FreeSeas Announces Debt Purchase and Settlement Agreement

FreeSeas Inc., a transporter of dry-bulk cargoes through the ownership and operation of a fleet of six Handysize vessels and one Handymax vessel, announced yesterday that it has entered into a agreement among Deutsche Bank Nederland N.V. (Deutsche Bank), the company, various wholly-owned subsidiaries of the company and with a Magna Group affiliate fund, Hanover Holdings I, LLC, headquartered in New York, NY.

Pursuant to the terms of the agreement, the investor has agreed to purchase USD 10,500,000 of outstanding indebtedness owed by the company to Deutsche Bank, out of a total outstanding amount owed of USD 29,958,205.28, subject to  the satisfaction of a number of conditions set forth in the agreement.

Upon payment in full of the purchase amount of $10,500,000 by the investor to Deutsche Bank in accordance with the terms and conditions of the agreement, the remaining outstanding indebtedness of the company and its subsidiaries to  Deutsche Bank shall be forgiven, and the mortgages of both of its two security vessels shall be discharged.

The agreement does not become effective until the investor deposits in escrow an amount of USD 2,500,000 plus all reasonably incurred legal fees and expenses and the parties enter into an escrow agreement. In the event that the funds are not deposited or the escrow agreement is not entered into within 20 trading days, the agreement dissolves immediately. In addition, the agreement will automatically terminate upon the occurrence of certain events set forth in the Agreement.

Mr. Ion G. Varouxakis, Chairman, President and Chief Executive Officer of the company made the following comments: “After a prolonged period of tortured uncertainty, we are particularly pleased to enter into this agreement, which will  remove approximately USD 30 million of secured debt from our books. In conjunction with action taken since the beginning of the year, the majority of our trade debt and a third of our bank debt will have been exchanged for equity upon  completion of this agreement. This development shall, we hope, accelerate our discussions with our other Lenders for a similar realistic relief and a continued support of our efforts. Most importantly, under the extremely adverse  circumstances we have been facing, we firmly believe this development is optimal for our shareholders for whom we are striving to extract maximum value; it also is the least onerous for our lending partners.” Mr. Varouxakis added: “We  would like to thank Deutsche Bank for their frank cooperation and realistic vision, our remaining banking partners, as well as our numerous trade and business partners who have provided us with their invaluable support and their dedicated patience throughout this long period.”

Mr. Alexandros Mylonas, Chief Financial Officer of the company, added: “Since the beginning of the year we have already swapped USD 4.8 million of trade debt into equity. This time, the significance of this transaction on our balance sheet  is substantial. Upon completion of this agreement, our total bank debt is expected to be reduced from approximately USD 89.2 million on December 31, 2012 to USD 59.7 million, two of our vessels will be debt free, and USD 1 million in  interest charges are expected to be reduced per year. We also expect to post significant one-off gains from the USD 19.5 million debt forgiveness. Based upon our improved balance sheet after this transaction, we intend to seek funding for  additional working capital in order to weather the adverse conditions still present in our industry.”

Mr. Joshua Sason, Founder and Chief Executive Officer of Magna Group, noted: “We approach this transaction and the work we’ve done with the management of FreeSeas with great pride, and view the agreement with Deutsche Bank as a significant milestone in the restructuring and advancement of the company. The expected material reduction in debt, release of two vessels from mortgage encumbrance upon full payment of the settlement amount and annual interest  expense savings should enable FreeSeas to be in a substantially stronger business position.”

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FreeSeas, July 12, 2013