The preferred units and corresponding common units associated with APLD HPC TopCo 2’s noncontrolling interest were determined to have embedded derivative features, the Redemption features and the Contingent Dividend Rate Increase feature, requiring bifurcation and remeasurement at fair value at each reporting date, with the changes in fair value recorded through earnings. The Redemption features are inclusive of the Investor put option upon a sale, APLD Holdings call option, and the Distribution Redemptions (all as defined within the A&R UPA). Due to these redemption rights, at each balance sheet date, the Company is required to adjust the carrying value of the derivatives to fair value and record any changes in fair value within earnings. The Company engaged a third party valuation specialist in determining the value of the embedded derivatives using a binomial lattice model, which includes Level 3 unobservable inputs. The key inputs used were the estimated credit spread of the associated preferred stock and corresponding common units, volatility, and risk-free rate of the derivative assets:


	Tranche 1			Tranche 2			Tranche 3			Tranche 4
	October 6, 2025			November 26, 2025			December 9, 2025			May 31, 2026
Tranche amount	$	112,500,000		$	450,000,000		$	337,500,000		$	925,000,000
Expected maturity date	October 6, 2032			October 6, 2032			October 6, 2032			October 6, 2032
Credit spread (annual)	9.00		%	9.66		%	9.50		%	9.00		%
Yield volatility	35.0		%	35.0		%	35.0		%	40.0		%
Put right/trigger event	de minimis			de minimis			de minimis			de minimis
Risk-free rate	USD Yield Curve			USD Yield Curve			USD Yield Curve			USD Yield Curve
Number of time-steps	100			100			100			100

As of May 31, 2026, the APLD HPC TopCo 2 derivative assets were fair valued at $163.3 million. During the fiscal year ended May 31, 2026, the Company recorded a loss of $13.3 million which is included within the gain on change in fair value of derivatives assets within the consolidated statement of operations.

On November 4, 2025, the Company and B&W entered into an agreement under which the Company contributed $2.0 million to B&W in exchange for 500,000 shares of B&W’s common stock and a warrant to purchase 2.6 million shares of B&W’s common stock with an exercise price of $4.11 (the “Initial Warrant”). Additionally, under the agreement, to incentivize the Company to execute a definitive agreement with B&W related to B&W designing and installing natural gas technology that will provide one gigawatt of efficient energy for an APLD AI data center, B&W agreed to issue an additional warrant to purchase 7,860,000 shares of common stock for $4.11 per share (the “Additional Warrant”) to the Company upon execution of such a definitive agreement.

The warrants were determined to be derivative assets and were required to be measured at fair value at issuance under ASC 815. They will be remeasured at fair value at each reporting date with changes in fair value reported on the consolidated statement of operations. To allocate the initial contribution between the common stock and the warrants, the Company determined the fair value of each and utilized the relative fair value allocation method. The B&W warrants are measured at fair value using the Black-Scholes Option Pricing model. Inherent in pricing models are assumptions related to expected share-price volatility, contractual term, risk-free interest rate and dividend yield, which are considered Level 3 inputs. The estimated fair value of the B&W Warrants are based on the following significant inputs:


	Initial Warrants			Additional Warrants			As of
	November 4, 2025			March 18, 2026			May 31, 2026
Time to expiry	7 years			6.63 years			6.43 years
Stock price	$	3.74		$	14.17		$	18.45
Volatility	115.0		%	110.0		%	110.0		%
Risk-free rate	3.84		%	3.98		%	4.19		%
Dividend yield	—		%	—		%	—		%

On February 26, 2026 a definitive agreement was executed between Base Electron and B&W, with the Company as the guarantor. On March 18, 2026, the Company entered into an Assignment and Assumption Agreement, by and among the Company, Base Electron, B&W, and B&W Enterprises ("BWE"), pursuant to which the Company partially assigned its rights with respect to the Additional Warrants (such partial assignment representing the right to purchase up to 5,230,000 shares of BWE common stock) to Base Electron. The warrants were assigned by the Company to Base Electron in connection with Base Electron’s entry into a Design-Build Agreement with B&W for no consideration from Base Electron. On March 18, 2026, the Company received the remaining Additional Warrants (representing the right to purchase up to 2,630,000 shares of BWE common stock). Base Electron is an independent power producer owned and managed by a combination of third parties, as well as certain officers and directors of the Company acting in their individual capacities, for the purpose of developing stabilized power generation and infrastructure to support the broader AI industry.