An Electric Service Agreement Before the Money: The Escrow on Notes of an Applied Digital Subsidiary, March 2026

On March 10, 2026, APLD ComputeCo 2 LLC, which its indenture calls "an indirect subsidiary of Applied Digital Corporation," issued notes for two data centers on one property. The indenture, posted as Exhibit 4.1 on Applied Digital's website, defines the Initial Notes as "the $2,150,000,000 aggregate principal amount of 6.75% Senior Secured Notes due 2031 issued under this Indenture on the Issue Date."

The two projects are "the 150MW data center subject to the FAR-01 Datacenter Lease" and "the 50MW data center subject to the FAR-02 Datacenter Lease." Parts of the indenture follow, not the whole.

The Money in Escrow

On the issue date, the indenture has the issuer deposit "an amount in cash equal to the gross proceeds from the offering of the Notes" into a segregated escrow account. The funds, it says, "will remain in the Escrow Account until the satisfaction of the Escrow Release Condition."

The indenture calls the delivery of an officer's certificate the Escrow Release Condition. Among other things, the certificate must say that the issuer and/or the applicable subsidiary guarantors "have entered into an electric service agreement" with two electricity sellers, both named in the indenture, that "provides electricity sufficient to permit the Issuer and/or the applicable Subsidiary Guarantors to satisfy their respective requirements under the Datacenter Leases, including any milestone deadlines or similar timing requirements." The indenture also writes for the case where what it calls the ESA Condition, the entry into an electric service agreement that meets the requirements it sets, "has been satisfied on or prior to the Issue Date."

The power agreement first. Then the money.

The escrow waits on an agreement and an officer's word that it is sufficient for the leases. A lender would still ask when the power is to flow.

If the Certificate Does Not Come

The escrow has an end date. If the Escrow Release Condition "is not satisfied on or prior to 5:00 p.m. (New York City time) on June 30, 2026," or if before then the issuer judges in good faith that the ESA Condition is "incapable of being satisfied" by that date and gives written notice, the notes "will be mandatorily redeemed." The price is "one hundred percent (100%) of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of redemption, without any make-whole amount, redemption premium or other premium," on a date "ten (10) calendar days after the Mandatory Redemption Event." The escrow agent then releases to the trustee an amount equal to that price "(or, if the Escrowed Funds are insufficient, all such amounts then available)."

The price, or all the escrow holds if that falls short.

The Leases

The indenture defines the Datacenter Leases as the FAR-01 and FAR-02 leases, both with one tenant that it names, "and (b) any other datacenter lease in respect of the applicable Project." When a lease starts is set by its own conditions: a lease's Commencement Date, in the indenture's definition, is "the date on which the conditions to the first commencement date of such Datacenter Lease are satisfied and such Datacenter Lease commences."

Once the money is out of escrow, the special redemption no longer protects the holders. The power agreement's test against the leases was passed once, on an officer's word, and the escrow does not test it again.

What do the leases require of the issuer, and by when?