PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
DRAFT — FOR DISCUSSION PURPOSES ONLY
CALDERWOOD & HARKNESS LLP 125 Broad Street New York, New York 10004
DRAFT — Framework for Negative Assurance Letter (10b-5 Letter)
Matter No.: 1044-00004 Client No.: 80214-TSL
Prepared by: Brendan Walsh, Lead Associate, Capital Markets Reviewed by: Robert Adeyemi, Responsible Partner, Capital Markets
Date of Draft: September 2022 (Contemporaneous with Near-Final Offering Memorandum, 4th Draft, dated September 12, 2022)
DELIVERED TO:
Thomas Whitfield III, Esq. Partner, Capital Markets Whitfield & Crane LLP One Liberty Plaza 165 Broadway New York, New York 10006
cc: Rebecca Samuels, Senior Associate, High-Yield, Whitfield & Crane LLP
Right-click to update Table of Contents
1. Introduction and Purpose
This memorandum provides a draft framework for the negative assurance letter (commonly referred to as a "10b-5 letter" or "10b-5 disclosure letter") to be delivered by Whitfield & Crane LLP ("W&C"), as counsel to the Initial Purchasers (as defined below), in connection with the closing of the proposed offering described herein. This framework has been prepared by Calderwood & Harkness LLP ("C&H"), as counsel to the Co-Issuers and the Guarantors (each as defined below), for the purpose of facilitating advance alignment between C&H and W&C on the expected scope, procedures, carve-outs, and universe of disclosure documents that will underpin the 10b-5 letter.
The transaction to which this framework relates is the proposed offering by Thalassa Shipping & Logistics SA, a société anonyme organized under the laws of the Hellenic Republic ("TSL"), and Thalassa Finance Pte. Ltd., a private company limited by shares organized under the laws of the Republic of Singapore ("TFPL," and together with TSL, the "Co-Issuers"), of $400,000,000 aggregate principal amount of Senior Secured Notes due 2029 (the "Notes"). The Notes are to be issued under an Indenture governed by the laws of the Republic of Singapore (the "Indenture"), between the Co-Issuers, the Guarantors, Marlowe Asset Management Trust Company of Singapore Pte. Ltd., as Indenture Trustee (the "Trustee"), and Atlas Collateral Agency Pte. Ltd., as Security Agent and Collateral Agent (the "Security Agent").
The offering is structured as a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), conducted pursuant to Rule 144A under the Securities Act ("Rule 144A") to qualified institutional buyers ("QIBs") in the United States and pursuant to Regulation S under the Securities Act ("Regulation S") to non-U.S. persons outside the United States.
The Initial Purchasers for the offering are:
• Anchor Bay Securities LLC ("ABS"), acting as lead-left bookrunner and lead initial purchaser. The principal contact at ABS is Marcus Reinhardt, Managing Director, Head of Shipping & Transportation Debt Capital Markets.
• Halcyon Partners International Ltd. ("HPI"), acting as co-manager and co-initial purchaser. The principal contact at HPI is James Ogilvie, Managing Director, European High-Yield.
The purpose of this memorandum is to set forth, for W&C's consideration and comment, the framework that C&H anticipates will govern the preparation and delivery of the 10b-5 letter. In particular, this framework addresses: (a) the universe of disclosure documents that the 10b-5 letter is expected to cover; (b) the procedures that W&C is expected to have performed or to perform in connection with the delivery of the letter; (c) the customary carve-outs and limitations that are expected to apply; (d) the conditions precedent to delivery of the letter; and (e) open items and coordination points between C&H and W&C that remain to be resolved in advance of closing.
This framework is a discussion draft circulated for W&C's consideration and comment. It does not itself constitute a legal opinion or negative assurance of any kind. Nothing contained herein should be construed as a commitment by C&H or any other party to deliver, or to cause to be delivered, any opinion, letter, or certificate. All matters discussed herein are subject to further negotiation and agreement between the parties and their respective counsel.
2. Transaction Summary
Set forth below is a summary of the principal terms and features of the proposed offering, as reflected in the near-final Offering Memorandum (4th draft, dated September 12, 2022). This summary is provided for reference purposes in connection with the 10b-5 letter framework and is subject to change as the transaction documents are finalized.
The foregoing summary is qualified in its entirety by reference to the Offering Memorandum and the transaction documents, each of which is in near-final or substantially final form as of the date hereof.
3. Universe of Disclosure Documents
This Section 3 identifies the universe of documents that C&H anticipates will be relevant to the preparation and delivery of the 10b-5 letter. The documents are categorized based on their relationship to the scope of the negative assurance: (a) primary disclosure documents within the scope of the 10b-5 letter; (b) supplementary disclosure documents within the scope of the 10b-5 letter; (c) third-party reports and letters that are cross-referenced in the OM but are expressly excluded from the scope of the 10b-5 letter; and (d) transaction documents that are not independently within the scope of the negative assurance but are referenced in the OM.
3.1 Primary Disclosure Document
The principal disclosure document for purposes of the 10b-5 letter is the Offering Memorandum relating to the Notes (the "OM"). As of the date hereof, the OM is in near-final form (4th draft, dated September 12, 2022) and comprises approximately 280 pages. The OM has been prepared primarily by C&H in consultation with W&C, the Co-Issuers, and the Initial Purchasers, and has undergone extensive drafting, review, and comment through four rounds of revisions.
The OM is identified as the principal disclosure document for the 10b-5 letter. The negative assurance statement to be delivered by W&C is expected to cover the entirety of the OM, subject to the express carve-outs and limitations set forth in Section 6 below.
The sections of the OM that will be within the scope of the 10b-5 letter include, without limitation, the following:
(a) Cover page and inside cover page;
(b) Summary of the offering and the Notes;
(c) Risk factors;
(d) Use of proceeds;
(e) Capitalization and indebtedness;
(f) Selected financial data;
(g) Management's discussion and analysis of financial condition and results of operations ("MD&A");
(h) Business description (including description of the fleet, operations, charter portfolio, and competitive position);
(i) Management (including biographical information, board composition, and corporate governance);
(j) Principal shareholders;
(k) Certain relationships and related party transactions;
(l) Description of the Notes (including summary of material Indenture provisions);
(m) Description of the security package (including ship mortgages, earnings assignments, equity pledges, and intercompany loan assignments);
(n) Taxation (Greece, Singapore, United States, British Virgin Islands, and other relevant jurisdictions) — subject to express carve-out; see Section 6.4 below;
(o) Plan of distribution;
(p) Transfer restrictions; and
(q) Legal matters.
The financial data contained within the OM includes the following key metrics, which are set forth for reference:
• Last twelve months ("LTM") revenue: $687.4 million;
• LTM Adjusted EBITDA (Q1 2022 annualized): $214.6 million;
• EBITDA margin: 31.2%;
• Pro forma total debt: $400.0 million (reflecting the refinancing of existing indebtedness with the proceeds of the Notes);
• Cash on balance sheet: $58.3 million;
• Pro forma net leverage: 1.59x (pro forma net debt / LTM Adjusted EBITDA);
• Pro forma interest coverage ratio: 6.13x (LTM Adjusted EBITDA / pro forma interest expense).
The OM also contains detailed information regarding the fleet of TSL and its subsidiaries, including the following:
• Total fleet: 50 vessels, consisting of 38 dry-bulk carriers (comprising Supramax, Ultramax, and Kamsarmax classes) and 12 container feeder vessels;
• Total fleet appraised value: approximately $1.82 billion (based on the desktop fleet valuation prepared by Compass Marine Valuations Ltd. as of June 2022);
• Average vessel age: 9.2 years;
• Total deadweight tonnage ("DWT"): approximately 2.85 million.
The OM further describes the security package for the Notes, which includes, among other things:
• First-priority ship mortgages over 28 designated Collateral Vessels, with an aggregate appraised value of $1.175 billion, representing a collateral coverage ratio of approximately 2.94x the aggregate principal amount of the Notes;
• Assignment of earnings and insurances in respect of the Collateral Vessels;
• Equity pledges over the shares of TFPL and each Guarantor subsidiary; and
• Assignment of intercompany loan receivables in an aggregate principal amount of approximately $365 million.
All financial data described above is subject to the express carve-out set forth in Section 6.1 below and is included here solely for reference purposes in connection with the identification of the scope of the OM.
3.2 Supplementary Disclosure Documents
In addition to the OM, the following supplementary disclosure document is expected to be within the scope of the 10b-5 letter:
Investor Presentation. The Investor Presentation (roadshow deck), in near-final form as of the date hereof, dated September 19, 2022, comprises approximately 45 slides. The Investor Presentation has been prepared by the Co-Issuers in consultation with the Initial Purchasers and has been reviewed by C&H for material consistency with the OM. The Investor Presentation is a supplementary marketing document intended for use in connection with the investor roadshow and one-on-one meetings with prospective investors.
C&H anticipates that the 10b-5 letter will cover the Investor Presentation to the extent that it has been presented to prospective investors in connection with the roadshow and marketing of the offering. W&C should confirm whether it is in agreement with this approach or whether it anticipates any different treatment of the Investor Presentation for purposes of the negative assurance.
3.3 Third-Party Reports and Letters Relied Upon (Excluded from 10b-5 Scope but Cross-Referenced)
The following third-party reports and letters are referenced in the OM and are relevant to the overall closing process, but are expressly excluded from the scope of the negative assurance to be given in the 10b-5 letter. Each of these documents is subject to separate closing deliverables or certifications, as applicable:
(a) Comfort Letter from Kestrel & White Chartered Accountants. The comfort letter to be delivered at closing by Kestrel & White Chartered Accountants (Georgios Papadimitriou, Audit Partner), pursuant to procedures substantially consistent with Statement on Auditing Standards No. 72 ("SAS 72") or equivalent International Standard on Assurance Engagements ("ISAE") procedures. The comfort letter request was delivered to Kestrel & White on August 1, 2022. The comfort letter is expected to cover financial data in the OM, including revenue, EBITDA, and balance sheet items, and will address specified "circle-up" items and agreed-upon procedures.
(b) Fleet Valuation Report from Compass Marine Valuations Ltd. The desktop fleet valuation report prepared by Compass Marine Valuations Ltd. (Robert Hargreaves, Managing Director), dated as of June 2022, providing vessel-by-vessel and aggregate fleet valuations. This report forms the basis for the fleet valuation data and collateral coverage ratios set forth in the OM.
(c) Preliminary Rating Letters. The preliminary rating letters issued by Polaris Ratings Group Ltd. (Carl Johansson, lead analyst) and Oceanic Credit Assessments Inc. (Linda Park, lead analyst), assigning preliminary ratings of B+ (stable) and B1 (stable), respectively, to the Notes.
The 10b-5 letter will not cover, and will expressly disclaim reliance on, the accuracy of the financial statements, the comfort letter, the fleet appraisal, and the rating letters. These matters are subject to separate closing deliverables, and W&C is not expected to provide any assurance with respect thereto.
3.4 Transaction Documents (Not Part of 10b-5 Scope but Referenced)
The following transaction documents are relevant to the offering and are described in the OM, but are not independently within the scope of the 10b-5 negative assurance. The transaction documents are opined upon separately under the legal opinions to be delivered at closing, and the enforceability and sufficiency of such documents are matters of separate legal analysis:
(a) Indenture (near-final, 5th draft, dated September 6, 2022);
(b) Purchase Agreement between the Co-Issuers, the Guarantors, and the Initial Purchasers (near-final draft);
(c) Registration Rights Agreement between the Co-Issuers, the Guarantors, and the Initial Purchasers (near-final draft);
(d) Intercreditor Agreement (near-final, 3rd draft);
(e) Security Documents, including ship mortgages, assignment of earnings and insurances, share pledges, and assignment of intercompany loan receivables; and
(f) Global Notes in Rule 144A form and Regulation S form.
It is noted that the description of the Notes section of the OM is a summary description of the material terms and provisions of the Indenture, the Notes, and the Security Documents. That description is within the scope of the 10b-5 letter as part of the overall OM review. However, the transaction documents themselves are opined upon separately under the legal opinions of C&H (as issuer's counsel) and W&C (as Initial Purchasers' counsel), and the separate enforceability opinions address matters not encompassed by the negative assurance.
4. Scope of Procedures to Be Performed by Whitfield & Crane LLP
This Section 4 sets forth the procedures that C&H anticipates W&C will have performed, or will perform, in connection with the preparation and delivery of the 10b-5 letter. The procedures described below are consistent with customary practice for 10b-5 letters delivered in connection with Rule 144A / Regulation S high-yield offerings and reflect the level of participation and diligence that is standard in transactions of this nature.
4.1 Document Review
W&C is expected to have performed, or to perform prior to delivery of the 10b-5 letter, the following document review procedures:
(a) Review of the Offering Memorandum. Review of the OM in its entirety, including all drafts through and including the near-final 4th draft (dated September 12, 2022) and any subsequent revisions, supplements, or amendments through the pricing date and the closing date. W&C's review of the OM encompasses, without limitation, the sections enumerated in Section 3.1 above.
(b) Review of the Investor Presentation. Review of the Investor Presentation (near-final, approximately 45 slides, dated September 19, 2022), including any subsequent revisions or supplements.
(c) Comparison of Investor Presentation to the OM. Comparison of the Investor Presentation to the OM for material consistency, with particular attention to any data, representations, or characterizations in the Investor Presentation that are not supported by, or that are inconsistent with, the corresponding disclosure in the OM.
(d) Review of Counsel Comments. Review of comments received from all counsel involved in the drafting and review of the OM and Investor Presentation, including comments from C&H, Delphi & Karidis LLP (Greek counsel to TSL), and Rajendra & Osman LLP (Singapore counsel to TFPL). This review includes turn-by-turn markup comparisons and resolution of comments through the drafting process.
(e) Review of Disclosure Correspondence. Review of correspondence between C&H and W&C regarding disclosure issues arising in connection with the preparation of the OM and the Investor Presentation, including any flagged items, follow-up questions, or requests for supplemental disclosure.
4.2 Due Diligence Participation
W&C is expected to have participated in, or to have reviewed the results of, the following due diligence procedures:
(a) Management Presentation / Due Diligence Session. Participation in or review of the management presentation and due diligence session held at TSL's headquarters in Piraeus, Greece, on July 25, 2022. The session was attended by the following members of TSL management: Spyros Andreou (Chief Executive Officer), Marina Demetriou (Chief Financial Officer), Elena Kallistratos-Pavlou (Vice Chairwoman), and Alexandros Theodorakis (General Counsel). Rebecca Samuels of W&C attended the session by video conference; Brendan Walsh and Natasha Forbes of C&H attended in person. A detailed log of the due diligence session is set forth in Appendix C hereto.
(b) Review of C&H Due Diligence Memorandum. Review of C&H's comprehensive legal due diligence memorandum (the "DD Memo"), which was prepared by C&H in its capacity as issuer's counsel and sets forth C&H's findings in connection with its legal, corporate, and commercial due diligence investigation of TSL and its subsidiaries.
(c) Data Room Review. Review of back-up due diligence materials made available by TSL and its advisors in the virtual data room, including without limitation corporate organizational documents, material contracts, charter party agreements, fleet documentation (including classification society reports, flag state documentation, and vessel inspection records), litigation summaries, regulatory compliance materials (including environmental and safety certifications), insurance summaries, and employment matters.
(d) Due Diligence Questionnaire Responses. Review of any written responses from TSL management to due diligence questionnaires or follow-up inquiries submitted by C&H, W&C, or the Initial Purchasers in connection with the preparation of the OM.
4.3 Officer and Director Discussions
W&C is expected to have had, or to have prior to delivery of the 10b-5 letter, discussions with TSL management and directors as W&C deems reasonably necessary in connection with the preparation and delivery of the letter. Such discussions may include, without limitation, telephonic or in-person conversations with the CEO, CFO, General Counsel, and Vice Chairwoman of TSL regarding matters disclosed in the OM, developments subsequent to the due diligence session, and the accuracy and completeness of the OM.
In addition, W&C is expected to review the form of Officers' Certificate to be delivered at closing by Spyros Andreou (CEO) and Marina Demetriou (CFO) of TSL (the "Officers' Certificate"). The Officers' Certificate will contain representations and certifications as to the accuracy and completeness of the information contained in the OM, the absence of material adverse changes, and the satisfaction of the conditions set forth in the Purchase Agreement. C&H and W&C have agreed upon the form of the Officers' Certificate, subject to any revisions required in connection with the finalization of the OM and the Purchase Agreement.
4.4 Bring-Down Procedures
In connection with the closing of the offering, W&C is expected to perform the following bring-down procedures:
(a) Review of Updated or Supplemented Disclosure. Review of any updated, supplemented, or amended disclosure documents circulated between the pricing date and the closing date, including any pricing supplement or similar document reflecting the final pricing terms of the Notes.
(b) Bring-Down of Representations and Warranties. Confirmation of the bring-down of representations and warranties of the Co-Issuers and the Guarantors contained in the Purchase Agreement as of the closing date.
(c) Bring-Down Comfort Letter. Review of the bring-down comfort letter from Kestrel & White Chartered Accountants, if delivered at closing, confirming that the initial comfort letter remains accurate as of the closing date (or identifying any changes thereto).
5. Form of Negative Assurance Statement
5.1 Proposed Language
The 10b-5 letter to be delivered by W&C at the closing of the offering is expected to contain negative assurance substantially in the following form:
"Based on our participation in the preparation of the Offering Memorandum and the Investor Presentation, and our review and discussions as described herein, and without independent investigation or verification, nothing has come to our attention that causes us to believe that (i) the Offering Memorandum, as of its date and as of the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (ii) the Investor Presentation, as of its date and as of the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading."
The foregoing formulation mirrors the antifraud standard under Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 thereunder, as adapted for use in the context of a Rule 144A / Regulation S private placement. Although the Notes are being offered and sold in transactions exempt from the registration requirements of the Securities Act, the antifraud provisions of Section 10(b) and Rule 10b-5 are applicable to the offering, and the negative assurance formulation reflects the standard that governs potential liability in connection with the offering of the Notes.
The precise language of the negative assurance statement remains subject to further negotiation between C&H and W&C, and may be adjusted to reflect the final scope of the procedures performed, the carve-outs agreed upon, and any developments in the transaction or the OM that occur prior to closing.
5.2 Addressees
The 10b-5 letter will be addressed to:
(a) Anchor Bay Securities LLC, as lead-left bookrunner and lead initial purchaser; and
(b) Halcyon Partners International Ltd., as co-manager and co-initial purchaser.
The 10b-5 letter will not be addressed to, and may not be relied upon by, the Co-Issuers, the Guarantors, the Trustee, the Security Agent, or any other party. No person or entity other than the Initial Purchasers may rely on the 10b-5 letter without the prior written consent of W&C.
6. Customary Carve-Outs and Limitations
The 10b-5 letter is expected to contain the customary carve-outs and limitations set forth below. These carve-outs are consistent with standard market practice for negative assurance letters delivered in connection with Rule 144A / Regulation S high-yield debt offerings and reflect the inherent limitations on the scope of a law firm's review and the matters as to which a law firm is not in a position to provide assurance.
6.1 Financial Statements and Financial Data
The 10b-5 letter will contain an express exclusion of the audited and unaudited financial statements of TSL and its subsidiaries included in or incorporated into the OM, including all notes, schedules, and supplementary information thereto. This exclusion encompasses all financial data, tables, schedules, statistical data, and quantitative information derived from or based upon the financial statements or the accounting records of TSL, to the extent such data is covered by the comfort letter to be delivered by Kestrel & White Chartered Accountants at closing.
The rationale for this carve-out is straightforward: the comfort letter is the appropriate and customary mechanism for addressing the accuracy of financial data in the OM, and counsel is not in a position to independently verify or provide assurance with respect to financial data derived from accounting records and financial statements. The comfort letter procedures, conducted pursuant to SAS 72 or equivalent ISAE standards, are specifically designed to provide the Initial Purchasers with assurance regarding the financial information contained in the OM.
6.2 Fleet Appraisal and Valuation Data
The 10b-5 letter will contain an express exclusion of the fleet valuation report prepared by Compass Marine Valuations Ltd. and all valuation data, vessel-specific appraisal data, and appraisal conclusions derived therefrom. This exclusion encompasses, without limitation, the total fleet appraised value of approximately $1.82 billion, the aggregate appraised value of the 28 Collateral Vessels of approximately $1.175 billion, the resulting collateral coverage ratio of approximately 2.94x, and any individual vessel valuations or market comparables set forth in the OM.
The rationale for this carve-out is that the fleet valuation is the product of an independent appraiser's professional judgment and market analysis. Counsel does not have the expertise or the information necessary to independently verify appraisal conclusions, and the accuracy of the fleet valuation is subject to a separate appraiser certification to be delivered by Compass Marine Valuations Ltd. at closing.
6.3 Rating Agency Information
The 10b-5 letter will contain an express exclusion of any information relating to the preliminary ratings assigned to the Notes by Polaris Ratings Group Ltd. (B+ with a stable outlook) and Oceanic Credit Assessments Inc. (B1 with a stable outlook). This exclusion encompasses the rating methodologies, rating criteria, and any statements or conclusions attributed to the rating agencies in the OM.
Rating agency information is based on the independent assessment of the rating agencies and is not within the scope of counsel's review or verification. The accuracy of the rating information is the responsibility of the rating agencies, and the rating letters are subject to separate closing deliverables.
6.4 Taxation Sections
The 10b-5 letter will contain an express exclusion of the taxation sections of the OM. The taxation sections of the OM address the tax consequences of the offering and the ownership of the Notes under the laws of the Hellenic Republic (Greece), the Republic of Singapore, the United States of America, the British Virgin Islands, the Republic of Malta, the Republic of the marshall Islands, and the United Arab Emirates.
The rationale for this carve-out is that tax advice is outside the scope of counsel's capital markets engagement. The taxation sections of the OM have been prepared by or based on the advice of specialized tax advisors and local counsel in the relevant jurisdictions, and any tax-related opinions or assurances are the responsibility of such advisors. W&C does not hold itself out as providing tax advice in connection with the offering.
6.5 Legal Opinions of Local Counsel
The 10b-5 letter will contain an express exclusion of statements in the OM regarding Greek law (which are within the scope of the legal advice provided by Delphi & Karidis LLP, with Nikolaos Karidis as the responsible partner) and Singapore law relating to TFPL and the Co-Issuer structure (which are within the scope of the legal advice provided by Rajendra & Osman LLP, with Anil Rajendra as the responsible partner).
W&C may rely on the opinions of Delphi & Karidis LLP and Rajendra & Osman LLP as to matters of Greek law and Singapore law, respectively, and the 10b-5 letter will state that W&C has assumed the accuracy and completeness of the opinions of such local counsel to the extent they relate to matters of foreign law addressed in the OM.
6.6 Industry and Market Data
The 10b-5 letter will contain an express exclusion of, or qualification with respect to, industry statistics, market data, third-party sourced data, and forward-looking statements or projections included in the OM that are derived from third-party sources. This exclusion encompasses, without limitation, Baltic Dry Index data, charter rate data (including time charter equivalent rates and spot market rates), trade lane statistics, global shipping fleet supply and demand data, and shipping market forecasts.
The rationale for this carve-out is that counsel does not independently verify third-party market data and industry statistics. Such data is typically sourced from industry publications, trade organizations, governmental agencies, and proprietary databases, and its accuracy is not within the scope of counsel's review or expertise.
6.7 Forward-Looking Statements and Projections
The 10b-5 letter will contain an express exclusion of any forward-looking statements or projections included in the OM, including without limitation EBITDA forecasts, revenue projections, fleet growth plans, planned vessel acquisitions or dispositions, and capital expenditure estimates. Forward-looking statements are inherently uncertain and are based on assumptions, estimates, and expectations that may or may not prove to be accurate. Counsel is not in a position to provide assurance regarding the accuracy or achievability of forward-looking statements or projections.
6.8 Beneficial Ownership and ESOP Information
The 10b-5 letter will contain a qualification with respect to statements in the OM regarding the beneficial ownership of TSL, including the ownership interests of Kallistratos Maritime Holdings Ltd. (approximately 72.5%), Pelagos Capital Partners Fund III LP (approximately 18.0%), and the management employee stock ownership plan trust (approximately 9.5%). These statements are based on representations and information provided by the Co-Issuers and their shareholders, and counsel has not independently verified the accuracy of such ownership information.
6.9 No Independent Investigation
The 10b-5 letter will contain a standard statement that W&C has not conducted any independent factual investigation in connection with the preparation of the letter and has relied upon the representations, certificates, and assurances of the Co-Issuers, their officers and directors, and their counsel. The negative assurance is based solely on W&C's participation in the preparation of the OM and the Investor Presentation and the procedures described in the letter, and is not based on any independent verification of the facts, data, or statements contained therein.
6.10 Governing Law Limitation
The 10b-5 letter will state that W&C opines, and provides negative assurance, only as to matters of United States federal securities law and the laws of the State of New York. The 10b-5 letter does not address, and W&C expresses no view with respect to, matters governed by the laws of the Republic of Singapore, the Hellenic Republic (Greece), the British Virgin Islands, the Republic of Malta, the Republic of the marshall Islands, the United Arab Emirates (including the laws of the Dubai International Financial Centre), the Cayman Islands, the Swiss Confederation, or England and Wales, or the laws of any other jurisdiction.
It is noted that the Notes, the Indenture, and the Security Documents are governed by the laws of the Republic of Singapore. W&C's negative assurance does not extend to the enforceability of such documents under Singapore law or to the validity, perfection, or priority of the security interests created thereunder. Such matters are addressed in the Singapore-law legal opinions of C&H and Rajendra & Osman LLP.
7. Conditions Precedent to Delivery of the 10b-5 Letter
The delivery of the 10b-5 letter by W&C is subject to the satisfaction (or waiver by W&C, in its sole discretion) of each of the following conditions precedent:
(a) Execution of the Purchase Agreement. Execution and delivery of the Purchase Agreement by the Co-Issuers, the Guarantors, and the Initial Purchasers.
(b) Final Offering Memorandum. Receipt by W&C of a substantially final OM, together with any pricing supplement or similar document reflecting the final pricing terms of the Notes. Any material revisions, supplements, or amendments to the OM will be reviewed by W&C prior to delivery of the 10b-5 letter.
(c) Officers' Certificate. Receipt by W&C of the executed Officers' Certificate from Spyros Andreou (CEO) and Marina Demetriou (CFO) of TSL, in the agreed form, regarding the accuracy and completeness of the OM and the satisfaction of the conditions set forth in the Purchase Agreement.
(d) Comfort Letter. Receipt by W&C of the comfort letter (initial and bring-down, as applicable) from Kestrel & White Chartered Accountants, in form and substance satisfactory to W&C, covering the financial data in the OM.
(e) Legal Opinions. Receipt by W&C of the legal opinions to be delivered at closing from: (i) Calderwood & Harkness LLP (Singapore-law opinion on behalf of the Co-Issuers); (ii) Delphi & Karidis LLP (Greek-law opinion on TSL); and (iii) Rajendra & Osman LLP (Singapore-law opinion on TFPL).
(f) Completion of Due Diligence. Completion of satisfactory due diligence by W&C, including management discussions, data room review, and any supplemental inquiries deemed necessary by W&C in connection with the preparation and delivery of the 10b-5 letter.
(g) No Material Adverse Change. No material adverse change in the condition (financial or otherwise), business, operations, prospects, or properties of TSL and its subsidiaries since the date of the latest financial data included in the OM that would, in W&C's reasonable judgment, affect the accuracy or completeness of the OM or the ability of W&C to deliver the 10b-5 letter.
(h) No Impracticability. No event or development shall have occurred that would, in W&C's reasonable judgment, make it impracticable or inadvisable to deliver the 10b-5 letter.
The foregoing conditions are cumulative, and the failure to satisfy any one or more of such conditions may result in W&C's decision not to deliver the 10b-5 letter. W&C retains sole discretion as to whether the conditions have been satisfied and whether delivery of the letter is appropriate in the circumstances.
8. Procedures Checklist — Summary Table
The following table summarizes the status of each diligence step and procedure relevant to the preparation and delivery of the 10b-5 letter, as of the date of this framework.
9. Open Items and Coordination Points
The following items remain open or require further coordination between C&H and W&C in advance of the delivery of the 10b-5 letter. C&H invites W&C's comments on each of the items identified below and requests that W&C identify any additional items or concerns not addressed in this framework.
9.1 OM Finalization
The final OM will need to incorporate any pricing-day changes, including confirmation of the final coupon rate, issue price, aggregate principal amount, and any related adjustments to the use of proceeds, capitalization, and pro forma financial data. C&H will circulate the pricing-day revisions to W&C promptly upon determination of the final pricing terms.
Any material changes to the risk factors, business description, financial data, or other substantive sections of the OM after the 4th draft will require W&C's review and may affect the scope, procedures, or timing of the 10b-5 letter. C&H undertakes to notify W&C promptly of any material changes to the OM and to provide W&C with a blackline comparison against the 4th draft.
9.2 Comfort Letter Coordination
C&H will circulate the draft comfort letter from Kestrel & White Chartered Accountants to W&C for review prior to closing. W&C should advise C&H of any specific "circle-up" items, agreed-upon procedures, or other comfort letter requirements that W&C considers necessary in connection with the 10b-5 letter.
The circle-up items to be confirmed once the OM is finalized include specific financial data points, percentages, and other quantitative information that will be verified by Kestrel & White against the accounting records of TSL. C&H and W&C should coordinate to ensure that the scope of the comfort letter is consistent with, and appropriately supports, the carve-outs in the 10b-5 letter.
The bring-down comfort letter is expected to be delivered at or prior to the closing date. W&C should confirm the acceptable form of the bring-down comfort letter, including the applicable cut-off date and the scope of procedures to be performed.
9.3 C&H Legal Opinion
W&C is entitled to review the draft Singapore-law legal opinion to be delivered by C&H at closing on behalf of the Co-Issuers and the Guarantors. W&C should review the draft C&H opinion for consistency with the closing deliverable requirements set forth in the Purchase Agreement and should confirm that the scope of the C&H opinion is satisfactory for purposes of W&C's reliance thereon.
W&C is entitled to rely on the C&H opinion as to matters of Singapore law, and the 10b-5 letter may contain a statement to that effect.
9.4 Local Counsel Opinions
W&C should receive and review the final forms of the legal opinions to be delivered at closing from:
(a) Delphi & Karidis LLP (Greek-law opinion on TSL, including corporate status, capacity, authorization, and enforceability); and
(b) Rajendra & Osman LLP (Singapore-law opinion on TFPL, including corporate status, capacity, authorization, and enforceability).
These opinions are currently under C&H's initial review and will be circulated to W&C upon completion of that review. W&C may wish to raise specific reliance, back-stop, or assumption provisions with local counsel in connection with the 10b-5 letter, and C&H will facilitate any necessary coordination.
9.5 Updated Fleet Appraisal
The fleet valuation report prepared by Compass Marine Valuations Ltd. is dated as of June 2022. If the closing of the offering is delayed beyond six months from the date of the appraisal (i.e., beyond December 2022), a refreshed desktop appraisal may be required, depending on the requirements of the Initial Purchasers and market practice. Any updated collateral coverage data resulting from a refreshed appraisal would need to be reflected in the OM, and W&C would need to review the updated data in connection with the 10b-5 letter.
C&H notes that, in light of the current volatility in dry-bulk and container feeder shipping markets, the Initial Purchasers may in any event request a refreshed appraisal prior to closing, irrespective of the six-month threshold. C&H will keep W&C informed of any developments in this regard.
9.6 Coordination with Trustee's Counsel
Thornton Ashworth LLP (Michelle Goh, responsible partner) is acting as counsel to Marlowe Asset Management Trust Company of Singapore Pte. Ltd., as Indenture Trustee. W&C should coordinate with Thornton Ashworth LLP on any provisions of the Indenture or the trustee protection provisions that may affect the OM disclosure in the "Description of the Notes" section, including trustee indemnification, limitation of liability, and successor trustee provisions. Any material changes to the Indenture provisions that are reflected in the OM description of the Notes would need to be reviewed by W&C as part of its OM review procedures.
10. Timing and Delivery
The 10b-5 letter was originally expected to be delivered at the closing of the offering, which was initially targeted for October 15, 2022 (the originally targeted settlement date, coinciding with the first interest payment date of the Notes).
However, the offering has been subject to the following postponements and suspension:
• First Postponement: On September 26, 2022, TSL notified ABS and HPI of its decision to postpone the launch of the offering, citing adverse market conditions in the global shipping and high-yield credit markets.
• Second Postponement: On October 3, 2022, TSL notified ABS and HPI of a further postponement, citing continued market volatility and the desire to reassess the timing and pricing of the offering.
• Formal Suspension: On November 14, 2022, TSL delivered a formal notice to Anchor Bay Securities LLC advising that the offering was being suspended indefinitely, pending a reassessment of market conditions, fleet strategy, and financing alternatives.
As of the date of this framework, the 10b-5 letter has not been delivered and will not be delivered unless and until the offering is reactivated, the OM is updated and finalized to reflect current information and financial data, all conditions precedent to delivery are satisfied (as set forth in Section 7 above), and a new closing date is established by agreement of the Co-Issuers and the Initial Purchasers.
Upon reactivation of the offering, W&C will need to refresh its diligence procedures, including conducting updated management discussions, reviewing any updated financial data and business developments, reviewing any changes to the fleet (including vessel acquisitions, dispositions, or changes in valuation), and assessing whether the scope of the 10b-5 letter requires modification in light of developments since the date of the 4th draft of the OM. C&H will cooperate fully with W&C in connection with any refreshed diligence procedures.
11. Contact Information
The following contact information is provided for the principal counsel and client contacts involved in the offering:
Calderwood & Harkness LLP (Counsel to the Co-Issuers and Guarantors)
Robert Adeyemi — Responsible Partner, Capital Markets Brendan Walsh — Lead Associate, Capital Markets Natasha Forbes — Working Associate, Capital Markets
Calderwood & Harkness LLP 125 Broad Street New York, New York 10004
Whitfield & Crane LLP (Counsel to the Initial Purchasers)
Thomas Whitfield III — Partner, Capital Markets Rebecca Samuels — Senior Associate, High-Yield
Whitfield & Crane LLP One Liberty Plaza 165 Broadway New York, New York 10006
Client Contacts — Thalassa Shipping & Logistics SA
Alexandros Theodorakis — General Counsel Marina Demetriou — Chief Financial Officer