1003-00003 · Harrowgate Private Equity Fund IV LP · Diligence

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MEMORANDUM PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Sandra Tung, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Priya Deshmukh, Managing Partner, Harrowgate Capital Management IV LLC Thomas Eriksen, Partner, Head of Financial Technology, Harrowgate Capital Management IV LLC

FROM: Megan Chu, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP Derek Okonkwo, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP

DATE: March 10, 2025

RE: Employment and Benefits Due Diligence Summary — VeloPay Systems, Inc. (Project Velocity)

Matter Number: 1003-00003

Status: Final Pre-Signing Draft

This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It was prepared at the direction of counsel in anticipation of litigation and in connection with the rendering of legal advice. This memorandum is not intended for distribution to any party other than the addressees and their authorized representatives. Any unauthorized disclosure, copying, or distribution of this memorandum is strictly prohibited.

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I. Executive Summary

This memorandum summarizes the findings of our employment and employee benefits due diligence review of VeloPay Systems, Inc., a Delaware corporation ("VeloPay" or the "Company"), and its subsidiaries, VeloPay Canada Inc., an Ontario corporation ("VeloPay Canada"), and VeloPay Europe, Unipessoal Lda., a Portuguese limitada ("VeloPay Europe" and, together with VeloPay and VeloPay Canada, the "VeloPay Group"). This review has been conducted in connection with the proposed acquisition of VeloPay by Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") via a reverse triangular merger (the "Merger") for aggregate consideration of approximately $1.9 billion (the "Transaction"). The Merger will be effected through the merger of a newly formed acquisition subsidiary of HPE Fund IV with and into VeloPay, with VeloPay surviving as the wholly-owned subsidiary of HPE Fund IV.

VeloPay employs approximately 1,340 employees across four locations: (i) Austin, Texas, which serves as the Company's headquarters and houses approximately 680 employees; (ii) Denver, Colorado, a branch office with approximately 240 employees; (iii) Toronto, Ontario, Canada, with approximately 260 employees employed through VeloPay Canada; and (iv) Lisbon, Portugal, with approximately 160 employees employed through VeloPay Europe. The Company does not maintain any collective bargaining agreements, and no employees in any jurisdiction are represented by a labor union.

The key findings of our review are summarized as follows:

(a) Executive Employment Agreements. Four named executive officers — Nathan Aldridge (CEO), Sonia Reyes-Watkins (CTO), Marcus Langford (CFO), and Danielle Moreau (General Counsel) — maintain employment agreements containing change of control provisions that are triggered by the Merger. These agreements provide for aggregate potential cash severance of approximately $4,432,125 upon a qualifying termination following a change of control, in addition to equity acceleration, COBRA continuation, and pro-rata bonus payments. All four agreements utilize a "double-trigger" structure, meaning that severance is payable only if the executive experiences an involuntary termination without "cause" or resigns for "good reason" within twelve months following the change of control.

(b) Equity Compensation. VeloPay maintains the VeloPay Systems, Inc. 2015 Equity Incentive Plan (as Amended and Restated 2021) under which significant equity awards are outstanding, including stock options covering 7,600,000 shares (with an aggregate spread value of approximately $54.4 million), restricted stock units covering 3,200,000 shares (with an aggregate value of $64.0 million), and warrants covering 1,800,000 shares (with an aggregate spread value of approximately $20.7 million). Treatment of these awards under the Merger Agreement is addressed in detail in Section IV below.

(c) Section 280G Parachute Payment Exposure. The Merger constitutes a "change of control" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Preliminary calculations indicate that all four named executives are "disqualified individuals" who may receive "excess parachute payments" subject to the 20% excise tax under Section 4999 of the Code. Because VeloPay is a privately held corporation, the Section 280G(b)(5)(B) shareholder vote safe harbor is available, and we recommend pursuing such a vote prior to closing.

(d) ERISA Compliance. Our review of the Company's employee benefit plans, including the VeloPay Systems, Inc. 401(k) Savings Plan and the Company's health and welfare plans, revealed no material ERISA compliance deficiencies. The 401(k) plan has received a favorable IRS opinion letter, passed its most recent nondiscrimination testing without corrective action, and has been subject to an annual ERISA audit with no material findings.

(e) Non-U.S. Employment Law Considerations. The approximately 260 employees of VeloPay Canada in Toronto, Ontario are subject to the Ontario Employment Standards Act, 2000 and common law notice requirements. The approximately 160 employees of VeloPay Europe in Lisbon, Portugal are subject to the Portuguese Labour Code. The indirect change of control effected by the Merger does not constitute a transfer of undertaking under either jurisdiction's applicable legislation; however, constructive dismissal risk exists in Canada if post-closing changes to employment terms are material, and strict termination protections under Portuguese law should be noted.

(f) No Material Unfunded Pension Liabilities. VeloPay does not maintain any defined benefit pension plan, multiemployer pension plan, or employee stock ownership plan. The sole retirement plan is the VeloPay Systems, Inc. 401(k) Savings Plan, a defined contribution plan. No unfunded pension or postretirement benefit obligations were identified.

(g) Risk Items. Several items require further attention and are summarized in the Risk Matrix set forth in Section XIII below, including 280G excise tax exposure, constructive dismissal risk in Canada, independent contractor misclassification concerns for approximately 12 long-term U.S. contractors, Portuguese equity compensation tax considerations, and post-closing retention planning.

Our review is based on documents and information provided through the VeloPay virtual data room maintained by Whitford Jessup & Crane LLP (company counsel). The categories reviewed include HR folders 4.1 through 4.18 within the data room. Our review encompasses documents and information provided through approximately February 28, 2025, with supplemental materials requested and received through March 7, 2025. Unless otherwise noted, the analysis in this memorandum is based upon the documents and information as provided and has not been independently verified through employee interviews or third-party audit procedures.

II. Workforce Overview

A. Employee Census and Locations

As of December 31, 2024, the VeloPay Group employs approximately 1,340 employees across four locations. The following summarizes the headcount and principal activities at each location:

Austin, Texas — VeloPay Systems, Inc. (Headquarters). VeloPay's corporate headquarters is located at 1455 Innovation Parkway, Suite 800, Austin, Texas 78758. The Austin office houses approximately 680 employees, representing the largest concentration of the Company's workforce. Functions based in Austin include executive leadership and senior management, product management and development, core engineering teams, sales and business development, marketing, and general and administrative functions (including finance, legal, human resources, and compliance). The Austin office serves as the principal hub for all strategic decision-making, investor relations, and corporate governance functions.

Denver, Colorado — VeloPay Systems, Inc. (Branch Office). VeloPay maintains a branch office in Denver, Colorado, which employs approximately 240 employees. The Denver office is primarily focused on engineering, customer support, and operations functions. The Denver facility was established in 2019 to take advantage of the local talent pool in engineering and technology. Denver-based employees are employed directly by VeloPay Systems, Inc. and are subject to Texas corporate governance and Delaware corporate law, though Colorado state employment laws apply to their employment relationships.

Toronto, Ontario, Canada — VeloPay Canada Inc. VeloPay's Canadian operations are conducted through VeloPay Canada Inc., an Ontario corporation and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Canada employs approximately 260 employees in its Toronto office, focusing on engineering, product development, and customer operations. VeloPay Canada was incorporated in 2017 as part of the Company's international expansion strategy and serves as the primary entity for Canadian-market operations and a secondary engineering center.

Lisbon, Portugal — VeloPay Europe, Unipessoal Lda. VeloPay's European operations are conducted through VeloPay Europe, Unipessoal Lda., a Portuguese limitada (single-member limited liability company) and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Europe employs approximately 160 employees in Lisbon, primarily focused on research and development and European operations. VeloPay Europe was established in 2020 to develop a European technical center and support the Company's expanding European customer base.

Union Status and Collective Bargaining. VeloPay does not maintain any collective bargaining agreements at any of its locations. None of the U.S. or Canadian employees are represented by a labor union, and no pending union organizing activity has been identified in our review of the data room materials or through management representations. With respect to the Lisbon office, there are no workers' councils currently established at VeloPay Europe. The Lisbon office has historically been below the threshold for mandatory works council establishment under Portuguese labor law. We recommend continued monitoring of Portuguese regulatory requirements regarding employee representation, particularly as headcount in Lisbon grows.

Independent Contractors. VeloPay engages approximately 85 independent contractors across its operations, primarily in software development and consulting capacities. Our preliminary review of the contractor arrangements did not identify material misclassification risk for the majority of these individuals. However, we recommend a specific, targeted review of approximately 12 long-term contractors in Austin and Denver who appear to perform functions substantially similar to those of full-time employees, including regular hours, use of company equipment, integration into team workflows, and tenure exceeding 18 months. The potential exposure from misclassification of these individuals could include liability for unpaid employment taxes, benefits, and overtime, as well as penalties under applicable federal and state law. We discuss this further in the Risk Matrix in Section XIII below.

B. Employee Classifications and Functions

The following table summarizes the approximate breakdown of VeloPay Group employees by function as of December 31, 2024:

Engineering and product employees represent the largest single functional category, reflecting VeloPay's technology-driven business model as a financial technology (fintech) payments platform. The concentration of engineering talent across Austin, Denver, Toronto, and Lisbon is a significant asset and a key focus for post-closing retention planning.

All U.S. employees of VeloPay Systems, Inc. are employed on an "at-will" basis, with the exception of the four named executives who have entered into individual employment agreements (described in Section III below). Standard offer letters for U.S. employees contain at-will disclaimers and do not provide for any specified term of employment or guaranteed severance.

Canadian employees of VeloPay Canada Inc. are subject to the Ontario Employment Standards Act, 2000 ("ESA") and common law. Their employment agreements provide for notice and/or severance upon termination without cause, as discussed further in Section VI.A below. Portuguese employees of VeloPay Europe are subject to the Portuguese Labour Code (Código do Trabalho) and hold a mix of indefinite-term and fixed-term contracts, as discussed further in Section VI.B below.

III. Executive Employment Agreements

We reviewed the employment agreements of VeloPay's four named executive officers, each of whom maintains a written employment agreement containing change of control provisions that are triggered by the Merger. The following summarizes the material terms of each agreement.

A. Nathan Aldridge — Chief Executive Officer and Co-Founder

Nathan Aldridge serves as the Chief Executive Officer and Chairman of the Board of VeloPay. He is also a co-founder of the Company and holds approximately 14.2% of the outstanding VeloPay common stock.

Agreement. Mr. Aldridge is party to an Employment Agreement with VeloPay dated September 15, 2018, which was amended and restated as of January 10, 2022 (the "Aldridge Agreement"). The Aldridge Agreement provides for Mr. Aldridge's continued employment as Chief Executive Officer reporting directly to the Board of Directors.

Compensation. Mr. Aldridge's current base salary is $475,000 per annum. He is eligible for an annual performance bonus with a target of 100% of his base salary (i.e., $475,000), which is discretionary and based on Company and individual performance metrics established by the Board's Compensation Committee. Mr. Aldridge's total target annual cash compensation is therefore $950,000.

Change of Control Severance. The Aldridge Agreement provides that upon a "change of control" (defined broadly to include a merger in which VeloPay's stockholders cease to own a majority of the surviving entity, which definition encompasses the proposed reverse triangular merger), if Mr. Aldridge's employment is terminated without "Cause" or he resigns for "Good Reason" within twelve (12) months following the change of control (a "qualifying termination"), he is entitled to the following severance benefits:

(i) Twenty-four (24) months of base salary continuation payments, payable on the Company's regular payroll schedule, totaling $950,000;

(ii) A lump-sum payment equal to two times (2x) his target annual bonus, totaling $950,000;

(iii) Full acceleration of all unvested equity awards, including stock options and restricted stock units, such that all outstanding awards become immediately vested and exercisable;

(iv) Twenty-four (24) months of continued health insurance coverage at Company expense through COBRA continuation or equivalent coverage;

(v) A pro-rata bonus for the year in which termination occurs, based on actual performance through the date of termination and payable at the time bonuses are normally paid.

The total potential change of control cash severance payable to Mr. Aldridge under the Aldridge Agreement (excluding COBRA continuation and pro-rata bonus) is approximately $1,900,000.

Restrictive Covenants. The Aldridge Agreement contains a twelve (12)-month post-termination non-competition covenant, which restricts Mr. Aldridge from engaging in any business that directly competes with VeloPay's payment processing and fintech platform business within the United States and Canada. The Aldridge Agreement also contains an eighteen (18)-month post-termination non-solicitation covenant covering both employees and customers of the Company. Pursuant to the terms of the Merger Agreement, the non-competition covenant in the Aldridge Agreement will be superseded by a separate three (3)-year Non-Competition and Non-Solicitation Agreement to be executed by Mr. Aldridge as a condition to closing.

Rollover Equity. Mr. Aldridge has agreed to roll approximately $14,200,000 of his merger proceeds into Harrowgate Velocity Co-Invest LP pursuant to the Rollover Agreement entered into in connection with the Transaction. This rollover represents a significant ongoing economic alignment between Mr. Aldridge and HPE Fund IV.

Other. Mr. Aldridge will also serve as the Stockholder Representative under the Stockholder Representative Agreement to be executed at closing, acting on behalf of VeloPay's former stockholders with respect to post-closing adjustments, indemnification claims, and escrow matters.

Section 280G Exposure. Mr. Aldridge is a "disqualified individual" for purposes of Section 280G of the Code as both an officer and a greater-than-1% stockholder. His Section 280G exposure is discussed in detail in Section VII below.

B. Sonia Reyes-Watkins — Chief Technology Officer and Co-Founder

Sonia Reyes-Watkins serves as the Chief Technology Officer of VeloPay. She is also a co-founder of the Company and holds approximately 9.7% of the outstanding VeloPay common stock.

Agreement. Ms. Reyes-Watkins is party to an Employment Agreement with VeloPay dated September 15, 2018, which was amended and restated as of January 10, 2022 (the "Reyes-Watkins Agreement"). The Reyes-Watkins Agreement provides for Ms. Reyes-Watkins's continued employment as Chief Technology Officer reporting to the Chief Executive Officer.

Compensation. Ms. Reyes-Watkins's current base salary is $425,000 per annum. She is eligible for an annual performance bonus with a target of 85% of her base salary (i.e., $361,250), which is discretionary and based on Company and individual performance metrics. Her total target annual cash compensation is therefore $786,250.

Change of Control Severance. The Reyes-Watkins Agreement provides that upon a qualifying termination (termination without Cause or resignation for Good Reason) within twelve (12) months following a change of control, she is entitled to the following severance benefits:

(i) Eighteen (18) months of base salary continuation payments, totaling $637,500;

(ii) A lump-sum payment equal to one and one-half times (1.5x) her target annual bonus, totaling $541,875;

(iii) Full acceleration of all unvested equity awards, including stock options and restricted stock units;

(iv) Eighteen (18) months of continued health insurance coverage at Company expense through COBRA continuation or equivalent coverage;

(v) A pro-rata bonus for the year in which termination occurs.

The total potential change of control cash severance payable to Ms. Reyes-Watkins (excluding COBRA continuation and pro-rata bonus) is approximately $1,179,375.

Restrictive Covenants. The Reyes-Watkins Agreement contains a twelve (12)-month post-termination non-competition covenant and a standard non-solicitation covenant. As with Mr. Aldridge, the non-competition covenant will be superseded by a separate three (3)-year Non-Competition and Non-Solicitation Agreement to be executed as a condition to closing.

Rollover Equity. Ms. Reyes-Watkins has agreed to roll approximately $9,700,000 of her merger proceeds into Harrowgate Velocity Co-Invest LP pursuant to the Rollover Agreement.

Section 280G Exposure. Ms. Reyes-Watkins is a disqualified individual for purposes of Section 280G as both an officer and a greater-than-1% stockholder. Her Section 280G exposure is discussed in Section VII below.

C. Marcus Langford — Chief Financial Officer

Marcus Langford serves as the Chief Financial Officer of VeloPay. He holds approximately 1.3% of the outstanding VeloPay common stock.

Agreement. Mr. Langford is party to an Employment Agreement with VeloPay dated March 1, 2020, as amended as of June 15, 2023 (the "Langford Agreement"). The Langford Agreement provides for Mr. Langford's continued employment as Chief Financial Officer reporting to the Chief Executive Officer.

Compensation. Mr. Langford's current base salary is $410,000 per annum. He is eligible for an annual performance bonus with a target of 75% of his base salary (i.e., $307,500), which is discretionary. His total target annual cash compensation is therefore $717,500.

Change of Control Severance. The Langford Agreement provides that upon a qualifying termination within twelve (12) months following a change of control, he is entitled to the following severance benefits:

(i) Twelve (12) months of base salary continuation payments, totaling $410,000;

(ii) A lump-sum payment equal to one times (1x) his target annual bonus, totaling $307,500;

(iii) Acceleration of unvested equity awards, to the extent not otherwise treated under the Merger Agreement (i.e., this provision is intended to operate as a backstop to the equity treatment negotiated in the Merger Agreement);

(iv) Twelve (12) months of continued health insurance coverage at Company expense through COBRA continuation.

The total potential change of control cash severance payable to Mr. Langford (excluding COBRA continuation) is approximately $717,500.

Restrictive Covenants. The Langford Agreement contains a twelve (12)-month post-termination non-competition covenant and a twelve (12)-month post-termination non-solicitation covenant covering both employees and customers.

Section 280G Exposure. Mr. Langford is a disqualified individual for purposes of Section 280G as both an officer and a greater-than-1% stockholder. His Section 280G exposure is discussed in Section VII below.

D. Danielle Moreau — General Counsel and Corporate Secretary

Danielle Moreau serves as the General Counsel and Corporate Secretary of VeloPay. She holds approximately 0.6% of the outstanding VeloPay common stock.

Agreement. Ms. Moreau is party to an Employment Agreement with VeloPay dated August 15, 2019, as amended as of June 15, 2023 (the "Moreau Agreement"). The Moreau Agreement provides for Ms. Moreau's continued employment as General Counsel and Corporate Secretary reporting to the Chief Executive Officer.

Compensation. Ms. Moreau's current base salary is $385,000 per annum. She is eligible for an annual performance bonus with a target of 65% of her base salary (i.e., $250,250), which is discretionary. Her total target annual cash compensation is therefore $635,250.

Change of Control Severance. The Moreau Agreement provides that upon a qualifying termination within twelve (12) months following a change of control, she is entitled to the following severance benefits:

(i) Twelve (12) months of base salary continuation payments, totaling $385,000;

(ii) A lump-sum payment equal to one times (1x) her target annual bonus, totaling $250,250;

(iii) Acceleration of unvested equity awards, to the extent not otherwise treated under the Merger Agreement;

(iv) Twelve (12) months of continued health insurance coverage at Company expense through COBRA continuation.

The total potential change of control cash severance payable to Ms. Moreau (excluding COBRA continuation) is approximately $635,250.

Restrictive Covenants. The Moreau Agreement contains a twelve (12)-month post-termination non-competition covenant and a twelve (12)-month post-termination non-solicitation covenant covering both employees and customers.

Section 280G Exposure. Ms. Moreau is a disqualified individual for purposes of Section 280G as an officer of the Company. Although her stock ownership of 0.6% falls below the 1% stockholder threshold applicable under Section 280G, she qualifies as a disqualified individual by virtue of her status as an officer. Her Section 280G exposure is discussed in Section VII below.

E. Summary Table of Executive Change of Control Severance

The following table summarizes the change of control cash severance payable to each of the four named executives upon a qualifying termination:

The aggregate potential cash severance across all four executives is approximately $4,432,125. This amount does not include the value of equity acceleration, COBRA continuation, or pro-rata bonuses, which are additive to the cash severance amounts shown. The double-trigger structure of all four agreements provides meaningful protection against the immediate crystallization of these obligations at closing; severance is payable only if a qualifying termination occurs within twelve months following the change of control.

F. Other Key Executive Terms

We note the following additional terms that are common across all four executive employment agreements and relevant to the Transaction:

Assignment and Successors. All four agreements contain assignment and successors-and-assigns provisions that expressly permit assignment of the agreement to an acquirer of all or substantially all of the Company's assets or business, or to a successor by merger. No individual consent to assignment is required in connection with the Merger. The obligations of VeloPay under each agreement are binding upon and inure to the benefit of VeloPay's successors and assigns.

Confidentiality. All four agreements contain confidentiality obligations that survive the termination of employment and are not limited in duration. These provisions are broadly drafted to cover proprietary information, trade secrets, financial information, business strategies, customer lists, and technical data.

Invention Assignment. The Aldridge Agreement and the Reyes-Watkins Agreement each contain invention assignment provisions that assign to the Company all right, title, and interest in intellectual property created during the course of employment or using Company resources. These provisions are particularly important given the technical leadership roles held by Mr. Aldridge and Ms. Reyes-Watkins. The Langford Agreement and the Moreau Agreement do not contain express invention assignment clauses, although each executive is subject to the Company's standard employee proprietary information and inventions agreement.

Governing Law. All four executive employment agreements are governed by the laws of the State of Texas, consistent with VeloPay's headquarters location in Austin, Texas.

Definition of "Good Reason." The definition of "Good Reason" is consistent across all four agreements and includes: (i) a material diminution in the executive's duties, authority, or responsibilities; (ii) a material reduction in the executive's base salary (defined as a reduction of more than 10%); (iii) a relocation of the executive's primary office more than 50 miles from its current location; and (iv) a material breach by the Company of its obligations under the employment agreement. Each agreement requires the executive to provide written notice of the Good Reason event within 30 days of its occurrence and allows the Company a 30-day cure period before the executive's resignation becomes effective.

Definition of "Cause." The definition of "Cause" is consistent across all four agreements and includes: (i) conviction of, or plea of guilty or nolo contendere to, a felony or crime involving moral turpitude; (ii) willful misconduct or gross negligence in the performance of duties that results in material harm to the Company; (iii) material breach of the employment agreement that is not cured within 30 days after written notice; and (iv) material violation of Company policies, including the code of conduct. Certain Cause events are subject to a cure period, providing the executive with an opportunity to remedy the breach before termination.

IV. Equity Compensation Plans

A. VeloPay Systems, Inc. 2015 Equity Incentive Plan (as Amended and Restated 2021)

All outstanding equity awards of VeloPay are governed by the VeloPay Systems, Inc. 2015 Equity Incentive Plan, as amended and restated effective June 15, 2021 (the "2015 Plan" or the "Plan"). We reviewed the Plan document, the 2021 amendment and restatement, the forms of award agreement used for various grant types, and relevant board and committee resolutions authorizing grants.

The 2015 Plan was originally adopted by the VeloPay Board of Directors and approved by VeloPay's stockholders in 2015. The Plan was amended and restated in 2021 to, among other things, increase the number of authorized shares and make conforming updates for tax law changes. The 2021 amendment and restatement was approved by written consent of stockholders holding a majority of VeloPay's outstanding common stock.

Authorized Shares. The Plan authorizes the issuance of up to 15,000,000 shares of VeloPay common stock, inclusive of the share increase effected by the 2021 amendment and restatement.

Plan Administration. The Plan is administered by the VeloPay Board of Directors or, to the extent designated by the Board, the Compensation Committee of the Board. The plan administrator has discretionary authority to determine the terms and conditions of awards, including exercise prices, vesting schedules, and performance criteria.

Award Types. The Plan authorizes the grant of the following types of awards: (i) incentive stock options ("ISOs") within the meaning of Section 422 of the Code; (ii) non-qualified stock options ("NQSOs"); (iii) restricted stock awards ("RSAs"); (iv) restricted stock units ("RSUs"); (v) stock appreciation rights ("SARs"); and (vi) other stock-based awards as the plan administrator may determine. As of the date of our review, the only outstanding award types under the Plan are stock options (ISOs and NQSOs) and RSUs.

Change of Control Provision. Section 12 of the Plan provides that upon a "Change of Control" (as defined in the Plan), the Board or Compensation Committee may, in its sole and absolute discretion: (i) accelerate the vesting of all outstanding awards in full; (ii) cancel outstanding awards in exchange for a cash payment equal to the per-share consideration payable in the Change of Control transaction (less, in the case of options, the applicable exercise price); (iii) provide for the assumption or substitution of awards by the surviving or acquiring entity on substantially equivalent terms; or (iv) any combination of the foregoing. The definition of "Change of Control" in the Plan is drafted broadly and includes a merger or consolidation in which VeloPay is not the surviving entity, or a merger after which VeloPay's stockholders immediately prior to the merger hold less than 50% of the outstanding voting securities of the surviving entity. The proposed reverse triangular merger falls squarely within this definition.

Merger Agreement Treatment Controls. Notwithstanding the discretionary authority granted to the plan administrator under the Plan, the treatment of all outstanding equity awards in connection with the Transaction is governed by the equity treatment provisions of the Merger Agreement. The Merger Agreement supersedes the plan administrator's discretion with respect to the treatment of awards at closing, and the Plan expressly permits such treatment. We have confirmed that the equity treatment provisions of the Merger Agreement are consistent with the terms of the Plan and do not require any separate plan amendment.

B. Outstanding Stock Options

Overview. As of the date of our review, there are 7,600,000 shares of VeloPay common stock subject to outstanding stock options under the 2015 Plan. These options were granted to employees, executive officers, and certain consultants over the period from 2016 through 2024. The weighted average exercise price across all outstanding options is $12.84 per share.

In-the-Money Analysis. At the per-share merger consideration of $20.00, all 7,600,000 outstanding options are in-the-money. The weighted average spread is $7.16 per share ($20.00 minus $12.84), resulting in an aggregate option spread value of approximately $54,416,000 (7,600,000 shares multiplied by $7.16).

Vesting Status. Based on the vesting schedules of outstanding options and the anticipated closing timeline, we estimate that approximately 5,100,000 shares subject to options will be vested as of the anticipated signing date, and approximately 2,500,000 shares subject to options will be unvested.

Treatment under the Merger Agreement. The Merger Agreement provides for the following treatment of outstanding stock options:

Vested Stock Options. All vested stock options outstanding immediately prior to the effective time of the Merger will be cancelled and converted into the right to receive a cash payment equal to the per-share merger consideration of $20.00 minus the applicable exercise price (the "net spread"), multiplied by the number of shares subject to the vested option, less applicable tax withholding. Payment will be made promptly following the closing, generally through VeloPay's payroll system to ensure proper withholding.

Unvested Stock Options. All unvested stock options outstanding immediately prior to the effective time of the Merger will be cancelled. Fifty percent (50%) of the shares subject to each unvested option will be treated as accelerated, and the holder will receive a cash payment equal to the net spread for such accelerated shares, less applicable tax withholding. The remaining fifty percent (50%) of the shares subject to each unvested option will be converted into HPE Fund IV replacement awards, which will vest ratably over a twenty-four (24)-month period following the closing, subject to the holder's continued employment with the surviving company or its affiliates through each applicable vesting date. The replacement awards will be denominated in units that entitle the holder to cash payments based on the net spread value at the time of conversion.

ISO / NQSO Mix. Of the 7,600,000 outstanding options, approximately 2,800,000 are ISOs and approximately 4,800,000 are NQSOs. This distinction is relevant for tax purposes. NQSOs are subject to ordinary income tax withholding and FICA taxes upon exercise or cancellation for cash. ISOs are generally eligible for favorable capital gains treatment if certain holding period requirements are satisfied; however, the cancellation of ISOs for cash in connection with the Merger will constitute a "disqualifying disposition," and the spread will be treated as ordinary income subject to withholding. Accordingly, for purposes of the Merger, all option cash-outs will be subject to ordinary income tax and FICA withholding.

Section 409A Considerations. We reviewed the 409A valuation reports available in the data room and confirmed that all stock options appear to have been granted with an exercise price at or above the fair market value of VeloPay common stock on the applicable date of grant. VeloPay engaged independent valuation firms to prepare Section 409A valuations at regular intervals, and the Board or Compensation Committee relied on these valuations in setting exercise prices. We did not identify any discounted option grants or other Section 409A pricing issues. Nevertheless, we recommend that VeloPay's outside counsel confirm that all option grants comply with Section 409A and that no options were inadvertently granted during a "blackout" period between valuations at a price below the subsequently determined fair market value.

C. Outstanding Restricted Stock Units (RSUs)

Overview. As of the date of our review, there are 3,200,000 RSUs outstanding under the 2015 Plan. RSUs represent the right to receive shares of VeloPay common stock (or cash equivalent) upon the satisfaction of applicable vesting conditions.

Vesting Schedules. The RSUs are subject to time-based vesting schedules. The predominant vesting schedule is a four (4)-year vesting period with a one (1)-year cliff and quarterly vesting thereafter (i.e., 25% of the RSUs vest on the first anniversary of the grant date, and the remaining 75% vest in equal quarterly installments over the following three years). Certain senior hires received RSUs with accelerated three (3)-year vesting schedules.

Treatment under the Merger Agreement. The Merger Agreement provides that all unvested RSUs outstanding immediately prior to the effective time of the Merger will be accelerated in full and converted into the right to receive a cash payment equal to $20.00 per RSU, less applicable tax withholding. The aggregate RSU payout is 3,200,000 multiplied by $20.00, or $64,000,000. Payment will be made promptly following the closing through VeloPay's payroll system.

Tax Withholding. RSUs are subject to ordinary income tax and FICA withholding at the time of vesting and settlement. The full acceleration and cash-out at closing will trigger ordinary income treatment for all RSU holders. VeloPay's payroll department will be responsible for withholding applicable federal, state, and local income taxes, as well as the employee's share of FICA taxes (Social Security and Medicare), from the RSU cash-out payments.

Section 409A Considerations. The RSUs under the 2015 Plan are structured as "short-term deferrals" within the meaning of Treasury Regulation § 1.409A-1(b)(4). Under this regulation, a payment that is made by the later of the fifteenth day of the third month following the end of the service provider's taxable year in which the right to payment is no longer subject to a substantial risk of forfeiture, or the fifteenth day of the third month following the end of the Company's taxable year in which the right to payment is no longer subject to a substantial risk of forfeiture, is exempt from Section 409A. The cash-out of RSUs at closing will occur within this short-term deferral period, and we do not identify any Section 409A compliance issues with respect to the RSU treatment.

D. Outstanding Warrants

Overview. As of the date of our review, there are 1,800,000 warrants to purchase shares of VeloPay common stock outstanding. These warrants were issued in connection with VeloPay's Series B and Series C preferred stock financing rounds and are held by institutional investors and certain financial advisors who participated in those rounds.

Terms. The warrants have an exercise price of $8.50 per share and contain standard anti-dilution provisions (including adjustments for stock splits, dividends, and certain dilutive issuances) and change of control provisions. The warrant agreements provide that upon a change of control, the warrant holder may elect to exercise the warrant on a cashless basis or, if the change of control involves a cash merger, receive a cash payment equal to the per-share merger consideration minus the exercise price.

Treatment under the Merger Agreement. The Merger Agreement provides that all outstanding warrants will be cancelled and converted into the right to receive a cash payment equal to $20.00 minus the $8.50 exercise price, or $11.50 per warrant. The aggregate warrant payout is 1,800,000 multiplied by $11.50, or $20,700,000.

Compliance. We reviewed all warrant agreements in the data room and confirmed that the change of control provisions in each agreement are satisfied by the cash-out treatment provided in the Merger Agreement. No additional consents or waivers from warrant holders are required in connection with the cash-out.

E. Fully Diluted Capitalization Summary

The following table summarizes VeloPay's fully diluted capitalization and the aggregate merger consideration:

The aggregate transaction value on a fully diluted basis is approximately $1,900,000,000, which is consistent with the overall transaction consideration negotiated between the parties.

F. Equity Plan Administration Issues

We identified the following equity plan administration matters in the course of our review:

Option Grant Documentation. We reviewed sample grant agreements for 25 representative option grants spanning the period from 2016 through 2024. All reviewed grant agreements appear to be properly executed, contain terms consistent with the 2015 Plan, and were authorized by either the full Board of Directors or the Compensation Committee pursuant to appropriate resolutions. We did not identify any grants that lacked proper board or committee authorization.

Stockholder Approvals. The 2015 Plan was initially approved by VeloPay's stockholders in 2015. The 2021 amendment and restatement, which increased the authorized share pool and made conforming changes, was approved by written consent of stockholders holding a majority of the outstanding shares. We reviewed copies of the relevant stockholder consents in the data room and confirmed that the required approvals were obtained.

California Securities Law Considerations. Approximately 45 current and former employees of VeloPay received stock option grants while resident in the State of California. California's Corporate Securities Law of 1968 requires issuers to file notices of issuance with the California Department of Financial Protection and Innovation (formerly the Department of Corporations) for certain securities exemptions. We confirmed that VeloPay filed the required California notices of issuance for these grants in accordance with applicable California securities regulations.

SEC Rule 701 Compliance. VeloPay is not a reporting company under the Securities Exchange Act of 1934 and has relied on the exemption from registration provided by Rule 701 under the Securities Act of 1933 for the offer and sale of securities pursuant to the 2015 Plan. Rule 701 limits the aggregate amount of securities that may be sold in reliance on the exemption during any consecutive 12-month period. Based on our review of VeloPay's grant records and the applicable financial thresholds, aggregate offerings under the 2015 Plan appeared to be within Rule 701 limits. If aggregate sales exceeded $10 million in any 12-month period, VeloPay was required to deliver additional disclosure documents to option recipients; we recommend confirming with VeloPay's outside counsel that such disclosures were timely delivered.

Section 422 ISO Limits. Section 422(d) of the Code limits the aggregate fair market value of stock with respect to which ISOs are first exercisable by any individual during any calendar year to $100,000 (determined by reference to the fair market value of the stock at the time of grant). To the extent that ISO grants to any individual exceed this limit, the excess is automatically treated as NQSOs. Our review of the grant records suggests that VeloPay's ISO grants appear to be within the $100,000 annual vesting limit; however, we recommend that VeloPay's outside counsel confirm that no ISO grants inadvertently exceeded this limit, particularly for employees who received multiple grants in overlapping vesting periods.

V. Broad-Based Employee Benefit Plans

A. Health and Welfare Plans

VeloPay sponsors a comprehensive suite of health and welfare benefit plans for its U.S. employees. We reviewed the plan documents, summary plan descriptions ("SPDs"), insurance contracts, and the most recent IRS Forms 5500 filed for each applicable plan. The following plans are currently offered:

Medical Plan. VeloPay Systems, Inc. Group Medical Plan, fully insured through Cornerstone Health Insurance Co. The plan offers two coverage options: (i) a Preferred Provider Organization ("PPO") option; and (ii) a High Deductible Health Plan ("HDHP") option. The plan is available to all full-time U.S. employees and their eligible dependents. VeloPay subsidizes approximately 80% of the premium cost for employee-only coverage and approximately 65% of the premium cost for dependent coverage. The plan document and SPD were reviewed and appear to contain standard terms consistent with market practice for employers of VeloPay's size and industry.

Dental Plan. VeloPay Systems, Inc. Group Dental Plan, fully insured. The plan provides preventive, basic, and major dental coverage. The plan is available to all full-time U.S. employees and their eligible dependents.

Vision Plan. VeloPay Systems, Inc. Group Vision Plan, fully insured. The plan provides coverage for routine eye exams, lenses, frames, and contact lenses. The plan is available to all full-time U.S. employees and their eligible dependents.

Life Insurance and AD&D. VeloPay provides employer-paid group term life insurance and accidental death and dismemberment ("AD&D") coverage at a benefit level of one times (1x) the employee's annual base salary, subject to a maximum benefit of $500,000. The coverage is fully insured.

Short-Term Disability. VeloPay provides employer-paid short-term disability coverage, which provides income replacement at 60% of base salary for up to 26 weeks following a qualifying disability event. The coverage is fully insured.

Long-Term Disability. VeloPay provides employer-paid long-term disability coverage, which provides income replacement at 60% of base salary (subject to a monthly maximum) following the expiration of the short-term disability benefit period. The coverage is fully insured.

Flexible Spending Accounts. VeloPay offers healthcare flexible spending accounts ("Healthcare FSAs") and dependent care flexible spending accounts ("Dependent Care FSAs") that allow employees to set aside pre-tax dollars for eligible healthcare and dependent care expenses, respectively. The FSAs are administered by a third-party administrator and comply with the applicable requirements of Section 125 and Section 129 of the Code.

Health Savings Accounts. VeloPay offers health savings accounts ("HSAs") paired with the HDHP option of the medical plan. Employees enrolled in the HDHP may contribute pre-tax dollars to an HSA up to the applicable IRS annual contribution limits. VeloPay provides a modest employer HSA contribution of $500 per year for employee-only coverage and $1,000 per year for family coverage.

Compliance Summary. Our review of VeloPay's health and welfare plans did not reveal any material compliance issues. The SPDs appear compliant with ERISA's disclosure requirements, including the content requirements of Section 102 of ERISA and the Department of Labor's regulations thereunder. Plan documents are up to date and contain the required ERISA and Code provisions.

COBRA Administration. VeloPay's COBRA administration is handled by a third-party administrator, QualifiedBenefits Solutions LLC. Our review did not identify any COBRA failures or outstanding claims arising from alleged deficiencies in COBRA notice delivery. We recommend, however, that the Buyer confirm timely delivery of COBRA election notices for all qualifying events occurring within the prior 18-month period, as failure to provide timely COBRA notices can result in excise taxes under Section 4980B of the Code and potential litigation exposure.

ACA Compliance. VeloPay has filed IRS Forms 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) for the 2022, 2023, and 2024 reporting years, as required by Section 6056 of the Code. We reviewed copies of these filings in the data room. No ACA employer shared responsibility penalties have been assessed against VeloPay under Section 4980H of the Code. VeloPay's ACA affordability analysis, which employs the rate-of-pay safe harbor method permitted under applicable Treasury Regulations, appears to demonstrate that the employer-sponsored coverage is "affordable" within the meaning of Section 36B(c)(2)(C) of the Code. We did not identify any instances in which VeloPay failed to offer minimum essential coverage to full-time employees.

B. Retirement Plans

VeloPay Systems, Inc. 401(k) Savings Plan. VeloPay sponsors the VeloPay Systems, Inc. 401(k) Savings Plan (the "401(k) Plan"), a tax-qualified defined contribution plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The 401(k) Plan is VeloPay's sole employer-sponsored retirement plan. The material terms of the 401(k) Plan are as follows:

Eligibility. All U.S. employees of VeloPay who have attained age 21 and completed 30 days of service are eligible to participate in the 401(k) Plan.

Employee Contributions. Participants may make pre-tax elective deferrals and designated Roth contributions up to the applicable IRS limits ($23,500 for 2025, with an additional $7,500 catch-up contribution for participants age 50 and older).

Employer Matching Contributions. VeloPay provides a matching contribution equal to 50% of the first 6% of compensation deferred by the participant, resulting in a maximum employer match of 3% of compensation.

Vesting. Employee contributions are 100% vested at all times. Employer matching contributions vest at a rate of 25% per year of service (i.e., full vesting after four years of service). This is a graded vesting schedule that satisfies the minimum vesting requirements of Section 411(a)(2)(B) of the Code.

Plan Document. The 401(k) Plan uses a pre-approved (formerly "prototype") plan document provided by Ridgeway Plan Administration Services Inc. The plan document has been updated to reflect legislative changes, including the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, with the most recent amendment adopted in December 2022.

IRS Determination/Opinion Letter. The 401(k) Plan has received a favorable IRS opinion letter (applicable to the pre-approved plan document). We confirmed that the plan sponsor has adopted the plan without material modification from the pre-approved form, such that the plan may rely on the IRS opinion letter.

Form 5500. The most recent IRS/DOL Form 5500 annual return/report (for the 2023 plan year) was reviewed. The Form 5500 was filed timely and did not disclose any material audit findings or compliance deficiencies.

Nondiscrimination Testing. VeloPay conducts annual nondiscrimination testing of the 401(k) Plan, including the Actual Deferral Percentage ("ADP") test under Section 401(k)(3) of the Code, the Actual Contribution Percentage ("ACP") test under Section 401(m)(2) of the Code, and top-heavy testing under Section 416 of the Code. Testing has been completed through the 2023 plan year, and no failures or required corrective distributions have been identified.

Audits and Investigations. No outstanding IRS or DOL audits or investigations with respect to the 401(k) Plan were identified. The 401(k) Plan has not been the subject of any IRS Voluntary Correction Program (VCP) or Self-Correction Program (SCP) submissions.

Investments. The 401(k) Plan does not hold any employer stock in plan assets. Plan participants direct the investment of their accounts among a menu of diversified investment options offered through Ridgeway Plan Administration Services Inc.

Plan Loans. The 401(k) Plan permits participant loans in accordance with Section 72(p) of the Code. No material outstanding participant loan defaults were identified.

Absence of Other Retirement Plans. VeloPay does not maintain any defined benefit pension plan, multiemployer pension plan, or employee stock ownership plan ("ESOP"). Accordingly, there are no unfunded pension liabilities or withdrawal liability obligations. VeloPay has no postretirement benefit obligations (e.g., retiree medical or life insurance benefits).

C. Other U.S. Benefits

In addition to the health, welfare, and retirement plans described above, VeloPay provides the following benefits to its U.S. employees:

Paid Time Off (PTO). VeloPay maintains an accrual-based PTO policy for U.S. employees. PTO accrues based on years of service, with rates ranging from 15 days per year for new employees to 25 days per year for employees with ten or more years of service. Accrued but unused PTO is a Company liability. As of December 31, 2024, the estimated accrued PTO liability across the U.S. workforce is approximately $4.2 million. This liability should be confirmed in connection with the financial closing and working capital adjustment process.

Employee Assistance Program (EAP). VeloPay offers a confidential Employee Assistance Program through an external provider, providing short-term counseling, referral services, and crisis support for employees and their family members at no cost.

Tuition Reimbursement. VeloPay offers a tuition reimbursement program that reimburses eligible employees up to $5,250 per calendar year for qualified educational expenses, which is the maximum amount that may be excluded from income under Section 127 of the Code.

Commuter Benefits. VeloPay offers pre-tax commuter benefits (transit and parking) under Section 132(f) of the Code, allowing employees to set aside pre-tax dollars for qualified transportation expenses.

Supplemental Life Insurance. VeloPay makes available voluntary supplemental life insurance on an employee-paid basis through the group insurance carrier, allowing employees to purchase additional coverage above the employer-paid benefit.

VI. Non-U.S. Employment and Benefits Matters

A. Canada — VeloPay Canada Inc. (Toronto, Ontario)

Entity and Workforce. VeloPay Canada Inc. is an Ontario corporation and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Canada employs approximately 260 employees at its Toronto office. The Canadian workforce is primarily engaged in engineering, product development, and customer operations.

Governing Law. Employees of VeloPay Canada are subject to the Ontario Employment Standards Act, 2000 ("ESA"), which establishes minimum standards for employment in Ontario, including minimum wage, hours of work, overtime, public holidays, vacation, leaves of absence, termination notice, and severance pay. In addition to the statutory minimums, Ontario employees are entitled to common law notice of termination (or pay in lieu thereof), which is generally more generous than the ESA minimums and is determined by reference to factors including the employee's age, length of service, character of employment, and availability of comparable employment.

Employment Agreements. We reviewed the standard form employment agreement used for VeloPay Canada employees. The standard agreement includes provisions for:

• Termination for cause (without notice or pay in lieu);

• Termination without cause, with notice or pay in lieu of notice at the greater of (i) the ESA minimum and (ii) an enhanced contractual entitlement (typically ranging from 2 to 8 weeks per year of service, capped at 12 months of total notice or pay in lieu); and

• Certain restrictive covenants (confidentiality and, for more senior employees, non-solicitation).

The enhanced contractual notice provisions are designed to limit common law notice exposure by establishing a contractual cap on termination entitlements. We note, however, that the enforceability of such contractual caps depends on factors including whether the contractual entitlements meet or exceed the ESA minimums in all circumstances and whether the employment agreement was supported by valid consideration (e.g., new or continued employment). Based on our review of the standard form agreement, the contractual provisions appear to be reasonably drafted and should be enforceable in most cases, though we recommend that VeloPay Canada's Ontario employment counsel confirm enforceability for any specific employees whose circumstances may give rise to a challenge.

Change of Control Implications. The proposed reverse triangular merger constitutes an indirect change of control of VeloPay Canada Inc. Under Ontario law, where a business is sold or transferred and the purchaser continues the employment of the seller's employees, the employment relationship is deemed to continue for employment standards purposes, and the transaction does not constitute a "termination" of employment. The merger is not expected to result in a deemed termination or constructive dismissal for ESA purposes, provided that VeloPay Canada employees continue to be employed by VeloPay Canada on substantially similar terms following the closing.

However, constructive dismissal risk exists at common law. Under Ontario common law, a "constructive dismissal" occurs when an employer unilaterally makes a fundamental or substantial change to a term of the employment contract without the employee's consent. If, following the closing, HPE Fund IV or the surviving company makes material changes to the employment terms of VeloPay Canada employees — such as changes to duties, reporting structure, compensation, or work location — affected employees may assert constructive dismissal claims. We estimate that the constructive dismissal risk is moderate and recommend that HPE Fund IV maintain employment terms and reporting structures for VeloPay Canada employees for a reasonable period following the closing (at least 12 months) to mitigate this risk.

Benefits. VeloPay Canada sponsors a group benefits plan for its employees through Northland Group Benefits Corp. The benefits plan provides medical, dental, life, and disability coverage and is fully insured. VeloPay Canada also sponsors a Registered Retirement Savings Plan ("RRSP") with employer matching contributions equal to 3% of base salary on the first 5% of compensation contributed by the employee. These benefit arrangements are customary for Ontario employers of VeloPay Canada's size.

Statutory Contributions. VeloPay Canada makes required contributions under the Canada Pension Plan ("CPP") and Employment Insurance ("EI") programs. Based on our review, all CPP and EI contributions are current, and no arrears have been identified.

Investment Canada Act. The acquisition of VeloPay Canada by HPE Fund IV is subject to the Investment Canada Act. A notification was filed on May 1, 2025, and clearance was received on June 3, 2025. This regulatory matter is addressed in detail in the separate Regulatory and Licensing Due Diligence Memorandum and is not covered further herein.

Employment Litigation. There is no outstanding employment litigation involving VeloPay Canada. One prior wrongful dismissal claim was filed against VeloPay Canada in 2022 by a former employee. The claim was settled for CAD $85,000 (approximately USD $62,000 at current exchange rates), and a full and final release was obtained from the claimant. No ongoing obligations remain in connection with this settlement.

B. Portugal — VeloPay Europe, Unipessoal Lda. (Lisbon)

Entity and Workforce. VeloPay Europe, Unipessoal Lda. is a Portuguese limitada (single-member limited liability company) and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Europe employs approximately 160 employees at its Lisbon office, primarily engaged in research and development and European operations support.

Governing Law. Employees of VeloPay Europe are subject to the Portuguese Labour Code (Código do Trabalho), which provides comprehensive regulation of the employment relationship, including hiring, working conditions, termination, and collective rights.

Employment Contracts. VeloPay Europe's workforce consists of a mix of indefinite-term and fixed-term employment contracts. The majority of employees — approximately 130 — are employed under indefinite-term contracts, which provide for open-ended employment with strong statutory protections against dismissal. Approximately 30 employees are employed under fixed-term contracts, which have defined expiration dates and may be renewed subject to the limitations imposed by the Portuguese Labour Code (generally, fixed-term contracts may not exceed a maximum total duration of four years, after which the contract is automatically converted to an indefinite-term contract).

Change of Control Implications. Under Portuguese law, the indirect change of control of VeloPay Europe effected by the Merger does not constitute a "transfer of undertaking" within the meaning of the Portuguese implementation of the EU Acquired Rights Directive (TUPE). The VeloPay Europe entity and its employment contracts remain intact; the Merger involves a change in the ultimate ownership of the parent company, not a transfer of the business or employees to a different employer. Accordingly, employment contracts continue unaffected, and there is no obligation to notify or consult with employees or works councils regarding the acquisition. As no

MEMORANDUM PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Sandra Tung, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Priya Deshmukh, Managing Partner, Harrowgate Capital Management IV LLC Thomas Eriksen, Partner, Head of Financial Technology, Harrowgate Capital Management IV LLC
FROM: Megan Chu, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP Derek Okonkwo, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: March 10, 2025
RE: Employment and Benefits Due Diligence Summary — VeloPay Systems, Inc. (Project Velocity)
Matter Number: 1003-00003
Status: Final Pre-Signing Draft
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It was prepared at the direction of counsel in anticipation of litigation and in connection with the rendering of legal advice. This memorandum is not intended for distribution to any party other than the addressees and their authorized representatives. Any unauthorized disclosure, copying, or distribution of this memorandum is strictly prohibited.
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I. Executive Summary
This memorandum summarizes the findings of our employment and employee benefits due diligence review of VeloPay Systems, Inc., a Delaware corporation ("VeloPay" or the "Company"), and its subsidiaries, VeloPay Canada Inc., an Ontario corporation ("VeloPay Canada"), and VeloPay Europe, Unipessoal Lda., a Portuguese limitada ("VeloPay Europe" and, together with VeloPay and VeloPay Canada, the "VeloPay Group"). This review has been conducted in connection with the proposed acquisition of VeloPay by Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") via a reverse triangular merger (the "Merger") for aggregate consideration of approximately $1.9 billion (the "Transaction"). The Merger will be effected through the merger of a newly formed acquisition subsidiary of HPE Fund IV with and into VeloPay, with VeloPay surviving as the wholly-owned subsidiary of HPE Fund IV.
VeloPay employs approximately 1,340 employees across four locations: (i) Austin, Texas, which serves as the Company's headquarters and houses approximately 680 employees; (ii) Denver, Colorado, a branch office with approximately 240 employees; (iii) Toronto, Ontario, Canada, with approximately 260 employees employed through VeloPay Canada; and (iv) Lisbon, Portugal, with approximately 160 employees employed through VeloPay Europe. The Company does not maintain any collective bargaining agreements, and no employees in any jurisdiction are represented by a labor union.
The key findings of our review are summarized as follows:
(a) Executive Employment Agreements. Four named executive officers — Nathan Aldridge (CEO), Sonia Reyes-Watkins (CTO), Marcus Langford (CFO), and Danielle Moreau (General Counsel) — maintain employment agreements containing change of control provisions that are triggered by the Merger. These agreements provide for aggregate potential cash severance of approximately $4,432,125 upon a qualifying termination following a change of control, in addition to equity acceleration, COBRA continuation, and pro-rata bonus payments. All four agreements utilize a "double-trigger" structure, meaning that severance is payable only if the executive experiences an involuntary termination without "cause" or resigns for "good reason" within twelve months following the change of control.
(b) Equity Compensation. VeloPay maintains the VeloPay Systems, Inc. 2015 Equity Incentive Plan (as Amended and Restated 2021) under which significant equity awards are outstanding, including stock options covering 7,600,000 shares (with an aggregate spread value of approximately $54.4 million), restricted stock units covering 3,200,000 shares (with an aggregate value of $64.0 million), and warrants covering 1,800,000 shares (with an aggregate spread value of approximately $20.7 million). Treatment of these awards under the Merger Agreement is addressed in detail in Section IV below.
(c) Section 280G Parachute Payment Exposure. The Merger constitutes a "change of control" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Preliminary calculations indicate that all four named executives are "disqualified individuals" who may receive "excess parachute payments" subject to the 20% excise tax under Section 4999 of the Code. Because VeloPay is a privately held corporation, the Section 280G(b)(5)(B) shareholder vote safe harbor is available, and we recommend pursuing such a vote prior to closing.
(d) ERISA Compliance. Our review of the Company's employee benefit plans, including the VeloPay Systems, Inc. 401(k) Savings Plan and the Company's health and welfare plans, revealed no material ERISA compliance deficiencies. The 401(k) plan has received a favorable IRS opinion letter, passed its most recent nondiscrimination testing without corrective action, and has been subject to an annual ERISA audit with no material findings.
(e) Non-U.S. Employment Law Considerations. The approximately 260 employees of VeloPay Canada in Toronto, Ontario are subject to the Ontario Employment Standards Act, 2000 and common law notice requirements. The approximately 160 employees of VeloPay Europe in Lisbon, Portugal are subject to the Portuguese Labour Code. The indirect change of control effected by the Merger does not constitute a transfer of undertaking under either jurisdiction's applicable legislation; however, constructive dismissal risk exists in Canada if post-closing changes to employment terms are material, and strict termination protections under Portuguese law should be noted.
(f) No Material Unfunded Pension Liabilities. VeloPay does not maintain any defined benefit pension plan, multiemployer pension plan, or employee stock ownership plan. The sole retirement plan is the VeloPay Systems, Inc. 401(k) Savings Plan, a defined contribution plan. No unfunded pension or postretirement benefit obligations were identified.
(g) Risk Items. Several items require further attention and are summarized in the Risk Matrix set forth in Section XIII below, including 280G excise tax exposure, constructive dismissal risk in Canada, independent contractor misclassification concerns for approximately 12 long-term U.S. contractors, Portuguese equity compensation tax considerations, and post-closing retention planning.
Our review is based on documents and information provided through the VeloPay virtual data room maintained by Whitford Jessup & Crane LLP (company counsel). The categories reviewed include HR folders 4.1 through 4.18 within the data room. Our review encompasses documents and information provided through approximately February 28, 2025, with supplemental materials requested and received through March 7, 2025. Unless otherwise noted, the analysis in this memorandum is based upon the documents and information as provided and has not been independently verified through employee interviews or third-party audit procedures.
II. Workforce Overview
A. Employee Census and Locations
As of December 31, 2024, the VeloPay Group employs approximately 1,340 employees across four locations. The following summarizes the headcount and principal activities at each location:
Austin, Texas — VeloPay Systems, Inc. (Headquarters). VeloPay's corporate headquarters is located at 1455 Innovation Parkway, Suite 800, Austin, Texas 78758. The Austin office houses approximately 680 employees, representing the largest concentration of the Company's workforce. Functions based in Austin include executive leadership and senior management, product management and development, core engineering teams, sales and business development, marketing, and general and administrative functions (including finance, legal, human resources, and compliance). The Austin office serves as the principal hub for all strategic decision-making, investor relations, and corporate governance functions.
Denver, Colorado — VeloPay Systems, Inc. (Branch Office). VeloPay maintains a branch office in Denver, Colorado, which employs approximately 240 employees. The Denver office is primarily focused on engineering, customer support, and operations functions. The Denver facility was established in 2019 to take advantage of the local talent pool in engineering and technology. Denver-based employees are employed directly by VeloPay Systems, Inc. and are subject to Texas corporate governance and Delaware corporate law, though Colorado state employment laws apply to their employment relationships.
Toronto, Ontario, Canada — VeloPay Canada Inc. VeloPay's Canadian operations are conducted through VeloPay Canada Inc., an Ontario corporation and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Canada employs approximately 260 employees in its Toronto office, focusing on engineering, product development, and customer operations. VeloPay Canada was incorporated in 2017 as part of the Company's international expansion strategy and serves as the primary entity for Canadian-market operations and a secondary engineering center.
Lisbon, Portugal — VeloPay Europe, Unipessoal Lda. VeloPay's European operations are conducted through VeloPay Europe, Unipessoal Lda., a Portuguese limitada (single-member limited liability company) and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Europe employs approximately 160 employees in Lisbon, primarily focused on research and development and European operations. VeloPay Europe was established in 2020 to develop a European technical center and support the Company's expanding European customer base.
Union Status and Collective Bargaining. VeloPay does not maintain any collective bargaining agreements at any of its locations. None of the U.S. or Canadian employees are represented by a labor union, and no pending union organizing activity has been identified in our review of the data room materials or through management representations. With respect to the Lisbon office, there are no workers' councils currently established at VeloPay Europe. The Lisbon office has historically been below the threshold for mandatory works council establishment under Portuguese labor law. We recommend continued monitoring of Portuguese regulatory requirements regarding employee representation, particularly as headcount in Lisbon grows.
Independent Contractors. VeloPay engages approximately 85 independent contractors across its operations, primarily in software development and consulting capacities. Our preliminary review of the contractor arrangements did not identify material misclassification risk for the majority of these individuals. However, we recommend a specific, targeted review of approximately 12 long-term contractors in Austin and Denver who appear to perform functions substantially similar to those of full-time employees, including regular hours, use of company equipment, integration into team workflows, and tenure exceeding 18 months. The potential exposure from misclassification of these individuals could include liability for unpaid employment taxes, benefits, and overtime, as well as penalties under applicable federal and state law. We discuss this further in the Risk Matrix in Section XIII below.
B. Employee Classifications and Functions
The following table summarizes the approximate breakdown of VeloPay Group employees by function as of December 31, 2024:
Engineering and product employees represent the largest single functional category, reflecting VeloPay's technology-driven business model as a financial technology (fintech) payments platform. The concentration of engineering talent across Austin, Denver, Toronto, and Lisbon is a significant asset and a key focus for post-closing retention planning.
All U.S. employees of VeloPay Systems, Inc. are employed on an "at-will" basis, with the exception of the four named executives who have entered into individual employment agreements (described in Section III below). Standard offer letters for U.S. employees contain at-will disclaimers and do not provide for any specified term of employment or guaranteed severance.
Canadian employees of VeloPay Canada Inc. are subject to the Ontario Employment Standards Act, 2000 ("ESA") and common law. Their employment agreements provide for notice and/or severance upon termination without cause, as discussed further in Section VI.A below. Portuguese employees of VeloPay Europe are subject to the Portuguese Labour Code (Código do Trabalho) and hold a mix of indefinite-term and fixed-term contracts, as discussed further in Section VI.B below.
III. Executive Employment Agreements
We reviewed the employment agreements of VeloPay's four named executive officers, each of whom maintains a written employment agreement containing change of control provisions that are triggered by the Merger. The following summarizes the material terms of each agreement.
A. Nathan Aldridge — Chief Executive Officer and Co-Founder
Nathan Aldridge serves as the Chief Executive Officer and Chairman of the Board of VeloPay. He is also a co-founder of the Company and holds approximately 14.2% of the outstanding VeloPay common stock.
Agreement. Mr. Aldridge is party to an Employment Agreement with VeloPay dated September 15, 2018, which was amended and restated as of January 10, 2022 (the "Aldridge Agreement"). The Aldridge Agreement provides for Mr. Aldridge's continued employment as Chief Executive Officer reporting directly to the Board of Directors.
Compensation. Mr. Aldridge's current base salary is $475,000 per annum. He is eligible for an annual performance bonus with a target of 100% of his base salary (i.e., $475,000), which is discretionary and based on Company and individual performance metrics established by the Board's Compensation Committee. Mr. Aldridge's total target annual cash compensation is therefore $950,000.
Change of Control Severance. The Aldridge Agreement provides that upon a "change of control" (defined broadly to include a merger in which VeloPay's stockholders cease to own a majority of the surviving entity, which definition encompasses the proposed reverse triangular merger), if Mr. Aldridge's employment is terminated without "Cause" or he resigns for "Good Reason" within twelve (12) months following the change of control (a "qualifying termination"), he is entitled to the following severance benefits:
(i) Twenty-four (24) months of base salary continuation payments, payable on the Company's regular payroll schedule, totaling $950,000;
(ii) A lump-sum payment equal to two times (2x) his target annual bonus, totaling $950,000;
(iii) Full acceleration of all unvested equity awards, including stock options and restricted stock units, such that all outstanding awards become immediately vested and exercisable;
(iv) Twenty-four (24) months of continued health insurance coverage at Company expense through COBRA continuation or equivalent coverage;
(v) A pro-rata bonus for the year in which termination occurs, based on actual performance through the date of termination and payable at the time bonuses are normally paid.
The total potential change of control cash severance payable to Mr. Aldridge under the Aldridge Agreement (excluding COBRA continuation and pro-rata bonus) is approximately $1,900,000.
Restrictive Covenants. The Aldridge Agreement contains a twelve (12)-month post-termination non-competition covenant, which restricts Mr. Aldridge from engaging in any business that directly competes with VeloPay's payment processing and fintech platform business within the United States and Canada. The Aldridge Agreement also contains an eighteen (18)-month post-termination non-solicitation covenant covering both employees and customers of the Company. Pursuant to the terms of the Merger Agreement, the non-competition covenant in the Aldridge Agreement will be superseded by a separate three (3)-year Non-Competition and Non-Solicitation Agreement to be executed by Mr. Aldridge as a condition to closing.
Rollover Equity. Mr. Aldridge has agreed to roll approximately $14,200,000 of his merger proceeds into Harrowgate Velocity Co-Invest LP pursuant to the Rollover Agreement entered into in connection with the Transaction. This rollover represents a significant ongoing economic alignment between Mr. Aldridge and HPE Fund IV.
Other. Mr. Aldridge will also serve as the Stockholder Representative under the Stockholder Representative Agreement to be executed at closing, acting on behalf of VeloPay's former stockholders with respect to post-closing adjustments, indemnification claims, and escrow matters.
Section 280G Exposure. Mr. Aldridge is a "disqualified individual" for purposes of Section 280G of the Code as both an officer and a greater-than-1% stockholder. His Section 280G exposure is discussed in detail in Section VII below.
B. Sonia Reyes-Watkins — Chief Technology Officer and Co-Founder
Sonia Reyes-Watkins serves as the Chief Technology Officer of VeloPay. She is also a co-founder of the Company and holds approximately 9.7% of the outstanding VeloPay common stock.
Agreement. Ms. Reyes-Watkins is party to an Employment Agreement with VeloPay dated September 15, 2018, which was amended and restated as of January 10, 2022 (the "Reyes-Watkins Agreement"). The Reyes-Watkins Agreement provides for Ms. Reyes-Watkins's continued employment as Chief Technology Officer reporting to the Chief Executive Officer.
Compensation. Ms. Reyes-Watkins's current base salary is $425,000 per annum. She is eligible for an annual performance bonus with a target of 85% of her base salary (i.e., $361,250), which is discretionary and based on Company and individual performance metrics. Her total target annual cash compensation is therefore $786,250.
Change of Control Severance. The Reyes-Watkins Agreement provides that upon a qualifying termination (termination without Cause or resignation for Good Reason) within twelve (12) months following a change of control, she is entitled to the following severance benefits:
(i) Eighteen (18) months of base salary continuation payments, totaling $637,500;
(ii) A lump-sum payment equal to one and one-half times (1.5x) her target annual bonus, totaling $541,875;
(iii) Full acceleration of all unvested equity awards, including stock options and restricted stock units;
(iv) Eighteen (18) months of continued health insurance coverage at Company expense through COBRA continuation or equivalent coverage;
(v) A pro-rata bonus for the year in which termination occurs.
The total potential change of control cash severance payable to Ms. Reyes-Watkins (excluding COBRA continuation and pro-rata bonus) is approximately $1,179,375.
Restrictive Covenants. The Reyes-Watkins Agreement contains a twelve (12)-month post-termination non-competition covenant and a standard non-solicitation covenant. As with Mr. Aldridge, the non-competition covenant will be superseded by a separate three (3)-year Non-Competition and Non-Solicitation Agreement to be executed as a condition to closing.
Rollover Equity. Ms. Reyes-Watkins has agreed to roll approximately $9,700,000 of her merger proceeds into Harrowgate Velocity Co-Invest LP pursuant to the Rollover Agreement.
Section 280G Exposure. Ms. Reyes-Watkins is a disqualified individual for purposes of Section 280G as both an officer and a greater-than-1% stockholder. Her Section 280G exposure is discussed in Section VII below.
C. Marcus Langford — Chief Financial Officer
Marcus Langford serves as the Chief Financial Officer of VeloPay. He holds approximately 1.3% of the outstanding VeloPay common stock.
Agreement. Mr. Langford is party to an Employment Agreement with VeloPay dated March 1, 2020, as amended as of June 15, 2023 (the "Langford Agreement"). The Langford Agreement provides for Mr. Langford's continued employment as Chief Financial Officer reporting to the Chief Executive Officer.
Compensation. Mr. Langford's current base salary is $410,000 per annum. He is eligible for an annual performance bonus with a target of 75% of his base salary (i.e., $307,500), which is discretionary. His total target annual cash compensation is therefore $717,500.
Change of Control Severance. The Langford Agreement provides that upon a qualifying termination within twelve (12) months following a change of control, he is entitled to the following severance benefits:
(i) Twelve (12) months of base salary continuation payments, totaling $410,000;
(ii) A lump-sum payment equal to one times (1x) his target annual bonus, totaling $307,500;
(iii) Acceleration of unvested equity awards, to the extent not otherwise treated under the Merger Agreement (i.e., this provision is intended to operate as a backstop to the equity treatment negotiated in the Merger Agreement);
(iv) Twelve (12) months of continued health insurance coverage at Company expense through COBRA continuation.
The total potential change of control cash severance payable to Mr. Langford (excluding COBRA continuation) is approximately $717,500.
Restrictive Covenants. The Langford Agreement contains a twelve (12)-month post-termination non-competition covenant and a twelve (12)-month post-termination non-solicitation covenant covering both employees and customers.
Section 280G Exposure. Mr. Langford is a disqualified individual for purposes of Section 280G as both an officer and a greater-than-1% stockholder. His Section 280G exposure is discussed in Section VII below.
D. Danielle Moreau — General Counsel and Corporate Secretary
Danielle Moreau serves as the General Counsel and Corporate Secretary of VeloPay. She holds approximately 0.6% of the outstanding VeloPay common stock.
Agreement. Ms. Moreau is party to an Employment Agreement with VeloPay dated August 15, 2019, as amended as of June 15, 2023 (the "Moreau Agreement"). The Moreau Agreement provides for Ms. Moreau's continued employment as General Counsel and Corporate Secretary reporting to the Chief Executive Officer.
Compensation. Ms. Moreau's current base salary is $385,000 per annum. She is eligible for an annual performance bonus with a target of 65% of her base salary (i.e., $250,250), which is discretionary. Her total target annual cash compensation is therefore $635,250.
Change of Control Severance. The Moreau Agreement provides that upon a qualifying termination within twelve (12) months following a change of control, she is entitled to the following severance benefits:
(i) Twelve (12) months of base salary continuation payments, totaling $385,000;
(ii) A lump-sum payment equal to one times (1x) her target annual bonus, totaling $250,250;
(iii) Acceleration of unvested equity awards, to the extent not otherwise treated under the Merger Agreement;
(iv) Twelve (12) months of continued health insurance coverage at Company expense through COBRA continuation.
The total potential change of control cash severance payable to Ms. Moreau (excluding COBRA continuation) is approximately $635,250.
Restrictive Covenants. The Moreau Agreement contains a twelve (12)-month post-termination non-competition covenant and a twelve (12)-month post-termination non-solicitation covenant covering both employees and customers.
Section 280G Exposure. Ms. Moreau is a disqualified individual for purposes of Section 280G as an officer of the Company. Although her stock ownership of 0.6% falls below the 1% stockholder threshold applicable under Section 280G, she qualifies as a disqualified individual by virtue of her status as an officer. Her Section 280G exposure is discussed in Section VII below.
E. Summary Table of Executive Change of Control Severance
The following table summarizes the change of control cash severance payable to each of the four named executives upon a qualifying termination:
The aggregate potential cash severance across all four executives is approximately $4,432,125. This amount does not include the value of equity acceleration, COBRA continuation, or pro-rata bonuses, which are additive to the cash severance amounts shown. The double-trigger structure of all four agreements provides meaningful protection against the immediate crystallization of these obligations at closing; severance is payable only if a qualifying termination occurs within twelve months following the change of control.
F. Other Key Executive Terms
We note the following additional terms that are common across all four executive employment agreements and relevant to the Transaction:
Assignment and Successors. All four agreements contain assignment and successors-and-assigns provisions that expressly permit assignment of the agreement to an acquirer of all or substantially all of the Company's assets or business, or to a successor by merger. No individual consent to assignment is required in connection with the Merger. The obligations of VeloPay under each agreement are binding upon and inure to the benefit of VeloPay's successors and assigns.
Confidentiality. All four agreements contain confidentiality obligations that survive the termination of employment and are not limited in duration. These provisions are broadly drafted to cover proprietary information, trade secrets, financial information, business strategies, customer lists, and technical data.
Invention Assignment. The Aldridge Agreement and the Reyes-Watkins Agreement each contain invention assignment provisions that assign to the Company all right, title, and interest in intellectual property created during the course of employment or using Company resources. These provisions are particularly important given the technical leadership roles held by Mr. Aldridge and Ms. Reyes-Watkins. The Langford Agreement and the Moreau Agreement do not contain express invention assignment clauses, although each executive is subject to the Company's standard employee proprietary information and inventions agreement.
Governing Law. All four executive employment agreements are governed by the laws of the State of Texas, consistent with VeloPay's headquarters location in Austin, Texas.
Definition of "Good Reason." The definition of "Good Reason" is consistent across all four agreements and includes: (i) a material diminution in the executive's duties, authority, or responsibilities; (ii) a material reduction in the executive's base salary (defined as a reduction of more than 10%); (iii) a relocation of the executive's primary office more than 50 miles from its current location; and (iv) a material breach by the Company of its obligations under the employment agreement. Each agreement requires the executive to provide written notice of the Good Reason event within 30 days of its occurrence and allows the Company a 30-day cure period before the executive's resignation becomes effective.
Definition of "Cause." The definition of "Cause" is consistent across all four agreements and includes: (i) conviction of, or plea of guilty or nolo contendere to, a felony or crime involving moral turpitude; (ii) willful misconduct or gross negligence in the performance of duties that results in material harm to the Company; (iii) material breach of the employment agreement that is not cured within 30 days after written notice; and (iv) material violation of Company policies, including the code of conduct. Certain Cause events are subject to a cure period, providing the executive with an opportunity to remedy the breach before termination.
IV. Equity Compensation Plans
A. VeloPay Systems, Inc. 2015 Equity Incentive Plan (as Amended and Restated 2021)
All outstanding equity awards of VeloPay are governed by the VeloPay Systems, Inc. 2015 Equity Incentive Plan, as amended and restated effective June 15, 2021 (the "2015 Plan" or the "Plan"). We reviewed the Plan document, the 2021 amendment and restatement, the forms of award agreement used for various grant types, and relevant board and committee resolutions authorizing grants.
The 2015 Plan was originally adopted by the VeloPay Board of Directors and approved by VeloPay's stockholders in 2015. The Plan was amended and restated in 2021 to, among other things, increase the number of authorized shares and make conforming updates for tax law changes. The 2021 amendment and restatement was approved by written consent of stockholders holding a majority of VeloPay's outstanding common stock.
Authorized Shares. The Plan authorizes the issuance of up to 15,000,000 shares of VeloPay common stock, inclusive of the share increase effected by the 2021 amendment and restatement.
Plan Administration. The Plan is administered by the VeloPay Board of Directors or, to the extent designated by the Board, the Compensation Committee of the Board. The plan administrator has discretionary authority to determine the terms and conditions of awards, including exercise prices, vesting schedules, and performance criteria.
Award Types. The Plan authorizes the grant of the following types of awards: (i) incentive stock options ("ISOs") within the meaning of Section 422 of the Code; (ii) non-qualified stock options ("NQSOs"); (iii) restricted stock awards ("RSAs"); (iv) restricted stock units ("RSUs"); (v) stock appreciation rights ("SARs"); and (vi) other stock-based awards as the plan administrator may determine. As of the date of our review, the only outstanding award types under the Plan are stock options (ISOs and NQSOs) and RSUs.
Change of Control Provision. Section 12 of the Plan provides that upon a "Change of Control" (as defined in the Plan), the Board or Compensation Committee may, in its sole and absolute discretion: (i) accelerate the vesting of all outstanding awards in full; (ii) cancel outstanding awards in exchange for a cash payment equal to the per-share consideration payable in the Change of Control transaction (less, in the case of options, the applicable exercise price); (iii) provide for the assumption or substitution of awards by the surviving or acquiring entity on substantially equivalent terms; or (iv) any combination of the foregoing. The definition of "Change of Control" in the Plan is drafted broadly and includes a merger or consolidation in which VeloPay is not the surviving entity, or a merger after which VeloPay's stockholders immediately prior to the merger hold less than 50% of the outstanding voting securities of the surviving entity. The proposed reverse triangular merger falls squarely within this definition.
Merger Agreement Treatment Controls. Notwithstanding the discretionary authority granted to the plan administrator under the Plan, the treatment of all outstanding equity awards in connection with the Transaction is governed by the equity treatment provisions of the Merger Agreement. The Merger Agreement supersedes the plan administrator's discretion with respect to the treatment of awards at closing, and the Plan expressly permits such treatment. We have confirmed that the equity treatment provisions of the Merger Agreement are consistent with the terms of the Plan and do not require any separate plan amendment.
B. Outstanding Stock Options
Overview. As of the date of our review, there are 7,600,000 shares of VeloPay common stock subject to outstanding stock options under the 2015 Plan. These options were granted to employees, executive officers, and certain consultants over the period from 2016 through 2024. The weighted average exercise price across all outstanding options is $12.84 per share.
In-the-Money Analysis. At the per-share merger consideration of $20.00, all 7,600,000 outstanding options are in-the-money. The weighted average spread is $7.16 per share ($20.00 minus $12.84), resulting in an aggregate option spread value of approximately $54,416,000 (7,600,000 shares multiplied by $7.16).
Vesting Status. Based on the vesting schedules of outstanding options and the anticipated closing timeline, we estimate that approximately 5,100,000 shares subject to options will be vested as of the anticipated signing date, and approximately 2,500,000 shares subject to options will be unvested.
Treatment under the Merger Agreement. The Merger Agreement provides for the following treatment of outstanding stock options:
Vested Stock Options. All vested stock options outstanding immediately prior to the effective time of the Merger will be cancelled and converted into the right to receive a cash payment equal to the per-share merger consideration of $20.00 minus the applicable exercise price (the "net spread"), multiplied by the number of shares subject to the vested option, less applicable tax withholding. Payment will be made promptly following the closing, generally through VeloPay's payroll system to ensure proper withholding.
Unvested Stock Options. All unvested stock options outstanding immediately prior to the effective time of the Merger will be cancelled. Fifty percent (50%) of the shares subject to each unvested option will be treated as accelerated, and the holder will receive a cash payment equal to the net spread for such accelerated shares, less applicable tax withholding. The remaining fifty percent (50%) of the shares subject to each unvested option will be converted into HPE Fund IV replacement awards, which will vest ratably over a twenty-four (24)-month period following the closing, subject to the holder's continued employment with the surviving company or its affiliates through each applicable vesting date. The replacement awards will be denominated in units that entitle the holder to cash payments based on the net spread value at the time of conversion.
ISO / NQSO Mix. Of the 7,600,000 outstanding options, approximately 2,800,000 are ISOs and approximately 4,800,000 are NQSOs. This distinction is relevant for tax purposes. NQSOs are subject to ordinary income tax withholding and FICA taxes upon exercise or cancellation for cash. ISOs are generally eligible for favorable capital gains treatment if certain holding period requirements are satisfied; however, the cancellation of ISOs for cash in connection with the Merger will constitute a "disqualifying disposition," and the spread will be treated as ordinary income subject to withholding. Accordingly, for purposes of the Merger, all option cash-outs will be subject to ordinary income tax and FICA withholding.
Section 409A Considerations. We reviewed the 409A valuation reports available in the data room and confirmed that all stock options appear to have been granted with an exercise price at or above the fair market value of VeloPay common stock on the applicable date of grant. VeloPay engaged independent valuation firms to prepare Section 409A valuations at regular intervals, and the Board or Compensation Committee relied on these valuations in setting exercise prices. We did not identify any discounted option grants or other Section 409A pricing issues. Nevertheless, we recommend that VeloPay's outside counsel confirm that all option grants comply with Section 409A and that no options were inadvertently granted during a "blackout" period between valuations at a price below the subsequently determined fair market value.
C. Outstanding Restricted Stock Units (RSUs)
Overview. As of the date of our review, there are 3,200,000 RSUs outstanding under the 2015 Plan. RSUs represent the right to receive shares of VeloPay common stock (or cash equivalent) upon the satisfaction of applicable vesting conditions.
Vesting Schedules. The RSUs are subject to time-based vesting schedules. The predominant vesting schedule is a four (4)-year vesting period with a one (1)-year cliff and quarterly vesting thereafter (i.e., 25% of the RSUs vest on the first anniversary of the grant date, and the remaining 75% vest in equal quarterly installments over the following three years). Certain senior hires received RSUs with accelerated three (3)-year vesting schedules.
Treatment under the Merger Agreement. The Merger Agreement provides that all unvested RSUs outstanding immediately prior to the effective time of the Merger will be accelerated in full and converted into the right to receive a cash payment equal to $20.00 per RSU, less applicable tax withholding. The aggregate RSU payout is 3,200,000 multiplied by $20.00, or $64,000,000. Payment will be made promptly following the closing through VeloPay's payroll system.
Tax Withholding. RSUs are subject to ordinary income tax and FICA withholding at the time of vesting and settlement. The full acceleration and cash-out at closing will trigger ordinary income treatment for all RSU holders. VeloPay's payroll department will be responsible for withholding applicable federal, state, and local income taxes, as well as the employee's share of FICA taxes (Social Security and Medicare), from the RSU cash-out payments.
Section 409A Considerations. The RSUs under the 2015 Plan are structured as "short-term deferrals" within the meaning of Treasury Regulation § 1.409A-1(b)(4). Under this regulation, a payment that is made by the later of the fifteenth day of the third month following the end of the service provider's taxable year in which the right to payment is no longer subject to a substantial risk of forfeiture, or the fifteenth day of the third month following the end of the Company's taxable year in which the right to payment is no longer subject to a substantial risk of forfeiture, is exempt from Section 409A. The cash-out of RSUs at closing will occur within this short-term deferral period, and we do not identify any Section 409A compliance issues with respect to the RSU treatment.
D. Outstanding Warrants
Overview. As of the date of our review, there are 1,800,000 warrants to purchase shares of VeloPay common stock outstanding. These warrants were issued in connection with VeloPay's Series B and Series C preferred stock financing rounds and are held by institutional investors and certain financial advisors who participated in those rounds.
Terms. The warrants have an exercise price of $8.50 per share and contain standard anti-dilution provisions (including adjustments for stock splits, dividends, and certain dilutive issuances) and change of control provisions. The warrant agreements provide that upon a change of control, the warrant holder may elect to exercise the warrant on a cashless basis or, if the change of control involves a cash merger, receive a cash payment equal to the per-share merger consideration minus the exercise price.
Treatment under the Merger Agreement. The Merger Agreement provides that all outstanding warrants will be cancelled and converted into the right to receive a cash payment equal to $20.00 minus the $8.50 exercise price, or $11.50 per warrant. The aggregate warrant payout is 1,800,000 multiplied by $11.50, or $20,700,000.
Compliance. We reviewed all warrant agreements in the data room and confirmed that the change of control provisions in each agreement are satisfied by the cash-out treatment provided in the Merger Agreement. No additional consents or waivers from warrant holders are required in connection with the cash-out.
E. Fully Diluted Capitalization Summary
The following table summarizes VeloPay's fully diluted capitalization and the aggregate merger consideration:
The aggregate transaction value on a fully diluted basis is approximately $1,900,000,000, which is consistent with the overall transaction consideration negotiated between the parties.
F. Equity Plan Administration Issues
We identified the following equity plan administration matters in the course of our review:
Option Grant Documentation. We reviewed sample grant agreements for 25 representative option grants spanning the period from 2016 through 2024. All reviewed grant agreements appear to be properly executed, contain terms consistent with the 2015 Plan, and were authorized by either the full Board of Directors or the Compensation Committee pursuant to appropriate resolutions. We did not identify any grants that lacked proper board or committee authorization.
Stockholder Approvals. The 2015 Plan was initially approved by VeloPay's stockholders in 2015. The 2021 amendment and restatement, which increased the authorized share pool and made conforming changes, was approved by written consent of stockholders holding a majority of the outstanding shares. We reviewed copies of the relevant stockholder consents in the data room and confirmed that the required approvals were obtained.
California Securities Law Considerations. Approximately 45 current and former employees of VeloPay received stock option grants while resident in the State of California. California's Corporate Securities Law of 1968 requires issuers to file notices of issuance with the California Department of Financial Protection and Innovation (formerly the Department of Corporations) for certain securities exemptions. We confirmed that VeloPay filed the required California notices of issuance for these grants in accordance with applicable California securities regulations.
SEC Rule 701 Compliance. VeloPay is not a reporting company under the Securities Exchange Act of 1934 and has relied on the exemption from registration provided by Rule 701 under the Securities Act of 1933 for the offer and sale of securities pursuant to the 2015 Plan. Rule 701 limits the aggregate amount of securities that may be sold in reliance on the exemption during any consecutive 12-month period. Based on our review of VeloPay's grant records and the applicable financial thresholds, aggregate offerings under the 2015 Plan appeared to be within Rule 701 limits. If aggregate sales exceeded $10 million in any 12-month period, VeloPay was required to deliver additional disclosure documents to option recipients; we recommend confirming with VeloPay's outside counsel that such disclosures were timely delivered.
Section 422 ISO Limits. Section 422(d) of the Code limits the aggregate fair market value of stock with respect to which ISOs are first exercisable by any individual during any calendar year to $100,000 (determined by reference to the fair market value of the stock at the time of grant). To the extent that ISO grants to any individual exceed this limit, the excess is automatically treated as NQSOs. Our review of the grant records suggests that VeloPay's ISO grants appear to be within the $100,000 annual vesting limit; however, we recommend that VeloPay's outside counsel confirm that no ISO grants inadvertently exceeded this limit, particularly for employees who received multiple grants in overlapping vesting periods.
V. Broad-Based Employee Benefit Plans
A. Health and Welfare Plans
VeloPay sponsors a comprehensive suite of health and welfare benefit plans for its U.S. employees. We reviewed the plan documents, summary plan descriptions ("SPDs"), insurance contracts, and the most recent IRS Forms 5500 filed for each applicable plan. The following plans are currently offered:
Medical Plan. VeloPay Systems, Inc. Group Medical Plan, fully insured through Cornerstone Health Insurance Co. The plan offers two coverage options: (i) a Preferred Provider Organization ("PPO") option; and (ii) a High Deductible Health Plan ("HDHP") option. The plan is available to all full-time U.S. employees and their eligible dependents. VeloPay subsidizes approximately 80% of the premium cost for employee-only coverage and approximately 65% of the premium cost for dependent coverage. The plan document and SPD were reviewed and appear to contain standard terms consistent with market practice for employers of VeloPay's size and industry.
Dental Plan. VeloPay Systems, Inc. Group Dental Plan, fully insured. The plan provides preventive, basic, and major dental coverage. The plan is available to all full-time U.S. employees and their eligible dependents.
Vision Plan. VeloPay Systems, Inc. Group Vision Plan, fully insured. The plan provides coverage for routine eye exams, lenses, frames, and contact lenses. The plan is available to all full-time U.S. employees and their eligible dependents.
Life Insurance and AD&D. VeloPay provides employer-paid group term life insurance and accidental death and dismemberment ("AD&D") coverage at a benefit level of one times (1x) the employee's annual base salary, subject to a maximum benefit of $500,000. The coverage is fully insured.
Short-Term Disability. VeloPay provides employer-paid short-term disability coverage, which provides income replacement at 60% of base salary for up to 26 weeks following a qualifying disability event. The coverage is fully insured.
Long-Term Disability. VeloPay provides employer-paid long-term disability coverage, which provides income replacement at 60% of base salary (subject to a monthly maximum) following the expiration of the short-term disability benefit period. The coverage is fully insured.
Flexible Spending Accounts. VeloPay offers healthcare flexible spending accounts ("Healthcare FSAs") and dependent care flexible spending accounts ("Dependent Care FSAs") that allow employees to set aside pre-tax dollars for eligible healthcare and dependent care expenses, respectively. The FSAs are administered by a third-party administrator and comply with the applicable requirements of Section 125 and Section 129 of the Code.
Health Savings Accounts. VeloPay offers health savings accounts ("HSAs") paired with the HDHP option of the medical plan. Employees enrolled in the HDHP may contribute pre-tax dollars to an HSA up to the applicable IRS annual contribution limits. VeloPay provides a modest employer HSA contribution of $500 per year for employee-only coverage and $1,000 per year for family coverage.
Compliance Summary. Our review of VeloPay's health and welfare plans did not reveal any material compliance issues. The SPDs appear compliant with ERISA's disclosure requirements, including the content requirements of Section 102 of ERISA and the Department of Labor's regulations thereunder. Plan documents are up to date and contain the required ERISA and Code provisions.
COBRA Administration. VeloPay's COBRA administration is handled by a third-party administrator, QualifiedBenefits Solutions LLC. Our review did not identify any COBRA failures or outstanding claims arising from alleged deficiencies in COBRA notice delivery. We recommend, however, that the Buyer confirm timely delivery of COBRA election notices for all qualifying events occurring within the prior 18-month period, as failure to provide timely COBRA notices can result in excise taxes under Section 4980B of the Code and potential litigation exposure.
ACA Compliance. VeloPay has filed IRS Forms 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) for the 2022, 2023, and 2024 reporting years, as required by Section 6056 of the Code. We reviewed copies of these filings in the data room. No ACA employer shared responsibility penalties have been assessed against VeloPay under Section 4980H of the Code. VeloPay's ACA affordability analysis, which employs the rate-of-pay safe harbor method permitted under applicable Treasury Regulations, appears to demonstrate that the employer-sponsored coverage is "affordable" within the meaning of Section 36B(c)(2)(C) of the Code. We did not identify any instances in which VeloPay failed to offer minimum essential coverage to full-time employees.
B. Retirement Plans
VeloPay Systems, Inc. 401(k) Savings Plan. VeloPay sponsors the VeloPay Systems, Inc. 401(k) Savings Plan (the "401(k) Plan"), a tax-qualified defined contribution plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The 401(k) Plan is VeloPay's sole employer-sponsored retirement plan. The material terms of the 401(k) Plan are as follows:
Eligibility. All U.S. employees of VeloPay who have attained age 21 and completed 30 days of service are eligible to participate in the 401(k) Plan.
Employee Contributions. Participants may make pre-tax elective deferrals and designated Roth contributions up to the applicable IRS limits ($23,500 for 2025, with an additional $7,500 catch-up contribution for participants age 50 and older).
Employer Matching Contributions. VeloPay provides a matching contribution equal to 50% of the first 6% of compensation deferred by the participant, resulting in a maximum employer match of 3% of compensation.
Vesting. Employee contributions are 100% vested at all times. Employer matching contributions vest at a rate of 25% per year of service (i.e., full vesting after four years of service). This is a graded vesting schedule that satisfies the minimum vesting requirements of Section 411(a)(2)(B) of the Code.
Plan Document. The 401(k) Plan uses a pre-approved (formerly "prototype") plan document provided by Ridgeway Plan Administration Services Inc. The plan document has been updated to reflect legislative changes, including the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, with the most recent amendment adopted in December 2022.
IRS Determination/Opinion Letter. The 401(k) Plan has received a favorable IRS opinion letter (applicable to the pre-approved plan document). We confirmed that the plan sponsor has adopted the plan without material modification from the pre-approved form, such that the plan may rely on the IRS opinion letter.
Form 5500. The most recent IRS/DOL Form 5500 annual return/report (for the 2023 plan year) was reviewed. The Form 5500 was filed timely and did not disclose any material audit findings or compliance deficiencies.
Nondiscrimination Testing. VeloPay conducts annual nondiscrimination testing of the 401(k) Plan, including the Actual Deferral Percentage ("ADP") test under Section 401(k)(3) of the Code, the Actual Contribution Percentage ("ACP") test under Section 401(m)(2) of the Code, and top-heavy testing under Section 416 of the Code. Testing has been completed through the 2023 plan year, and no failures or required corrective distributions have been identified.
Audits and Investigations. No outstanding IRS or DOL audits or investigations with respect to the 401(k) Plan were identified. The 401(k) Plan has not been the subject of any IRS Voluntary Correction Program (VCP) or Self-Correction Program (SCP) submissions.
Investments. The 401(k) Plan does not hold any employer stock in plan assets. Plan participants direct the investment of their accounts among a menu of diversified investment options offered through Ridgeway Plan Administration Services Inc.
Plan Loans. The 401(k) Plan permits participant loans in accordance with Section 72(p) of the Code. No material outstanding participant loan defaults were identified.
Absence of Other Retirement Plans. VeloPay does not maintain any defined benefit pension plan, multiemployer pension plan, or employee stock ownership plan ("ESOP"). Accordingly, there are no unfunded pension liabilities or withdrawal liability obligations. VeloPay has no postretirement benefit obligations (e.g., retiree medical or life insurance benefits).
C. Other U.S. Benefits
In addition to the health, welfare, and retirement plans described above, VeloPay provides the following benefits to its U.S. employees:
Paid Time Off (PTO). VeloPay maintains an accrual-based PTO policy for U.S. employees. PTO accrues based on years of service, with rates ranging from 15 days per year for new employees to 25 days per year for employees with ten or more years of service. Accrued but unused PTO is a Company liability. As of December 31, 2024, the estimated accrued PTO liability across the U.S. workforce is approximately $4.2 million. This liability should be confirmed in connection with the financial closing and working capital adjustment process.
Employee Assistance Program (EAP). VeloPay offers a confidential Employee Assistance Program through an external provider, providing short-term counseling, referral services, and crisis support for employees and their family members at no cost.
Tuition Reimbursement. VeloPay offers a tuition reimbursement program that reimburses eligible employees up to $5,250 per calendar year for qualified educational expenses, which is the maximum amount that may be excluded from income under Section 127 of the Code.
Commuter Benefits. VeloPay offers pre-tax commuter benefits (transit and parking) under Section 132(f) of the Code, allowing employees to set aside pre-tax dollars for qualified transportation expenses.
Supplemental Life Insurance. VeloPay makes available voluntary supplemental life insurance on an employee-paid basis through the group insurance carrier, allowing employees to purchase additional coverage above the employer-paid benefit.
VI. Non-U.S. Employment and Benefits Matters
A. Canada — VeloPay Canada Inc. (Toronto, Ontario)
Entity and Workforce. VeloPay Canada Inc. is an Ontario corporation and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Canada employs approximately 260 employees at its Toronto office. The Canadian workforce is primarily engaged in engineering, product development, and customer operations.
Governing Law. Employees of VeloPay Canada are subject to the Ontario Employment Standards Act, 2000 ("ESA"), which establishes minimum standards for employment in Ontario, including minimum wage, hours of work, overtime, public holidays, vacation, leaves of absence, termination notice, and severance pay. In addition to the statutory minimums, Ontario employees are entitled to common law notice of termination (or pay in lieu thereof), which is generally more generous than the ESA minimums and is determined by reference to factors including the employee's age, length of service, character of employment, and availability of comparable employment.
Employment Agreements. We reviewed the standard form employment agreement used for VeloPay Canada employees. The standard agreement includes provisions for:
• Termination for cause (without notice or pay in lieu);
• Termination without cause, with notice or pay in lieu of notice at the greater of (i) the ESA minimum and (ii) an enhanced contractual entitlement (typically ranging from 2 to 8 weeks per year of service, capped at 12 months of total notice or pay in lieu); and
• Certain restrictive covenants (confidentiality and, for more senior employees, non-solicitation).
The enhanced contractual notice provisions are designed to limit common law notice exposure by establishing a contractual cap on termination entitlements. We note, however, that the enforceability of such contractual caps depends on factors including whether the contractual entitlements meet or exceed the ESA minimums in all circumstances and whether the employment agreement was supported by valid consideration (e.g., new or continued employment). Based on our review of the standard form agreement, the contractual provisions appear to be reasonably drafted and should be enforceable in most cases, though we recommend that VeloPay Canada's Ontario employment counsel confirm enforceability for any specific employees whose circumstances may give rise to a challenge.
Change of Control Implications. The proposed reverse triangular merger constitutes an indirect change of control of VeloPay Canada Inc. Under Ontario law, where a business is sold or transferred and the purchaser continues the employment of the seller's employees, the employment relationship is deemed to continue for employment standards purposes, and the transaction does not constitute a "termination" of employment. The merger is not expected to result in a deemed termination or constructive dismissal for ESA purposes, provided that VeloPay Canada employees continue to be employed by VeloPay Canada on substantially similar terms following the closing.
However, constructive dismissal risk exists at common law. Under Ontario common law, a "constructive dismissal" occurs when an employer unilaterally makes a fundamental or substantial change to a term of the employment contract without the employee's consent. If, following the closing, HPE Fund IV or the surviving company makes material changes to the employment terms of VeloPay Canada employees — such as changes to duties, reporting structure, compensation, or work location — affected employees may assert constructive dismissal claims. We estimate that the constructive dismissal risk is moderate and recommend that HPE Fund IV maintain employment terms and reporting structures for VeloPay Canada employees for a reasonable period following the closing (at least 12 months) to mitigate this risk.
Benefits. VeloPay Canada sponsors a group benefits plan for its employees through Northland Group Benefits Corp. The benefits plan provides medical, dental, life, and disability coverage and is fully insured. VeloPay Canada also sponsors a Registered Retirement Savings Plan ("RRSP") with employer matching contributions equal to 3% of base salary on the first 5% of compensation contributed by the employee. These benefit arrangements are customary for Ontario employers of VeloPay Canada's size.
Statutory Contributions. VeloPay Canada makes required contributions under the Canada Pension Plan ("CPP") and Employment Insurance ("EI") programs. Based on our review, all CPP and EI contributions are current, and no arrears have been identified.
Investment Canada Act. The acquisition of VeloPay Canada by HPE Fund IV is subject to the Investment Canada Act. A notification was filed on May 1, 2025, and clearance was received on June 3, 2025. This regulatory matter is addressed in detail in the separate Regulatory and Licensing Due Diligence Memorandum and is not covered further herein.
Employment Litigation. There is no outstanding employment litigation involving VeloPay Canada. One prior wrongful dismissal claim was filed against VeloPay Canada in 2022 by a former employee. The claim was settled for CAD $85,000 (approximately USD $62,000 at current exchange rates), and a full and final release was obtained from the claimant. No ongoing obligations remain in connection with this settlement.
B. Portugal — VeloPay Europe, Unipessoal Lda. (Lisbon)
Entity and Workforce. VeloPay Europe, Unipessoal Lda. is a Portuguese limitada (single-member limited liability company) and wholly-owned subsidiary of VeloPay Systems, Inc. VeloPay Europe employs approximately 160 employees at its Lisbon office, primarily engaged in research and development and European operations support.
Governing Law. Employees of VeloPay Europe are subject to the Portuguese Labour Code (Código do Trabalho), which provides comprehensive regulation of the employment relationship, including hiring, working conditions, termination, and collective rights.
Employment Contracts. VeloPay Europe's workforce consists of a mix of indefinite-term and fixed-term employment contracts. The majority of employees — approximately 130 — are employed under indefinite-term contracts, which provide for open-ended employment with strong statutory protections against dismissal. Approximately 30 employees are employed under fixed-term contracts, which have defined expiration dates and may be renewed subject to the limitations imposed by the Portuguese Labour Code (generally, fixed-term contracts may not exceed a maximum total duration of four years, after which the contract is automatically converted to an indefinite-term contract).
Change of Control Implications. Under Portuguese law, the indirect change of control of VeloPay Europe effected by the Merger does not constitute a "transfer of undertaking" within the meaning of the Portuguese implementation of the EU Acquired Rights Directive (TUPE). The VeloPay Europe entity and its employment contracts remain intact; the Merger involves a change in the ultimate ownership of the parent company, not a transfer of the business or employees to a different employer. Accordingly, employment contracts continue unaffected, and there is no obligation to notify or consult with employees or works councils regarding the acquisition. As no

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