FREE » Topics » 10. Subsequent Events:

This excerpt taken from the FREE 6-K filed Oct 22, 2009.
10.  Subsequent Events:
 
The Company has evaluated subsequent events through October 20, 2009, at which date financial statements were available to be issued.
 
a.   Loan amendments and waivers obtained
 
(i). On July 17, 2009 the Company agreed with the lending banks the extension and/or change of certain financial covenants as follows:
 
HBU Bank:  HBU waived current interest coverage ratio and debt service ratio covenants until January 1, 2011 as discussed in Note 7. These will be calculated on a 12 month rolling basis and during the waived period, ‘Interest Cover ratio’ will be defined as EBITD/Net financing charges (instead of EBIT/Net financial charges) and is to be at least 3.75 up to and including July 1, 2010; thereafter the ratio to be at least 3.00 up to and including December 31, 2010; and “Debt Service ratio” should not be


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FREESEAS INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(All amounts are expressed in thousands of United States dollars, except for share and per share data)
 
less than 1.00. The aforementioned ratios will be reexamined for the year 2011 based on the prevailing market conditions at that time.
 
FBB bank:  FBB extended the waivers provided to the Company as discussed in Note 7 up to July 1, 2010
 
(ii). Effective September 15, 2009 the Company and HBU, based on the term sheet discussed in Note 7 above, amended and restated the credit agreement dated August 12, 2008, with a new 3.5 year facility which is payable as follows: 13 quarterly installments of $600 beginning on August 1, 2009 and one balloon payment of $19,300 on November 1, 2012. The new facility bears interest at the rate of 4.25% above LIBOR. In addition the new value-to-loan covenant ratio introduced by the term sheet discussed in Note 7 , was further amended as follows: (i) 70% from September 15, 2009 until and including June 30, 2010, (ii) 100% from July 1, 2010 until and including June 30, 2011, (iii) 110% from July 1, 2011 until and including June 30, 2012, (iv) 120% from July 1, 2012 until and including December 30, 2012, and v) 125% from December 31, 2012 onwards. Moreover, based on the amended and restated agreement an amount equal to 10% of any capital market proceeds received by the Company (with a maximum of $3,000 over the lifetime of the facilities) shall be applied in prepayment of the HBU Facilities. Additionally, the Company shall procure that at the end of each financial year a prepayment shall be made in an aggregate amount equal to: (i) 75% of excess cash, in the event that the value-to-loan ratio is less than or equal to 70%, (ii) 50% of excess cash, in the event that the value-to-loan ratio is less than or equal to 100%, (iii) 25% of excess cash, in the event that the value-to-loan ratio is less than 110% or (iv) no prepayment shall be made, in the event that the value-to-loan ratio is equal to or greater than 110%.
 
b.   Conclusion of follow on equity offering:
 
On July 28, 2009, the Company completed the registered offering of 10,041,151 shares of common stock at $1.80 per share, which includes 1,309,715 shares issued pursuant to the underwriter’s over-allotment option. The offering resulted in net proceeds of approximately $16.7 million, after deducting underwriting fees and estimated offering expenses. Proceeds from the offering were used primarily for the acquisition of the drybulk vessel discussed in Note 10 e., as well as for the repayment of debt and general working capital purposes. The shares were sold under the Company’s previously filed shelf registration statement, which was declared effective by the Securities and Exchange Commission on May 14, 2008.
 
c.   Changes in the terms of outstanding warrants
 
On July 29, 2009, the Company extended the expiration date and reduced the exercise price for its 786,265 outstanding Class W warrants currently listed under the ticker FREEW. The expiration date of the Class W warrants is extended to December 31, 2009 and the exercise price per share is reduced to $2.50. The original expiration date of the Class W warrants was July 29, 2009 and the original exercise price per share was $5.00. Each Class W warrant entitles the holder to purchase one share of FreeSeas’ common stock. All other terms of the Class W warrants remain unchanged.
 
d.   Expiration of purchase options
 
On March 28, 2005, the Company executed a definitive agreement, which contemplated the merger of Trinity Partners Acquisition Company Inc. (“Trinity”), a blank check company formed to serve as a vehicle to complete a business combination with an operating business, into FreeSeas (the “Transaction”). In connection with Trinity’s initial public offering Trinity had entered into an agreement with HCFP Brenner Securities LLC (“HCFP”) pursuant to which HCFP was engaged to act as Trinity’s non-exclusive investment banker in connection with a business combination and would receive 7,500 shares of the Trinity’s common stock and


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FREESEAS INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(All amounts are expressed in thousands of United States dollars, except for share and per share data)
 
15,000 Class Z warrants to purchase Trinity’s common stock at an exercise price $5.00 per share. On December 15, 2005, Trinity was merged with and into the Company and the Company has assumed Trinity’s obligation to HCFP by providing a purchase option to HCFP. Under that purchase option, HCFP had the right to purchase up to 12,500 Series A Units at a price of $17.325 per unit and up to 65,000 Series B Units at a price of $16.665 per unit. Each Series A Unit consisted of two shares of FreeSeas’ common stock, five Class W warrants and five Class Z warrants. Each Series B Unit consisted of two shares of FreeSeas’ common stock, one Class W warrant and one Class Z warrant. The exercise price of the warrants included in the units was $5.50 per share. The purchase option expired on July 29, 2009 without being exercised.
 
e.   Vessel Acquisition
 
On August 5, 2009, the Company agreed to purchase a Handysize vessel from an unaffiliated third party for approximately $11,000. The Company financed the acquisition using cash on hand which was raised as part of the follow on equity offering discussed in Note 10 b. With the acquisition of the new vessel, to be named the M/V Free Neptune, the Company’s fleet increased from nine to ten vessels. The vessel is a 30,838 dwt Handysize vessel built in 1996 in Japan, and was delivered to the Company on August 25, 2009.
 
f.   Change in the Authorized Capital
 
On September 17, 2009, the Annual Meeting of Shareholders approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 250,000,000 shares, par value $0.001 per share.
 
g.   Amendment to management agreements
 
On September 17 2009, each of the Company’s vessel-owning subsidiaries amended its management agreement with Free Bulkers to increase the monthly technical management fee to $16.5 (on the basis that the $/Euro exchange rate is 1.30 or lower; if on the first business day of each month the $/Euro exchange rate exceeds 1.30, then the management fee payable will be increased for the month in question, so that the amount payable in $ will be the equivalent in Euro based on 1.30 $/Euro exchange rate) plus a fee of $0.4 per day for superintendant attendance.
 
On September 17, 2009, FreeSeas amended its services agreement with Free Bulkers pursuant to which the annual fee of $1,200 was increased to $1,422.
 
The foregoing amendments became effective on October 1, 2009.


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