PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 787 Seventh Avenue, 38th Floor New York, New York 10019
Matter No. 1003-00003 May 12, 2025
MEMORANDUM
TO: Sandra Tung, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Priya Deshmukh, Managing Partner, Fund IV, Harrowgate Capital Management IV LLC
FROM: Howard Bellamy, Specialist Partner, Antitrust & Competition, Calderwood & Harkness LLP
RE: Second Request Response Strategy — Acquisition of VeloPay Systems, Inc. by Harrowgate Private Equity Fund IV LP; HSR Transaction Number 25-0198374
CONFIDENTIALITY NOTICE: This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared in connection with the representation of Harrowgate Private Equity Fund IV LP by Calderwood & Harkness LLP. It is prepared solely for the use of Harrowgate Private Equity Fund IV LP and Calderwood & Harkness LLP personnel working on this matter. This memorandum contains legal analysis, mental impressions, conclusions, and recommendations of counsel. It is protected from disclosure by the attorney-client privilege and the work product doctrine. Do not distribute, copy, or forward this memorandum to any person or entity without the prior written authorization of Howard Bellamy or Sandra Tung. Any unauthorized disclosure may result in a waiver of applicable privileges.
I. EXECUTIVE SUMMARY
On May 8, 2025, the Antitrust Division of the United States Department of Justice (the "DOJ" or the "Division") issued a Second Request for additional information and documentary material pursuant to Section 7A of the Clayton Act, 15 U.S.C. § 18a (the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the "HSR Act"), in connection with the proposed acquisition of VeloPay Systems, Inc. ("VeloPay" or the "Target") by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Buyer"). The Second Request was directed to both the Buyer and the Target and suspends the initial 30-day HSR waiting period until both parties have certified substantial compliance with the Second Request's requirements.
The transaction is structured as a reverse triangular merger through Harrowgate Velocity Merger Sub Inc. ("Merger Sub"), a newly formed, wholly-owned subsidiary of HPE Fund IV, pursuant to the Agreement and Plan of Merger dated March 18, 2025 (the "Merger Agreement"). The aggregate consideration is approximately $1.9 billion in cash, representing $20.00 per fully diluted share of VeloPay common stock. The initial HSR notification was filed by both parties on April 2, 2025.
This memorandum sets forth Calderwood & Harkness LLP's recommended strategy for responding to the Second Request on behalf of HPE Fund IV. The memorandum addresses the following critical workstreams: (i) scope of document collection and processing; (ii) custodian identification and prioritization; (iii) privilege review protocols and privilege log preparation; (iv) data and document production logistics; (v) timing considerations and the path to substantial compliance certification; (vi) the recommended approach for engaging with DOJ staff, including scope negotiations and the substantive competitive narrative; (vii) coordination with VeloPay and its counsel; and (viii) budget and resource allocation.
Our primary objective is to certify substantial compliance as expeditiously as possible — with a target certification date of June 27, 2025 — in order to preserve the transaction timeline toward a closing in mid-to-late July 2025. The Merger Agreement conditions closing on the expiration or termination of the HSR waiting period, and the parties have committed to use their reasonable best efforts to obtain all necessary regulatory clearances. Efficient execution of the Second Request response is therefore essential to maintaining deal momentum and avoiding unnecessary extensions to the timeline.
It is important to note at the outset that VeloPay's own Second Request response is being managed by Fielding McGrath LLP (lead partner Amara Osei), Target's antitrust and regulatory counsel, in coordination with Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes), Target's transactional counsel. This memorandum addresses HPE Fund IV's (Buyer's) response obligations only, though coordination with Target counsel is addressed in detail in Section IX below. We have been in preliminary contact with Ms. Osei's team and expect to establish a formal coordination framework within the coming days.
While receipt of a Second Request is a significant procedural development that imposes substantial discovery obligations and requires careful management, our preliminary assessment is that the underlying competitive concerns — to the extent they exist — are manageable and should not ultimately prevent clearance of the transaction. HPE Fund IV is a financial buyer, not a strategic acquirer, and our initial analysis indicates limited competitive overlap between VeloPay's business and the businesses of HPE Fund IV's existing portfolio companies. The recommended strategy accordingly balances cooperative engagement with the DOJ staff against the imperative of an efficient and disciplined response process.
II. BACKGROUND ON THE TRANSACTION AND COMPETITIVE LANDSCAPE
A. Transaction Overview
HPE Fund IV is acquiring 100% of the outstanding equity interests of VeloPay for an aggregate consideration of approximately $1.9 billion in cash, representing $20.00 per fully diluted share of VeloPay common stock. The transaction is structured as a reverse triangular merger in which Merger Sub will merge with and into VeloPay, with VeloPay surviving as an indirect wholly-owned subsidiary of HPE Fund IV. The Merger Agreement was executed on March 18, 2025, following a competitive auction process managed by VeloPay's financial advisor, Pinnacle Capital Markets, beginning in late October 2024.
HPE Fund IV is a Delaware limited partnership managed by its general partner, Harrowgate Capital Management IV LLC ("HCM IV"), a Delaware limited liability company. HPE Fund IV is the fourth flagship private equity fund raised by the Harrowgate Capital platform, with total committed capital of approximately $6.8 billion (vintage 2022). The fund's investment strategy is focused on three core sectors: (i) financial services technology, (ii) infrastructure software, and (iii) data analytics. The fund makes control investments in middle-market and upper-middle-market companies, typically with enterprise values ranging from $500 million to $3.0 billion. Harrowgate Capital's headquarters are in New York, with additional offices in San Francisco, London, and Singapore.
VeloPay is a cloud-native payments processing and merchant acquiring platform serving mid-market and enterprise customers across a range of industry verticals, including e-commerce, retail, hospitality, healthcare, and software-as-a-service. VeloPay processes approximately $87 billion in annualized gross payment volume across more than 14,000 merchant accounts. For its fiscal year ended December 31, 2024, VeloPay reported revenue of $412.3 million and Adjusted EBITDA of $98.1 million. The company is publicly traded on the Nasdaq Global Select Market under the ticker symbol "VPAY" and is incorporated in Delaware with its principal offices in Austin, Texas.
VeloPay's corporate structure includes five subsidiaries:
1. VeloPay Processing LLC — a Delaware limited liability company that serves as the primary operating entity for VeloPay's domestic payments processing and merchant acquiring business;
2. VeloPay Canada Inc. — a British Columbia corporation that operates VeloPay's Canadian payments processing business;
3. VeloPay Europe Unipessoal Lda. — a Portuguese limited liability company (sociedade unipessoal por quotas) that serves as VeloPay's European operational hub, processing transactions for merchants in the European Economic Area;
4. VeloPay Fraud intelligence Inc. — a Delaware corporation that develops and markets VeloPay's proprietary fraud detection and risk analytics platform, marketed under the brand name "VeloShield"; and
5. PayStream Gateway LLC — a Delaware limited liability company that operates VeloPay's payment gateway infrastructure, facilitating the routing of card-present and card-not-present transactions between merchants, issuing banks, and card networks.
Pendleton Hawkes & Co. LLC ("Pendleton Hawkes") served as HPE Fund IV's exclusive financial advisor in connection with the acquisition. David Constantinou, Managing Director at Pendleton Hawkes, led the advisory engagement. The committed equity financing for the transaction is being provided by HPE Fund IV, with debt financing commitments from Greaves Bancorp and Camberwell Securities, as detailed in the commitment letters attached to the Merger Agreement.
B. HPE Fund IV's Portfolio and Competitive Overlap Analysis
A critical element of the Second Request response — and of the substantive competitive analysis that will frame our engagement with DOJ staff — is the identification and analysis of any competitive overlaps between VeloPay's business and the businesses of HPE Fund IV's existing portfolio companies. HPE Fund IV currently holds three prior platform investments in the payments and financial infrastructure sectors:
1. Clearpoint Ledger Solutions, Inc. ("Clearpoint") — Clearpoint is a provider of back-office reconciliation and ledger management software for community banks and credit unions. Clearpoint's platform enables financial institutions to automate the reconciliation of interbank payment flows, manage general ledger postings related to payment transactions, and generate regulatory compliance reports. Clearpoint serves approximately 1,200 community banks and credit unions in the United States. Clearpoint does not itself process payments, acquire merchants, provide fraud detection services, or operate a payment gateway. Clearpoint's revenue for FY2024 was approximately $78 million.
2. Fortis Data Systems LLC ("Fortis") — Fortis is a data analytics and business intelligence platform serving the insurance and financial advisory industries. Fortis's core product is a suite of data warehousing and visualization tools that enable insurance carriers, managing general agents, and registered investment advisors to analyze policy performance, claims trends, and client portfolio analytics. Fortis does not operate in the payments processing, merchant acquiring, fraud detection, or payment gateway markets. Fortis's revenue for FY2024 was approximately $134 million.
3. Bridgewell Compliance Technologies, Inc. ("Bridgewell") — Bridgewell provides regulatory compliance technology and managed compliance services to banks, fintech companies, and money services businesses. Bridgewell's platform assists clients with anti-money laundering (AML) compliance, know-your-customer (KYC) verification, and sanctions screening. While Bridgewell's customer base includes certain payments companies and fintech firms, Bridgewell does not itself process payments, acquire merchants, or operate any payment gateway or fraud detection service that competes with VeloPay's offerings. Bridgewell's revenue for FY2024 was approximately $91 million.
Preliminary Overlap Assessment: Based on our initial review, none of HPE Fund IV's three existing portfolio companies in the financial technology sector directly competes with VeloPay in any of the relevant product markets identified by the Second Request. Clearpoint is a back-office reconciliation software provider to community banks and credit unions; Fortis is a data analytics platform serving insurance and financial advisory clients; and Bridgewell is a regulatory compliance technology provider. None of these companies processes payments, acquires merchants, provides payment gateway services, or offers fraud detection SaaS products that are substitutable for VeloPay's offerings.
However, we note several areas that warrant careful analysis and that DOJ staff may probe:
• Bridgewell's customer relationships: Bridgewell provides compliance technology to a number of payments companies and fintech firms. DOJ may inquire whether Bridgewell has any supplier or customer relationship with VeloPay or with VeloPay's competitors, and whether the acquisition could create vertical effects (e.g., incentive to foreclose VeloPay's competitors from access to Bridgewell's compliance platform). Our preliminary assessment is that this theory is weak — Bridgewell serves a broad customer base and has no market power that would enable foreclosure — but we should be prepared to address it.
• Clearpoint's adjacency to payments processing: Although Clearpoint does not process payments, it provides reconciliation software that is used by financial institutions in connection with their payment-related operations. DOJ may explore whether Clearpoint could be characterized as operating in a "complementary" market to payments processing. Again, we believe this theory lacks merit, but it should be anticipated.
• Potential competition analysis: DOJ may also explore whether any HPE Fund IV portfolio company has considered entering the payments processing or merchant acquiring market, or whether HPE Fund IV has evaluated other acquisition targets in these markets. This is a standard area of inquiry in financial-buyer Second Requests and underscores the importance of identifying and reviewing any internal strategy documents or investment memoranda that discuss the payments processing sector more broadly.
Relevant Product Markets. Based on our review of the Second Request and our understanding of DOJ precedent in the payments industry, we expect the DOJ's investigation to focus on the following product markets:
(i) Cloud-based payments processing — the provision of electronic transaction processing services (including authorization, clearing, and settlement) through cloud-native technology platforms, as distinguished from legacy on-premises processing infrastructure.
(ii) Merchant acquiring services for mid-market and enterprise customers — the provision of payment acceptance services to merchants, including the underwriting and boarding of merchant accounts, transaction processing, reporting, and settlement of funds.
(iii) Fraud detection and analytics SaaS — the provision of software-as-a-service tools that enable merchants and payment processors to identify and prevent fraudulent transactions, typically through machine learning algorithms and behavioral analytics (i.e., VeloPay's VeloShield product).
(iv) Payment gateway services — the provision of technology infrastructure that facilitates the routing of payment transactions between merchants, card networks, issuing banks, and acquiring processors (i.e., VeloPay's PayStream Gateway business).
Relevant Geographic Markets. The primary geographic market is the United States, where VeloPay generates approximately 88% of its revenue. Secondary geographic markets include Canada (served by VeloPay Canada Inc., representing approximately 7% of revenue) and Portugal and the broader European Union (served by VeloPay Europe Unipessoal Lda., representing approximately 5% of revenue). For purposes of the Second Request response, we expect DOJ's primary focus to be on U.S. markets, though the Second Request may encompass materials relating to VeloPay's international operations as well.
Preliminary Competitive Assessment. HPE Fund IV is a financial buyer — a private equity sponsor — and not a strategic competitor to VeloPay. This distinction is significant and will form the centerpiece of our engagement with DOJ staff. In the traditional "PE overlay" framework, DOJ's competitive analysis in financial-buyer transactions focuses on two principal questions: (1) whether any existing portfolio company of the acquiring fund competes with the target, such that the acquisition would be equivalent to a horizontal merger between a portfolio company and the target; and (2) whether the acquisition eliminates a potential competitor by, for example, taking a company off the market that would otherwise compete with a portfolio company. Based on our preliminary analysis, neither theory appears to present a meaningful competitive concern in this transaction.
C. Likely DOJ Theories of Concern
While we assess the risk of an enforcement action as low, we believe it is prudent to anticipate the theories of competitive concern that DOJ staff may be investigating. Based on the scope and substance of the Second Request, as well as our understanding of the Division's current enforcement priorities, we identify the following potential theories:
Horizontal Overlap. The most straightforward theory would be that one or more of HPE Fund IV's existing portfolio companies competes with VeloPay in payments processing or a related market, such that the acquisition would effectively combine competing businesses under common ownership. As discussed above, our preliminary assessment is that no such direct horizontal overlap exists. However, DOJ staff may probe the boundaries of market definitions — for example, whether Bridgewell's compliance technology services and VeloPay's fraud detection platform (VeloShield) could be viewed as operating in an overlapping "payments risk management" market. We should be prepared with a clear market-definition analysis that distinguishes these products.
Concentration in Mid-Market Merchant Acquiring. Even absent a direct portfolio company overlap, DOJ may be investigating whether the acquisition contributes to concentration in the mid-market merchant acquiring segment. VeloPay has a meaningful position in this segment, and the mid-market merchant acquiring space has seen significant consolidation in recent years (including the Sundial Enterprises/First Data, Ridgeway Partners LLC/Drayton Holdings, and FIS/Sundial & Co. transactions, among others). DOJ may be concerned that a well-capitalized private equity buyer will accelerate further consolidation through add-on acquisitions or strategic repositioning of VeloPay. While this "roll-up" concern is speculative at this stage, it is a theory that DOJ has expressed interest in across other industries, and we should be prepared to address it.
Vertical Theories. DOJ may explore whether any HPE Fund IV portfolio company is a supplier to or customer of VeloPay or its competitors in payments processing, such that the acquisition could create incentives for foreclosure or raising rivals' costs. As noted above, Bridgewell's customer base includes payments companies, and DOJ may inquire whether common ownership of Bridgewell and VeloPay could lead to discrimination against VeloPay's competitors in the provision of compliance technology services. Our preliminary view is that this theory is not credible given Bridgewell's limited market position and the availability of numerous alternative compliance technology providers.
Broader Industry Inquiry. It is possible that the DOJ's Second Request reflects, at least in part, a broader investigation into the payments processing industry rather than purely transaction-specific concerns. The Division has been increasingly active in the fintech and payments space, and several contemporaneous investigations and enforcement actions have been reported in the trade press. If this is the case, the Second Request may be somewhat more expansive in scope than would be typical for a financial-buyer transaction, and DOJ staff may use the investigation as an opportunity to gather market information and industry intelligence beyond what is strictly necessary to evaluate the competitive effects of this particular transaction. This possibility underscores the importance of negotiating the scope of the Second Request to focus on transaction-specific materials.
III. SCOPE OF THE SECOND REQUEST — ANALYSIS OF SPECIFICATIONS
A. Overview of the Second Request's Terms
The Second Request issued on May 8, 2025 follows the standard DOJ format and includes three principal components: (i) document requests organized by specification number; (ii) interrogatories requiring narrative responses; and (iii) requests for structured data and information. The document requests consist of 22 specifications, each directed at a defined category of documents and information. The interrogatories number 8, and the data requests number 5.
The Second Request defines "relevant time period" as January 1, 2021 through the present (a period of approximately four years and five months). This is somewhat broader than the minimum 3-year period we have seen in recent DOJ Second Requests but is within the range of what we would consider typical. The Second Request also defines "relevant products and services" broadly to encompass payments processing, merchant acquiring, payment gateway services, fraud detection and prevention services, and "any related financial technology products or services." The breadth of this definition will be a key area for scope negotiation.
The Second Request applies to HPE Fund IV, HCM IV, and "any entity controlled by or under common control with" HPE Fund IV, which encompasses all portfolio companies. This common-control definition is standard but, applied literally, would encompass all of HPE Fund IV's portfolio companies regardless of industry, which is clearly overbroad. We will seek to narrow this definition to companies operating in or evaluating entry into the defined relevant product markets.
B. Key Specification Categories
We have organized the 22 document specifications into six principal categories for purposes of planning the response:
Category 1: Transaction Documents (Specifications 1–4). These specifications request all documents relating to the evaluation, negotiation, and consummation of the acquisition of VeloPay. The scope includes:
• The Merger Agreement (execution version dated March 18, 2025), all exhibits, schedules, and ancillary agreements (including the equity commitment letter, debt commitment letters, limited guaranty, and voting/support agreements);
• All financial models, valuation analyses, and projections prepared by or for HPE Fund IV in connection with the transaction, including materials prepared by Pendleton Hawkes & Co. (David Constantinou);
• Board presentations, investment committee memoranda, and similar materials presented to or considered by HPE Fund IV's investment committee or advisory committee in connection with the decision to pursue and approve the acquisition;
• Due diligence materials, including reports, analyses, summaries, and assessments prepared by or for HPE Fund IV, whether prepared internally or by third-party advisors;
• Communications between HPE Fund IV and its financial advisor (Pendleton Hawkes), its legal advisors (Calderwood & Harkness LLP), and VeloPay or its advisors, relating to the transaction (subject to privilege); and
• All documents relating to the competitive rationale for the acquisition, including any analysis of VeloPay's competitive position, market share, or competitive advantages.
This category will generate a significant volume of responsive documents. The due diligence data room alone, which was opened on December 12, 2024, contained approximately 3,800 documents. In addition, HPE Fund IV's internal deal team — led by Thomas Eriksen — generated numerous investment committee memoranda, financial models, and deal evaluation materials over the course of the auction process and subsequent due diligence period. We anticipate that the transaction document production will be substantial but manageable, as these documents are generally well-organized and readily accessible.
Category 2: Strategic Plans and Competitive Assessments (Specifications 5–8). These specifications request HPE Fund IV's and HCM IV's strategic plans, market analyses, competitive landscape assessments, and investment theses relating to payments processing, merchant acquiring, fintech, and related sectors. The scope includes:
• Annual strategic plans, sector reviews, and thematic investment theses prepared by HCM IV's financial technology sector team;
• Market maps, competitive landscape analyses, and target screening materials relating to payments processing and adjacent sectors;
• Presentations to HPE Fund IV's limited partners (LPs) or advisory board members that discuss the fund's strategy in the financial technology sector; and
• Any documents that discuss VeloPay's competitive position relative to other payments processing companies, or that discuss the competitive dynamics of the payments processing industry.
This category is potentially broad and may encompass a significant volume of thematic sector research and investment pipeline materials. We will need to assess the scope carefully and negotiate with DOJ to limit the production to materials that are directly relevant to the competitive analysis of this transaction.
Category 3: Portfolio Company Documents (Specifications 9–13). These specifications request documents from any HPE Fund IV portfolio company "operating in or evaluating entry into" payments processing, merchant acquiring, payment gateway, or fraud detection markets. As discussed in Section II.B above, the three potentially relevant portfolio companies are Clearpoint, Fortis, and Bridgewell. The specifications request:
• Strategic plans, business plans, and budgets of each relevant portfolio company;
• Competitive analyses, market assessments, and customer analyses;
• Documents discussing the relevant portfolio company's relationship with VeloPay or VeloPay's competitors;
• Documents discussing any portfolio company's consideration of entry into or expansion within payments processing, merchant acquiring, payment gateway, or fraud detection markets; and
• Documents relating to any communications between the portfolio company and HPE Fund IV regarding VeloPay or the payments processing industry.
This category will require careful coordination with the management teams and general counsel of Clearpoint, Bridgewell, and potentially Fortis. We anticipate that the volume of responsive documents from portfolio companies will be relatively modest, but the logistics of collection and review will be more complex given the need to coordinate across multiple entities. A critical negotiation objective will be to limit the portfolio company document obligations to Bridgewell and Clearpoint (the two companies with the closest adjacency to VeloPay's markets) and to exclude Fortis, which operates in the insurance and financial advisory analytics space and has no plausible connection to payments processing.
Category 4: Market Reports and Industry Analysis (Specifications 14–15). These specifications request third-party reports, consultant analyses, and market studies relating to the payments processing industry that were obtained or commissioned by HPE Fund IV, HCM IV, or any relevant portfolio company. This category includes reports from industry analysts (e.g., Granite Harbor Holdings, Westmark Advisory Group, Cobalt Ridge Advisory Group), consulting firm deliverables, and any commissioned research. We expect this category to be manageable in volume and relatively straightforward to identify and produce.
Category 5: Customer and Supplier Communications (Specifications 16–18). These specifications request communications concerning VeloPay with customers, suppliers, or partners of any HPE Fund IV portfolio company. In practice, this specification is likely aimed at identifying any commercial relationship or competitive interaction between VeloPay and the portfolio companies. We will need to conduct targeted searches of portfolio company email and communication systems to identify any such communications. Our preliminary expectation is that the volume will be very low, as we are not aware of any significant commercial relationship between VeloPay and Clearpoint, Bridgewell, or Fortis.
Category 6: Data Submissions (Specifications 19–22 and Data Requests 1–5). The Second Request includes structured data requests that require the production of revenue data, transaction volume data, customer lists, pricing schedules, and market share estimates for any HPE Fund IV portfolio company operating in relevant markets. In addition, the interrogatories require narrative descriptions of each portfolio company's business, competitive position, and relationships with payments processing companies. We will work with the finance and data teams at Clearpoint, Bridgewell, and Fortis (to the extent necessary) to compile responsive data. Thomas Eriksen's team at Harrowgate should also have relevant financial data from periodic portfolio company reporting.
C. Narrowing and Modification Opportunities
A significant component of the Second Request response strategy is the negotiation of scope modifications with DOJ staff. The DOJ's Model Second Request process expressly contemplates that parties will seek reasonable modifications to the scope of document requests, and in our experience, DOJ staff attorneys are generally receptive to well-reasoned proposals for narrowing, particularly where the modifications do not deprive the Division of access to competitively significant information.
We have identified the following areas as priorities for scope negotiation:
Time Period Limitations. The Second Request's relevant time period of January 1, 2021 through the present is broader than necessary for most specification categories. We will seek to narrow the time period to January 1, 2023 through the present (approximately two-and-a-half years) for strategic plans and competitive assessments (Category 2) and portfolio company documents (Category 3), while accepting the full time period for transaction documents (Category 1), which are inherently limited by the deal timeline.
Custodian Limits. The Second Request does not specify custodians but applies broadly to HPE Fund IV, HCM IV, and all controlled entities. We will propose a defined custodian list (discussed in Section IV below) and seek DOJ agreement that collection from these custodians will satisfy the Second Request's requirements.
Search Term Refinements. We will propose an initial set of search terms and seek DOJ agreement on the terms before commencing full-scale document review. This will help ensure that the review is focused on responsive materials and that false positives are minimized. We expect significant negotiation on search terms, particularly for the portfolio company specifications.
Exclusion of Privileged Categories. We will seek confirmation that the DOJ does not expect production of attorney-client privileged communications or attorney work product, subject to the preparation of a privilege log for any withheld documents. This is standard but worth confirming early in the process.
Scope of Portfolio Company Obligations. As noted above, we will seek to limit the portfolio company document obligations to Clearpoint and Bridgewell and to exclude Fortis, which has no connection to the payments processing industry. We will also seek to limit the portfolio company custodians to a small number of senior executives.
We recommend raising these scope modification requests at the initial meeting with DOJ staff (targeted for the week of May 12, 2025) and following up with a written proposal for modifications promptly thereafter.
IV. CUSTODIAN IDENTIFICATION AND PRIORITIZATION
A. HPE Fund IV / Harrowgate Capital Management IV LLC Custodians
We have organized the proposed custodians into three tiers based on the expected volume and relevance of their documents, as well as the priority of collection:
Tier 1 — Primary Custodians (Immediate Collection):
1. Richard Harrowgate — Founder & Chairman, HCM IV. Mr. Harrowgate sits on HPE Fund IV's investment committee and would have received and reviewed investment committee memoranda and presentations relating to the VeloPay acquisition. His document volume is expected to be moderate, as his involvement is primarily at the approval and oversight level.
2. Priya Deshmukh — Managing Partner, Fund IV. Ms. Deshmukh is the senior partner responsible for Fund IV's investments and would have been involved in the strategic decision to pursue the VeloPay acquisition, the approval of the investment thesis, and discussions regarding the competitive landscape of the payments processing sector. Her document volume is expected to be moderate to significant.
3. Thomas Eriksen — Partner, Head of Financial Technology. Mr. Eriksen served as the primary deal lead for the VeloPay acquisition and is expected to have the largest volume of responsive documents among all custodians. His files will include deal evaluation materials, financial models, due diligence analyses, communications with Pendleton Hawkes & Co. and Calderwood & Harkness, investment committee memoranda, competitive landscape assessments, and communications with VeloPay management and advisors.
4. Raj Mehta — Vice President, Financial Technology. Mr. Mehta served as the deal team associate on the VeloPay transaction, working directly under Mr. Eriksen. He is expected to have a significant volume of responsive documents, including drafts of financial models, due diligence workstream materials, and communications with third-party diligence providers.
5. Catherine Lam — Principal, Financial Technology. Ms. Lam participated in the VeloPay deal evaluation and due diligence process, with particular responsibility for the technology and product diligence workstream. Her documents will include diligence notes, product assessments, and competitive analyses.
Tier 2 — Secondary Custodians:
6. Jonathan Sperling — Operating Partner, HCM IV. Mr. Sperling provides operational oversight across HPE Fund IV's financial technology portfolio and reviewed VeloPay materials in connection with the investment committee process. His document volume is expected to be low to moderate.
7. Diana Kozlov — Partner, Head of Capital Markets. Ms. Kozlov led the debt financing workstream for the VeloPay acquisition and may have documents relating to the financial structure and competitive rationale for the transaction, including materials shared with financing sources.
8. Michael Chen — CEO, Bridgewell Compliance Technologies, Inc. As the chief executive of the portfolio company with the closest adjacency to VeloPay's market, Mr. Chen may have documents discussing the payments processing industry, Bridgewell's relationships with payments companies, or any discussions with HPE Fund IV regarding VeloPay or competitive dynamics.
9. Elaine Rourke — CEO, Clearpoint Ledger Solutions, Inc. Ms. Rourke may have documents relating to Clearpoint's position in the financial institution software market and any discussions of the payments processing industry. We expect her document volume to be low.
10. Other Harrowgate investment professionals who participated in the VeloPay deal evaluation, due diligence, or investment committee process. We will confirm the full list with Thomas Eriksen and Priya Deshmukh and add any additional names as warranted.
Tier 3 — If Required After DOJ Negotiation:
11. Administrative or support personnel at HCM IV who managed the due diligence data room or coordinated communications (e.g., executive assistants, deal operations staff). We do not anticipate that collection from these individuals will be necessary but will preserve their documents in case DOJ insists.
12. External advisors — specifically, personnel at Pendleton Hawkes & Co. (including David Constantinou). We note that DOJ may direct a separate third-party subpoena to Pendleton Hawkes; accordingly, we will preserve HPE Fund IV's communications with Pendleton Hawkes but will coordinate with Pendleton Hawkes's counsel before producing any Pendleton Hawkes-originated materials.
B. Data Sources and Repositories
The following data sources and repositories have been identified for collection purposes:
• Harrowgate Email System (Ashgrove Software): All email accounts for identified custodians, including sent and received messages, calendar items, and attachments. HCM IV operates on a Ashgrove Software enterprise platform with centralized administration.
• Harrowgate Deal Management Platform (Adriatic Systems): HCM IV utilizes Adriatic Systems as its deal pipeline management and CRM system. The platform contains deal records, contact information, meeting notes, and pipeline tracking for the VeloPay transaction and other evaluated opportunities in the financial technology sector.
• Investment Committee Materials (Aldermere Systems / Cobalt Ridge Systems): Investment committee memoranda, presentations, and supporting materials are stored on HCM IV's Aldermere Systems and Cobalt Ridge Systems environment. These materials are well-organized by deal and by committee meeting date.
• Due Diligence Data Room (Thackeray Solutions): The VeloPay due diligence data room was hosted on Thackeray Solutions and opened on December 12, 2024. HPE Fund IV personnel accessed and downloaded materials from the data room during the due diligence period. We will need to collect the activity log from Thackeray Solutions to identify which documents were accessed by Harrowgate personnel.
• Shared Network Drives and Document Management: HCM IV maintains a shared network drive (organized by fund and by portfolio company) and a document management system (Tidewater Systems) for legal and deal-related materials.
• Messaging Platforms: We understand that certain Harrowgate deal team members may use encrypted messaging applications (including Signal and Meridian Services Inc.) for informal communications. We must assess the preservation obligations with respect to these platforms and ensure that any responsive messages are collected and produced. This is an area of increasing DOJ scrutiny, and we recommend issuing specific preservation instructions regarding messaging applications to all custodians.
C. VeloPay Custodians (Coordinated with Target Counsel)
VeloPay's Second Request response, including custodian selection and document collection, will be managed by Fielding McGrath LLP (Amara Osei) in coordination with Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes). Calderwood & Harkness will coordinate with Target counsel but will not direct VeloPay's custodian selection or document review process.
Based on our preliminary discussions with Ms. Osei, the key VeloPay custodians are expected to include:
• Nathan Aldridge — Chief Executive Officer
• Sonia Reyes-Watkins — Chief Technology Officer
• Marcus Langford — Chief Financial Officer
• Danielle Moreau — General Counsel
• James Oduya — Senior Vice President, Business Development
• Lisa Fontaine — Senior Vice President, Enterprise Sales
• Alex Prochazka — Vice President, Product Management (VeloShield fraud detection platform)
We will coordinate with Ms. Osei's team to ensure that there is no unnecessary duplication between the Buyer's and Target's custodian lists and that any documents that are responsive to both parties' Second Requests are produced consistently.
V. DOCUMENT COLLECTION AND PROCESSING PROTOCOL
A. Litigation Hold and Preservation Notices
Preservation notices were issued to all relevant HPE Fund IV and HCM IV personnel at the time of the initial HSR filing on April 2, 2025. These notices instructed recipients to preserve all documents and electronically stored information ("ESI") relating to VeloPay, the payments processing industry, and the proposed acquisition, pending further instruction. The preservation notices were distributed to the members of HPE Fund IV's investment committee, the VeloPay deal team, and HCM IV's legal and compliance personnel.
In light of the Second Request, we recommend the following supplemental preservation actions:
1. Supplemental Preservation Notices: Issue updated and expanded preservation notices to all Tier 1 and Tier 2 custodians identified above, including portfolio company personnel (Michael Chen at Bridgewell, Elaine Rourke at Clearpoint). The supplemental notices should specifically reference the Second Request, identify the relevant time period (January 1, 2021 to present), and provide clear instructions regarding the scope of materials to be preserved.
2. Messaging Application Preservation: Issue specific instructions to all custodians regarding the preservation of communications on encrypted messaging applications, including Signal, Meridian Services Inc., and any other non-email communication platforms. Custodians should be instructed not to delete, disable auto-delete features for, or otherwise destroy any such communications pending completion of the Second Request process.
3. IT and Systems Preservation: Coordinate with HCM IV's IT department to ensure that no automated deletion policies (e.g., email retention policies, backup tape rotation) result in the destruction of potentially responsive ESI during the pendency of the Second Request response.
4. Portfolio Company Preservation: Coordinate with Bridgewell and Clearpoint legal/compliance teams to ensure that preservation notices are issued to relevant personnel at those entities and that document retention policies are suspended for relevant custodians and data sources.
All supplemental preservation notices should be issued no later than May 14, 2025.
B. Collection Methodology
We recommend the following collection methodology:
Forensic Collection. All email and electronic files from Tier 1 custodians should be collected using forensically defensible methods by a qualified e-discovery vendor. We recommend engaging Ashgrove Systems or Lighthouse (both of which have existing relationships with Calderwood & Harkness and are experienced in HSR Second Request productions) to perform the forensic collections. The vendor will create forensic images or targeted collections of each custodian's email mailbox, local and network file storage, and cloud storage repositories (Cobalt Ridge Systems, Aldermere Systems). Collections should be hash-verified and documented with chain-of-custody records.
Search Term Application. Following collection, search terms will be applied to the collected data to identify potentially responsive documents. We recommend developing an initial search term list in consultation with the HPE Fund IV deal team and submitting the proposed terms to DOJ staff for negotiation. Our proposed initial search term list includes the following categories:
• Target-specific terms: "VeloPay," "Velo Pay," "VPAY," "VeloShield," "PayStream," "PayStream Gateway," any code names used during the auction process (we understand the deal was internally code-named "Project Velocity" at Harrowgate and "Project Spark" at VeloPay);
• Product/market terms: "payments processing," "payment processing," "merchant acquiring," "merchant acquirer," "payment gateway," "fraud detection," "fraud prevention," "fraud analytics," "card processing," "transaction processing," "card-not-present," "issuing bank," "acquiring bank," "payment facilitator," "payfac";
• Competitor terms: names of VeloPay's principal competitors (to be confirmed with the deal team, but expected to include Kestrel Group, Westmark Group, Sundial Enterprises, Ridgeway Partners LLC, Sundial & Co., Square/Dunmore Holdings, Cobalt Ridge Enterprises/Ashford Corporation, Hollowell Holdings, Meridian Enterprises, and others);
• Deal-specific terms: "Project Velocity," "Merger Sub," "Harrowgate Velocity," "reverse triangular merger," combined with any appropriate date or custodian limitations; and
• Portfolio company overlap terms: terms specific to potential overlaps between Clearpoint, Bridgewell, and VeloPay's markets, as appropriate.
We expect significant negotiation with DOJ staff over the search terms, and we will refine the list based on those discussions. The objective is to arrive at a set of terms that captures the universe of genuinely responsive documents without generating an unmanageable volume of false positives.
De-duplication and Processing. The e-discovery vendor will perform de-duplication (exact and near-duplicate identification), email threading, and other standard processing steps to reduce the review population. We will also apply date-range filters to exclude documents outside the relevant time period and will exclude clearly non-responsive file types (e.g., system-generated files, software executables) from the review population.
C. Estimated Document Volume
Based on our experience with Second Request responses of similar scope and our preliminary assessment of the number of custodians and the breadth of the search terms, we estimate that the total population of potentially responsive documents across all custodians will range from approximately 50,000 to 150,000 documents. This estimate is subject to significant variability depending on the outcome of search term negotiations with DOJ and the number of custodians ultimately included in the collection.
We recommend a phased review approach to manage this volume efficiently:
Phase 1 (Weeks 3–4): Review and produce transaction documents (Category 1) and "hot" documents from Tier 1 custodians. This is the highest-priority workstream and will enable us to make an early rolling production to demonstrate cooperation and facilitate DOJ's understanding of the deal rationale.
Phase 2 (Weeks 4–6): Review strategic plans, competitive assessments, and market reports (Categories 2 and 4) from Tier 1 custodians. Concurrently, begin collection and review from Tier 2 custodians, including portfolio company personnel.
Phase 3 (Weeks 5–7): Review portfolio company documents (Category 3) and customer/supplier communications (Category 5). Complete data submissions (Category 6) and interrogatory responses.
Phase 4 (Weeks 7–8): Quality control review, finalization of privilege log, completion of final productions, and preparation of certification of substantial compliance.
VI. PRIVILEGE REVIEW PROTOCOL
A. Attorney-Client Privilege and Work Product Doctrine
A robust privilege review is essential to ensure that privileged communications and attorney work product are identified and withheld from production. We have identified the following categories of potentially privileged materials:
1. Calderwood & Harkness communications with HPE Fund IV. All communications between Calderwood & Harkness LLP personnel (including Sandra Tung, Oliver Mackenzie, Megan Chu, Derek Okonkwo, Leonard Cross, and Howard Bellamy, as well as any associates and support staff working on the matter) and HPE Fund IV or HCM IV personnel are protected by the attorney-client privilege. This includes emails, memoranda, phone call notes, and meeting materials in which legal advice was sought or provided.
2. Communications with Pendleton Hawkes & Co. reflecting legal advice. Communications between HPE Fund IV and its financial advisor, Pendleton Hawkes & Co., that reflect, reference, or were prepared at the direction of counsel are potentially subject to the attorney-client privilege and/or the work product doctrine. However, the scope of privilege protection for communications with financial advisors is narrower and requires careful analysis. Documents prepared by Pendleton Hawkes that incorporate or reflect legal advice from Calderwood & Harkness may be privileged, but standalone financial analyses are generally not. We will review these materials carefully and apply privilege designations on a document-by-document basis.
3. Internal Calderwood & Harkness work product. All internal Calderwood & Harkness memoranda, analyses, draft documents, and research materials prepared in connection with the VeloPay transaction are protected by the work product doctrine. This includes due diligence memoranda, antitrust assessment memoranda (including this memorandum), draft HSR filings, and any analyses of competitive effects.
4. Prior antitrust counsel communications. If HPE Fund IV or HCM IV engaged prior antitrust counsel before retaining Calderwood & Harkness for the HSR process, any communications with such prior counsel may also be privileged. We will confirm with Thomas Eriksen whether any prior antitrust advice was obtained.
5. Portfolio company counsel communications. To the extent that Bridgewell, Clearpoint, or other portfolio companies have in-house or outside counsel who provided legal advice that is captured in the document collection, such communications may be subject to the attorney-client privilege of the portfolio company. We will need to coordinate with each portfolio company's counsel to ensure that privilege is appropriately asserted.
Common Interest Privilege. We anticipate that privileged communications will be shared between HPE Fund IV's counsel (Calderwood & Harkness LLP) and VeloPay's counsel (Whitford Jessup & Crane LLP and Fielding McGrath LLP) in connection with the HSR process and Second Request response. To preserve the privilege for such shared communications, we recommend that a written common interest agreement be executed by all parties (as discussed in Section IX below). The common interest doctrine protects communications shared between parties with a common legal interest from waiver of privilege, provided that the communications are made in furtherance of the common interest and the agreement is properly documented.
B. Privilege Log Preparation
For all documents withheld from production on privilege grounds, we will prepare a privilege log in compliance with DOJ guidelines and applicable court rules. The privilege log will include the following information for each withheld document:
• Document date
• Document type (email, memorandum, presentation, etc.)
• Author
• Recipient(s) and any persons copied
• Subject matter description (sufficiently detailed to allow DOJ to assess the privilege claim, but without revealing the substance of the privileged communication)
• Privilege basis (attorney-client privilege, work product doctrine, or both)
• If applicable, indication of common interest privilege
We recommend using a standardized privilege logging protocol, implemented through the e-discovery review platform, to expedite preparation and reduce the risk of inconsistencies. Reviewers will be trained to identify and code privileged documents during the first-pass review, and a dedicated privilege review team (led by a mid-level associate with privilege review experience) will conduct a second-pass quality control review of all privilege designations before the privilege log is finalized.
We anticipate that the total number of privilege log entries will be in the range of 500–2,000, depending on the volume of custodian-to-counsel communications captured by the search terms. We will seek to minimize the privilege log burden by, among other things, logging email chains at the chain level rather than the individual message level, where appropriate.
C. Clawback Agreement
We strongly recommend negotiating a Rule 502(d) clawback agreement (or an equivalent stipulation, given that this is an administrative investigation rather than litigation) with DOJ staff at the outset of the production process. A clawback agreement provides that the inadvertent production of a privileged document does not waive the privilege and that the producing party may claw back the document upon discovery of the inadvertent production.
In our experience, DOJ staff is generally amenable to entering into clawback agreements in connection with Second Request productions, and such agreements provide a critical safety net against inadvertent waiver given the volume and speed of document review required. We will propose language for the clawback agreement and seek DOJ's agreement during our initial engagement meetings.
VII. TIMING CONSIDERATIONS AND COMPLIANCE CERTIFICATION TARGET
A. Merger Agreement Timeline Pressures
The Merger Agreement was signed on March 18, 2025, and contemplates a closing as soon as practicable following the satisfaction or waiver of all conditions to closing. The receipt of HSR clearance — specifically, the expiration or termination of the HSR waiting period — is a condition to each party's obligation to close under Section 7.01(b) of the Merger Agreement.
In addition to HSR clearance, the closing of the transaction is subject to several other regulatory approvals and conditions:
• Investment Canada Act: HPE Fund IV filed a notification under Part IV of the Investment Canada Act on May 1, 2025, in respect of VeloPay Canada Inc. The review period under the ICA is 45 days from filing (subject to extension), with a target clearance date of approximately June 15, 2025. If the Minister of Innovation, Science and Economic Development determines that a net benefit review is required, the timeline could extend significantly.
• State Money Transmitter Change-of-Control Filings: VeloPay holds money transmitter licenses in 31 U.S. states. Change-of-control applications or notifications have been filed or are in the process of being filed in each of these states. The timeline for approval varies by state, with some states requiring 60–120 days. The Merger Agreement provides that the parties will use commercially reasonable efforts to obtain these approvals, and the closing condition is limited to approvals in the "Required Jurisdictions" as defined in the Merger Agreement.
• Other Conditions: The closing is also subject to the accuracy of each party's representations and warranties (subject to customary materiality qualifiers), compliance by each party with its covenants, the absence of a material adverse effect with respect to VeloPay, and the delivery of customary closing certificates and other deliverables.
The Merger Agreement includes an outside date provision (Section 8.01(b)), which provides that either party may terminate the Merger Agreement if the closing has not occurred by December 18, 2025 (nine months from signing). While this outside date provides meaningful runway, the parties have been targeting a closing in mid-to-late July 2025, and any significant delay in the HSR process could jeopardize this timeline and create uncertainty for VeloPay's business, employees, and customers.
B. Proposed Compliance Timeline
We propose the following timeline for the Second Request response, organized by week:
Week 1–2 (May 8–22, 2025):
• Finalize custodian list (including confirmation of Tier 1 and Tier 2 custodians from Thomas Eriksen and Priya Deshmukh).
• Issue supplemental preservation notices to all identified custodians, including portfolio company personnel at Bridgewell and Clearpoint.
• Engage e-discovery vendor (Ashgrove Systems or Lighthouse) and initiate forensic collections from Tier 1 custodians.
• Schedule and hold introductory call/meeting with assigned DOJ staff attorneys.
• Begin DOJ negotiations on scope modifications (time period, custodians, search terms, portfolio company obligations).
• Prepare and circulate proposed search term list to DOJ for negotiation.
• Execute common interest agreement with Fielding McGrath LLP and Whitford Jessup & Crane LLP (if not already in place).
Week 3–4 (May 22–June 5, 2025):
• Complete forensic collections from Tier 1 custodians.
• Apply negotiated search terms and process collected data through the review platform.
• Begin first-pass document review, prioritizing transaction documents (Category 1) and "hot" documents (investment committee memoranda, deal presentations, competitive landscape analyses).
• Prepare and make initial rolling production of transaction documents and voluntary "hot" documents to DOJ.