Contract analysis

I. EXECUTIVE SUMMARY This memorandum sets forth the findings and conclusions of the tax due diligence review conducted by Calderwood & Harkness LLP ("we," "our," or "Calderwood & Harkness") in connection with the proposed acquisition (the "Transaction") of VeloPay Systems, Inc. ("VeloPay" or the "Company") (EIN: 82-3019478; a Delaware corporation headquartered at 1455 Innovation Parkway, Suite 800, Austin, TX 78759)

II. SCOPE AND METHODOLOGY A. Scope of Engagement Calderwood & Harkness LLP was retained by HPE Fund IV on October 7, 2024, to serve as tax counsel to the Buyer in connection with the potential acquisition of VeloPay Systems, Inc. and its subsidiaries (the "VeloPay Group"). The tax due diligence workstream formally commenced upon the opening of the electronic data room on December 12, 2024, and has continued through t

1. VeloPay Processing LLC — a Delaware limited liability company; wholly-owned by VeloPay Systems, Inc.; classified as a disregarded entity for federal income tax purposes.

2. VeloPay Canada Inc. — an Ontario corporation; wholly-owned by VeloPay Systems, Inc.; classified as a controlled foreign corporation ("CFC") for U.S. federal income tax purposes.

3. VeloPay Europe, Unipessoal Lda. — a Portuguese sociedade unipessoal por quotas de responsabilidade limitada (single-member limited liability company); wholly-owned by VeloPay Systems, Inc.; classified as a CFC for U.S. federal income tax purposes.

4. VeloPay Fraud intelligence Inc. — a Delaware corporation; wholly-owned by VeloPay Systems, Inc.; included in VeloPay's consolidated U.S. federal income tax return.

5. PayStream Gateway LLC — a Delaware limited liability company; wholly-owned by VeloPay Systems, Inc.; classified as a disregarded entity for federal income tax purposes. PayStream Gateway was acquired by VeloPay in 2021 for an aggregate purchase price of $45 million. B. Materials Reviewed In connection with this engagement, we reviewed the following principal categories of documents and materials, as made available

III. CORPORATE STRUCTURE AND TAX CLASSIFICATION A. Organizational Chart — Tax Entity Classification The VeloPay Group's corporate structure is set forth in diagrammatic form in Appendix A. For tax purposes, the entities within the VeloPay Group are classified as follows:

1. VeloPay Systems, Inc. — C-corporation, incorporated in the State of Delaware. VeloPay serves as the common parent of the consolidated group and files a consolidated U.S. federal income tax return. VeloPay is the direct owner of all entities within the VeloPay Group.

2. VeloPay Processing LLC — Organized as a Delaware limited liability company with VeloPay as its sole member. For U.S. federal income tax purposes, VeloPay Processing LLC is classified as a disregarded entity under Treasury Regulation § 301.7701-3. Its activities are reported directly on VeloPay's consolidated federal income tax return. No Form 8832 (Entity Classification Election) was required as the default classi

3. VeloPay Fraud intelligence Inc. — A Delaware corporation; wholly-owned by VeloPay. As an "includible corporation" within the meaning of Section 1504(a) of the Internal Revenue Code, VeloPay Fraud intelligence Inc. is included in VeloPay's consolidated U.S. federal income tax return.

4. PayStream Gateway LLC — Organized as a Delaware limited liability company with VeloPay as its sole member following VeloPay's acquisition of PayStream in 2021. PayStream is classified as a disregarded entity for U.S. federal income tax purposes and is included on VeloPay's consolidated return. The 2021 acquisition was treated as an asset purchase for tax purposes (as discussed in Section IV.F below).

5. VeloPay Canada Inc. — An Ontario corporation; wholly-owned by VeloPay. As a foreign corporation not eligible for inclusion in VeloPay's consolidated U.S. federal income tax return, VeloPay Canada files its own Canadian federal and Ontario provincial income tax returns. For U.S. tax purposes, VeloPay Canada is a controlled foreign corporation ("CFC") within the meaning of Section 957(a) of the Internal Revenue Code

6. VeloPay Europe, Unipessoal Lda. — A Portuguese sociedade unipessoal por quotas de responsabilidade limitada (single-member limited liability company); wholly-owned by VeloPay. VeloPay Europe files Portuguese corporate income tax returns (Modelo 22). For U.S. tax purposes, VeloPay Europe is a CFC, and its income is likewise subject to GILTI inclusion and Subpart F analysis on VeloPay's U.S. return. B. Consolidated

IV. FEDERAL INCOME TAX A. Tax Return Filing History and Compliance Status VeloPay Systems, Inc. has timely filed all U.S. federal income tax returns (Form 1120, consolidated) for fiscal years 2014 through 2024, inclusive. In certain years, VeloPay availed itself of the automatic six-month extension of time to file under Section 6081(b) of the Internal Revenue Code; however, no extensions beyond the automatic six-mont

Section 382 Limitation Analysis The reverse triangular merger will result in HPE Fund IV acquiring 100% of VeloPay's stock, constituting an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. Section 382 applies when the percentage of stock owned by one or more "5-percent shareholders" increases by more than 50 percentage points during a three-year "testing period." Here, HPE Fund IV wi

Section 174 Capitalization Requirement. For tax years beginning after December 31, 2021, the TCJA requires capitalization and amortization of "specified research or experimental expenditures" under Section 174 over a five-year period for domestic research and a fifteen-year period for research performed outside the United States. We have confirmed through our review of VeloPay's FY2022 through FY2024 returns and tax

V. STATE AND LOCAL TAX A. Filing Jurisdictions and Nexus VeloPay files income or franchise tax returns in the following principal jurisdictions: • Delaware — Statutory state of incorporation; subject to Delaware franchise tax; • Texas — State of headquarters (Austin); subject to Texas franchise (margin) tax; • Colorado — Denver office; subject to Colorado corporate income tax; • California — Economic nexus through su

VI. INTERNATIONAL TAX A. VeloPay Canada Inc.

1. Overview. VeloPay Canada Inc. is an Ontario corporation, wholly-owned by VeloPay Systems, Inc. The entity was incorporated in 2019 and currently employs approximately 120 employees at its offices in Toronto, Ontario. VeloPay Canada performs three principal functions: (i) software development and engineering for VeloPay's payments platform, (ii) customer support for Canadian and certain North American merchants, an

2. Transfer Pricing VeloPay Canada provides software development services and customer support under an intercompany services agreement (the "Canadian ICA") with VeloPay Systems, Inc. Under the Canadian ICA, VeloPay Canada is compensated on a cost-plus basis, with a markup of 12% applied to total operating costs (inclusive of direct and indirect costs attributable to the services performed). VeloPay has contemporaneo

3. Subpart F and GILTI VeloPay Canada is a CFC, as VeloPay Systems, Inc. (a U.S. shareholder within the meaning of Section 951(b)) owns 100% of its stock. As such, VeloPay includes its pro rata share of VeloPay Canada's income on its U.S. consolidated federal income tax return under the GILTI provisions of Section 951A. For FY2024, VeloPay's GILTI inclusion attributable to VeloPay Canada was approximately $2.8 millio

4. Investment Canada Act A notification under the Investment Canada Act was filed on May 1, 2025, with Innovation, Science and Economic Development Canada in connection with the acquisition. We understand that clearance was obtained on June 3, 2025. No tax implications arise from the Investment Canada Act notification itself. B. VeloPay Europe, Unipessoal Lda.

1. Overview. VeloPay Europe, Unipessoal Lda. is a Portuguese sociedade unipessoal por quotas de responsabilidade limitada (single-member limited liability company), wholly-owned by VeloPay Systems, Inc. The entity was established in 2021 and currently employs approximately 80 employees at its offices in Lisbon, Portugal. VeloPay Europe functions primarily as an R&D center and software engineering hub, with limited Eu

2. Transfer Pricing VeloPay Europe provides software development and engineering services under an intercompany services agreement (the "Portuguese ICA") with VeloPay Systems, Inc. Under the Portuguese ICA, VeloPay Europe is compensated on a cost-plus basis, with a markup of 10% applied to total operating costs. Transfer Pricing Documentation. VeloPay engaged an external transfer pricing advisory firm to prepare a be

Section 174 Capitalization. R&D services performed by VeloPay Europe are treated as foreign-performed research for purposes of Section 174 of the Internal Revenue Code and are capitalized and amortized over 15 years on VeloPay's U.S. consolidated return. We have confirmed that VeloPay has properly applied the 15-year amortization period to Portuguese-performed R&D expenditures. Audit Status. There are no pending audi

3. Subpart F and GILTI VeloPay Europe is a CFC, and VeloPay includes its pro rata share of VeloPay Europe's income under the GILTI provisions of Section 951A. For FY2024, VeloPay's GILTI inclusion attributable to VeloPay Europe was approximately $0.6 million (tested income of approximately $0.8 million, reduced by the QBAI deduction attributable to VeloPay Europe's depreciable tangible property). We have not identifi

4. Portuguese Withholding Tax We have analyzed the withholding tax implications of intercompany payments from VeloPay Europe to VeloPay Systems, Inc. (U.S.) as follows: Services Fees. Intercompany services fee payments from VeloPay Europe to VeloPay (U.S.) are not subject to Portuguese withholding tax under Article 7 (Business Profits) of the Convention Between the United States of America and the Republic of Portuga

VII. TAX TREATMENT OF THE MERGER — SECTION 338(h)(10) ELECTION ANALYSIS A. Structure Overview The Transaction is structured as a reverse triangular merger under Section 251 of the DGCL: Harrowgate Velocity Merger Sub Inc. will merge with and into VeloPay Systems, Inc., with VeloPay surviving as a wholly-owned subsidiary of HPE Fund IV. VeloPay's stockholders will receive cash consideration of $20.00 per share (on a f

Section 338(h)(10) is available only in the following circumstances: (i) The target is a subsidiary member of a selling consolidated group (i.e., the target is owned by a parent corporation that files a consolidated return with the target), or (ii) The target is an S corporation. VeloPay Systems, Inc. is a C-corporation that is not a subsidiary member of any selling consolidated group. VeloPay is the common parent of

Section 338(g) Cost-Benefit Analysis: • Estimated built-in gain: VeloPay's enterprise value in the Transaction is approximately $1.9 billion. VeloPay's aggregate net tax basis in its assets is substantially lower. While a precise computation would require a detailed asset-by-asset analysis, we estimate VeloPay's net built-in gain at approximately $1.2 billion or more (enterprise value less net tax basis in all assets

VIII. EQUITY COMPENSATION TAX ISSUES A. Treatment of Stock Options VeloPay has 7,600,000 stock options outstanding under the VeloPay Systems, Inc. 2018 Equity Incentive Plan, with a weighted average exercise price of $12.84 per share. The options are a mix of incentive stock options ("ISOs") and nonqualified stock options ("NQSOs"), though for purposes of the merger treatment, the distinction is largely academic as t

Section 162(m) Limitation. Section 162(m) of the Internal Revenue Code disallows a deduction for compensation in excess of $1 million paid to "covered employees" (generally, the CEO, CFO, and the three other highest-compensated officers, plus any individual who was a covered employee for any prior year beginning after December 31, 2016). Nathan Aldridge (CEO), Sonia Reyes-Watkins (CTO), and Marcus Langford (CFO) are