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CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Barristers & Solicitors

Tel: +44 (0)20 7946 0200

Fax: +44 (0)20 7946 0201

www.calderwoodharkness.com

October 3, 2022

Mr. Andreas Papathanasiou Relationship Manager — Shipping & Logistics Division Compass Maritime Bank Société Anonyme 5 Kolokotroni Street 105 62 Athens Greece

Re: Material Litigation Disclosure — Thalassa Shipping & Logistics Société Anonyme Revolving Credit Facility Agreement dated September 1, 2020 (€75,000,000)

Dear Mr. Papathanasiou,

We write on behalf of our client, Thalassa Shipping & Logistics Société Anonyme ("TSL"), EORI No. GR094827361000, with its registered headquarters at 47 Akti Miaouli, 185 35 Piraeus, Greece. This letter is addressed to Compass Maritime Bank Société Anonyme ("Compass Maritime Bank" or the "Lender") in its capacity as lender under the €75,000,000 Revolving Credit Facility Agreement dated September 1, 2020, entered into between TSL as Borrower and Compass Maritime Bank as Lender (the "Facility Agreement"). Unless otherwise defined herein, capitalized terms shall bear the meanings ascribed to them in the Facility Agreement.

This disclosure is made pursuant to Section 6.2(d) of the Facility Agreement, which requires the Borrower to promptly notify the Lender, in writing and in any event within ten (10) business days of becoming aware thereof, of any litigation, arbitration, or administrative proceeding commenced or threatened against the Borrower or any of its subsidiaries in which the amount in controversy exceeds €2,000,000 (two million euros) or which could otherwise reasonably be expected to have a Material Adverse Effect on the Borrower's ability to perform its obligations under the Facility Agreement.

By this letter, TSL hereby notifies Compass Maritime Bank of the administrative proceeding described in detail below. TSL is committed to full transparency in connection with this matter and has instructed us to provide Compass Maritime Bank with a comprehensive account of the facts, the exposure assessment, the defense strategy being pursued, and the anticipated impact, if any, on TSL's compliance with the financial covenants contained in the Facility Agreement.

I. Description of Administrative Proceeding

A. Background — Equipment Imports

Between March 2019 and January 2022, TSL undertook a significant capital investment program to modernize and expand its container-handling capacity at three major Greek port terminals. As part of this program, TSL imported a total of forty-seven (47) units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a company organized under the laws of the People's Republic of China with its principal place of business in Ningbo, Zhejiang Province, PRC. Hailong is a recognized global manufacturer of port and terminal equipment and was selected by TSL following a competitive procurement process. The imported equipment was destined for use at TSL's terminal operations at the ports of Piraeus, Thessaloniki, and Volos.

The forty-seven units of equipment comprised the following categories:

(a) Twelve (12) ship-to-shore (STS) gantry cranes — large-scale quayside cranes designed for the loading and unloading of containerized cargo from ocean-going vessels, with an outreach of approximately 65 meters and a safe working load of 65 tonnes under spreader;

(b) Eighteen (18) rubber-tired gantry (RTG) cranes — mobile container-stacking cranes designed for use in the container yard, with a stacking height of one-over-five containers and a span of six containers plus a truck lane;

(c) Eight (8) automated stacking crane (ASC) systems — rail-mounted, fully automated container-stacking cranes for use in high-density storage blocks at the Piraeus terminal, incorporating integrated software for remote operation and yard management; and

(d) A bundled package of spare parts, proprietary software licenses, and commissioning services associated with the foregoing equipment, including on-site installation, testing, calibration, and performance verification.

The importation of the above equipment was conducted under four master purchase contracts entered into between TSL and Hailong. The total declared CIF (Cost, Insurance, and Freight) customs value across the four contracts was €98,000,000 (ninety-eight million euros), allocated as follows:

All forty-seven units of equipment, together with the associated spare parts, software, and commissioning services, were imported into Greece and cleared through the Piraeus Regional Customs Office of the Independent Authority for Public Revenue (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, or "AADE"), the Greek customs and tax authority. Customs entries were filed by TSL's authorized customs broker, and all applicable duties and import VAT were paid at the time of importation based on the classifications and valuations declared in the customs entries.

B. AADE Post-Clearance Audit

On April 4, 2022, AADE initiated a post-clearance audit of TSL's customs entries relating to the above-described equipment imports. The audit was conducted under AADE audit file reference AADE/DTE/2022/PIR-04518 by the Piraeus Regional Customs Office's Post-Clearance Audit Division. The scope of the audit encompassed a comprehensive review of the tariff classification and customs valuation methodology applied by TSL with respect to all four master purchase contracts.

The audit involved extensive document requests, including the production of all purchase contracts, invoices, shipping documents, insurance certificates, technology license agreements, third-party advisory and procurement coordination agreements, commissioning service records, and correspondence between TSL and Hailong. TSL cooperated fully with the audit process, producing all requested documentation in a timely manner.

The audit was completed on August 1, 2022. Following the completion of the audit, on August 12, 2022, AADE issued two Additional Duty Assessment Notices addressed to TSL, each setting forth AADE's determination that additional customs duties are owed. The two Assessment Notices are described in Sections C and D below.

C. Assessment Notice No. 1 — Classification (AADE/ADAN/2022/0073)

In Assessment Notice No. AADE/ADAN/2022/0073 (the "Classification Assessment"), AADE contends that twenty (20) of the forty-seven units of imported equipment — specifically, the twelve (12) STS gantry cranes and the eight (8) ASC systems — were misclassified by TSL in its customs entries.

TSL declared the STS gantry cranes and ASC systems under Combined Nomenclature ("CN") code 8426 41 00, which covers "other machinery, self-propelled, on tyres" within the broader heading 8426 for "ships' derricks; cranes, including cable cranes; mobile lifting frames, straddle carriers, and works trucks fitted with a crane." The applicable Most Favoured Nation ("MFN") duty rate for CN code 8426 41 00 is 0% (zero percent).

AADE has taken the position that the STS gantry cranes and ASC systems should instead be classified under CN code 8428 90 90, which falls within heading 8428 covering "other lifting, handling, loading, or unloading machinery (for example, lifts, escalators, conveyors, teleferics)" and specifically the residual subheading for "other" machinery not elsewhere specified within that heading. The applicable MFN duty rate for CN code 8428 90 90 is 2.2% (two point two percent).

AADE's rationale for reclassification, as set forth in the Classification Assessment, is that the STS gantry cranes and ASC systems are primarily "handling" equipment rather than "lifting" equipment within the meaning of heading 8426, and that the automated nature of the ASC systems, in particular, places them outside the scope of heading 8426, which AADE interprets as being limited to conventional crane machinery. AADE further contends that the STS gantry cranes, by reason of their fixed rail-mounted installation and integrated container-handling spreader systems, are more appropriately characterized as specialized cargo-handling machinery under heading 8428.

The reclassified customs value base for the twenty affected units is €67,200,000 (being €38,400,000 for the 12 STS gantry cranes under Contract HHI-TSL-2019-001 plus €28,800,000 for the 8 ASC systems under Contract HHI-TSL-2020-003). The additional customs duty assessed under the Classification Assessment is accordingly calculated as:

€67,200,000 × 2.2% = €1,478,400

It should be noted that the eighteen (18) RTG cranes imported under Contract HHI-TSL-2019-002 are not the subject of the Classification Assessment. AADE has accepted that the RTG cranes are properly classified under CN code 8426 41 00 at the 0% MFN duty rate, and no reclassification has been proposed with respect to those units.

D. Assessment Notice No. 2 — Valuation (AADE/ADAN/2022/0074)

In Assessment Notice No. AADE/ADAN/2022/0074 (the "Valuation Assessment"), AADE contends that the customs values declared by TSL in its customs entries are understated by a total of €9,940,000 (nine million nine hundred forty thousand euros). The Valuation Assessment is based on three separate grounds, each of which relates to a distinct category of costs that AADE contends should have been included in the declared transaction value of the imported equipment:

(i) Technology License Fees — €4,900,000. TSL entered into a Technology License Agreement with Hailong dated January 10, 2019 (the "TLA"), pursuant to which TSL obtained a license to use certain proprietary software, automation algorithms, and technical know-how embedded in the STS gantry cranes and ASC systems. License fees totaling €4,900,000 were paid by TSL to Hailong under the TLA. AADE contends that these technology license fees constitute "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued" within the meaning of Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013, the "UCC"), and should accordingly have been added to the transaction value of the equipment for customs valuation purposes.

(ii) Procurement Coordination Fees — €2,940,000. TSL engaged Nereus Maritime Advisory Limited ("Nereus"), a company registered in the Republic of Cyprus, to provide procurement coordination and vendor management services in connection with the equipment acquisition program. Fees totaling €2,940,000 were paid by TSL to Nereus. TSL declared these fees as a buying commission — that is, a fee paid by the buyer to its own agent for the service of representing the buyer in the procurement process — which is not includable in customs value under the UCC. AADE disputes this characterization. AADE contends that Nereus acted as a selling agent or intermediary for Hailong rather than as a buying agent for TSL, and that the fees paid to Nereus are properly characterized as a selling commission or procurement markup that is includable in customs value under Article 71(1)(a)(i) of the UCC.

(iii) Commissioning Services — €2,100,000. Under Contract HHI-TSL-2021-004, Hailong provided on-site commissioning services including installation supervision, system integration testing, calibration, and performance verification for the STS gantry cranes and ASC systems. TSL declared the value of the commissioning services (€2,100,000 of the total €5,600,000 contract value) separately from the CIF value of the base equipment, on the basis that these services were performed after importation and did not form part of the price actually paid or payable for the goods. AADE contends that the commissioning services were a contractual prerequisite for the delivery and acceptance of the equipment, and that their cost should therefore be added to the customs value of the base equipment under Article 71(1)(b) of the UCC as a condition-of-sale cost.

Based on the foregoing adjustments, the additional customs duty assessed under the Valuation Assessment is calculated on the aggregate uplift of €9,940,000. Applying the reclassified MFN duty rate of 2.2% (as determined in the Classification Assessment), the additional customs duty assessed under the Valuation Assessment is:

€9,940,000 × 2.2% = €218,680

II. Total Exposure Assessment

A. AADE Mid-Case Assessment

Based on the two Assessment Notices and the applicable statutory provisions regarding import VAT, administrative penalties, and late payment interest, the total amount currently claimed by AADE under the mid-case scenario is summarized in the table below:

For the avoidance of doubt, the import VAT adjustment of €2,740,416 is composed of two elements: (i) VAT on the additional customs duty differential, calculated as €1,478,400 × 24% = €354,816; and (ii) VAT on the increased customs value base resulting from the valuation adjustments, calculated as €9,940,000 × 24% = €2,385,600. It is important to note that, as a registered VAT taxpayer, TSL may recover this additional import VAT amount as input VAT credit against its output VAT liability, provided that AADE verifies TSL's eligibility for input VAT credit recovery. Accordingly, the net cash impact of the import VAT adjustment is expected to be a timing difference rather than a permanent cost to TSL. However, AADE requires payment of the full amount pending verification of input VAT credit eligibility, which may result in a temporary cash outflow.

B. High-End Exposure Estimate

TSL's internal assessment of the potential maximum exposure, prepared in consultation with both Calderwood & Harkness LLP and local Greek counsel, takes into account the possibility of penalty escalation under the applicable Greek customs penalty regime. Under Article 147 of the Greek Customs Code (Law 2960/2001), the level of administrative penalties is determined based on the degree of culpability attributed to the importer:

(a) In cases of good-faith error, the penalty is assessed at 30% of the additional duties, which is the rate applied in the mid-case assessment above;

(b) In cases of negligence, the penalty may be assessed at up to 100% of the additional duties; and

Under the high-end exposure scenario, including the potential for penalty escalation from the 30% good-faith rate to higher tiers, together with compounding interest and the possibility of additional valuation adjustments, TSL estimates maximum exposure at approximately €14.7 million (fourteen million seven hundred thousand euros). Within this amount, the maximum penalty exposure at the 300% rate would be approximately €4.41 million on the extreme high end, calculated as 300% of the combined additional duties of €1,478,400 plus €218,680 (i.e., 300% × €1,697,080 ≈ €5,091,240), though this figure represents the theoretical maximum, and the realistic penalty estimate under the most adverse scenario is somewhat lower when adjusted for expected successful defenses on individual components.

TSL believes that escalation to the higher penalty tiers is unlikely given the genuine classification ambiguity surrounding the CN headings at issue, TSL's demonstrable good faith in relying on established industry classification practice and prior Binding Tariff Information rulings, and TSL's full cooperation with the audit process. Nevertheless, the possibility of penalty escalation cannot be excluded at this stage, and TSL has therefore included it in its high-end exposure estimate for the purposes of this disclosure.

III. TSL's Position and Defense Strategy

TSL believes that the AADE Assessment Notices are incorrect in both their classification and valuation determinations. TSL maintains that its original customs declarations were filed in good faith, in accordance with applicable EU customs law, and on the basis of well-reasoned classification and valuation positions. TSL intends to vigorously defend against both Assessment Notices through all available administrative and, if necessary, judicial channels.

TSL has engaged the following counsel to represent it in this dispute:

(a) Calderwood & Harkness LLP, 25 Finsbury Square, London EC2A 1DU, United Kingdom, as international counsel, with responsibility for overall strategic coordination, EU customs law analysis, and liaison with the Lender; and

(b) Vournas & Theodorakis Dikigiriko Grafeio, 22 Academias Street, 106 71 Athens, Greece, as Greek local counsel, with responsibility for the conduct of the administrative proceedings before AADE and, if necessary, litigation before the Greek administrative courts.

TSL's defense strategy encompasses the following elements:

(i) Administrative Objections. TSL will file formal administrative objections (ενδικοφανείς προσφυγές) to both Assessment Notices before AADE's Directorate of Resolution of Disputes (Διεύθυνση Επίλυσης Διαφορών, or "DED"), within the statutory timeframe. The administrative objections will challenge both the classification and valuation determinations on substantive grounds and will be supported by detailed legal and technical analysis.

(ii) Binding Tariff Information Application. TSL will file a Binding Tariff Information ("BTI") application under Article 33 of the Union Customs Code to obtain a definitive ruling from the competent customs authority of a European Union Member State on the correct tariff classification of the STS gantry cranes and ASC systems. A BTI ruling would provide legally binding classification certainty and, if it confirms TSL's classification position, would constitute persuasive evidence in support of TSL's administrative objections.

(iii) Independent Expert Engagement. TSL has retained the following independent experts to provide technical analysis and, if necessary, expert testimony:

• Argonaut Trade Consulting GmbH, Berlin, Germany — customs classification experts, led by Dr. Lukas Brenner, a former member of the World Customs Organization (WCO) Harmonized System Committee. Dr. Brenner and his team will provide an independent classification opinion on the correct CN heading for the STS gantry cranes and ASC systems, drawing upon their extensive experience with the HS nomenclature and the classification of port and terminal equipment.

• Kestrel & Palladian LLP, Athens, Greece — customs valuation advisory specialists, led by Spyros Makris, Partner. Mr. Makris and his team will provide an independent valuation analysis addressing each of the three grounds raised by AADE in the Valuation Assessment, including the characterization of the technology license fees, the buying commission defense, and the treatment of post-importation commissioning services.

TSL's classification position is significantly supported by existing precedent. Specifically, the Netherlands customs authority issued a Binding Tariff Information ruling (reference NL-BTI-2021-01234, dated June 14, 2021) classifying substantially similar STS gantry cranes and ASC systems manufactured by a comparable supplier under heading 8426 at the 0% MFN duty rate. While a BTI ruling issued by one Member State is binding only on the customs authorities of the issuing Member State and the holder of the ruling, it constitutes persuasive authority and is relevant to the interpretation of the Combined Nomenclature across the European Union. TSL's counsel will rely on this ruling, together with additional supporting authorities, in the administrative objection proceedings.

IV. Insurance Coverage

TSL maintains a Financial Lines Policy with Oceanos Underwriters SA (Policy No. OCU-FIN-2021-GR-0487), a Greek-domiciled specialty insurer. The Financial Lines Policy provides coverage for, among other things, losses arising from customs and excise duty disputes, subject to the terms, conditions, and exclusions of the policy.

The relevant coverage parameters are as follows:

(a) The policy includes a sublimit of €3,000,000 (three million euros) for customs and excise duty disputes;

(b) The applicable retention (deductible) is €250,000 (two hundred fifty thousand euros) per claim;

(c) Coverage extends to defense costs (including legal fees, expert fees, and other costs of contesting the Assessment Notices) and assessed duties (i.e., additional customs duties ultimately determined to be owed), subject to applicable policy limits; and

(d) Coverage excludes penalties and interest arising from fraud or willful non-compliance on the part of the insured.

A formal notice of claim has been filed with Oceanos Underwriters SA through TSL's insurance broker, Aether Insurance Brokers Limited (London, United Kingdom). TSL is actively pursuing coverage for both defense costs incurred and any amounts that may ultimately be assessed. As of the date of this letter, Oceanos has acknowledged receipt of the notice of claim and has appointed an adjuster to review the matter, but no coverage determination has yet been issued. TSL will inform Compass Maritime Bank of the outcome of the coverage determination when it is received.

V. Financial Covenant Impact Analysis

A. Current Financial Position

Based on TSL's current financial projections and management accounts, the customs dispute — even at the high-end exposure level of approximately €14.7 million — is not anticipated to cause a breach of any of the financial covenants under the Facility Agreement.

TSL's key financial covenant under the Facility Agreement is the Net Debt to EBITDA ratio. As of the most recent measurement date, and based on projected figures for the fiscal year ending December 31, 2022, TSL's financial position relative to the applicable covenant is as follows:

• TSL's projected Net Debt / EBITDA ratio (as at December 31, 2022): 2.9×

• Covenant maximum under Section 7.3(a) of the Facility Agreement: 3.5×

• Current headroom: approximately €27.4 million of additional Net Debt before a covenant breach would occur, calculated as EBITDA × (3.5 − 2.9) = EBITDA × 0.6

TSL's projected EBITDA for the fiscal year ending December 31, 2022 provides a substantial cushion above the amounts at issue in the AADE dispute, and TSL's overall debt profile remains well within the parameters contemplated by the Facility Agreement.

B. Impact Under Adverse Scenarios

TSL has modeled the impact of the customs dispute under both the mid-case and high-end exposure scenarios on its projected Net Debt / EBITDA ratio:

• Mid-case AADE assessment (~€8.8 million): Under this scenario, if the full amount claimed by AADE were to become payable, the Net Debt / EBITDA ratio would increase modestly from 2.9× but would remain well within the 3.5× covenant limit. TSL notes further that the import VAT component (~€2.7 million) is expected to be recoverable as input VAT credit, which would reduce the net cash impact and partially offset the increase in Net Debt.

• High-end exposure scenario (~€14.7 million): Under the maximum adverse scenario, the Net Debt / EBITDA ratio would increase to approximately 3.2× to 3.35×, which remains within the 3.5× covenant limit, albeit with reduced headroom. TSL regards this scenario as representing the theoretical worst case and considers it unlikely given the strength of TSL's classification and valuation defenses and the availability of insurance coverage.

TSL continues to monitor the situation closely and will provide further updates to Compass Maritime Bank if circumstances change materially or if the dispute develops in a manner that could affect the financial covenant analysis set forth above.

C. Material Adverse Change Clause

TSL does not believe that the customs dispute described herein constitutes a Material Adverse Change within the meaning of Section 8.1(g) of the Facility Agreement. This conclusion is based on the following considerations:

(a) TSL's overall financial profile — with fiscal year 2021 revenue of €387.2 million and robust projected EBITDA — is such that even the high-end exposure of €14.7 million represents a manageable proportion of TSL's financial resources;

(b) The Assessment Notices are contested and have not been finally determined; TSL believes it has strong grounds to challenge the AADE's position on both classification and valuation, and the ultimate liability, if any, may be significantly lower than the amounts assessed;

(c) TSL maintains insurance coverage of up to €3,000,000 (net of deductible) for customs duty disputes, which would offset a meaningful portion of any ultimate liability; and

(d) TSL's business operations, cash flows, and ability to service its obligations under the Facility Agreement remain unaffected by the dispute.

TSL will continue to assess this position as the dispute develops and will promptly advise Compass Maritime Bank if its assessment changes.

VI. Ongoing Disclosure Commitment

TSL acknowledges its continuing obligation to keep Compass Maritime Bank informed of material developments relating to this dispute. Accordingly, TSL will provide further written updates to Compass Maritime Bank as material developments occur, including without limitation:

(a) The filing and outcome of administrative objections before AADE's Directorate of Resolution of Disputes (DED);

(b) The filing and progress of the Binding Tariff Information application under Article 33 of the Union Customs Code;

(d) The insurance coverage determination by Oceanos Underwriters SA, including any coverage denial, reservation of rights, or acceptance;

(e) Any material change in the exposure assessment, including any escalation of penalties or interest; and

(f) Any material change in the anticipated financial impact of the dispute on TSL's financial position or covenant compliance.

This notification is provided pursuant to TSL's obligations under Section 6.2(d) of the Facility Agreement and is intended solely for the purpose of complying with those obligations. Nothing in this letter shall be construed as an acknowledgment by TSL of any liability with respect to the AADE Assessment Notices or as an assessment of the ultimate outcome of the proceeding. All rights and defenses of TSL in connection with the dispute are expressly reserved.

VII. Contact Information

Should you have any questions regarding this notification or require additional information, please do not hesitate to contact the undersigned directly:

Garrett Simmons, Associate Calderwood & Harkness LLP 25 Finsbury Square, London EC2A 1DU, United Kingdom Tel: +44 (0)20 7946 0247

Email: garrett.simmons@calderwoodharkness.com

James Prentice, Partner Calderwood & Harkness LLP 25 Finsbury Square, London EC2A 1DU, United Kingdom Tel: +44 (0)20 7946 0212

Email: james.prentice@calderwoodharkness.com

We remain at your disposal and look forward to your confirmation of receipt of this disclosure.

Sincerely,

CALDERWOOD & HARKNESS LLP

By: ________

Garrett Simmons Associate

(On behalf of Thalassa Shipping & Logistics SA)

cc:

Elena Papadimitriou, Chief Financial Officer, Thalassa Shipping & Logistics SA James Prentice, Partner, Calderwood & Harkness LLP

Contract Reference	Description	Units	Declared CIF Value (€)
HHI-TSL-2019-001	STS Gantry Cranes	12	38,400,000
HHI-TSL-2019-002	RTG Cranes	18	25,200,000
HHI-TSL-2020-003	ASC Systems	8	28,800,000
HHI-TSL-2021-004	Spare Parts, Software, Commissioning Services	—	5,600,000
Total	47	98,000,000
Component	Amount (€)
Additional customs duty — classification (Assessment Notice No. 1)	1,478,400
Additional customs duty — valuation (Assessment Notice No. 2)	218,680
Import VAT adjustment (24% Greek standard rate)	2,740,416
Administrative penalties (30% of additional duties)	509,124
Late payment interest (estimated at 0.73%/month from original entry dates through August 2022)	3,872,000
Total AADE claim (mid estimate)	~€8,818,620

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Barristers & Solicitors | International Counsel 25 Finsbury Square London EC2A 1DU United Kingdom
Tel: +44 (0)20 7946 0200
Fax: +44 (0)20 7946 0201
www.calderwoodharkness.com
October 3, 2022
Mr. Andreas Papathanasiou Relationship Manager — Shipping & Logistics Division Compass Maritime Bank Société Anonyme 5 Kolokotroni Street 105 62 Athens Greece
Re: Material Litigation Disclosure — Thalassa Shipping & Logistics Société Anonyme Revolving Credit Facility Agreement dated September 1, 2020 (€75,000,000)
Dear Mr. Papathanasiou,
We write on behalf of our client, Thalassa Shipping & Logistics Société Anonyme ("TSL"), EORI No. GR094827361000, with its registered headquarters at 47 Akti Miaouli, 185 35 Piraeus, Greece. This letter is addressed to Compass Maritime Bank Société Anonyme ("Compass Maritime Bank" or the "Lender") in its capacity as lender under the €75,000,000 Revolving Credit Facility Agreement dated September 1, 2020, entered into between TSL as Borrower and Compass Maritime Bank as Lender (the "Facility Agreement"). Unless otherwise defined herein, capitalized terms shall bear the meanings ascribed to them in the Facility Agreement.
This disclosure is made pursuant to Section 6.2(d) of the Facility Agreement, which requires the Borrower to promptly notify the Lender, in writing and in any event within ten (10) business days of becoming aware thereof, of any litigation, arbitration, or administrative proceeding commenced or threatened against the Borrower or any of its subsidiaries in which the amount in controversy exceeds €2,000,000 (two million euros) or which could otherwise reasonably be expected to have a Material Adverse Effect on the Borrower's ability to perform its obligations under the Facility Agreement.
By this letter, TSL hereby notifies Compass Maritime Bank of the administrative proceeding described in detail below. TSL is committed to full transparency in connection with this matter and has instructed us to provide Compass Maritime Bank with a comprehensive account of the facts, the exposure assessment, the defense strategy being pursued, and the anticipated impact, if any, on TSL's compliance with the financial covenants contained in the Facility Agreement.
I. Description of Administrative Proceeding
A. Background — Equipment Imports
Between March 2019 and January 2022, TSL undertook a significant capital investment program to modernize and expand its container-handling capacity at three major Greek port terminals. As part of this program, TSL imported a total of forty-seven (47) units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a company organized under the laws of the People's Republic of China with its principal place of business in Ningbo, Zhejiang Province, PRC. Hailong is a recognized global manufacturer of port and terminal equipment and was selected by TSL following a competitive procurement process. The imported equipment was destined for use at TSL's terminal operations at the ports of Piraeus, Thessaloniki, and Volos.
The forty-seven units of equipment comprised the following categories:
(a) Twelve (12) ship-to-shore (STS) gantry cranes — large-scale quayside cranes designed for the loading and unloading of containerized cargo from ocean-going vessels, with an outreach of approximately 65 meters and a safe working load of 65 tonnes under spreader;
(b) Eighteen (18) rubber-tired gantry (RTG) cranes — mobile container-stacking cranes designed for use in the container yard, with a stacking height of one-over-five containers and a span of six containers plus a truck lane;
(c) Eight (8) automated stacking crane (ASC) systems — rail-mounted, fully automated container-stacking cranes for use in high-density storage blocks at the Piraeus terminal, incorporating integrated software for remote operation and yard management; and
(d) A bundled package of spare parts, proprietary software licenses, and commissioning services associated with the foregoing equipment, including on-site installation, testing, calibration, and performance verification.
The importation of the above equipment was conducted under four master purchase contracts entered into between TSL and Hailong. The total declared CIF (Cost, Insurance, and Freight) customs value across the four contracts was €98,000,000 (ninety-eight million euros), allocated as follows:
All forty-seven units of equipment, together with the associated spare parts, software, and commissioning services, were imported into Greece and cleared through the Piraeus Regional Customs Office of the Independent Authority for Public Revenue (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, or "AADE"), the Greek customs and tax authority. Customs entries were filed by TSL's authorized customs broker, and all applicable duties and import VAT were paid at the time of importation based on the classifications and valuations declared in the customs entries.
B. AADE Post-Clearance Audit
On April 4, 2022, AADE initiated a post-clearance audit of TSL's customs entries relating to the above-described equipment imports. The audit was conducted under AADE audit file reference AADE/DTE/2022/PIR-04518 by the Piraeus Regional Customs Office's Post-Clearance Audit Division. The scope of the audit encompassed a comprehensive review of the tariff classification and customs valuation methodology applied by TSL with respect to all four master purchase contracts.
The audit involved extensive document requests, including the production of all purchase contracts, invoices, shipping documents, insurance certificates, technology license agreements, third-party advisory and procurement coordination agreements, commissioning service records, and correspondence between TSL and Hailong. TSL cooperated fully with the audit process, producing all requested documentation in a timely manner.
The audit was completed on August 1, 2022. Following the completion of the audit, on August 12, 2022, AADE issued two Additional Duty Assessment Notices addressed to TSL, each setting forth AADE's determination that additional customs duties are owed. The two Assessment Notices are described in Sections C and D below.
C. Assessment Notice No. 1 — Classification (AADE/ADAN/2022/0073)
In Assessment Notice No. AADE/ADAN/2022/0073 (the "Classification Assessment"), AADE contends that twenty (20) of the forty-seven units of imported equipment — specifically, the twelve (12) STS gantry cranes and the eight (8) ASC systems — were misclassified by TSL in its customs entries.
TSL declared the STS gantry cranes and ASC systems under Combined Nomenclature ("CN") code 8426 41 00, which covers "other machinery, self-propelled, on tyres" within the broader heading 8426 for "ships' derricks; cranes, including cable cranes; mobile lifting frames, straddle carriers, and works trucks fitted with a crane." The applicable Most Favoured Nation ("MFN") duty rate for CN code 8426 41 00 is 0% (zero percent).
AADE has taken the position that the STS gantry cranes and ASC systems should instead be classified under CN code 8428 90 90, which falls within heading 8428 covering "other lifting, handling, loading, or unloading machinery (for example, lifts, escalators, conveyors, teleferics)" and specifically the residual subheading for "other" machinery not elsewhere specified within that heading. The applicable MFN duty rate for CN code 8428 90 90 is 2.2% (two point two percent).
AADE's rationale for reclassification, as set forth in the Classification Assessment, is that the STS gantry cranes and ASC systems are primarily "handling" equipment rather than "lifting" equipment within the meaning of heading 8426, and that the automated nature of the ASC systems, in particular, places them outside the scope of heading 8426, which AADE interprets as being limited to conventional crane machinery. AADE further contends that the STS gantry cranes, by reason of their fixed rail-mounted installation and integrated container-handling spreader systems, are more appropriately characterized as specialized cargo-handling machinery under heading 8428.
The reclassified customs value base for the twenty affected units is €67,200,000 (being €38,400,000 for the 12 STS gantry cranes under Contract HHI-TSL-2019-001 plus €28,800,000 for the 8 ASC systems under Contract HHI-TSL-2020-003). The additional customs duty assessed under the Classification Assessment is accordingly calculated as:
€67,200,000 × 2.2% = €1,478,400
It should be noted that the eighteen (18) RTG cranes imported under Contract HHI-TSL-2019-002 are not the subject of the Classification Assessment. AADE has accepted that the RTG cranes are properly classified under CN code 8426 41 00 at the 0% MFN duty rate, and no reclassification has been proposed with respect to those units.
D. Assessment Notice No. 2 — Valuation (AADE/ADAN/2022/0074)
In Assessment Notice No. AADE/ADAN/2022/0074 (the "Valuation Assessment"), AADE contends that the customs values declared by TSL in its customs entries are understated by a total of €9,940,000 (nine million nine hundred forty thousand euros). The Valuation Assessment is based on three separate grounds, each of which relates to a distinct category of costs that AADE contends should have been included in the declared transaction value of the imported equipment:
(i) Technology License Fees — €4,900,000. TSL entered into a Technology License Agreement with Hailong dated January 10, 2019 (the "TLA"), pursuant to which TSL obtained a license to use certain proprietary software, automation algorithms, and technical know-how embedded in the STS gantry cranes and ASC systems. License fees totaling €4,900,000 were paid by TSL to Hailong under the TLA. AADE contends that these technology license fees constitute "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued" within the meaning of Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013, the "UCC"), and should accordingly have been added to the transaction value of the equipment for customs valuation purposes.
(ii) Procurement Coordination Fees — €2,940,000. TSL engaged Nereus Maritime Advisory Limited ("Nereus"), a company registered in the Republic of Cyprus, to provide procurement coordination and vendor management services in connection with the equipment acquisition program. Fees totaling €2,940,000 were paid by TSL to Nereus. TSL declared these fees as a buying commission — that is, a fee paid by the buyer to its own agent for the service of representing the buyer in the procurement process — which is not includable in customs value under the UCC. AADE disputes this characterization. AADE contends that Nereus acted as a selling agent or intermediary for Hailong rather than as a buying agent for TSL, and that the fees paid to Nereus are properly characterized as a selling commission or procurement markup that is includable in customs value under Article 71(1)(a)(i) of the UCC.
(iii) Commissioning Services — €2,100,000. Under Contract HHI-TSL-2021-004, Hailong provided on-site commissioning services including installation supervision, system integration testing, calibration, and performance verification for the STS gantry cranes and ASC systems. TSL declared the value of the commissioning services (€2,100,000 of the total €5,600,000 contract value) separately from the CIF value of the base equipment, on the basis that these services were performed after importation and did not form part of the price actually paid or payable for the goods. AADE contends that the commissioning services were a contractual prerequisite for the delivery and acceptance of the equipment, and that their cost should therefore be added to the customs value of the base equipment under Article 71(1)(b) of the UCC as a condition-of-sale cost.
Based on the foregoing adjustments, the additional customs duty assessed under the Valuation Assessment is calculated on the aggregate uplift of €9,940,000. Applying the reclassified MFN duty rate of 2.2% (as determined in the Classification Assessment), the additional customs duty assessed under the Valuation Assessment is:
€9,940,000 × 2.2% = €218,680
II. Total Exposure Assessment
A. AADE Mid-Case Assessment
Based on the two Assessment Notices and the applicable statutory provisions regarding import VAT, administrative penalties, and late payment interest, the total amount currently claimed by AADE under the mid-case scenario is summarized in the table below:
For the avoidance of doubt, the import VAT adjustment of €2,740,416 is composed of two elements: (i) VAT on the additional customs duty differential, calculated as €1,478,400 × 24% = €354,816; and (ii) VAT on the increased customs value base resulting from the valuation adjustments, calculated as €9,940,000 × 24% = €2,385,600. It is important to note that, as a registered VAT taxpayer, TSL may recover this additional import VAT amount as input VAT credit against its output VAT liability, provided that AADE verifies TSL's eligibility for input VAT credit recovery. Accordingly, the net cash impact of the import VAT adjustment is expected to be a timing difference rather than a permanent cost to TSL. However, AADE requires payment of the full amount pending verification of input VAT credit eligibility, which may result in a temporary cash outflow.
B. High-End Exposure Estimate
TSL's internal assessment of the potential maximum exposure, prepared in consultation with both Calderwood & Harkness LLP and local Greek counsel, takes into account the possibility of penalty escalation under the applicable Greek customs penalty regime. Under Article 147 of the Greek Customs Code (Law 2960/2001), the level of administrative penalties is determined based on the degree of culpability attributed to the importer:
(a) In cases of good-faith error, the penalty is assessed at 30% of the additional duties, which is the rate applied in the mid-case assessment above;
(b) In cases of negligence, the penalty may be assessed at up to 100% of the additional duties; and
(c) In cases of fraud or willful non-compliance, the penalty may be assessed at up to 300% of the additional duties.
Under the high-end exposure scenario, including the potential for penalty escalation from the 30% good-faith rate to higher tiers, together with compounding interest and the possibility of additional valuation adjustments, TSL estimates maximum exposure at approximately €14.7 million (fourteen million seven hundred thousand euros). Within this amount, the maximum penalty exposure at the 300% rate would be approximately €4.41 million on the extreme high end, calculated as 300% of the combined additional duties of €1,478,400 plus €218,680 (i.e., 300% × €1,697,080 ≈ €5,091,240), though this figure represents the theoretical maximum, and the realistic penalty estimate under the most adverse scenario is somewhat lower when adjusted for expected successful defenses on individual components.
TSL believes that escalation to the higher penalty tiers is unlikely given the genuine classification ambiguity surrounding the CN headings at issue, TSL's demonstrable good faith in relying on established industry classification practice and prior Binding Tariff Information rulings, and TSL's full cooperation with the audit process. Nevertheless, the possibility of penalty escalation cannot be excluded at this stage, and TSL has therefore included it in its high-end exposure estimate for the purposes of this disclosure.
III. TSL's Position and Defense Strategy
TSL believes that the AADE Assessment Notices are incorrect in both their classification and valuation determinations. TSL maintains that its original customs declarations were filed in good faith, in accordance with applicable EU customs law, and on the basis of well-reasoned classification and valuation positions. TSL intends to vigorously defend against both Assessment Notices through all available administrative and, if necessary, judicial channels.
TSL has engaged the following counsel to represent it in this dispute:
(a) Calderwood & Harkness LLP, 25 Finsbury Square, London EC2A 1DU, United Kingdom, as international counsel, with responsibility for overall strategic coordination, EU customs law analysis, and liaison with the Lender; and
(b) Vournas & Theodorakis Dikigiriko Grafeio, 22 Academias Street, 106 71 Athens, Greece, as Greek local counsel, with responsibility for the conduct of the administrative proceedings before AADE and, if necessary, litigation before the Greek administrative courts.
TSL's defense strategy encompasses the following elements:
(i) Administrative Objections. TSL will file formal administrative objections (ενδικοφανείς προσφυγές) to both Assessment Notices before AADE's Directorate of Resolution of Disputes (Διεύθυνση Επίλυσης Διαφορών, or "DED"), within the statutory timeframe. The administrative objections will challenge both the classification and valuation determinations on substantive grounds and will be supported by detailed legal and technical analysis.
(ii) Binding Tariff Information Application. TSL will file a Binding Tariff Information ("BTI") application under Article 33 of the Union Customs Code to obtain a definitive ruling from the competent customs authority of a European Union Member State on the correct tariff classification of the STS gantry cranes and ASC systems. A BTI ruling would provide legally binding classification certainty and, if it confirms TSL's classification position, would constitute persuasive evidence in support of TSL's administrative objections.
(iii) Independent Expert Engagement. TSL has retained the following independent experts to provide technical analysis and, if necessary, expert testimony:
•  Argonaut Trade Consulting GmbH, Berlin, Germany — customs classification experts, led by Dr. Lukas Brenner, a former member of the World Customs Organization (WCO) Harmonized System Committee. Dr. Brenner and his team will provide an independent classification opinion on the correct CN heading for the STS gantry cranes and ASC systems, drawing upon their extensive experience with the HS nomenclature and the classification of port and terminal equipment.
•  Kestrel & Palladian LLP, Athens, Greece — customs valuation advisory specialists, led by Spyros Makris, Partner. Mr. Makris and his team will provide an independent valuation analysis addressing each of the three grounds raised by AADE in the Valuation Assessment, including the characterization of the technology license fees, the buying commission defense, and the treatment of post-importation commissioning services.
TSL's classification position is significantly supported by existing precedent. Specifically, the Netherlands customs authority issued a Binding Tariff Information ruling (reference NL-BTI-2021-01234, dated June 14, 2021) classifying substantially similar STS gantry cranes and ASC systems manufactured by a comparable supplier under heading 8426 at the 0% MFN duty rate. While a BTI ruling issued by one Member State is binding only on the customs authorities of the issuing Member State and the holder of the ruling, it constitutes persuasive authority and is relevant to the interpretation of the Combined Nomenclature across the European Union. TSL's counsel will rely on this ruling, together with additional supporting authorities, in the administrative objection proceedings.
IV. Insurance Coverage
TSL maintains a Financial Lines Policy with Oceanos Underwriters SA (Policy No. OCU-FIN-2021-GR-0487), a Greek-domiciled specialty insurer. The Financial Lines Policy provides coverage for, among other things, losses arising from customs and excise duty disputes, subject to the terms, conditions, and exclusions of the policy.
The relevant coverage parameters are as follows:
(a) The policy includes a sublimit of €3,000,000 (three million euros) for customs and excise duty disputes;
(b) The applicable retention (deductible) is €250,000 (two hundred fifty thousand euros) per claim;
(c) Coverage extends to defense costs (including legal fees, expert fees, and other costs of contesting the Assessment Notices) and assessed duties (i.e., additional customs duties ultimately determined to be owed), subject to applicable policy limits; and
(d) Coverage excludes penalties and interest arising from fraud or willful non-compliance on the part of the insured.
A formal notice of claim has been filed with Oceanos Underwriters SA through TSL's insurance broker, Aether Insurance Brokers Limited (London, United Kingdom). TSL is actively pursuing coverage for both defense costs incurred and any amounts that may ultimately be assessed. As of the date of this letter, Oceanos has acknowledged receipt of the notice of claim and has appointed an adjuster to review the matter, but no coverage determination has yet been issued. TSL will inform Compass Maritime Bank of the outcome of the coverage determination when it is received.
V. Financial Covenant Impact Analysis
A. Current Financial Position
Based on TSL's current financial projections and management accounts, the customs dispute — even at the high-end exposure level of approximately €14.7 million — is not anticipated to cause a breach of any of the financial covenants under the Facility Agreement.
TSL's key financial covenant under the Facility Agreement is the Net Debt to EBITDA ratio. As of the most recent measurement date, and based on projected figures for the fiscal year ending December 31, 2022, TSL's financial position relative to the applicable covenant is as follows:
•  TSL's projected Net Debt / EBITDA ratio (as at December 31, 2022): 2.9×
•  Covenant maximum under Section 7.3(a) of the Facility Agreement: 3.5×
•  Current headroom: approximately €27.4 million of additional Net Debt before a covenant breach would occur, calculated as EBITDA × (3.5 − 2.9) = EBITDA × 0.6
TSL's projected EBITDA for the fiscal year ending December 31, 2022 provides a substantial cushion above the amounts at issue in the AADE dispute, and TSL's overall debt profile remains well within the parameters contemplated by the Facility Agreement.
B. Impact Under Adverse Scenarios
TSL has modeled the impact of the customs dispute under both the mid-case and high-end exposure scenarios on its projected Net Debt / EBITDA ratio:
•  Mid-case AADE assessment (~€8.8 million): Under this scenario, if the full amount claimed by AADE were to become payable, the Net Debt / EBITDA ratio would increase modestly from 2.9× but would remain well within the 3.5× covenant limit. TSL notes further that the import VAT component (~€2.7 million) is expected to be recoverable as input VAT credit, which would reduce the net cash impact and partially offset the increase in Net Debt.
•  High-end exposure scenario (~€14.7 million): Under the maximum adverse scenario, the Net Debt / EBITDA ratio would increase to approximately 3.2× to 3.35×, which remains within the 3.5× covenant limit, albeit with reduced headroom. TSL regards this scenario as representing the theoretical worst case and considers it unlikely given the strength of TSL's classification and valuation defenses and the availability of insurance coverage.
TSL continues to monitor the situation closely and will provide further updates to Compass Maritime Bank if circumstances change materially or if the dispute develops in a manner that could affect the financial covenant analysis set forth above.
C. Material Adverse Change Clause
TSL does not believe that the customs dispute described herein constitutes a Material Adverse Change within the meaning of Section 8.1(g) of the Facility Agreement. This conclusion is based on the following considerations:
(a) TSL's overall financial profile — with fiscal year 2021 revenue of €387.2 million and robust projected EBITDA — is such that even the high-end exposure of €14.7 million represents a manageable proportion of TSL's financial resources;
(b) The Assessment Notices are contested and have not been finally determined; TSL believes it has strong grounds to challenge the AADE's position on both classification and valuation, and the ultimate liability, if any, may be significantly lower than the amounts assessed;
(c) TSL maintains insurance coverage of up to €3,000,000 (net of deductible) for customs duty disputes, which would offset a meaningful portion of any ultimate liability; and
(d) TSL's business operations, cash flows, and ability to service its obligations under the Facility Agreement remain unaffected by the dispute.
TSL will continue to assess this position as the dispute develops and will promptly advise Compass Maritime Bank if its assessment changes.
VI. Ongoing Disclosure Commitment
TSL acknowledges its continuing obligation to keep Compass Maritime Bank informed of material developments relating to this dispute. Accordingly, TSL will provide further written updates to Compass Maritime Bank as material developments occur, including without limitation:
(a) The filing and outcome of administrative objections before AADE's Directorate of Resolution of Disputes (DED);
(b) The filing and progress of the Binding Tariff Information application under Article 33 of the Union Customs Code;
(c) Any settlement discussions or negotiations with AADE, and the terms of any proposed settlement;
(d) The insurance coverage determination by Oceanos Underwriters SA, including any coverage denial, reservation of rights, or acceptance;
(e) Any material change in the exposure assessment, including any escalation of penalties or interest; and
(f) Any material change in the anticipated financial impact of the dispute on TSL's financial position or covenant compliance.
This notification is provided pursuant to TSL's obligations under Section 6.2(d) of the Facility Agreement and is intended solely for the purpose of complying with those obligations. Nothing in this letter shall be construed as an acknowledgment by TSL of any liability with respect to the AADE Assessment Notices or as an assessment of the ultimate outcome of the proceeding. All rights and defenses of TSL in connection with the dispute are expressly reserved.
VII. Contact Information
Should you have any questions regarding this notification or require additional information, please do not hesitate to contact the undersigned directly:
Garrett Simmons, Associate Calderwood & Harkness LLP 25 Finsbury Square, London EC2A 1DU, United Kingdom Tel: +44 (0)20 7946 0247
Email: garrett.simmons@calderwoodharkness.com
or
James Prentice, Partner Calderwood & Harkness LLP 25 Finsbury Square, London EC2A 1DU, United Kingdom Tel: +44 (0)20 7946 0212
Email: james.prentice@calderwoodharkness.com
We remain at your disposal and look forward to your confirmation of receipt of this disclosure.
Sincerely,
CALDERWOOD & HARKNESS LLP
By: ________
Garrett Simmons Associate
(On behalf of Thalassa Shipping & Logistics SA)
cc:
Elena Papadimitriou, Chief Financial Officer, Thalassa Shipping & Logistics SA James Prentice, Partner, Calderwood & Harkness LLP
Contract Reference | Description | Units | Declared CIF Value (€)
HHI-TSL-2019-001 | STS Gantry Cranes | 12 | 38,400,000
HHI-TSL-2019-002 | RTG Cranes | 18 | 25,200,000
HHI-TSL-2020-003 | ASC Systems | 8 | 28,800,000
HHI-TSL-2021-004 | Spare Parts, Software, Commissioning Services | — | 5,600,000
Total | 47 | 98,000,000
Component | Amount (€)
Additional customs duty — classification (Assessment Notice No. 1) | 1,478,400
Additional customs duty — valuation (Assessment Notice No. 2) | 218,680
Import VAT adjustment (24% Greek standard rate) | 2,740,416
Administrative penalties (30% of additional duties) | 509,124
Late payment interest (estimated at 0.73%/month from original entry dates through August 2022) | 3,872,000
Total AADE claim (mid estimate) | ~€8,818,620

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