Placement will close in two tranches of $1.5 million, $8.5 million
By Angela McDaniels
Tacoma, Wash., Oct. 22 - FreeSeas Inc. said it entered into a non-binding term sheet with an institutional investor for $10 million of zero-dividend convertible preferred stock and warrants. Once the transaction documents are signed, the investor will buy $1.5 million of units.
Each unit consist of one share of preferred stock and a five-year warrant to purchase one share of stock for every share that the preferred stock is convertible into, according to a company news release.
The conversion price for the preferreds issued in the initial closing will be the lower of (a) the closing bid price of the common stock on the day before the initial closing and (b) the price of the common stock on the day after the registration statement for the preferreds and warrants is declared effective by the Securities and Exchange Commission.
Once the registration statement becomes effective, the investor will buy another $8.5 million of units. The conversion price for the preferreds issued in the second closing will be the closing bid price of the common stock on the day of the second closing.
The company will pay a penalty of 2% per month for each month that the registration statement is not declared effective after 90 days, but these penalties will cease after six months.
The exercise price of the warrants will be a 30% premium to the consolidated closing bid price on the day prior to the initial closing and the second closing, as applicable.
In addition, the investor will 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.
The company will pay a 5% expense reimbursement fee to the investor at each closing. In addition, it will pay a $75,000 non-refundable fee to the investor's legal counsel for the preparation of the investment documents.
The investor will have the right to participate on the same terms as other investors, up to 25% of the amount of any subsequent financing the company enters into, for a period of one year from the second closing.
The company will be prohibited from issuing additional common stock or securities convertible into common stock for a period of 150 days after the later of the initial closing or the second closing, except for issuances pursuant to acquisitions, joint ventures, license arrangements, leasing arrangements, employee compensation and the like.
Proceeds will be used as working capital and growth capital.
FreeSeas is a Marshall Islands corporation with principal offices in Athens. It owns and operates a fleet of drybulk carriers.
| Issuer: | FreeSeas Inc.
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| Issue: | Units of one share of convertible preferred stock and one warrant
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| Amount: | $10 million
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| Dividends: | None
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| Conversion price: | For preferreds issued in initial closing, lower of closing bid price of common stock on day before initial closing and price of common stock on day after registration statement is declared effective; for preferreds issued in second closing, closing bid price of common stock on day of second closing
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| Warrants: | One warrant per unit exercisable for number of common shares equal to conversion ratio of preferred shares
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| Warrant expiration: | Five years
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| Warrant strike price: | 30% premium to consolidated closing bid price on day prior to closing
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| Agent: | Non-brokered
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| Pricing date: | Oct. 22
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| Stock symbol: | Nasdaq CM: FREE
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| Stock price: | $0.37 at close Oct. 21
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| Market capitalization: | $2.26 million
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