UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
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| Item 1.01 | Entry Into or Amendment of a Material Definitive Agreement. |
Indenture and Notes
On November 18, 2021, DigitalOcean Holdings, Inc. (the “Company”) issued $1,500,000,000 aggregate principal amount of its 0% Convertible Senior Notes due 2026 (the “Notes”), which includes the exercise in full of the initial purchasers’ option to purchase up to an additional $200,000,000 aggregate principal amount of Notes. The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of November 18, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”).
The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s future indebtedness that is expressly subordinated to the Notes in right of payment; (iii) effectively subordinated to the Company’s future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Notes will not bear regular interest, and the principal amount of the Notes will not accrete. Special interest and additional interest will accrue on the Notes in the circumstances and at the rates described in the Indenture. The Notes will mature on December 1, 2026, unless earlier converted, redeemed or repurchased by the Company. Noteholders may convert all or any portion of their Notes at their option only in the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on March 31, 2022, if the last reported sale price per share of the Company’s common stock, $0.000025 par value per share (the “common stock”) exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) if the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock, as described in the Indenture; (4) if the Company calls such Notes for redemption; and (5) at any time from, and including, June 1, 2026 until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s).
The initial conversion rate is 5.6018 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $178.51 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events as described in the Indenture. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Company may not redeem the Notes at its option at any time before December 2, 2024. The Notes will be redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the Indenture)), at the Company’s option at any time, and from time to time, on or after December 2, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted during the period from, and including the date, the Company sends the redemption notice for the related redemption, to, and including, the second business day immediately before the related redemption date . Pursuant to the Partial Redemption Limitation, the Company may not elect to redeem less than all of the outstanding Notes unless at least $150.0 million aggregate principal amount of Notes are outstanding and not subject to redemption as of the time the Company sends the related redemption notice.
If a “Fundamental Change” (as defined in the Indenture) occurs, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of special interest or additional interest, if any, on the Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by the Company or any of its “significant subsidiaries” (as defined in the Indenture) with respect to indebtedness for borrowed money of at least $80,000,000; and (vi) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid special interest and additional interest, if any, on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid special interest and additional interest, if any, on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 365 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.
The net proceeds from the offering were approximately $1.46 billion, after deducting the initial purchasers’ discount and estimated offering expenses payable by the Company. The Company used approximately $350.0 million of the net proceeds from the offering to repurchase approximately 2.9 million shares of the Company’s common stock in privately negotiated transactions effected through J.P. Morgan Securities LLC or one of its affiliates at a purchase price equal to $119.01 (the last reported sale price per share of DigitalOcean’s common stock on November 12, 2021). DigitalOcean intends to use the remainder of the net proceeds from the offering for general corporate purposes, including working capital, operating expenses and capital expenditures. The Company may also use a portion of the net proceeds, together with existing cash and cash equivalents, to acquire complementary businesses, services or technologies. However, the Company does not have agreements or commitments to enter into any acquisitions at this time.
The above description of the Indenture and the Notes is a summary and is not complete. A copy of the Indenture and the form of the certificate representing the Notes are filed as exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K, and the above summary is qualified by reference to the terms of the Indenture and the Notes set forth in such exhibits.
Credit Agreement Amendment
On November 15, 2021, the Company, DigitalOcean, LLC, the lenders party thereto and KeyBank National Association, as Administrative Agent, entered into a Second Amendment (the “Second Amendment”) to the Company’s existing second amended and restated credit agreement, dated as of February 13, 2020 (filed as Exhibit 10.8 to the Company’s Form S-1 filed on February 25, 2021) (as amended by that certain First Amendment, dated as of March 18, 2020 (filed as Exhibit 10.9 to the Company’s Form S-1 filed on February 25, 2021), the “Existing Credit Agreement”).
The Second Amendment amends the Existing Credit Agreement to, among other modifications, permit the issuance of the Notes, cash payments upon settlement of the Notes and the stock repurchase in connection with the issuance of the Notes.
In the ordinary course of their respective businesses, the lenders and their affiliates have engaged, and may in the future engage, in commercial banking and financing transactions with the Company and its affiliates.
The foregoing summary of certain terms of the Second Amendment in this Current Report on Form 8-K does not purport to be complete and is qualified in its entirety by reference to the complete text of the Second Amendment, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
| Item 2.03. | Creation of a Direct Financial Obligation or an Off-Balance Sheet Arrangement. |
The disclosure set forth in Item 1.01 above is incorporated by reference into this Item 2.03.
| Item 3.02. | Unregistered Sales of Equity Securities. |
The disclosure set forth in Item 1.01 above is incorporated by reference into this Item 3.02. The Notes were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), in transactions not involving any public offering. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believe are “qualified institutional buyers,” as defined in, and in accordance with, Rule 144A under the Securities Act. The Company relied on these exemptions from registration based in part on representations made by the initial purchasers in the purchase agreement dated November 15, 2021 by and among the Company and the initial purchasers.
The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Any shares of the Company’s common stock that may be issued upon conversion of the Notes will be issued in reliance upon Section 3(a)(9) of the Securities Act as involving an exchange by the Company exclusively with its security holders. Initially, a maximum of 12,603,900 shares of the Company’s common stock may be issued upon conversion of the Notes and based on the initial maximum conversion rate of 5.6018 shares of common stock per $1,000 principal amount of Notes, which is subject to customary anti-dilution adjustment provisions.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit |
Description | |
| 4.1 | Indenture, dated as of November 18, 2021, between DigitalOcean Holdings, Inc. and U.S. Bank National Association, as trustee. | |
| 4.2 | Form of certificate representing the 0% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.1). | |
| 10.1 | Amendment No. 2 to Credit Agreement, dated as of November 15, 2021, between DigitalOcean Holdings, Inc., DigitalOcean, LLC, the lenders party thereto and KeyBank National Association, as Administrative Agent. | |
| 104 | Cover page interactive data file (embedded within the inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DigitalOcean Holdings, Inc. | ||||||
| Date: November 18, 2021 | By: | /s/ William Sorenson | ||||
| William Sorenson | ||||||
| Chief Financial Officer | ||||||