1044-00006 · Hargrove, Delacroix & Stern LLP · Insurance & Lender

memo-lender-notification-compliance.docx DOCUMENT Litigation

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Douglas Carmichael, Responsible Partner; Francesca Morano, Billing Partner

FROM: Carlos Espinoza, Lead Associate; Hannah Brinkley, Associate

DATE: November 18, 2024

RE: Lender Notification Compliance Analysis — Meridian Capital Bank AG Credit Agreement; Settlement in Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA et al., Index No. 655421/2023

C&H MATTER NO.: 1044-00006

CLIENT: Thalassa Shipping & Logistics SA

I. Purpose and Executive Summary

This memorandum analyzes the notification and covenant compliance obligations triggered under the Credit Agreement dated April 1, 2019 (the "Credit Agreement"), by and between Thalassa Shipping & Logistics SA ("TSL" or the "Borrower") and Meridian Capital Bank AG ("Meridian"), headquartered at Ballindamm 40, 20095 Hamburg, Germany, in connection with the settlement of the above-referenced litigation. The purpose of this analysis is to identify all Credit Agreement provisions that may be implicated by the settlement, to assess TSL's compliance posture, and to recommend specific procedures for ensuring that TSL satisfies its obligations under the Credit Agreement in a timely and complete manner.

The settlement amount of $7,850,000 exceeds the $5,000,000 Material Litigation Settlement notification threshold established under Section 8.14 of the Credit Agreement. As a result, TSL is required to provide written notice to Meridian within five (5) business days of the execution of the Settlement Agreement or entry into a binding settlement commitment. The execution version of the Settlement Agreement and Mutual General Release (the "Settlement Agreement") between TSL, Aegean Fortuna Shipholding Ltd., and Northwind Maritime Corporation is anticipated to be dated November 20, 2024. Accordingly, the notification must be delivered to Meridian no later than November 27, 2024. In light of the significance of this obligation and the potential consequences of non-compliance, we recommend delivering the notification letter on November 22, 2024, providing a two-business-day margin ahead of the contractual deadline. The designated Relationship Manager at Meridian is Lukas Brandt.

Beyond the Section 8.14 notification requirement, the settlement implicates a number of additional covenants and provisions of the Credit Agreement that warrant careful analysis. This memorandum catalogues the following: (a) the Section 8.14 notification requirement and its application to the Northwind settlement; (b) additional covenants potentially implicated by the settlement payments, including financial maintenance covenants, negative covenant baskets, negative pledge and lien provisions, Material Adverse Change and Material Adverse Effect representations, reporting covenants, insurance covenants, and cross-default provisions; and (c) recommended compliance procedures, organized by pre-execution, post-execution, and ongoing monitoring phases.

We have structured the analysis to provide the partners with a comprehensive overview of all relevant obligations, together with actionable recommendations. A draft notification letter to Meridian has been prepared and will be circulated under separate cover for partner review.

II. Background

A. The Meridian Credit Facility

TSL is party to a Credit Agreement dated April 1, 2019, with Meridian Capital Bank AG acting as administrative agent and sole lender. The Credit Agreement establishes a senior secured credit facility with a total commitment amount of $340,000,000 (the "Facility"). The Facility is secured by first-priority ship mortgages on the TSL fleet, which comprises approximately thirty-four (34) vessels across the dry bulk, tanker, and container segments. The mortgaged fleet serves as the primary collateral for the Facility, with additional security provided through assignments of earnings, insurances, and charter hire receivables in the ordinary course.

The Credit Agreement is a comprehensive financing instrument that governs TSL's borrowing under the Facility, contains customary representations and warranties, establishes both affirmative and negative covenants applicable to TSL and its subsidiaries, and sets forth events of default provisions. The Credit Agreement also includes financial maintenance covenants (including minimum debt service coverage ratio and maximum leverage ratio requirements), reporting obligations, insurance maintenance covenants, and a cross-default mechanism. TSL's obligations under the Credit Agreement are material to its ongoing operations, and compliance with the covenants contained therein is a continuing obligation monitored by Meridian through its Relationship Manager, Lukas Brandt, and the bank's credit department in Hamburg.

As of the date of this memorandum, we understand from TSL's General Counsel, Markos Theodorakis, that TSL is in full compliance with all covenants under the Credit Agreement, and no event of default or potential event of default is outstanding. TSL has drawn approximately $278,000,000 of the $340,000,000 commitment, with the remaining availability subject to borrowing base and other conditions precedent under the Credit Agreement.

B. The Northwind Litigation and Settlement

The litigation at issue is styled Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023, pending in the Supreme Court of the State of New York, New York County, Commercial Division, before the Honorable Lorraine K. Chen, J.S.C. The action was commenced by Northwind Maritime Corporation ("Northwind"), a corporation organized under the laws of the Republic of the marshall Islands, with its principal office at 1700 Harbor Gateway, Suite 500, Stamford, Connecticut 06902.

Northwind brought breach of charter-party claims arising from the time charter of the M/V Aegean Fortuna (IMO No. 9847231), a Supramax dry bulk carrier of 58,200 DWT, registered under the Liberian flag. The relevant charter-party (Reference No. NW-TSL-CP-2020-1203) was executed on December 3, 2020, on the NYPE 2015 form as amended, with a thirty-six (36) month charter period commencing January 15, 2021. The M/V Aegean Fortuna is beneficially owned by Aegean Fortuna Shipholding Ltd., a single-vessel subsidiary of TSL incorporated in the Republic of the marshall Islands, and was time-chartered to Northwind in the ordinary course of TSL's commercial operations.

Northwind's claims centered on allegations of breach of the maintenance and performance obligations under the charter-party, including claims related to vessel speed and fuel consumption warranties, off-hire disputes, and alleged failure to maintain the vessel in a seaworthy condition during the charter period. Northwind alleged total damages of $18,300,000, comprising lost profits, additional fuel costs, hire overpayments, and consequential damages. TSL contested the claims vigorously and asserted a counterclaim for $1,620,000 in unpaid hire, alleging that Northwind had improperly withheld charter hire during certain disputed off-hire periods.

Following extensive discovery and motion practice, and after an unsuccessful settlement conference before Justice Chen, the parties agreed to participate in mediation. On October 28–29, 2024, the parties mediated before the Honorable Gerald K. Fitzpatrick (Ret.) at Bayside Dispute Resolution Services LLC. After two days of intensive mediation, the parties reached a settlement in principle for $7,850,000. The mediator's proposal, which formed the basis for the settlement, reflected a significant discount from Northwind's claimed damages of $18,300,000, and TSL's acceptance was predicated on a mutual general release and no admission of liability.

The Settlement Agreement and Mutual General Release — the execution version of which is anticipated to be dated November 20, 2024 — memorializes the terms of the settlement. Under the Settlement Agreement, TSL agrees to pay $7,850,000 to Northwind in three installments, as detailed below. In consideration of the settlement payments, Northwind releases all claims against TSL and Aegean Fortuna Shipholding Ltd. arising from the charter-party, and TSL releases its counterclaim of $1,620,000 in unpaid hire as part of the global settlement. The Settlement Agreement also provides for a stipulation of discontinuance with prejudice upon completion of all settlement payments, with the court retaining jurisdiction for enforcement purposes.

C. Settlement Payment Structure

The Settlement Agreement provides for the following payment schedule:

The Effective Date of the Settlement Agreement is defined as the date of execution by all parties, anticipated to be November 20, 2024. Accordingly, assuming an Effective Date of November 20, 2024, the three payment deadlines would fall approximately on December 20, 2024, February 18, 2025, and April 19, 2025, respectively, subject to adjustment for weekends and holidays as provided in the Settlement Agreement.

The settlement will be funded from two sources. First, TSL corporate funds will provide $5,350,000 of the total settlement amount. Second, the Oceanus Mutual Protection & Indemnity Club (the "Oceanus P&I Club") will contribute $2,500,000 under Policy No. OCE-P&I-2020-TSL-0047. The Oceanus P&I Club contribution is subject to Board approval, which is expected on November 22, 2024. TSL's P&I coverage under the Oceanus P&I Club is a standard mutual entry, and TSL has maintained its coverage in good standing. The P&I Club contribution has been provisionally confirmed by TSL's P&I correspondent, David Okafor, Claims Manager at Oceanus, subject to formal Board ratification.

All settlement payments are to be deposited with Atlantic Fiduciary Trust Company, acting as escrow agent, in escrow account ESC-2024-NYK-08831. The contact at Atlantic Fiduciary Trust Company is Martin Schreiber, Vice President, Escrow Services, located at 60 Wall Street, Suite 2800, New York, New York 10005. Settlement funds will be released from escrow to Northwind upon joint instruction of the parties, in accordance with the terms of the escrow agreement.

III. Section 8.14 — Material Litigation Settlement Notification Requirement

A. Text and Interpretation of Section 8.14

Section 8.14 of the Credit Agreement (captioned "Material Litigation Settlement Notification") imposes an affirmative covenant on TSL to provide written notice to Meridian of any settlement of litigation — including, by its express terms, arbitration proceedings — where the aggregate settlement amount exceeds $5,000,000. This notification requirement is a material affirmative covenant, the breach of which could, depending on the cure provisions and grace periods applicable under the Credit Agreement, constitute an event of default.

The key elements of the notification obligation under Section 8.14 are as follows:

(a) Triggering Event. The obligation is triggered upon the execution of a settlement agreement or the entry into a binding settlement commitment (including a binding mediator's proposal or a term sheet that constitutes a binding agreement to settle) where the aggregate settlement amount exceeds $5,000,000.

(b) Timing. Written notice must be provided to Meridian within five (5) business days of the occurrence of the triggering event. "Business days" is defined in the Credit Agreement as days on which commercial banks are open for business in both New York, New York and Hamburg, Germany. For purposes of computing the five-business-day period, we have assumed that all days between November 20, 2024 and November 27, 2024 are business days in both jurisdictions, noting that November 28, 2024 is Thanksgiving Day (a U.S. federal holiday) and would not constitute a business day.

(c) Content. The notification must include: (i) identification of the litigation matter, including the caption, court, and docket or index number; (ii) the aggregate settlement amount; (iii) a summary of the material terms of the settlement, including the payment schedule and any conditions; and (iv) the expected source of funds for settlement payments, including the breakdown between the Borrower's own funds and any third-party contributions such as insurance proceeds.

(d) Manner of Delivery. The Credit Agreement provides that notices shall be delivered in accordance with the general notice provisions set forth in Section 12.1 of the Credit Agreement, which typically permits notice by hand delivery, overnight courier, facsimile, or email to designated recipients. We understand that Lukas Brandt is the designated Relationship Manager and the appropriate recipient for notices under the Credit Agreement.

The $5,000,000 threshold is measured by reference to the "aggregate settlement amount," which we interpret to mean the total amount payable by TSL and its affiliates under the settlement, inclusive of any third-party contributions that discharge TSL's settlement obligations. This interpretation is consistent with the protective purpose of the notification covenant, which is designed to alert Meridian to material financial events affecting the Borrower, regardless of the ultimate funding source.

B. Application to the Northwind Settlement

The application of Section 8.14 to the Northwind settlement is straightforward. The aggregate settlement amount is $7,850,000, which exceeds the $5,000,000 notification threshold by $2,850,000. There is no ambiguity in the triggering of this obligation; the settlement amount is clearly in excess of the threshold, and the settlement of the Northwind litigation constitutes a "settlement of litigation" within the meaning of Section 8.14.

The triggering event will occur upon execution of the Settlement Agreement, which is anticipated to take place on November 20, 2024. The five-business-day notification deadline, computed in accordance with the "business days" definition in the Credit Agreement and taking into account the U.S. Thanksgiving holiday on November 28, 2024, falls on November 27, 2024. This deadline assumes that November 21, 22, 25, 26, and 27, 2024 are all business days in both New York and Hamburg.

To ensure compliance with an appropriate margin for error — and to demonstrate TSL's good faith and proactive approach to its lender communication obligations — we recommend delivering the notification letter to Lukas Brandt at Meridian on November 22, 2024, which is two (2) business days ahead of the contractual deadline. Early delivery also allows time to address any follow-up inquiries from Meridian before the Thanksgiving holiday weekend and provides a buffer in the event of any delivery complications.

C. Content of the Notification Letter

The notification letter to Meridian should be comprehensive and address all of the content requirements specified in Section 8.14. Specifically, the letter should include the following elements:

(i) Case Identification. The letter should identify the case as Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023, Supreme Court of the State of New York, New York County, Commercial Division.

(ii) Aggregate Settlement Amount. The letter should state the aggregate settlement amount of $7,850,000 and note that this amount exceeds the $5,000,000 notification threshold under Section 8.14 of the Credit Agreement.

(iii) Payment Structure and Timeline. The letter should describe the three-installment payment structure: $4,000,000 due within 30 days of the Effective Date, $2,000,000 due within 90 days of the Effective Date, and $1,850,000 due within 150 days of the Effective Date.

(iv) Funding Sources. The letter should identify the funding sources for the settlement payments: $5,350,000 from TSL corporate funds, and $2,500,000 from the Oceanus Mutual Protection & Indemnity Club under Policy No. OCE-P&I-2020-TSL-0047.

(v) Mutual General Release and No Admission of Liability. The letter should confirm that the Settlement Agreement includes a mutual general release of all claims between the parties and that TSL makes no admission of liability.

(vi) Court's Retained Jurisdiction. The letter should note that the court will retain jurisdiction for enforcement purposes, and that a stipulation of discontinuance with prejudice will be filed upon completion of all settlement payments.

We have prepared a draft notification letter addressing all of the foregoing elements. The draft will be circulated to Douglas Carmichael and Francesca Morano under separate cover for partner review and approval prior to the anticipated execution date of the Settlement Agreement.

IV. Additional Covenants Potentially Implicated by the Settlement

While the Section 8.14 notification obligation is the most directly triggered provision of the Credit Agreement, the Northwind settlement has the potential to implicate several additional covenants and provisions. We address each in turn below.

A. Financial Covenants — Debt Service Coverage and Leverage Ratios

The Credit Agreement contains financial maintenance covenants requiring TSL to maintain, at all times, a minimum debt service coverage ratio ("DSCR") and a maximum leverage ratio, each tested on a quarterly basis as of the end of each fiscal quarter. These covenants are designed to ensure that TSL maintains adequate cash flow to service its debt obligations and that TSL's overall indebtedness remains within acceptable limits relative to its earnings and asset base.

The settlement payments totaling $5,350,000 from TSL corporate funds — the Oceanus P&I Club contribution of $2,500,000 is not from TSL's own resources and should not directly affect TSL's internal cash flow position — represent a material cash outflow over the approximately 150-day payment period. However, when assessed in the context of TSL's overall financial profile, the net corporate cash outflow is relatively modest. By reference to TSL's most recently available audited financial statements (FY2022), TSL reported annual revenue of approximately $612,000,000 and EBITDA of approximately $98,000,000. The $5,350,000 net corporate cash outflow represents approximately 0.87% of annual revenue and approximately 5.46% of EBITDA — a meaningful but not outsized expenditure for a company of TSL's scale.

Notwithstanding the relative modesty of the settlement payments in the context of TSL's annual financial performance, the phased payment schedule introduces a timing consideration. The three payments — $4,000,000 (approximately December 20, 2024), $2,000,000 (approximately February 18, 2025), and $1,850,000 (approximately April 19, 2025) — will fall across two or three quarterly covenant testing dates. If TSL's cash position is under pressure for any reason during a particular testing period, or if the settlement payments coincide with other significant cash outflows (such as vessel drydocking expenses, scheduled debt amortization, or capital expenditures), the cumulative effect could, in theory, affect the DSCR or leverage ratio calculation for that period.

We recommend that Elena Papadimitriou, TSL's Chief Financial Officer, in coordination with Lysander & Associates (TSL's independent auditor, based in Athens), confirm that TSL's projected cash flows accommodate the settlement payment schedule without triggering any financial covenant violation in any quarterly testing period. This analysis should take into account TSL's projected revenue, operating expenses, capital expenditures, and scheduled debt service for the relevant periods, as well as any other known or anticipated extraordinary cash outflows.

B. Negative Covenant — Restrictions on Extraordinary Payments / Dispositions

The Credit Agreement contains negative covenants that restrict TSL from making certain payments or transactions outside the ordinary course of business, or from disposing of assets, above specified thresholds without the prior written consent of Meridian or compliance with negotiated "basket" provisions. These negative covenants typically include restrictions on investments, restricted payments (including dividends and distributions), and non-ordinary-course expenditures above a stated dollar threshold.

The settlement payments, while not a "disposition" of assets in the traditional maritime finance sense (i.e., they do not involve the sale or transfer of vessels or other collateral assets), constitute non-ordinary-course expenditures that should be reviewed against the negative covenant basket provisions of the Credit Agreement. In particular, the question is whether litigation settlement payments are characterized under the Credit Agreement as "restricted payments," "extraordinary payments," or "dispositions," and whether they fall within any negotiated exceptions or permitted baskets.

Our preliminary analysis indicates that litigation settlement payments generally fall within permitted exceptions for payments made in the ordinary course of business or required by law or court order. Many credit agreements in the shipping sector include express carve-outs for litigation settlements below a specified aggregate annual threshold, or for settlements approved by the borrower's board of directors in the exercise of prudent business judgment. However, the specific language of the Credit Agreement must be confirmed against the relevant covenant schedules.

Markos Theodorakis, TSL's General Counsel, has confirmed that he will provide the relevant covenant schedules from the Credit Agreement for our review. Upon receipt of these schedules, we will prepare a supplemental analysis confirming whether the settlement payments fall within a permitted basket or whether any additional action (such as a waiver request or consent solicitation) is required.

C. Negative Pledge / Lien Covenants

The Credit Agreement contains a negative pledge covenant restricting TSL and its subsidiaries from granting liens on their assets — including, critically, the mortgaged vessels — other than "permitted liens" as defined in the Credit Agreement. Permitted liens typically include statutory liens (such as maritime liens for crew wages, necessaries, and salvage), liens arising in the ordinary course of business, and liens securing obligations below a specified aggregate threshold.

The Settlement Agreement itself does not create any lien or security interest in favor of Northwind over any of TSL's assets. The settlement payments are structured as unsecured cash obligations payable into an escrow account, and no collateral has been pledged to secure TSL's payment obligations under the Settlement Agreement.

However, Section 7.3 of the Settlement Agreement contains a consent judgment provision. Under this provision, in the event that TSL fails to make any scheduled settlement payment within the applicable cure period, Northwind is entitled to enter a consent judgment against TSL in the amount of the unpaid settlement balance, together with interest at the rate of 9% per annum (the New York statutory rate under CPLR 5004). If such a consent judgment were entered, it could result in a judgment lien against TSL's assets located in New York, including any accounts, receivables, or other property subject to the court's jurisdiction.

A judgment lien would likely constitute a prohibited lien under the Credit Agreement's negative pledge covenant, unless it falls within a specific carve-out for judgment liens that are stayed, bonded, or discharged within a specified period. Many credit agreements include a grace period — typically thirty (30) to sixty (60) days — during which judgment liens are not treated as events of default, provided that the borrower is diligently pursuing a stay, bond, or satisfaction of the judgment. The availability of such a carve-out in the Credit Agreement must be confirmed.

We recommend that TSL ensure timely compliance with all scheduled settlement payments in order to avoid triggering the consent judgment mechanism entirely. The consent judgment provision is, in practical terms, a payment enforcement mechanism, and its activation would represent a significant negative development — not only in terms of the direct financial and legal consequences, but also in terms of TSL's relationship with Meridian and its broader creditworthiness profile. In the unlikely event that TSL anticipates any difficulty in making a scheduled settlement payment, TSL should confer with Greaves & Castellan LLP immediately regarding its Meridian notification obligations and the potential need for a waiver request under the Credit Agreement.

D. Events of Default — Material Adverse Change / Material Litigation

The Credit Agreement contains events of default triggered by a Material Adverse Change ("MAC") or Material Adverse Effect ("MAE") on TSL's business, financial condition, operations, or ability to perform its obligations under the Credit Agreement. MAC/MAE clauses are broadly drafted and provide Meridian with the ability to declare an event of default and accelerate the Facility if a sufficiently adverse development occurs.

The settlement of the Northwind litigation for $7,850,000 — an amount substantially below Northwind's claimed damages of $18,300,000 — should not, in our view, constitute a MAC or MAE. The settlement represents a favorable resolution of the litigation from TSL's perspective, reducing the contingent exposure from $18,300,000 (plus potential interest, attorneys' fees, and costs) to a fixed, quantifiable obligation of $7,850,000. The net cost to TSL from corporate funds is $5,350,000, which is modest relative to TSL's financial profile.

Moreover, the resolution of the Northwind litigation by settlement may actually improve TSL's risk profile, as the contingent and uncertain liability represented by the pending litigation is being converted into a definite, manageable obligation with a known payment schedule. Meridian should view this development positively, as it reduces the uncertainty associated with the Borrower's contingent litigation exposure and eliminates the risk of an adverse judgment at trial for a substantially larger amount.

The Credit Agreement may also contain a representation and warranty that no material litigation is pending or threatened against TSL, which may be brought down periodically (e.g., at each borrowing date or on each quarterly compliance certificate). The settlement and anticipated discontinuance of the Northwind case should be communicated to Meridian as a positive development, and future compliance certificates should reflect the resolution of this previously disclosed litigation matter. To the extent that the Northwind litigation was previously disclosed to Meridian as pending material litigation (as we expect it was, given its magnitude), the settlement notification provides an opportunity to update Meridian on the favorable resolution.

E. Reporting Covenants — Quarterly and Annual Financial Statements

TSL is required under the Credit Agreement to deliver quarterly unaudited financial statements and annual audited financial statements to Meridian, prepared in accordance with International Financial Reporting Standards ("IFRS") or Greek GAAP as applicable to TSL's reporting obligations. Annual financial statements are required to be audited by TSL's independent auditor, Lysander & Associates, based in Athens.

The settlement obligation of $7,850,000 total — of which $5,350,000 is payable from TSL's corporate funds and $2,500,000 from the Oceanus P&I Club — should be reflected in TSL's financial statements as a liability. Depending on the timing of the reporting date relative to the payment schedule, the settlement obligation will be classified as a current liability (for amounts due within twelve months of the balance sheet date) or as a partially current, partially non-current liability. Given that all three settlement payments are due within 150 days of the Effective Date, it is likely that the entire obligation will be classified as a current liability on TSL's next quarterly balance sheet.

In addition, the release of TSL's counterclaim in the amount of $1,620,000 in withheld hire — previously recorded as a receivable on TSL's balance sheet — should be treated as a write-off of that receivable. The counterclaim receivable, to the extent it was recognized on TSL's books, will need to be written off in the period in which the Settlement Agreement is executed, resulting in a charge to earnings.

The net economic cost to TSL from an internal accounting perspective is therefore $6,230,000, calculated as follows: $7,850,000 (total settlement payment obligation) less $2,500,000 (Oceanus P&I Club contribution) plus $1,620,000 (write-off of counterclaim receivable) equals $6,970,000 in net cash and non-cash charges to TSL. Alternatively, measured solely as the net out-of-pocket cost: $5,350,000 (corporate funds) plus $1,620,000 (counterclaim write-off) equals $6,970,000 net economic cost. However, if the counterclaim receivable had already been partially reserved or impaired in prior periods, the incremental charge may be lower. We recommend coordination with Elena Papadimitriou and Lysander & Associates on the proper accounting treatment and disclosure in the next reporting period, including any required footnote disclosure regarding the settlement.

F. Insurance Covenants

The Credit Agreement requires TSL to maintain certain insurance coverages, including Protection & Indemnity ("P&I") coverage and Hull & Machinery ("H&M") coverage, consistent with prudent industry practice and, in many cases, at levels specified in the Credit Agreement or its insurance schedules. These insurance maintenance covenants are designed to protect Meridian's collateral (the mortgaged fleet) and to ensure that TSL has adequate coverage for third-party liabilities arising from vessel operations.

The Oceanus P&I Club contribution of $2,500,000 to the settlement is being funded from TSL's existing P&I coverage under Policy No. OCE-P&I-2020-TSL-0047. This draw-down from the P&I coverage should be confirmed not to impair TSL's ongoing P&I coverage limits or trigger any separate notice requirement under the Credit Agreement's insurance maintenance covenants. P&I coverage through mutual clubs is typically on a "pay as paid" basis with annual calls and supplementary calls, and a claims payment of this magnitude — while not insignificant — is unlikely to affect TSL's coverage or standing with the Club. Nevertheless, David Okafor at the Oceanus P&I Club should confirm that the $2,500,000 contribution does not reduce TSL's per-event or aggregate coverage limits for the current policy year, and that no additional premium or call will result that could affect TSL's insurance covenant compliance.

TSL's H&M coverage is maintained with Fortis Marine Underwriters Ltd. under Policy No. FMU-HM-2020-4892. The H&M coverage is not directly funding the settlement, and the Northwind claims (which arose from charter-party performance disputes rather than physical damage to the vessel) do not fall within the scope of H&M coverage. However, Fortis has been separately notified of the settlement in accordance with standard practice, and Fortis's subrogation rights have been preserved under the terms of the Settlement Agreement. The settlement does not impair Fortis's rights, and no Credit Agreement insurance covenant is implicated by the Fortis notification. We note this for completeness, as Meridian may inquire about the effect of the settlement on TSL's overall insurance arrangements.

G. Cross-Default Provisions

The Credit Agreement contains cross-default provisions that are triggered if TSL defaults on other material financial obligations, typically where the defaulted amount exceeds a specified threshold. Cross-default provisions are a standard feature of shipping finance credit agreements and are designed to provide the lender with early warning and protective rights in the event that the borrower experiences financial distress across its various obligations.

A default under the Settlement Agreement — specifically, a failure to make a scheduled settlement payment — could, if the unpaid amount exceeds the cross-default threshold in the Credit Agreement, trigger a cross-default under the Meridian Facility. The cross-default threshold is a critical parameter in this analysis. If the threshold is set at or below $1,850,000 — the amount of the smallest individual settlement payment (Payment 3) — then any individual missed settlement payment could independently trigger a cross-default under the Credit Agreement. If the threshold is higher than $4,000,000 (the largest individual payment), then an isolated missed payment would not trigger the cross-default provision, although a failure to make multiple payments could exceed the threshold.

We recommend that the cross-default threshold be confirmed as part of the covenant schedule review being coordinated with Markos Theodorakis. Regardless of the specific threshold, the existence of the cross-default mechanism underscores the critical importance of timely settlement payments. A missed settlement payment would not only expose TSL to the consent judgment mechanism under the Settlement Agreement (as discussed in Section IV.C above), but could also trigger a cascade of consequences under the Credit Agreement, including an event of default, acceleration of the Facility, and enforcement of the ship mortgages and other collateral.

V. Compliance Procedures and Recommended Actions

Based on the analysis set forth above, we recommend the following compliance procedures, organized into pre-execution, post-execution, and ongoing monitoring phases.

A. Pre-Execution (Before November 20, 2024)

1. Finalize the Notification Letter. Finalize the draft notification letter to Meridian Capital Bank AG, addressed to Lukas Brandt, Relationship Manager. The draft is being circulated under separate cover for partner review by Douglas Carmichael and Francesca Morano. The letter should be approved and ready for transmission promptly following execution of the Settlement Agreement.

2. Obtain Covenant Schedules. Obtain from Markos Theodorakis, TSL General Counsel, the specific covenant schedules from the Credit Agreement for Greaves & Castellan LLP's review. The relevant schedules include, at a minimum: (a) the negative covenant baskets and permitted payment exceptions; (b) the cross-default threshold; (c) the insurance maintenance requirements and coverage minimums; and (d) the negative pledge carve-outs for judgment liens, including any applicable grace periods. Markos Theodorakis has confirmed that he will provide these schedules; we should follow up to ensure receipt prior to the anticipated Settlement Agreement execution date.

3. Coordinate Cash Flow Projections. Coordinate with Elena Papadimitriou, TSL Chief Financial Officer, regarding cash flow projections for the three settlement payments ($4,000,000, $2,000,000, and $1,850,000) and their impact on the quarterly financial covenant testing dates. The objective is to confirm that no financial covenant breach — whether DSCR or leverage ratio — will occur in any quarterly testing period as a result of the settlement payments, individually or in the aggregate, taking into account TSL's other anticipated cash inflows and outflows during the relevant periods.

B. Post-Execution (November 20, 2024 and After)

1. Deliver the Notification Letter. Deliver the notification letter to Lukas Brandt at Meridian Capital Bank AG no later than November 27, 2024, which is the contractual deadline of five (5) business days after execution of the Settlement Agreement. Our target delivery date is November 22, 2024, providing a two-business-day cushion.

2. Content of the Notification. Ensure that the notification includes all elements required by Section 8.14: (a) case identification (Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023); (b) aggregate settlement amount of $7,850,000; (c) payment schedule (three installments at 30, 90, and 150 days); (d) funding sources (TSL corporate funds: $5,350,000; Oceanus P&I Club contribution: $2,500,000); (e) confirmation of mutual general release and no admission of liability; and (f) note regarding the court's retained jurisdiction for enforcement.

3. Coordinate Financial Statement Treatment. Coordinate with Lysander & Associates and Elena Papadimitriou on the proper financial statement treatment of the settlement liability ($7,850,000 total; $5,350,000 net to TSL) and the write-off of the counterclaim receivable ($1,620,000). Ensure that the settlement is properly reflected in TSL's next quarterly financial statements delivered to Meridian, including any required footnote disclosure.

4. Confirm P&I Coverage Status. Confirm with David Okafor at the Oceanus Mutual Protection & Indemnity Club that the $2,500,000 contribution does not impair TSL's ongoing P&I coverage limits, does not result in an additional premium or call that could affect TSL's insurance covenant compliance, and does not trigger any separate Credit Agreement insurance notification requirement.

5. Monitor Settlement Payment Deadlines. Implement a calendaring and monitoring system for all three settlement payment deadlines. Ensure that TSL makes timely payments into the Atlantic Fiduciary Trust Company escrow account (ESC-2024-NYK-08831) in accordance with the Settlement Agreement. Any anticipated delay or difficulty in making a scheduled payment must be communicated to Greaves & Castellan LLP immediately so that appropriate protective measures — including potential Meridian notification and waiver requests — can be evaluated and implemented.

C. Ongoing Monitoring

1. Track Settlement Payment Deadlines. Track all three settlement payment deadlines and confirm successful deposits into the Atlantic Fiduciary Trust Company escrow account ESC-2024-NYK-08831. Obtain confirmation of receipt from Martin Schreiber, Vice President, Escrow Services, following each payment.

2. Monitor Meridian Follow-Up. Monitor for any follow-up inquiries or information requests from Meridian Capital Bank AG following receipt of the notification letter. Any substantive inquiries should be coordinated through Greaves & Castellan LLP before TSL responds, to ensure consistency and accuracy.

3. Ensure Accurate Quarterly Reporting. Ensure that TSL's quarterly and annual financial reporting accurately reflects the settlement obligation and counterclaim write-off in each reporting period until the settlement is fully satisfied, and that the corresponding compliance certificates delivered to Meridian are consistent with the reported financial information.

VI. Conclusion

The $7,850,000 Northwind settlement clearly and unambiguously triggers the Section 8.14 Material Litigation Settlement notification obligation under the Credit Agreement with Meridian Capital Bank AG. TSL is required to deliver written notice to Meridian within five (5) business days of execution of the Settlement Agreement. We recommend delivery of the notification letter on November 22, 2024 — two business days ahead of the November 27, 2024 deadline — to ensure compliance and to demonstrate TSL's proactive approach to its lender communication obligations.

In addition to the Section 8.14 notification requirement, several additional covenants and provisions of the Credit Agreement are potentially implicated by the settlement, including: (i) financial maintenance covenants (DSCR and leverage ratio), which should be tested against projected cash flows to ensure no quarterly breach; (ii) negative covenant baskets for non-ordinary-course payments, which must be reviewed against the specific covenant schedules; (iii) negative pledge and lien covenants, which could be implicated in the event of a consent judgment resulting from a missed settlement payment; (iv) MAC/MAE representations and events of default, which we do not believe are triggered by the settlement but which should be monitored; (v) reporting covenants, which require proper financial statement treatment of the settlement liability and counterclaim write-off; (vi) insurance covenants, which require confirmation that the Oceanus P&I Club draw-down does not impair TSL's coverage; and (vii) cross-default provisions, which could be triggered by a default under the Settlement Agreement if the unpaid amount exceeds the Credit Agreement's cross-default threshold.

The settlement amount — $5,350,000 net from TSL corporate funds, or approximately $6,970,000 in net economic cost inclusive of the counterclaim write-off — is modest relative to TSL's financial profile (approximately $612 million in annual revenue and approximately $98 million in EBITDA) and should not, standing alone, cause any financial covenant breach or constitute a Material Adverse Change. The settlement represents a favorable resolution of the Northwind litigation, reducing TSL's exposure from $18,300,000 in claimed damages to a fixed, manageable obligation.

We recommend the specific compliance actions detailed in Section V above and stand ready to prepare the final notification letter for partner review upon direction. A draft letter has been prepared and will be circulated under separate cover.

Finally, Konstantinou & Rizos Law Offices (Greek local counsel, lead partner Dimitrios Konstantinou) should be consulted if any Greek corporate authority or board resolution is required to authorize the notification to Meridian or the settlement payments themselves under applicable Greek corporate law. However, we understand from Markos Theodorakis that the TSL Board Resolution dated October 18, 2024, passed at a duly convened meeting of the Board of Directors, already authorizes settlement of the Northwind litigation in an amount up to $8,500,000, which encompasses the $7,850,000 settlement amount. To the extent that the notification to Meridian requires separate board authorization, this should be confirmed with Greek counsel.

cc: File (C&H Matter No. 1044-00006)

Payment	Amount	Due Date
Payment 1	$4,000,000	Within 30 days of the Effective Date
Payment 2	$2,000,000	Within 90 days of the Effective Date
Payment 3	$1,850,000	Within 150 days of the Effective Date
Total	$7,850,000

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Douglas Carmichael, Responsible Partner; Francesca Morano, Billing Partner
FROM: Carlos Espinoza, Lead Associate; Hannah Brinkley, Associate
DATE: November 18, 2024
RE: Lender Notification Compliance Analysis — Meridian Capital Bank AG Credit Agreement; Settlement in Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA et al., Index No. 655421/2023
C&H MATTER NO.: 1044-00006
CLIENT: Thalassa Shipping & Logistics SA
I. Purpose and Executive Summary
This memorandum analyzes the notification and covenant compliance obligations triggered under the Credit Agreement dated April 1, 2019 (the "Credit Agreement"), by and between Thalassa Shipping & Logistics SA ("TSL" or the "Borrower") and Meridian Capital Bank AG ("Meridian"), headquartered at Ballindamm 40, 20095 Hamburg, Germany, in connection with the settlement of the above-referenced litigation. The purpose of this analysis is to identify all Credit Agreement provisions that may be implicated by the settlement, to assess TSL's compliance posture, and to recommend specific procedures for ensuring that TSL satisfies its obligations under the Credit Agreement in a timely and complete manner.
The settlement amount of $7,850,000 exceeds the $5,000,000 Material Litigation Settlement notification threshold established under Section 8.14 of the Credit Agreement. As a result, TSL is required to provide written notice to Meridian within five (5) business days of the execution of the Settlement Agreement or entry into a binding settlement commitment. The execution version of the Settlement Agreement and Mutual General Release (the "Settlement Agreement") between TSL, Aegean Fortuna Shipholding Ltd., and Northwind Maritime Corporation is anticipated to be dated November 20, 2024. Accordingly, the notification must be delivered to Meridian no later than November 27, 2024. In light of the significance of this obligation and the potential consequences of non-compliance, we recommend delivering the notification letter on November 22, 2024, providing a two-business-day margin ahead of the contractual deadline. The designated Relationship Manager at Meridian is Lukas Brandt.
Beyond the Section 8.14 notification requirement, the settlement implicates a number of additional covenants and provisions of the Credit Agreement that warrant careful analysis. This memorandum catalogues the following: (a) the Section 8.14 notification requirement and its application to the Northwind settlement; (b) additional covenants potentially implicated by the settlement payments, including financial maintenance covenants, negative covenant baskets, negative pledge and lien provisions, Material Adverse Change and Material Adverse Effect representations, reporting covenants, insurance covenants, and cross-default provisions; and (c) recommended compliance procedures, organized by pre-execution, post-execution, and ongoing monitoring phases.
We have structured the analysis to provide the partners with a comprehensive overview of all relevant obligations, together with actionable recommendations. A draft notification letter to Meridian has been prepared and will be circulated under separate cover for partner review.
II. Background
A. The Meridian Credit Facility
TSL is party to a Credit Agreement dated April 1, 2019, with Meridian Capital Bank AG acting as administrative agent and sole lender. The Credit Agreement establishes a senior secured credit facility with a total commitment amount of $340,000,000 (the "Facility"). The Facility is secured by first-priority ship mortgages on the TSL fleet, which comprises approximately thirty-four (34) vessels across the dry bulk, tanker, and container segments. The mortgaged fleet serves as the primary collateral for the Facility, with additional security provided through assignments of earnings, insurances, and charter hire receivables in the ordinary course.
The Credit Agreement is a comprehensive financing instrument that governs TSL's borrowing under the Facility, contains customary representations and warranties, establishes both affirmative and negative covenants applicable to TSL and its subsidiaries, and sets forth events of default provisions. The Credit Agreement also includes financial maintenance covenants (including minimum debt service coverage ratio and maximum leverage ratio requirements), reporting obligations, insurance maintenance covenants, and a cross-default mechanism. TSL's obligations under the Credit Agreement are material to its ongoing operations, and compliance with the covenants contained therein is a continuing obligation monitored by Meridian through its Relationship Manager, Lukas Brandt, and the bank's credit department in Hamburg.
As of the date of this memorandum, we understand from TSL's General Counsel, Markos Theodorakis, that TSL is in full compliance with all covenants under the Credit Agreement, and no event of default or potential event of default is outstanding. TSL has drawn approximately $278,000,000 of the $340,000,000 commitment, with the remaining availability subject to borrowing base and other conditions precedent under the Credit Agreement.
B. The Northwind Litigation and Settlement
The litigation at issue is styled Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023, pending in the Supreme Court of the State of New York, New York County, Commercial Division, before the Honorable Lorraine K. Chen, J.S.C. The action was commenced by Northwind Maritime Corporation ("Northwind"), a corporation organized under the laws of the Republic of the marshall Islands, with its principal office at 1700 Harbor Gateway, Suite 500, Stamford, Connecticut 06902.
Northwind brought breach of charter-party claims arising from the time charter of the M/V Aegean Fortuna (IMO No. 9847231), a Supramax dry bulk carrier of 58,200 DWT, registered under the Liberian flag. The relevant charter-party (Reference No. NW-TSL-CP-2020-1203) was executed on December 3, 2020, on the NYPE 2015 form as amended, with a thirty-six (36) month charter period commencing January 15, 2021. The M/V Aegean Fortuna is beneficially owned by Aegean Fortuna Shipholding Ltd., a single-vessel subsidiary of TSL incorporated in the Republic of the marshall Islands, and was time-chartered to Northwind in the ordinary course of TSL's commercial operations.
Northwind's claims centered on allegations of breach of the maintenance and performance obligations under the charter-party, including claims related to vessel speed and fuel consumption warranties, off-hire disputes, and alleged failure to maintain the vessel in a seaworthy condition during the charter period. Northwind alleged total damages of $18,300,000, comprising lost profits, additional fuel costs, hire overpayments, and consequential damages. TSL contested the claims vigorously and asserted a counterclaim for $1,620,000 in unpaid hire, alleging that Northwind had improperly withheld charter hire during certain disputed off-hire periods.
Following extensive discovery and motion practice, and after an unsuccessful settlement conference before Justice Chen, the parties agreed to participate in mediation. On October 28–29, 2024, the parties mediated before the Honorable Gerald K. Fitzpatrick (Ret.) at Bayside Dispute Resolution Services LLC. After two days of intensive mediation, the parties reached a settlement in principle for $7,850,000. The mediator's proposal, which formed the basis for the settlement, reflected a significant discount from Northwind's claimed damages of $18,300,000, and TSL's acceptance was predicated on a mutual general release and no admission of liability.
The Settlement Agreement and Mutual General Release — the execution version of which is anticipated to be dated November 20, 2024 — memorializes the terms of the settlement. Under the Settlement Agreement, TSL agrees to pay $7,850,000 to Northwind in three installments, as detailed below. In consideration of the settlement payments, Northwind releases all claims against TSL and Aegean Fortuna Shipholding Ltd. arising from the charter-party, and TSL releases its counterclaim of $1,620,000 in unpaid hire as part of the global settlement. The Settlement Agreement also provides for a stipulation of discontinuance with prejudice upon completion of all settlement payments, with the court retaining jurisdiction for enforcement purposes.
C. Settlement Payment Structure
The Settlement Agreement provides for the following payment schedule:
The Effective Date of the Settlement Agreement is defined as the date of execution by all parties, anticipated to be November 20, 2024. Accordingly, assuming an Effective Date of November 20, 2024, the three payment deadlines would fall approximately on December 20, 2024, February 18, 2025, and April 19, 2025, respectively, subject to adjustment for weekends and holidays as provided in the Settlement Agreement.
The settlement will be funded from two sources. First, TSL corporate funds will provide $5,350,000 of the total settlement amount. Second, the Oceanus Mutual Protection & Indemnity Club (the "Oceanus P&I Club") will contribute $2,500,000 under Policy No. OCE-P&I-2020-TSL-0047. The Oceanus P&I Club contribution is subject to Board approval, which is expected on November 22, 2024. TSL's P&I coverage under the Oceanus P&I Club is a standard mutual entry, and TSL has maintained its coverage in good standing. The P&I Club contribution has been provisionally confirmed by TSL's P&I correspondent, David Okafor, Claims Manager at Oceanus, subject to formal Board ratification.
All settlement payments are to be deposited with Atlantic Fiduciary Trust Company, acting as escrow agent, in escrow account ESC-2024-NYK-08831. The contact at Atlantic Fiduciary Trust Company is Martin Schreiber, Vice President, Escrow Services, located at 60 Wall Street, Suite 2800, New York, New York 10005. Settlement funds will be released from escrow to Northwind upon joint instruction of the parties, in accordance with the terms of the escrow agreement.
III. Section 8.14 — Material Litigation Settlement Notification Requirement
A. Text and Interpretation of Section 8.14
Section 8.14 of the Credit Agreement (captioned "Material Litigation Settlement Notification") imposes an affirmative covenant on TSL to provide written notice to Meridian of any settlement of litigation — including, by its express terms, arbitration proceedings — where the aggregate settlement amount exceeds $5,000,000. This notification requirement is a material affirmative covenant, the breach of which could, depending on the cure provisions and grace periods applicable under the Credit Agreement, constitute an event of default.
The key elements of the notification obligation under Section 8.14 are as follows:
(a) Triggering Event. The obligation is triggered upon the execution of a settlement agreement or the entry into a binding settlement commitment (including a binding mediator's proposal or a term sheet that constitutes a binding agreement to settle) where the aggregate settlement amount exceeds $5,000,000.
(b) Timing. Written notice must be provided to Meridian within five (5) business days of the occurrence of the triggering event. "Business days" is defined in the Credit Agreement as days on which commercial banks are open for business in both New York, New York and Hamburg, Germany. For purposes of computing the five-business-day period, we have assumed that all days between November 20, 2024 and November 27, 2024 are business days in both jurisdictions, noting that November 28, 2024 is Thanksgiving Day (a U.S. federal holiday) and would not constitute a business day.
(c) Content. The notification must include: (i) identification of the litigation matter, including the caption, court, and docket or index number; (ii) the aggregate settlement amount; (iii) a summary of the material terms of the settlement, including the payment schedule and any conditions; and (iv) the expected source of funds for settlement payments, including the breakdown between the Borrower's own funds and any third-party contributions such as insurance proceeds.
(d) Manner of Delivery. The Credit Agreement provides that notices shall be delivered in accordance with the general notice provisions set forth in Section 12.1 of the Credit Agreement, which typically permits notice by hand delivery, overnight courier, facsimile, or email to designated recipients. We understand that Lukas Brandt is the designated Relationship Manager and the appropriate recipient for notices under the Credit Agreement.
The $5,000,000 threshold is measured by reference to the "aggregate settlement amount," which we interpret to mean the total amount payable by TSL and its affiliates under the settlement, inclusive of any third-party contributions that discharge TSL's settlement obligations. This interpretation is consistent with the protective purpose of the notification covenant, which is designed to alert Meridian to material financial events affecting the Borrower, regardless of the ultimate funding source.
B. Application to the Northwind Settlement
The application of Section 8.14 to the Northwind settlement is straightforward. The aggregate settlement amount is $7,850,000, which exceeds the $5,000,000 notification threshold by $2,850,000. There is no ambiguity in the triggering of this obligation; the settlement amount is clearly in excess of the threshold, and the settlement of the Northwind litigation constitutes a "settlement of litigation" within the meaning of Section 8.14.
The triggering event will occur upon execution of the Settlement Agreement, which is anticipated to take place on November 20, 2024. The five-business-day notification deadline, computed in accordance with the "business days" definition in the Credit Agreement and taking into account the U.S. Thanksgiving holiday on November 28, 2024, falls on November 27, 2024. This deadline assumes that November 21, 22, 25, 26, and 27, 2024 are all business days in both New York and Hamburg.
To ensure compliance with an appropriate margin for error — and to demonstrate TSL's good faith and proactive approach to its lender communication obligations — we recommend delivering the notification letter to Lukas Brandt at Meridian on November 22, 2024, which is two (2) business days ahead of the contractual deadline. Early delivery also allows time to address any follow-up inquiries from Meridian before the Thanksgiving holiday weekend and provides a buffer in the event of any delivery complications.
C. Content of the Notification Letter
The notification letter to Meridian should be comprehensive and address all of the content requirements specified in Section 8.14. Specifically, the letter should include the following elements:
(i) Case Identification. The letter should identify the case as Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023, Supreme Court of the State of New York, New York County, Commercial Division.
(ii) Aggregate Settlement Amount. The letter should state the aggregate settlement amount of $7,850,000 and note that this amount exceeds the $5,000,000 notification threshold under Section 8.14 of the Credit Agreement.
(iii) Payment Structure and Timeline. The letter should describe the three-installment payment structure: $4,000,000 due within 30 days of the Effective Date, $2,000,000 due within 90 days of the Effective Date, and $1,850,000 due within 150 days of the Effective Date.
(iv) Funding Sources. The letter should identify the funding sources for the settlement payments: $5,350,000 from TSL corporate funds, and $2,500,000 from the Oceanus Mutual Protection & Indemnity Club under Policy No. OCE-P&I-2020-TSL-0047.
(v) Mutual General Release and No Admission of Liability. The letter should confirm that the Settlement Agreement includes a mutual general release of all claims between the parties and that TSL makes no admission of liability.
(vi) Court's Retained Jurisdiction. The letter should note that the court will retain jurisdiction for enforcement purposes, and that a stipulation of discontinuance with prejudice will be filed upon completion of all settlement payments.
We have prepared a draft notification letter addressing all of the foregoing elements. The draft will be circulated to Douglas Carmichael and Francesca Morano under separate cover for partner review and approval prior to the anticipated execution date of the Settlement Agreement.
IV. Additional Covenants Potentially Implicated by the Settlement
While the Section 8.14 notification obligation is the most directly triggered provision of the Credit Agreement, the Northwind settlement has the potential to implicate several additional covenants and provisions. We address each in turn below.
A. Financial Covenants — Debt Service Coverage and Leverage Ratios
The Credit Agreement contains financial maintenance covenants requiring TSL to maintain, at all times, a minimum debt service coverage ratio ("DSCR") and a maximum leverage ratio, each tested on a quarterly basis as of the end of each fiscal quarter. These covenants are designed to ensure that TSL maintains adequate cash flow to service its debt obligations and that TSL's overall indebtedness remains within acceptable limits relative to its earnings and asset base.
The settlement payments totaling $5,350,000 from TSL corporate funds — the Oceanus P&I Club contribution of $2,500,000 is not from TSL's own resources and should not directly affect TSL's internal cash flow position — represent a material cash outflow over the approximately 150-day payment period. However, when assessed in the context of TSL's overall financial profile, the net corporate cash outflow is relatively modest. By reference to TSL's most recently available audited financial statements (FY2022), TSL reported annual revenue of approximately $612,000,000 and EBITDA of approximately $98,000,000. The $5,350,000 net corporate cash outflow represents approximately 0.87% of annual revenue and approximately 5.46% of EBITDA — a meaningful but not outsized expenditure for a company of TSL's scale.
Notwithstanding the relative modesty of the settlement payments in the context of TSL's annual financial performance, the phased payment schedule introduces a timing consideration. The three payments — $4,000,000 (approximately December 20, 2024), $2,000,000 (approximately February 18, 2025), and $1,850,000 (approximately April 19, 2025) — will fall across two or three quarterly covenant testing dates. If TSL's cash position is under pressure for any reason during a particular testing period, or if the settlement payments coincide with other significant cash outflows (such as vessel drydocking expenses, scheduled debt amortization, or capital expenditures), the cumulative effect could, in theory, affect the DSCR or leverage ratio calculation for that period.
We recommend that Elena Papadimitriou, TSL's Chief Financial Officer, in coordination with Lysander & Associates (TSL's independent auditor, based in Athens), confirm that TSL's projected cash flows accommodate the settlement payment schedule without triggering any financial covenant violation in any quarterly testing period. This analysis should take into account TSL's projected revenue, operating expenses, capital expenditures, and scheduled debt service for the relevant periods, as well as any other known or anticipated extraordinary cash outflows.
B. Negative Covenant — Restrictions on Extraordinary Payments / Dispositions
The Credit Agreement contains negative covenants that restrict TSL from making certain payments or transactions outside the ordinary course of business, or from disposing of assets, above specified thresholds without the prior written consent of Meridian or compliance with negotiated "basket" provisions. These negative covenants typically include restrictions on investments, restricted payments (including dividends and distributions), and non-ordinary-course expenditures above a stated dollar threshold.
The settlement payments, while not a "disposition" of assets in the traditional maritime finance sense (i.e., they do not involve the sale or transfer of vessels or other collateral assets), constitute non-ordinary-course expenditures that should be reviewed against the negative covenant basket provisions of the Credit Agreement. In particular, the question is whether litigation settlement payments are characterized under the Credit Agreement as "restricted payments," "extraordinary payments," or "dispositions," and whether they fall within any negotiated exceptions or permitted baskets.
Our preliminary analysis indicates that litigation settlement payments generally fall within permitted exceptions for payments made in the ordinary course of business or required by law or court order. Many credit agreements in the shipping sector include express carve-outs for litigation settlements below a specified aggregate annual threshold, or for settlements approved by the borrower's board of directors in the exercise of prudent business judgment. However, the specific language of the Credit Agreement must be confirmed against the relevant covenant schedules.
Markos Theodorakis, TSL's General Counsel, has confirmed that he will provide the relevant covenant schedules from the Credit Agreement for our review. Upon receipt of these schedules, we will prepare a supplemental analysis confirming whether the settlement payments fall within a permitted basket or whether any additional action (such as a waiver request or consent solicitation) is required.
C. Negative Pledge / Lien Covenants
The Credit Agreement contains a negative pledge covenant restricting TSL and its subsidiaries from granting liens on their assets — including, critically, the mortgaged vessels — other than "permitted liens" as defined in the Credit Agreement. Permitted liens typically include statutory liens (such as maritime liens for crew wages, necessaries, and salvage), liens arising in the ordinary course of business, and liens securing obligations below a specified aggregate threshold.
The Settlement Agreement itself does not create any lien or security interest in favor of Northwind over any of TSL's assets. The settlement payments are structured as unsecured cash obligations payable into an escrow account, and no collateral has been pledged to secure TSL's payment obligations under the Settlement Agreement.
However, Section 7.3 of the Settlement Agreement contains a consent judgment provision. Under this provision, in the event that TSL fails to make any scheduled settlement payment within the applicable cure period, Northwind is entitled to enter a consent judgment against TSL in the amount of the unpaid settlement balance, together with interest at the rate of 9% per annum (the New York statutory rate under CPLR 5004). If such a consent judgment were entered, it could result in a judgment lien against TSL's assets located in New York, including any accounts, receivables, or other property subject to the court's jurisdiction.
A judgment lien would likely constitute a prohibited lien under the Credit Agreement's negative pledge covenant, unless it falls within a specific carve-out for judgment liens that are stayed, bonded, or discharged within a specified period. Many credit agreements include a grace period — typically thirty (30) to sixty (60) days — during which judgment liens are not treated as events of default, provided that the borrower is diligently pursuing a stay, bond, or satisfaction of the judgment. The availability of such a carve-out in the Credit Agreement must be confirmed.
We recommend that TSL ensure timely compliance with all scheduled settlement payments in order to avoid triggering the consent judgment mechanism entirely. The consent judgment provision is, in practical terms, a payment enforcement mechanism, and its activation would represent a significant negative development — not only in terms of the direct financial and legal consequences, but also in terms of TSL's relationship with Meridian and its broader creditworthiness profile. In the unlikely event that TSL anticipates any difficulty in making a scheduled settlement payment, TSL should confer with Greaves & Castellan LLP immediately regarding its Meridian notification obligations and the potential need for a waiver request under the Credit Agreement.
D. Events of Default — Material Adverse Change / Material Litigation
The Credit Agreement contains events of default triggered by a Material Adverse Change ("MAC") or Material Adverse Effect ("MAE") on TSL's business, financial condition, operations, or ability to perform its obligations under the Credit Agreement. MAC/MAE clauses are broadly drafted and provide Meridian with the ability to declare an event of default and accelerate the Facility if a sufficiently adverse development occurs.
The settlement of the Northwind litigation for $7,850,000 — an amount substantially below Northwind's claimed damages of $18,300,000 — should not, in our view, constitute a MAC or MAE. The settlement represents a favorable resolution of the litigation from TSL's perspective, reducing the contingent exposure from $18,300,000 (plus potential interest, attorneys' fees, and costs) to a fixed, quantifiable obligation of $7,850,000. The net cost to TSL from corporate funds is $5,350,000, which is modest relative to TSL's financial profile.
Moreover, the resolution of the Northwind litigation by settlement may actually improve TSL's risk profile, as the contingent and uncertain liability represented by the pending litigation is being converted into a definite, manageable obligation with a known payment schedule. Meridian should view this development positively, as it reduces the uncertainty associated with the Borrower's contingent litigation exposure and eliminates the risk of an adverse judgment at trial for a substantially larger amount.
The Credit Agreement may also contain a representation and warranty that no material litigation is pending or threatened against TSL, which may be brought down periodically (e.g., at each borrowing date or on each quarterly compliance certificate). The settlement and anticipated discontinuance of the Northwind case should be communicated to Meridian as a positive development, and future compliance certificates should reflect the resolution of this previously disclosed litigation matter. To the extent that the Northwind litigation was previously disclosed to Meridian as pending material litigation (as we expect it was, given its magnitude), the settlement notification provides an opportunity to update Meridian on the favorable resolution.
E. Reporting Covenants — Quarterly and Annual Financial Statements
TSL is required under the Credit Agreement to deliver quarterly unaudited financial statements and annual audited financial statements to Meridian, prepared in accordance with International Financial Reporting Standards ("IFRS") or Greek GAAP as applicable to TSL's reporting obligations. Annual financial statements are required to be audited by TSL's independent auditor, Lysander & Associates, based in Athens.
The settlement obligation of $7,850,000 total — of which $5,350,000 is payable from TSL's corporate funds and $2,500,000 from the Oceanus P&I Club — should be reflected in TSL's financial statements as a liability. Depending on the timing of the reporting date relative to the payment schedule, the settlement obligation will be classified as a current liability (for amounts due within twelve months of the balance sheet date) or as a partially current, partially non-current liability. Given that all three settlement payments are due within 150 days of the Effective Date, it is likely that the entire obligation will be classified as a current liability on TSL's next quarterly balance sheet.
In addition, the release of TSL's counterclaim in the amount of $1,620,000 in withheld hire — previously recorded as a receivable on TSL's balance sheet — should be treated as a write-off of that receivable. The counterclaim receivable, to the extent it was recognized on TSL's books, will need to be written off in the period in which the Settlement Agreement is executed, resulting in a charge to earnings.
The net economic cost to TSL from an internal accounting perspective is therefore $6,230,000, calculated as follows: $7,850,000 (total settlement payment obligation) less $2,500,000 (Oceanus P&I Club contribution) plus $1,620,000 (write-off of counterclaim receivable) equals $6,970,000 in net cash and non-cash charges to TSL. Alternatively, measured solely as the net out-of-pocket cost: $5,350,000 (corporate funds) plus $1,620,000 (counterclaim write-off) equals $6,970,000 net economic cost. However, if the counterclaim receivable had already been partially reserved or impaired in prior periods, the incremental charge may be lower. We recommend coordination with Elena Papadimitriou and Lysander & Associates on the proper accounting treatment and disclosure in the next reporting period, including any required footnote disclosure regarding the settlement.
F. Insurance Covenants
The Credit Agreement requires TSL to maintain certain insurance coverages, including Protection & Indemnity ("P&I") coverage and Hull & Machinery ("H&M") coverage, consistent with prudent industry practice and, in many cases, at levels specified in the Credit Agreement or its insurance schedules. These insurance maintenance covenants are designed to protect Meridian's collateral (the mortgaged fleet) and to ensure that TSL has adequate coverage for third-party liabilities arising from vessel operations.
The Oceanus P&I Club contribution of $2,500,000 to the settlement is being funded from TSL's existing P&I coverage under Policy No. OCE-P&I-2020-TSL-0047. This draw-down from the P&I coverage should be confirmed not to impair TSL's ongoing P&I coverage limits or trigger any separate notice requirement under the Credit Agreement's insurance maintenance covenants. P&I coverage through mutual clubs is typically on a "pay as paid" basis with annual calls and supplementary calls, and a claims payment of this magnitude — while not insignificant — is unlikely to affect TSL's coverage or standing with the Club. Nevertheless, David Okafor at the Oceanus P&I Club should confirm that the $2,500,000 contribution does not reduce TSL's per-event or aggregate coverage limits for the current policy year, and that no additional premium or call will result that could affect TSL's insurance covenant compliance.
TSL's H&M coverage is maintained with Fortis Marine Underwriters Ltd. under Policy No. FMU-HM-2020-4892. The H&M coverage is not directly funding the settlement, and the Northwind claims (which arose from charter-party performance disputes rather than physical damage to the vessel) do not fall within the scope of H&M coverage. However, Fortis has been separately notified of the settlement in accordance with standard practice, and Fortis's subrogation rights have been preserved under the terms of the Settlement Agreement. The settlement does not impair Fortis's rights, and no Credit Agreement insurance covenant is implicated by the Fortis notification. We note this for completeness, as Meridian may inquire about the effect of the settlement on TSL's overall insurance arrangements.
G. Cross-Default Provisions
The Credit Agreement contains cross-default provisions that are triggered if TSL defaults on other material financial obligations, typically where the defaulted amount exceeds a specified threshold. Cross-default provisions are a standard feature of shipping finance credit agreements and are designed to provide the lender with early warning and protective rights in the event that the borrower experiences financial distress across its various obligations.
A default under the Settlement Agreement — specifically, a failure to make a scheduled settlement payment — could, if the unpaid amount exceeds the cross-default threshold in the Credit Agreement, trigger a cross-default under the Meridian Facility. The cross-default threshold is a critical parameter in this analysis. If the threshold is set at or below $1,850,000 — the amount of the smallest individual settlement payment (Payment 3) — then any individual missed settlement payment could independently trigger a cross-default under the Credit Agreement. If the threshold is higher than $4,000,000 (the largest individual payment), then an isolated missed payment would not trigger the cross-default provision, although a failure to make multiple payments could exceed the threshold.
We recommend that the cross-default threshold be confirmed as part of the covenant schedule review being coordinated with Markos Theodorakis. Regardless of the specific threshold, the existence of the cross-default mechanism underscores the critical importance of timely settlement payments. A missed settlement payment would not only expose TSL to the consent judgment mechanism under the Settlement Agreement (as discussed in Section IV.C above), but could also trigger a cascade of consequences under the Credit Agreement, including an event of default, acceleration of the Facility, and enforcement of the ship mortgages and other collateral.
V. Compliance Procedures and Recommended Actions
Based on the analysis set forth above, we recommend the following compliance procedures, organized into pre-execution, post-execution, and ongoing monitoring phases.
A. Pre-Execution (Before November 20, 2024)
1. Finalize the Notification Letter. Finalize the draft notification letter to Meridian Capital Bank AG, addressed to Lukas Brandt, Relationship Manager. The draft is being circulated under separate cover for partner review by Douglas Carmichael and Francesca Morano. The letter should be approved and ready for transmission promptly following execution of the Settlement Agreement.
2. Obtain Covenant Schedules. Obtain from Markos Theodorakis, TSL General Counsel, the specific covenant schedules from the Credit Agreement for Greaves & Castellan LLP's review. The relevant schedules include, at a minimum: (a) the negative covenant baskets and permitted payment exceptions; (b) the cross-default threshold; (c) the insurance maintenance requirements and coverage minimums; and (d) the negative pledge carve-outs for judgment liens, including any applicable grace periods. Markos Theodorakis has confirmed that he will provide these schedules; we should follow up to ensure receipt prior to the anticipated Settlement Agreement execution date.
3. Coordinate Cash Flow Projections. Coordinate with Elena Papadimitriou, TSL Chief Financial Officer, regarding cash flow projections for the three settlement payments ($4,000,000, $2,000,000, and $1,850,000) and their impact on the quarterly financial covenant testing dates. The objective is to confirm that no financial covenant breach — whether DSCR or leverage ratio — will occur in any quarterly testing period as a result of the settlement payments, individually or in the aggregate, taking into account TSL's other anticipated cash inflows and outflows during the relevant periods.
B. Post-Execution (November 20, 2024 and After)
1. Deliver the Notification Letter. Deliver the notification letter to Lukas Brandt at Meridian Capital Bank AG no later than November 27, 2024, which is the contractual deadline of five (5) business days after execution of the Settlement Agreement. Our target delivery date is November 22, 2024, providing a two-business-day cushion.
2. Content of the Notification. Ensure that the notification includes all elements required by Section 8.14: (a) case identification (Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023); (b) aggregate settlement amount of $7,850,000; (c) payment schedule (three installments at 30, 90, and 150 days); (d) funding sources (TSL corporate funds: $5,350,000; Oceanus P&I Club contribution: $2,500,000); (e) confirmation of mutual general release and no admission of liability; and (f) note regarding the court's retained jurisdiction for enforcement.
3. Coordinate Financial Statement Treatment. Coordinate with Lysander & Associates and Elena Papadimitriou on the proper financial statement treatment of the settlement liability ($7,850,000 total; $5,350,000 net to TSL) and the write-off of the counterclaim receivable ($1,620,000). Ensure that the settlement is properly reflected in TSL's next quarterly financial statements delivered to Meridian, including any required footnote disclosure.
4. Confirm P&I Coverage Status. Confirm with David Okafor at the Oceanus Mutual Protection & Indemnity Club that the $2,500,000 contribution does not impair TSL's ongoing P&I coverage limits, does not result in an additional premium or call that could affect TSL's insurance covenant compliance, and does not trigger any separate Credit Agreement insurance notification requirement.
5. Monitor Settlement Payment Deadlines. Implement a calendaring and monitoring system for all three settlement payment deadlines. Ensure that TSL makes timely payments into the Atlantic Fiduciary Trust Company escrow account (ESC-2024-NYK-08831) in accordance with the Settlement Agreement. Any anticipated delay or difficulty in making a scheduled payment must be communicated to Greaves & Castellan LLP immediately so that appropriate protective measures — including potential Meridian notification and waiver requests — can be evaluated and implemented.
C. Ongoing Monitoring
1. Track Settlement Payment Deadlines. Track all three settlement payment deadlines and confirm successful deposits into the Atlantic Fiduciary Trust Company escrow account ESC-2024-NYK-08831. Obtain confirmation of receipt from Martin Schreiber, Vice President, Escrow Services, following each payment.
2. Monitor Meridian Follow-Up. Monitor for any follow-up inquiries or information requests from Meridian Capital Bank AG following receipt of the notification letter. Any substantive inquiries should be coordinated through Greaves & Castellan LLP before TSL responds, to ensure consistency and accuracy.
3. Ensure Accurate Quarterly Reporting. Ensure that TSL's quarterly and annual financial reporting accurately reflects the settlement obligation and counterclaim write-off in each reporting period until the settlement is fully satisfied, and that the corresponding compliance certificates delivered to Meridian are consistent with the reported financial information.
VI. Conclusion
The $7,850,000 Northwind settlement clearly and unambiguously triggers the Section 8.14 Material Litigation Settlement notification obligation under the Credit Agreement with Meridian Capital Bank AG. TSL is required to deliver written notice to Meridian within five (5) business days of execution of the Settlement Agreement. We recommend delivery of the notification letter on November 22, 2024 — two business days ahead of the November 27, 2024 deadline — to ensure compliance and to demonstrate TSL's proactive approach to its lender communication obligations.
In addition to the Section 8.14 notification requirement, several additional covenants and provisions of the Credit Agreement are potentially implicated by the settlement, including: (i) financial maintenance covenants (DSCR and leverage ratio), which should be tested against projected cash flows to ensure no quarterly breach; (ii) negative covenant baskets for non-ordinary-course payments, which must be reviewed against the specific covenant schedules; (iii) negative pledge and lien covenants, which could be implicated in the event of a consent judgment resulting from a missed settlement payment; (iv) MAC/MAE representations and events of default, which we do not believe are triggered by the settlement but which should be monitored; (v) reporting covenants, which require proper financial statement treatment of the settlement liability and counterclaim write-off; (vi) insurance covenants, which require confirmation that the Oceanus P&I Club draw-down does not impair TSL's coverage; and (vii) cross-default provisions, which could be triggered by a default under the Settlement Agreement if the unpaid amount exceeds the Credit Agreement's cross-default threshold.
The settlement amount — $5,350,000 net from TSL corporate funds, or approximately $6,970,000 in net economic cost inclusive of the counterclaim write-off — is modest relative to TSL's financial profile (approximately $612 million in annual revenue and approximately $98 million in EBITDA) and should not, standing alone, cause any financial covenant breach or constitute a Material Adverse Change. The settlement represents a favorable resolution of the Northwind litigation, reducing TSL's exposure from $18,300,000 in claimed damages to a fixed, manageable obligation.
We recommend the specific compliance actions detailed in Section V above and stand ready to prepare the final notification letter for partner review upon direction. A draft letter has been prepared and will be circulated under separate cover.
Finally, Konstantinou & Rizos Law Offices (Greek local counsel, lead partner Dimitrios Konstantinou) should be consulted if any Greek corporate authority or board resolution is required to authorize the notification to Meridian or the settlement payments themselves under applicable Greek corporate law. However, we understand from Markos Theodorakis that the TSL Board Resolution dated October 18, 2024, passed at a duly convened meeting of the Board of Directors, already authorizes settlement of the Northwind litigation in an amount up to $8,500,000, which encompasses the $7,850,000 settlement amount. To the extent that the notification to Meridian requires separate board authorization, this should be confirmed with Greek counsel.
cc: File (C&H Matter No. 1044-00006)
Payment | Amount | Due Date
Payment 1 | $4,000,000 | Within 30 days of the Effective Date
Payment 2 | $2,000,000 | Within 90 days of the Effective Date
Payment 3 | $1,850,000 | Within 150 days of the Effective Date
Total | $7,850,000

MEMORANDUM

C&H MATTER NO.: 1044-00006

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