as follows:
(i) Account Bank Requirements — The Borrower's position regarding the reasonableness standard for Account Bank approval, minimum credit-rating requirements, deemed approval for Lender affiliates, and accommodations for non-U.S. banks that may be unable to contractually waive set-off rights under applicable mandatory law;
(ii) Permitted Distributions to Borrower — The requirement that surplus Earnings be freely distributable to the Borrower absent an Event of Default, without the need for Administrative Agent or Collateral Agent consent, which we believe is fundamental to preserving the Borrower's operational autonomy under a collateral assignment structure;
(iii) Subordination of Inter-Company Receivables — The Borrower's acceptance of subordination in right of payment, coupled with the necessity of permitting ordinary-course inter-company payments absent an Event of Default, subject to compliance with the Credit Agreement covenants; and
(iv) Notification Mechanics — Grace periods for initial post-closing notifications, materiality thresholds for charterer dispute notifications, the limitation of new-fixture notice obligations to long-term charters (12 months or more), and the requirement for simultaneous notice to the Borrower of any Notice of Exclusive Control.
We would welcome the opportunity to schedule a call at your earliest convenience to discuss these topics and any questions your clients may have regarding our markup. Ian Blackwood and I are available throughout the week of June 26, and Daniel Obi will be available to address any technical or drafting points as well.
Please do not hesitate to contact me directly at (212) 555-4102 or by email at stremblay@calderwoodharkness.com.
Very truly yours,
Sophie Tremblay Senior Associate, Banking & Finance Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022 Tel: (212) 555-4102 stremblay@calderwoodharkness.com
cc: Ian Blackwood (Calderwood & Harkness LLP) Daniel Obi (Calderwood & Harkness LLP) Aris Komnenidis (Thalassa Shipping & Logistics SA, General Counsel)
ASSIGNMENT OF EARNINGS
REDLINED TEXT Calderwood & Harkness LLP Markup — June 23, 2023 47 Comments / Tracked Changes
PREAMBLE AND PARTIES
This ASSIGNMENT OF EARNINGS (this "Assignment") is made and entered into as of [●], 2023 (the "Closing Date"), by and among:
(1) Each of the entities listed on Schedule 1 hereto as the registered owner of a Mortgaged Vessel (each, ), being ;
> Comment No. 1: We have inserted the defined term "Assignor" to mean each applicable vessel-owning subsidiary listed on Schedule 1. The current WJA Draft does not include a clear definitional framework for the various entities that will be parties to this Assignment. We propose cross-referencing the Schedule of Mortgaged Vessels, which should be attached as Schedule 1 and should correspond to the equivalent schedule in the Credit Agreement and the First Preferred Ship Mortgage.
> Comment No. 2: The Assignors include subsidiaries of both Thalassa Dry Bulk Holdings Ltd. (Republic of Cyprus) and Thalassa Tanker Operations Ltd. (Republic of the marshall Islands). The form of this Assignment must accommodate both Cypriot and marshall Islands law entities. We request that WJA confirm that the representations, warranties, and covenants set forth herein are appropriate for entities organized under both jurisdictions, and that any jurisdiction-specific provisions (including enforcement considerations) have been considered. We also note that certain Assignors may be organized under marshall Islands law, which follows, in substantial respects, the general corporation law of the State of Delaware; however, specific shipping-related provisions of marshall Islands law (including the Maritime Act 1990) should be taken into account.
> Comment No. 2A: Thalassa Logistics International Ltd. serves as the chartering and logistics coordination entity for several of the Mortgaged Vessels and maintains certain earnings accounts in connection with those operations. TLI should be included as an Assignor to the extent it holds Earnings Accounts attributable to the Mortgaged Vessels.
PINNACLE TRUST & AGENCY SERVICES INC., a corporation organized under the laws of the State of Delaware (the "Collateral Agent"), having its principal office at One Liberty Plaza, 44th Floor, New York, NY 10006, acting in its capacity as Collateral Agent and Security Trustee under the Credit Agreement (as defined below), for the benefit of the Secured Parties (as defined below).
> Comment No. 2B: Please confirm that Pinnacle Trust & Agency Services Inc. is acting as Collateral Agent for the benefit of the Secured Parties, which term should encompass (i) Meridian Atlantic Bank, National Association, in its capacity as Administrative Agent, (ii) each of the Lenders (namely, Nordkapp Maritime Finance AG, Clearwater Commercial Lending LLC, Eastbourne Capital Partners LLP, and Meridian Atlantic Bank, National Association, in its capacity as a Lender), and (iii) any other Secured Party as defined in the Credit Agreement. Please also confirm whether Pinnacle Trust's appointment as Collateral Agent is pursuant to a separate agency and trust agreement or is governed by the provisions of Article [●] of the Credit Agreement.
RECITALS
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1: DEFINITIONS AND INTERPRETATION
1.1 Definitions. As used in this Assignment, the following terms shall have the following meanings:
"Account Bank" means .
> Comment No. 3: The Borrower should not be subject to an unfettered discretion standard for approval of its account banks. A reasonableness standard is customary and well-established in shipping finance facilities of this nature. We note that the Loan Market Association's recommended forms for ship finance facilities consistently employ a "not to be unreasonably withheld" qualification with respect to account bank approvals. The Administrative Agent's unfettered discretion to reject an Account Bank could, in practice, disrupt the Borrower's banking relationships and create uncertainty regarding the Assignors' ability to comply with the deposit obligations set forth in Section 3.
> Comment No. 4: We have added a deemed-approval proviso for any bank that is a Lender or an Affiliate of a Lender. If the syndicate banks (or their affiliates) are serving as account banks, their creditworthiness and relationship with the Facility should obviate the need for a separate approval. We have also added a minimum credit-rating requirement, which we believe is a reasonable and objective standard that protects the Secured Parties while affording the Borrower certainty regarding qualifying institutions.
"Earnings" means all freight, hire, passage money, compensation, remuneration, and other income whatsoever arising from the employment, use, or operation of a Mortgaged Vessel, including (without limitation) all charter hire, pooling income, contract of affreightment income, demurrage, dead freight, detention income, and any other amounts payable under or in connection with any charter party, contract of affreightment, or other agreement for the employment of a Mortgaged Vessel, together with all claims and rights of action in respect of the foregoing, .
> Comment No. 5: We request confirmation that the definition of "Earnings" excludes salvage awards and other amounts that fall within the scope of the separately negotiated Assignment of Insurances. As currently drafted, the broad language of the WJA Draft could result in a double assignment of certain categories of income — particularly salvage awards, which are customarily treated as insurance-related proceeds in shipping finance transactions. The proposed carve-out for Insurance Proceeds (as defined in the Assignment of Insurances) avoids this overlap and ensures clarity as to which security document governs which category of income.
> Comment No. 6: The Borrower confirms that demurrage, dead freight, and detention income are properly included in the definition of "Earnings" and should be subject to the same distribution waterfall and Permitted Distribution mechanics set forth in Section 4. We have reflected this understanding by including these items expressly in the definition above. We request WJA's confirmation that this treatment is consistent with the Lenders' expectations.
"Earnings Account" means .
> Comment No. 7: The Borrower's fleet includes vessels employed on Mediterranean short-sea trades under charter parties denominated in euros, as well as vessels employed on intra-Asian trades that generate income in other currencies. A rigid USD-only requirement would necessitate costly and operationally burdensome currency conversions that serve no meaningful security purpose. We have proposed adding flexibility for Earnings Accounts denominated in other currencies where approved by the Administrative Agent (on a reasonableness standard). In addition, the requirement for a separate Earnings Account for each of the 18 Mortgaged Vessels would impose unnecessary administrative burden and banking costs. We have proposed that a single Assignor may maintain one Earnings Account for multiple vessels it owns, provided adequate sub-accounting is maintained to identify vessel-level Earnings. This approach is consistent with standard market practice in multi-vessel shipping facilities.
> Comment No. 8: The WJA Draft does not include a defined term for "Permitted Distributions." We believe this concept is central to the operation of the Earnings Account mechanics and the distribution waterfall in Section 4, and should be clearly defined. The proposed definition cross-references Section 4, which sets forth the conditions and limitations on distributions.
> Comment No. 9: The WJA Draft does not define "Inter-Company Receivables," notwithstanding that Section 5 imposes subordination and payment restrictions on such amounts. We have proposed a definition that captures the full range of ordinary-course inter-company payments that flow between the Borrower and its vessel-owning subsidiaries, including management fees paid to the Borrower (or to TLI) for commercial and technical management of the fleet, as well as inter-company loans used for working capital purposes. This definition is relevant to the subordination mechanic in Section 5, as marked up.
Unless otherwise defined herein, capitalized terms used in this Assignment shall have the meanings ascribed to such terms in the Credit Agreement, including (without limitation) the terms "Administrative Agent," "Affiliate," "Business Day," "Closing Date," "Collateral Agent," "Commitments," "Credit Agreement," "Default," "Event of Default," "Lenders," "Lien," "Loan Documents," "Obligations," "Permitted Liens," "Required Lenders," and "Secured Parties."
> Comment: We request that the foregoing cross-reference be added to ensure definitional consistency with the Credit Agreement. All capitalized terms used but not separately defined in this Assignment should take their meanings from the Credit Agreement dated [●], 2023, among Thalassa Shipping & Logistics SA as Borrower, the Guarantors, Meridian Atlantic Bank, National Association as Administrative Agent, and the Lenders from time to time party thereto.
1.2 Interpretation. (a) References in this Assignment to any Section, Schedule, or Exhibit are references to such Section of, or Schedule or Exhibit to, this Assignment unless otherwise specified. The headings and captions in this Assignment are included for convenience of reference only and shall not be given any substantive effect.
(b) The words "hereof," "herein," "hereto," and "hereunder" and words of similar import when used in this Assignment shall refer to this Assignment as a whole and not to any particular provision of this Assignment.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(d) References to the singular shall include the plural and vice versa, and references to any gender shall include all genders.
(e) Unless the context otherwise requires, references to any agreement or document shall mean such agreement or document as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
(f) This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York, consistent with Section [●] of the Credit Agreement.
> Comment: The interpretation provisions should be aligned with Section 1.02 of the near-final Credit Agreement (as marked up by C&H on June 9, 2023) to ensure consistency across the Loan Documents.
SECTION 2: ASSIGNMENT
2.1 Grant of Assignment
Each Assignor hereby irrevocably and unconditionally assigns to the Collateral Agent, for the benefit of the Secured Parties, all of such Assignor's right, title, and interest in and to (a) the Earnings, (b) the Earnings Accounts (including all amounts on deposit therein from time to time), and (c) all proceeds of the foregoing.
> Comment No. 10: It is fundamental to the Borrower's position that this instrument constitutes a collateral assignment — that is, an assignment by way of security — rather than an absolute assignment. The distinction is critical for several reasons: (i) an absolute assignment would divest the Assignors of all ownership rights in the Earnings, which is inconsistent with the operational structure of the Facility and the Borrower's need to utilize Earnings for vessel operations; (ii) under New York law, a collateral assignment preserves the Assignor's equity of redemption; and (iii) the characterization of this assignment as a security interest is necessary for purposes of perfection under Article 9 of the Uniform Commercial Code. We have added language to make the nature of the assignment express and unambiguous.
> Comment No. 11: The WJA Draft does not include an express proviso preserving the Assignor's right to receive and use Earnings absent an Event of Default. This proviso is essential to ensure that the assignment operates as a security interest rather than a transfer of operational control. The Assignors must retain the ability to apply Earnings to vessel operating expenses, debt service, and other permitted purposes during the normal course of business.
2.2 Scope of Assignment
The assignment made pursuant to Section 2.1 covers all Earnings arising from or in connection with each Mortgaged Vessel, including (without limitation) Earnings under any charter party, contract of affreightment, voyage charter, time charter, bareboat charter, or other agreement for the employment, use, or operation of a Mortgaged Vessel, whether now existing or hereafter arising.
> Comment No. 12: Under the Credit Agreement, only time charters with remaining terms of 12 months or more are required to be separately assigned under Charter Assignments. The WJA Draft does not clarify the interplay between this Assignment and the Charter Assignment requirements. We have added language to make clear that (a) Earnings under spot/voyage charters and shorter-term time charters are captured by this Assignment without the need for additional documentation, and (b) for longer-term time charters that are subject to separate Charter Assignments, this Assignment operates in addition to (and without prejudice to) the rights created by such Charter Assignments. This avoids any gap in the security coverage while also preventing unnecessary duplication of documentation for the fleet's extensive spot-market trading activity.
2.3 Duration. This Assignment shall remain in full force and effect until all Obligations have been indefeasibly paid in full . Upon the satisfaction of all of the foregoing conditions, the Collateral Agent shall execute and deliver such documents and instruments as may be necessary to release and reassign the Earnings and the Earnings Accounts to the relevant Assignors in accordance with Section 10 (Release and Reassignment) hereof.
> Comment No. 13: We have conformed the termination language to the standard "payment in full and commitment termination" formulation used in the Credit Agreement. We have also added a cross-reference to Section 10, which addresses the mechanics of release and reassignment. It is important that the obligation of the Collateral Agent to execute release documentation be express and self-executing upon satisfaction of the discharge conditions.
SECTION 3: EARNINGS ACCOUNT MECHANICS
3.1 Establishment and Maintenance of Earnings Accounts
Each Assignor shall establish and maintain at an Account Bank, and shall cause all Earnings to be deposited .
> Comment No. 14: We have added a 30-day grace period following the Closing Date for each Assignor to redirect earnings flows to the designated Earnings Accounts. As of the date hereof, the Assignors maintain payment arrangements with numerous charterers pursuant to which hire and freight are paid to various operating accounts. Redirecting all such payments to the designated Earnings Accounts will require the issuance of amended payment instructions to charterers, which cannot practicably be accomplished simultaneously with closing. Thirty days is a reasonable period within which to effect this transition, and is consistent with the post-closing periods customarily afforded in comparable shipping finance transactions.
> Comment No. 15: The WJA Draft does not address the ability of an Assignor to change its Account Bank. The Borrower requires the flexibility to move banking relationships for commercial and operational reasons, subject to appropriate protections for the Secured Parties. The proposed mechanic requires 15 Business Days' advance notice to the Collateral Agent, satisfaction of the Account Bank definition, and execution of a replacement Account Control Agreement. We believe this strikes an appropriate balance between operational flexibility and security.
3.2 Account Bank Requirements
(a)
> Comment No. 16: Consistent with our comments regarding the reasonableness standard for Account Bank approval, we have replaced "satisfactory" with "reasonably satisfactory" in respect of the form of Account Control Agreement. An unqualified "satisfactory" standard confers unfettered discretion on the Collateral Agent with respect to the form and substance of the Account Control Agreement, which could unreasonably delay closing or prevent the Borrower from engaging Account Banks that are unwilling to accept non-standard account control terms.
(b) The Account Bank shall acknowledge the Collateral Agent's first-priority security interest in the applicable Earnings Account.
(c) The Account Bank shall agree not to exercise any right of set-off or banker's lien against the applicable Earnings Account.
> Comment No. 17: The Borrower agrees in principle that the Account Control Agreement should include a waiver of the Account Bank's set-off and banker's lien rights with respect to the Earnings Account. However, we note that certain non-U.S. banks — particularly regulated institutions in the European Union and Switzerland — may be unable as a matter of applicable mandatory law to contractually waive their set-off rights in full. For example, under certain EU member state banking regulations, statutory set-off rights arising by operation of law may be non-waivable. The Borrower requests that the conditions precedent in the Credit Agreement (and the corresponding requirements in this Assignment) allow the Administrative Agent to accept alternative arrangements where the Account Bank is a regulated EU or Swiss bank that cannot provide a full contractual set-off waiver. Such alternative arrangements might include a side letter from the Account Bank acknowledging the security interest and agreeing to limit the exercise of set-off rights to the extent permitted under applicable law, or a reduced waiver that covers voluntary set-off but carves out mandatory statutory set-off. We would welcome a discussion with WJA and Pinnacle Trust's counsel on this point.
(d) The Account Bank shall agree to comply with instructions of the Collateral Agent following delivery of a Notice of Exclusive Control .
> Comment No. 18: The Borrower requests confirmation that a Notice of Exclusive Control may only be delivered following the occurrence and during the continuance of an Event of Default, after the expiration of any applicable grace or cure period. This is a critical borrower protection; the Collateral Agent should not have the ability to assume exclusive control of the Earnings Accounts absent the occurrence of an Event of Default. We have also added a cross-reference to Section 6.4, which (as marked up) sets forth the notice mechanics and the Borrower's right to receive simultaneous notice.
3.3 Deposits into Earnings Account
> Comment No. 19: The requirement in the WJA Draft that all Earnings be paid "directly" into the Earnings Account by the relevant charterer or freight payer is not commercially practicable for the Borrower's fleet operations. Thalassa operates a fleet of 40 vessels, many of which trade on the spot market and are fixed on short-term voyage charters. Spot charterers typically pay freight to the shipowner's nominated general operating account, and it is not feasible to require each spot charterer to make payment to a segregated Earnings Account — particularly where the commercial relationship with the charterer may be for a single voyage. The proposed alternative — a requirement for the Assignor to transfer Earnings to the applicable Earnings Account within five (5) Business Days of receipt — provides the Secured Parties with substantially equivalent protection while accommodating the commercial realities of spot-market trading.
> Comment No. 20: For time charters with remaining terms of 12 months or more (which are separately assigned under Charter Assignments pursuant to the Credit Agreement), the direct payment mechanic is more appropriate and practicable, as the charterer's payment instructions can be amended at the outset of the charter term. We request that a cross-reference be added to the relevant Charter Assignment, which will contain direct payment instructions directed to the charterer. For such charters, the provisions of the Charter Assignment (including the irrevocable payment instruction to the charterer) should govern, and the five-Business-Day transfer mechanic should serve as a backstop rather than the primary deposit mechanism.
3.4 Minimum Balance Requirement
> Comment No. 21: The Borrower requests the deletion of the per-vessel minimum balance requirement in its entirety. This requirement is (a) inconsistent with the term sheet agreed between the parties, which does not contemplate a per-vessel minimum balance, (b) duplicative of the minimum liquidity covenant set forth in Section [●] of the Credit Agreement, which requires the Borrower to maintain at all times unrestricted cash and cash equivalents plus available and undrawn Commitments under the Facility of not less than $30,000,000 in the aggregate, and (c) operationally burdensome, as it would require each of the 18 Mortgaged Vessel Earnings Accounts to maintain a "float" based on a 60-day forward estimate of operating expenses, which estimate is inherently uncertain and subject to the Administrative Agent's determination. The aggregate minimum liquidity covenant in the Credit Agreement already provides the Lenders with adequate protection against cash-flow shortfalls.
> Alternatively, if the Lenders insist upon a minimum balance requirement as an additional layer of protection beyond the Credit Agreement minimum liquidity covenant, the Borrower would consider a reduced aggregate minimum balance across all Earnings Accounts (rather than per-vessel), set at a fixed amount of $5,000,000 in the aggregate (rather than a floating 60-day OpEx estimate, which introduces uncertainty and the potential for disputes regarding the Administrative Agent's calculation methodology). Any such aggregate minimum balance should be subject to a cure period of not less than ten (10) Business Days in the event of a shortfall, and a failure to maintain the minimum balance should not, standing alone, constitute an Event of Default but rather a Default subject to notice and cure.
SECTION 4: PERMITTED DISTRIBUTIONS TO BORROWER
4.1 Distribution Waterfall (Prior to Event of Default)
So long as no has occurred and is continuing, each Assignor may withdraw funds from the Earnings Account in the following order of priority:
(1) Payment of vessel operating expenses related to the applicable Mortgaged Vessel, including (without limitation) crew wages, maintenance and repair costs, stores and provisions, lubricants, and port charges;
(2) Payment of scheduled debt service (including principal, interest, fees, and other amounts) due and payable under the Credit Agreement;
(3) Payment of insurance premiums in respect of the applicable Mortgaged Vessel, as required under the Credit Agreement and the Assignment of Insurances;
(4)
(5)
> Comment No. 22: Step 5 as drafted in the WJA Draft is unacceptable to the Borrower. The requirement that surplus Earnings be retained in the Earnings Account unless released by the Administrative Agent "in its sole discretion" is fundamentally inconsistent with the nature of a collateral assignment, which is granted for security purposes and should not, absent an Event of Default, deprive the Borrower of operational control of its cash. A sole-discretion release mechanism is not market for revolving credit facilities in the shipping sector, where borrowers must retain the ability to deploy Earnings for fleet management, growth capital expenditures, dividend payments to equity holders, and other corporate purposes. The Borrower's proposed redline ensures that, absent a Default or Event of Default, surplus Earnings are freely distributable. This is consistent with the Borrower's understanding of the commercial terms agreed during the negotiation of the term sheet and the Credit Agreement.
> Comment No. 23: If the Lenders require any restriction on surplus distributions, the Borrower would accept a "distribution blocker" limitation — i.e., a proviso that no distribution may be made if (a) a Default or Event of Default has occurred and is continuing, or (b) the making of such distribution would itself cause a Default or Event of Default. This is a customary and proportionate restriction that addresses the Lenders' legitimate interest in preserving collateral value during a credit deterioration event, without imposing an affirmative consent requirement that would give the Administrative Agent or Collateral Agent a veto over the Borrower's ordinary-course treasury operations.
> Comment No. 24: We have also proposed adding express permission for payments of inter-company management fees and technical services fees from any Assignor to the Borrower or to Thalassa Logistics International Ltd. Such payments are essential to the Borrower's business model, under which technical and commercial management services are provided by the Borrower (or by TLI) to the vessel-owning subsidiaries on an arm's-length basis, with management fees calculated by reference to market rates for comparable services. These payments should be treated as permitted items within the distribution waterfall, provided they are on arm's-length terms and consistent with the Permitted Payments provisions of the Credit Agreement.
4.2 Restrictions During Event of Default
Upon the occurrence and during the continuance of an Event of Default, no withdrawals or distributions shall be made from any Earnings Account without the prior written consent of the Collateral Agent (acting on the instructions of the Required Lenders)
.
> Comment No. 25: The Borrower accepts the general restriction on distributions during the continuance of an Event of Default, which is a standard and appropriate remedy in favor of the Secured Parties. However, the WJA Draft makes no provision for the payment of critical operating expenses necessary to prevent the arrest, detention, or de-classification of the Mortgaged Vessels. Failure to pay crew wages can result in maritime liens being asserted against the vessel, and in some jurisdictions crew members may apply for the arrest of the vessel. Failure to pay port state or flag state fees may result in the detention of the vessel or the withdrawal of the vessel's flag registration. Failure to pay insurance premiums would result in the lapse of required coverages, in violation of the Credit Agreement and the Assignment of Insurances. Failure to pay classification society fees may result in the suspension or withdrawal of class, which would render the vessel commercially inoperable and in breach of most charter party terms.
> In each of these cases, the failure to make the payment would impair the value of the collateral, which is directly contrary to the Lenders' own economic interest. The proposed carve-out is narrow and requires prior notice to the Collateral Agent (with a two-Business-Day advance notice requirement, or such shorter notice as is practicable in urgent situations), together with supporting documentation. This is a protective mechanism that operates for the benefit of both the Borrower and the Secured Parties.
> Comment No. 26: We note that the carve-out for critical operating expenses during an Event of Default is consistent with the approach taken in the form First Preferred Ship Mortgage, which permits the Borrower to apply insurance proceeds to emergency repairs necessary to preserve the vessel's class and seaworthiness.
SECTION 5: SUBORDINATION OF INTER-COMPANY RECEIVABLES
5.1 Subordination.
> Comment No. 27: The blanket prohibition on payment of Inter-Company Receivables in the WJA Draft is overreaching and would fundamentally disrupt the ordinary treasury operations and cash management structure of the Thalassa group. The Borrower provides commercial and technical management services to its vessel-owning subsidiaries, and management fees are the primary revenue stream flowing from the Assignors to the Borrower at the parent level. A prohibition on the payment of these fees would, in effect, deprive the Borrower of its principal source of revenue and render it unable to service its own obligations — including its obligations under the Credit Agreement.
> The Borrower accepts subordination of Inter-Company Receivables in right of payment, which means that, upon the occurrence and during the continuance of an Event of Default (and in any insolvency or liquidation proceeding), the Inter-Company Receivables will rank junior to the Obligations. This provides the Lenders with appropriate structural protection. However, absent an Event of Default, ordinary-course payments of Inter-Company Receivables must be permitted, subject to the safeguards of the Credit Agreement's Restricted Payments and Affiliate Transactions covenants (which already impose arm's-length and other requirements on such payments). The proposed redline ties the permission to make Inter-Company Receivable payments to three cumulative conditions: arm's-length terms, Credit Agreement compliance, and sourcing from Permitted Distributions.
5.2 Turnover. If any Assignor receives any payment on account of an Inter-Company Receivable , such amount shall be received and held in trust by such Assignor for the benefit of the Collateral Agent, and shall be promptly turned over to the Collateral Agent , in the same form as received (with any necessary endorsement), for application to the Obligations in accordance with the provisions of the Credit Agreement.
> Comment No. 28: The Borrower accepts the turnover obligation in principle, subject to the qualification that it applies only to payments received "in violation of Section 5.1" as revised. Given the Borrower's proposed revisions to Section 5.1 (which permit ordinary-course payments absent an Event of Default, subject to Credit Agreement covenant compliance), the turnover provision would be triggered only in circumstances where an Inter-Company Receivable payment is made in contravention of the subordination mechanic — e.g., during the continuance of an Event of Default, or in circumstances where the payment was not on arm's-length terms or was not otherwise a Permitted Distribution.
5.3 No Liens on Inter-Company Receivables
No Assignor shall create, incur, assume, or suffer to exist any Lien upon or with respect to any Inter-Company Receivable, except in favor of the Collateral Agent for the benefit of the Secured Parties.
> Comment No. 29: This restriction is acceptable and is consistent with the negative pledge covenant in Section [●] of the Credit Agreement, which prohibits the creation of Liens on the assets of the Borrower and its subsidiaries other than Permitted Liens.
SECTION 6: NOTIFICATION MECHANICS
6.1 Notice to Charterers
Each Assignor shall, , deliver a notice to each charterer under a time charter with a remaining term of twelve (12) months or more, directing such charterer to pay all hire directly to the applicable Earnings Account.
> Comment No. 30: The Borrower agrees to deliver notices to charterers under long-term time charters (remaining term of 12 months or more), but requests the following accommodations: > > First, a grace period of 30 days after the Closing Date to deliver such notices. This is necessary to allow the Borrower's chartering and operations departments to prepare and dispatch the notices in an orderly manner, and to coordinate with the relevant Assignors. > > Second, the notice should be in a form reasonably acceptable to both the Borrower and the Collateral Agent, to be agreed in advance and attached as Exhibit A. The Borrower will prepare an initial draft for review by WJA and the Collateral Agent. > > Third, no notice requirement should apply to spot or voyage charters, or to time charters with less than 12 months remaining. Thalassa operates a fleet of 40 vessels, many of which trade on the spot market with frequent fixture changes. Requiring charterer notices for every spot fixture would impose an impracticable administrative burden and is unnecessary given the five-Business-Day transfer mechanic proposed for Section 3.3.
6.2 Notice to Account Bank
Each Assignor shall cause the Account Bank to execute and deliver an Account Control Agreement in favor of the Collateral Agent on or prior to .
> Comment No. 31: The requirement to deliver Account Control Agreements from all Account Banks on or prior to the Closing Date may not be achievable where one or more Account Banks are located outside the United States. Non-U.S. banks often have longer processing times for the review and execution of account control documentation, and may require internal legal and compliance review that cannot be completed within the pre-closing timeframe. We have proposed a 30-day post-closing period for Account Control Agreements from non-U.S. Account Banks, to be memorialized as a post-closing deliverable in the Closing Checklist. This approach is consistent with standard practice in cross-border shipping finance transactions and is in line with the post-closing deliverable periods permitted under the Credit Agreement for other non-U.S. security documents. Cross-reference to comments on Section 3.2 regarding Account Bank Requirements.
6.3 Notification to Collateral Agent of Changes
Each Assignor shall promptly notify the Collateral Agent in writing of:
(a) any change in Account Bank or Earnings Account details (including any change in account number, branch, or SWIFT code);
(b) ;
(c) any termination, amendment, or modification of an existing charter party for a Mortgaged Vessel ;
(d) .
> Comment No. 32: With respect to clause (b), the Borrower requests that the notification obligation be limited to time charters with an initial term of 12 months or more. Thalassa operates a fleet of 40 vessels (comprising 28 dry bulk carriers and 12 tankers), many of which trade extensively on the spot market. The Borrower enters into numerous spot and short-term fixtures on a weekly basis, and a requirement to notify the Collateral Agent of each such fixture would impose an impracticable administrative burden with no commensurate benefit to the Secured Parties. The Collateral Agent's interest is in being informed of significant long-term employment commitments that affect the Earnings profile of the Mortgaged Vessels; spot and short-term fixtures do not materially alter the collateral position.
> Comment No. 33: Similarly, with respect to clause (c), the Borrower proposes limiting the notification requirement to amendments or terminations of charters with initial terms of 12 months or more, which is consistent with the threshold for new charter notifications in clause (b).
> Comment No. 34: With respect to clause (d), the Borrower proposes the addition of a materiality threshold. As drafted, the clause would require notification of any claim, dispute, or set-off asserted by any charterer, regardless of amount. In a fleet of 40 vessels, minor disputes regarding freight calculations, laytime adjustments, and similar matters arise regularly in the ordinary course of business and are resolved at the operational level. The proposed threshold ($500,000 individually or $1,000,000 in the aggregate per vessel in any 12-month period) ensures that the Collateral Agent is informed of disputes that could have a material impact on Earnings, while relieving the Borrower of the obligation to report immaterial operational disputes.
6.4 Notice of Event of Default / Exclusive Control
Upon the occurrence of an Event of Default , the Collateral Agent may deliver a Notice of Exclusive Control to the Account Bank, whereupon the Account Bank shall comply solely with instructions from the Collateral Agent with respect to the applicable Earnings Account.
> Comment No. 35: The Borrower's principal concerns with Section 6.4 as drafted are as follows: > > First, the Notice of Exclusive Control should only be deliverable following the occurrence and during the continuance of an Event of Default, and only after the expiration of any applicable grace or cure period. The WJA Draft refers only to the "occurrence" of an Event of Default, without requiring continuance. If the underlying Default has been cured within a grace period, or if the relevant Event of Default has been waived by the Required Lenders, the Collateral Agent should not be entitled to deliver (or, if already delivered, to maintain) a Notice of Exclusive Control. > > Second, the Borrower and the relevant Assignor must receive a simultaneous copy of any Notice of Exclusive Control. It is essential that the Borrower be aware that exclusive control has been asserted, so that it can take appropriate steps to protect its interests and the interests of the Mortgaged Vessels (including, if applicable, seeking to cure the underlying Event of Default or negotiating with the Lenders). > > Third, the WJA Draft contains no provision for the revocation of a Notice of Exclusive Control upon cure or waiver of the underlying Event of Default. We have proposed adding a mandatory "Notice of Revocation of Exclusive Control" mechanic, pursuant to which the Collateral Agent is obligated to deliver a revocation notice to the Account Bank promptly upon cure or waiver. The form of Notice of Revocation of Exclusive Control should be attached as a new Exhibit D to this Assignment.
SECTION 7: REPRESENTATIONS AND WARRANTIES
7.1 Representations of Each Assignor
Each Assignor hereby represents and warrants to the Collateral Agent, for the benefit of the Secured Parties, as of the Closing Date (and as of each date on which such representations and warranties are required to be repeated or confirmed under the Credit Agreement), as follows:
(a) Due Organization and Valid Existence. Such Assignor is duly organized, validly existing, and (where applicable) in good standing under the laws of its jurisdiction of organization (the Republic of Cyprus, in the case of subsidiaries of Thalassa Dry Bulk Holdings Ltd. and Thalassa Logistics International Ltd., and the Republic of the marshall Islands, in the case of subsidiaries of Thalassa Tanker Operations Ltd.).
(b) Power and Authority. Such Assignor has full corporate power and authority to execute, deliver, and perform its obligations under this Assignment, and all necessary corporate action has been taken to authorize the execution, delivery, and performance hereof.
(c) No Conflict. The execution, delivery, and performance by such Assignor of this Assignment does not and will not (i) violate the constitutional documents of such Assignor, (ii) violate any law, rule, regulation, or order applicable to such Assignor, or (iii) conflict with, result in a breach of, or constitute a default under, any material agreement to which such Assignor is a party or by which its assets are bound.
(d) Earnings Accounts. The Earnings Accounts are maintained solely in the name of such Assignor, and no person other than such Assignor has any right, title, or interest in or to the Earnings Accounts (other than the rights created in favor of the Collateral Agent pursuant to this Assignment and the Account Control Agreement).
(e) No Prior Assignment.
> Comment No. 37: The Borrower requests that representation (e) be qualified by a knowledge qualifier. While the Borrower does not believe any prior assignment exists on the Earnings, the Assignors cannot represent absolutely as to the actions of third parties or as to maritime liens that may arise by operation of law (for example, maritime liens in favor of crew members for unpaid wages, or in favor of suppliers for necessaries, which arise automatically under applicable maritime law without any action on the part of the Assignor). The addition of "to the knowledge of such Assignor" is appropriate and is consistent with the approach taken in the representations in the Credit Agreement itself.
(f) Earnings Free and Clear. All Earnings are free and clear of all Liens .
> Comment No. 36: The representation that Earnings are "free and clear of all liens" must be subject to an exception for Permitted Liens, which are defined in the Credit Agreement to include (among other things) liens arising by operation of law in the ordinary course of business, liens for taxes not yet due and payable, and other customary exceptions. Without this carve-out, the representation would be inaccurate as of the Closing Date, as maritime liens and other statutory liens may exist on the Earnings that are beyond the control of the Assignors.
SECTION 8: COVENANTS
8.1 Affirmative Covenants
Each Assignor covenants and agrees that, so long as any Obligations remain outstanding or any Commitments remain in effect, such Assignor shall:
(a) Maintenance of Earnings Accounts. Maintain one or more Earnings Accounts at an Account Bank at all times during the term of this Assignment.
(b) Deposit of Earnings. Cause all Earnings to be deposited in the applicable Earnings Account in accordance with Section 3 hereof.
(c) Quarterly Reporting. Deliver to the Collateral Agent quarterly reports of Earnings received per Mortgaged Vessel .
> Comment No. 38: Quarterly reporting of Earnings on a per-vessel basis is acceptable to the Borrower. However, the Borrower requests confirmation that this reporting obligation may be satisfied through the Borrower's quarterly compliance certificate delivered under the Credit Agreement, rather than requiring a separate standalone report to the Collateral Agent. Consolidating reporting obligations reduces administrative burden and ensures consistency of information provided to the Secured Parties.
(d) Audit and Inspection.
> Comment No. 39: The audit and inspection right should be subject to reasonable limitations on frequency and manner. Unfettered and unlimited audit rights are not appropriate absent an Event of Default. We have proposed a framework that requires five Business Days' advance notice, limits inspections to normal business hours, caps the frequency at twice per fiscal year (absent an Event of Default), and requires the Collateral Agent to use commercially reasonable efforts to minimize business disruption. During the continuance of an Event of Default, the frequency cap would not apply, and the Collateral Agent would have broader access.
(e) Books and Records. Maintain books and records adequate to identify Earnings attributable to each Mortgaged Vessel, including records of all charter parties, freight invoices, hire statements, and other documentation relating to Earnings.
8.2 Negative Covenants
Each Assignor covenants and agrees that, so long as any Obligations remain outstanding or any Commitments remain in effect, such Assignor shall not:
(a)
> Comment No. 40: As discussed in our comments on Section 3.1, the Borrower requires the ability to change Account Banks for legitimate commercial and operational reasons. A consent requirement for a transfer to a replacement Account Bank that satisfies the Account Bank definition (including the credit-rating and reasonableness requirements proposed in Section 1.1) is unnecessarily restrictive. We have proposed that transfers to replacement Account Banks be permitted upon 15 Business Days' notice, subject to the protections set forth in Section 3.1 (including the requirement to execute a replacement Account Control Agreement), while closures and consolidations (which could result in a reduction in the number of Earnings Accounts) would require consent on a reasonableness standard.
(b) Assign, pledge, or otherwise encumber the Earnings or the Earnings Accounts except as contemplated by the Loan Documents.
(c) Amend the terms of any Earnings Account without the consent of the Collateral Agent .
SECTION 9: REMEDIES
9.1 Remedies Upon Event of Default
Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may, acting on the instructions of the Required Lenders:
(a) Deliver a Notice of Exclusive Control to the Account Bank in accordance with Section 6.4 hereof;
(b) Direct all Earnings to be paid into accounts designated and controlled exclusively by the Collateral Agent;
(c)
(d) Exercise all rights and remedies available to it under the Uniform Commercial Code as in effect in the State of New York, applicable law, or in equity.
> Comment No. 41: The application of Earnings upon an Event of Default (clause (c)) must follow the payment waterfall set forth in the Credit Agreement, which establishes a defined priority of application among the various categories of Obligations (including, inter alia, fees and expenses of the Agents, accrued interest, outstanding principal, and other Obligations). It is not appropriate for the Collateral Agent to have unfettered discretion to apply Earnings in whatever order it may determine, as this could result in an application that favors one category of Secured Parties over another, contrary to the agreed intercreditor arrangements.
> Comment No. 42: We reiterate the importance of the carve-out for critical operating expenses during an Event of Default, as proposed in Section 4.2. Even in an enforcement scenario, the Secured Parties' economic interest is best served by preserving the operational status and classification of the Mortgaged Vessels, which requires continued payment of crew wages, port fees, insurance premiums, and classification costs.
9.2 Power of Attorney
Each Assignor hereby irrevocably appoints the Collateral Agent as its true and lawful attorney-in-fact, with full power and authority in the name and on behalf of such Assignor, to collect and receive Earnings, endorse checks and other instruments, and take any and all action as may be necessary or desirable to enforce the rights of the Collateral Agent under this Assignment.
> Comment No. 43: The power of attorney as drafted in the WJA Draft is a standing, unconditional power that would permit the Collateral Agent to act in the Assignor's name at any time, including in the absence of any Default or Event of Default. This is inconsistent with the nature of a collateral assignment, under which the Assignor retains operational control of the assigned assets absent an Event of Default. The power of attorney should be dormant and exercisable only upon the occurrence and during the continuance of an Event of Default. This approach is standard in comparable security documents and is consistent with the trigger for other enforcement remedies (including the Notice of Exclusive Control and the right to direct Earnings).
SECTION 10: RELEASE AND REASSIGNMENT
10.1 Release of Mortgaged Vessel
Upon a permitted sale or disposal of a Mortgaged Vessel in accordance with the terms of the Credit Agreement, the Collateral Agent shall, at the request and expense of the relevant Assignor, release the assignment of Earnings with respect to such Mortgaged Vessel and execute and deliver such documents and instruments as may be reasonably necessary to evidence such release.
> Comment No. 44: The WJA Draft addresses release upon a permitted sale but does not contemplate release upon substitution of a Mortgaged Vessel with a replacement vessel. Vessel substitution is a standard feature of shipping finance facilities and is addressed in the vessel release provisions of the Credit Agreement and the First Preferred Ship Mortgage. The Borrower proposes a substitution release mechanic under which the Earnings assignment with respect to a departing vessel is released concurrently with the assignment of Earnings from the replacement vessel, subject to (a) the replacement vessel's Earnings being assigned on equivalent terms, (b) establishment of an Earnings Account subject to an Account Control Agreement, and (c) maintenance of the minimum collateral coverage ratio of 140%, as determined by reference to independent appraisals from Seastone Maritime Advisors Ltd. (or an equivalent appraiser). We note that Seastone Maritime Advisors Ltd. has been engaged to provide appraisals of the Mortgaged Vessels in connection with the Facility, with the most recent valuations dated July 10, 2023, reflecting an aggregate fair market value of approximately $780,000,000.
10.2 Full Release
Upon the indefeasible payment in full in cash of all Obligations and the termination of all Commitments under the Credit Agreement, the Collateral Agent shall, promptly at the request and expense of the Borrower, execute and deliver to each Assignor a full release and reassignment of all Earnings and Earnings Accounts assigned hereunder, in form and substance reasonably satisfactory to the Borrower.
> Comment: The obligation of the Collateral Agent to deliver termination instructions to the Account Banks upon full release is a necessary complement to the release and reassignment mechanic. Without such instructions, the Account Banks may continue to operate under the Account Control Agreements, which would prevent the Assignors from exercising unfettered control over their Earnings Accounts following the discharge of the Facility.
SECTION 11: MISCELLANEOUS
11.1 Governing Law
This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts-of-law principles thereof that would result in the application of the laws of any other jurisdiction.
> Comment: Acceptable. Consistent with the governing law provision of the Credit Agreement.
11.2 Submission to Jurisdiction
Each party hereto irrevocably and unconditionally submits to the jurisdiction of (a) the courts of the State of New York sitting in the Borough of Manhattan, The City of New York, and (b) the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Assignment.
> Comment No. 45: The Borrower accepts submission to the jurisdiction of the New York state and federal courts, which is consistent with the Credit Agreement. However, the Borrower requests that the jurisdiction clause be non-exclusive rather than exclusive, so as not to preclude enforcement proceedings in (a) the jurisdiction of the relevant Account Bank, where enforcement of the Account Control Agreement may be necessary, (b) the jurisdiction of incorporation of the relevant Assignor (the Republic of Cyprus or the Republic of the marshall Islands), where recognition of the assignment or ancillary proceedings may be required, or (c) any other jurisdiction in which enforcement of the Collateral Agent's rights may be necessary or appropriate. A non-exclusive jurisdiction clause does not diminish the availability of the New York courts; it simply preserves the parties' ability to seek relief in other appropriate forums.
11.3 Waiver of Jury Trial
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS ASSIGNMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
> Comment: Acceptable. Standard mutual waiver.
11.4 Notices. All notices, requests, demands, consents, and other communications required or permitted hereunder shall be in writing and shall be deemed duly given or made when delivered personally, when sent by confirmed facsimile or email (with a copy sent by overnight courier), or when received after being sent by nationally recognized overnight courier service, addressed as follows:
If to the Collateral Agent:
Pinnacle Trust & Agency Services Inc. One Liberty Plaza, 44th Floor New York, NY 10006
Attention: Corporate Trust Department — Thalassa Shipping Facility
Facsimile: (212) 555-8721
Email: corporatetrust@pinnacletrust.com
If to the Administrative Agent:
Meridian Atlantic Bank, National Association 600 Lexington Avenue, 38th Floor New York, NY 10022
Attention: Shipping Finance Group — Thalassa Account Team
Facsimile: (212) 555-3490
Email: shippingfinance@meridianatlantic.com