Applied Digital Issues $50 Million Unsecured Convertible Debenture to Advance HPC Data Center Project in Ellendale, North Dakota
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The issuance of a $50 million unsecured convertible debenture by Applied Digital Corporation represents a significant capital infusion aimed at financing the construction of a High-Performance Computing (HPC) data center. The terms of the debenture, particularly the original issue discount of five percent and the flexible conversion price, reflect a strategic approach to attract investment while managing dilution risk. The conversion price mechanism, tied to the lower of a fixed price or a percentage of the stock's volume weighted average, with a floor, is designed to provide downside protection to the investor while also offering potential upside from stock appreciation.
The monthly conversion cap of $9.0 million and the stipulation that the investor cannot short the stock suggest a partnership approach to financing, where the investor's interests are aligned with the company's success. For current shareholders, the structure of this financing deal could be seen as a positive signal, as it avoids immediate dilution and indicates confidence in the company's future performance, given that the investor has agreed to a no-short clause.
From a market perspective, the announcement could be interpreted as Applied Digital's commitment to growth and its ability to secure funds under favorable terms despite the unsecured nature of the debenture. The company's proactive stance in negotiating project-level financing further underscores its dedication to meeting project timelines and contractual obligations, which could be viewed favorably by stakeholders.
Applied Digital's focus on expanding its HPC data center capabilities in Ellendale, North Dakota, indicates a strategic move to capitalize on the growing demand for data-intensive computing. HPC applications are critical for industries such as artificial intelligence, scientific research and big data analytics, which are experiencing substantial growth. The financing obtained through the convertible debenture is slated to supplement proceeds from the sale of another facility, showcasing a strategic reallocation of resources towards projects with potentially higher returns.
Moreover, the role of Northland Capital Markets as the sole placement agent and advisor in the transaction signifies a level of due diligence and expertise in structuring the deal, which may reassure investors about the soundness of the financial strategy. The engagement of a reputable legal counsel, Lowenstein Sandler LLP, further adds to the credibility of the transaction. As the company prepares to register the resale of the shares underlying the debenture, there is clear intent to comply with regulatory requirements, which is essential for maintaining investor confidence.
For the broader market, Applied Digital's investment in HPC infrastructure could signal a competitive edge in the tech sector, potentially leading to increased investor interest in the company's stock. The announcement may also influence peer companies to consider similar strategic investments to stay relevant in a rapidly evolving technological landscape.
The legal implications of Applied Digital's private financing agreement are multifaceted. Firstly, the fact that the securities have not been registered under the Securities Act of 1933 requires careful navigation of exemption provisions to ensure compliance with federal securities laws. The company's commitment to file a resale registration statement with the SEC is a critical step to enable the future liquidity of the securities, which is a vital consideration for the investor.
Additionally, the contractual agreement preventing the investor from short-selling the company's stock during the term of the note is a noteworthy protective measure. This clause not only mitigates potential downward pressure on the stock price but also aligns the investor's interests with those of the company and its shareholders. Such a provision, while not uncommon in private financing deals, is indicative of the company's efforts to safeguard its financial stability and shareholder value.
Lastly, the announcement explicitly states that the press release is not an offer to sell or a solicitation of an offer to buy securities, which is a standard disclaimer to prevent any misinterpretation that might contravene securities offering regulations. The company's transparency regarding the legal boundaries of the transaction and its proactive steps to adhere to securities law are positive indicators of its corporate governance practices.
DALLAS, April 01, 2024 (GLOBE NEWSWIRE) -- Applied Digital Corporation (Nasdaq: APLD) ("Applied Digital" or the "Company"), a designer, builder, and operator of next-generation digital infrastructure designed for High-Performance Computing (“HPC”) applications, announced that the Company recently entered into a private financing agreement with a single investor (the “Investor”), in which it issued a
“We intend to use the net proceeds from the private financing, supplemented by the proceeds from our announced sale of the Garden City facility, to finance substantial advancements in our construction phase of the HPC data center in Ellendale, North Dakota. Concurrently, we continue negotiating our project-level financing to ensure timely project completion and fulfillment of our contractual obligations,” said Applied Digital CFO David Rench.
Northland Capital Markets acted as advisor and sole placement agent for the Company on the financing. Lowenstein Sandler LLP acted as legal counsel to the Company.
The securities described above (including any securities issuable pursuant to the conversion provisions of the convertible debenture) have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company has agreed to file a resale registration statement with the SEC for purposes of registering the resale of the shares of common stock issuable in connection with the offering.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor may there be any sale of any securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
About Applied Digital
Applied Digital (Nasdaq: APLD) designs, develops, and operates next-generation data centers across North America to provide digital infrastructure solutions to the rapidly growing high-performance computing (HPC) industry. Find more information at www.applieddigital.com. Follow us on X (formerly Twitter) at @APLDdigital.
Forward-Looking Statements
This release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 regarding, among other things, future operating and financial performance, product development, market position, business strategy and objectives. These statements use words, and variations of words, such as "continue," "build," "future," "increase," "drive," "believe," "look," "ahead," "confident," "deliver," "outlook," "expect," “intend,” “hope,” “project” and "predict." Other examples of forward-looking statements may include, but are not limited to, (i) statements of Company plans and objectives, including advancement in our construction phase of the HPC data center in Ellendale, North Dakota, our evolving business model and a shift in our business strategy towards our HPC data centers, or estimates or predictions of actions by suppliers, (ii) statements of future economic performance, and (iii) statements of assumptions underlying other statements and statements about the Company or its business. You are cautioned not to rely on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from the Company's expectations and projections. These risks, uncertainties, and other factors include: decline in demand for our products and services; the volatility of the crypto asset industry; the inability to comply with developments and changes in regulation; cash flow and access to capital; and maintenance of third-party relationships. Information in this release is as of the dates and time periods indicated herein, and the Company does not undertake to update any of the information contained in these materials, except as required by law.
Investor Relations Contacts
Matt Glover or Alex Kovtun
Gateway Group, Inc.
(949) 574-3860
APLD@gateway-grp.com
Media Contact
Brenlyn Motlagh or Diana Jarrah
Gateway Group, Inc.
(949) 899-3135
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FAQ
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