FreeSeas enters into a term sheet for an investment of $10m
FreeSeas Inc. (“FreeSeas" or the “Company”), a transporter of dry-bulk cargoes through the ownership and operation of a fleet of six Handysize vessels and one Handymax vessel, announced that it has entered into a non-binding term sheet with an institutional investor (the “Investor”) for an investment of USD 10 million into the Company through the issuance of zero-dividend convertible preferred stock (“Preferred Stock”) and warrants, subject to certain terms and conditions, the Company said in a press release.
Upon signing the transaction documents (the “Initial Closing”), the Company will sell to the Investor $1.5 million of units, each unit consisting of (i) one share of Preferred Stock and (ii) a warrant to purchase one share of stock for every share that the Preferred Stock is convertible into. The preferred stock issued in the Initial Closing shall be convertible into common stock at the lower of (a) the closing bid price of the common stock on the day before the Initial Closing or (b) the price of the common stock on the day after the registration statement is declared effective by the Securities and Exchange Commission (“SEC”).
On the date after effectiveness of the registration statement (the “Second Closing”), the Company will sell to the Investor $8.5 million of Preferred Stock and warrants. The preferred stock issued in the Second Closing shall be convertible into common stock at the closing bid price of the common stock on the day of the Second Closing.
The warrants included in the units to be sold at the Initial Closing and the Second Closing will allow the Investor, for five years from the date of issuance, to purchase one share of common stock for every share it could acquire upon exercise of the securities received at such closing, exercisable at a price equal to a 30% premium to the consolidated closing bid price on the day prior to the Initial Closing and the Second Closing, as applicable. Investor may exercise such warrants by paying for the shares in cash, or on a cashless basis by exchanging such warrants for common stock using the Black-Scholes value, which is assumed to have a volatility of 135%. In the event that the Company’s common stock trades at a price 25% or more about the exercise price of the warrants for a period of 20 consecutive days (with average daily dollar volume at least equal to $1 million), the Company may call the warrants for cash.
In addition, the Investor shall also receive a second five-year warrant, exercisable for a period of 90 days, allowing it to purchase one share of common stock for every two shares it could acquire upon exercise of the securities received at such closing, under the same terms as the warrant listed above. All warrants issued to the Investor shall not be exercisable by the Investor if it results in the Investor owning more than 9.9% of the Company’s common stock. The warrants shall contain customary anti-dilution protection.
The Company will be required to file a registration statement (the “Registration Statement”) with the SEC within 20 days of the Initial Closing, registering the common stock underlying the (i) Preferred Stock to be issued in the Initial Closing and Second Closing and (ii) the warrants to be issued to the Investor. The Company shall pay a penalty of 2% per month for each month that the registration statement is not declared effective after 90 days, but such penalties such cease after six months, assuming the Investor is eligible to sell shares under Rule 144.
On the date after effectiveness of the registration statement (the “Second Closing”), the Company will sell to the Investor $8.5 million of Preferred Stock and warrants. The preferred stock issued in the Second Closing shall be convertible into common stock at the closing bid price of the common stock on the day of the Second Closing.
The warrants included in the units to be sold at the Initial Closing and the Second Closing will allow the Investor, for five years from the date of issuance, to purchase one share of common stock for every share it could acquire upon exercise of the securities received at such closing, exercisable at a price equal to a 30% premium to the consolidated closing bid price on the day prior to the Initial Closing and the Second Closing, as applicable. Investor may exercise such warrants by paying for the shares in cash, or on a cashless basis by exchanging such warrants for common stock using the Black-Scholes value, which is assumed to have a volatility of 135%. In the event that the Company’s common stock trades at a price 25% or more about the exercise price of the warrants for a period of 20 consecutive days (with average daily dollar volume at least equal to $1 million), the Company may call the warrants for cash.
In addition, the Investor shall also receive a second five-year warrant, exercisable for a period of 90 days, allowing it to purchase one share of common stock for every two shares it could acquire upon exercise of the securities received at such closing, under the same terms as the warrant listed above. All warrants issued to the Investor shall not be exercisable by the Investor if it results in the Investor owning more than 9.9% of the Company’s common stock. The warrants shall contain customary anti-dilution protection.
The Company will be required to file a registration statement (the “Registration Statement”) with the SEC within 20 days of the Initial Closing, registering the common stock underlying the (i) Preferred Stock to be issued in the Initial Closing and Second Closing and (ii) the warrants to be issued to the Investor. The Company shall pay a penalty of 2% per month for each month that the registration statement is not declared effective after 90 days, but such penalties such cease after six months, assuming the Investor is eligible to sell shares under Rule 144.
About FreeSeas Inc.
FreeSeas Inc. is a Marshall Islands corporation with principal offices in Athens, Greece. FreeSeas is engaged in the transportation of drybulk cargoes through the ownership and operation of drybulk carriers. Currently, it has a fleet of Handysize and Handymax vessels.