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

do-tail-policy-memo.docx DOCUMENT M&A / Corporate

48 / 78 ← → ✕

Contract analysis Extract to table

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

TO:

Sandra Tung, Responsible Partner, M&A, Calderwood & Harkness LLP

Priya Deshmukh, Managing Partner, Fund IV, Harrowgate Capital Management IV LLC

Thomas Eriksen, Partner, Head of FinTech, Harrowgate Capital Management IV LLC

FROM:

Megan Chu, Lead Associate, M&A, Calderwood & Harkness LLP

Derek Okonkwo, Working Associate, M&A, Calderwood & Harkness LLP

DATE: July 21, 2025

RE: Directors' and Officers' Liability Insurance Tail Policy — VeloPay Systems, Inc.; Analysis of Coverage Terms Negotiated with Continental Shield Insurance Company (Policy No. CSI-DOT-2025-4821)

Matter Number: 1003-00003

Firm: Calderwood & Harkness LLP, 787 Seventh Avenue, 38th Floor, New York, NY 10019

Right-click to update Table of Contents

I. Executive Summary

The purpose of this memorandum is to analyze the terms of the Directors' and Officers' Liability Insurance tail (run-off) policy negotiated for the benefit of the pre-closing directors and officers of VeloPay Systems, Inc. ("VeloPay" or the "Company") in connection with the pending $1.9 billion reverse triangular merger (the "Merger") between Harrowgate Private Equity Fund IV LP ("HPE Fund IV") and VeloPay closing on July 22, 2025 (the "Closing Date"). This memorandum is prepared at the direction of Sandra Tung, Responsible Partner, for the benefit of our clients at Harrowgate Capital Management IV LLC ("HCM IV" or the "Buyer") in connection with the Buyer's obligations under the Agreement and Plan of Merger dated as of March 18, 2025 (the "Merger Agreement") by and among HPE Fund IV, Heron Acquisition Sub, Inc. ("Merger Sub"), and VeloPay.

The Merger Agreement, specifically Section 7.5 thereof, requires the Buyer or the Surviving Corporation to obtain or cause to be obtained a "tail" D&O insurance policy covering VeloPay's pre-closing directors and officers for a period of not less than six (6) years following the Effective Time of the Merger (the "Effective Time"). This obligation is a material covenant of the Buyer under the Merger Agreement and a condition precedent to the obligations of VeloPay's board of directors to recommend the Merger to VeloPay's stockholders, as set forth in the proxy statement/prospectus filed with the Securities and Exchange Commission on April 30, 2025.

Following an extensive marketing process conducted by Greystone Risk Advisors LLC ("Greystone" or the "Broker"), the designated insurance broker (contact: Stephen Hargrave, Senior Vice President, 55 East 52nd Street, 23rd Floor, New York, NY 10055), a tail D&O insurance policy has been negotiated and is ready for binding with Continental Shield Insurance Company ("Continental Shield" or the "Carrier"), a highly rated specialty insurance carrier headquartered in New York. The key terms of the proposed policy are as follows:

• Policy Number: CSI-DOT-2025-4821

• Carrier: Continental Shield Insurance Company

• Broker: Greystone Risk Advisors LLC

• Policy Type: Directors' and Officers' Liability Insurance — Tail / Run-Off Policy (Claims-Made)

• Tail Policy Term: Six (6) years from the Closing Date (July 22, 2025 through July 22, 2031)

• Premium: $2,150,000, payable as a single lump-sum premium at binding (fully earned at inception; non-refundable and non-cancelable)

Based on our review, Calderwood & Harkness LLP recommends that HPE Fund IV proceed with binding the Continental Shield D&O tail policy. The policy satisfies each of the requirements of Section 7.5 of the Merger Agreement, provides coverage that is no less favorable in scope and amount than the existing D&O insurance maintained by VeloPay as of March 18, 2025, and falls within the premium cap established by the Merger Agreement. We recommend binding the policy effective at the Effective Time of the Merger on July 22, 2025, with the premium payment incorporated into the Funds Flow Memorandum for the Closing.

II. Background and Contractual Obligations

A. Merger Agreement Requirements

Section 7.5(a) of the Merger Agreement (the "D&O Insurance Covenant") imposes a binding obligation on HPE Fund IV, Merger Sub, and the Surviving Corporation (VeloPay, as the surviving entity in the reverse triangular merger with Merger Sub) with respect to the procurement and maintenance of D&O insurance for the benefit of VeloPay's pre-closing directors and officers. In relevant part, Section 7.5(a) provides that:

"From and after the Effective Time, the Buyer shall, or shall cause the Surviving Corporation to, maintain in effect for not less than six (6) years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company as of the date of this Agreement (or the Buyer or the Surviving Corporation may substitute therefor policies with a nationally recognized insurance company of at least the same coverage and amounts containing terms and conditions that are no less favorable to the Indemnified Persons than such current policies), with respect to claims arising from facts or events that occurred on or before the Effective Time. In lieu of maintaining such existing policies, the Buyer or the Surviving Corporation may obtain a 'tail' or 'run-off' insurance policy or policies with respect to claims arising from facts or events that occurred on or before the Effective Time, with coverage and amounts and containing terms and conditions that are no less favorable to the Indemnified Persons than the coverage, amounts, terms and conditions provided under the Company's existing directors' and officers' liability insurance policies as of the date of this Agreement."

This covenant is further qualified by a premium cap provision in Section 7.5(b) of the Merger Agreement, which provides:

"Notwithstanding the foregoing, in no event shall the Buyer or the Surviving Corporation be required to expend in the aggregate an amount in excess of 300% of the last annual premium paid by the Company for its existing directors' and officers' liability insurance policies in order to maintain or procure insurance coverage pursuant to this Section 7.5 (such 300% amount, the 'Maximum Premium'). In the event that the cost of the 'tail' or 'run-off' policy or the annual premiums for the existing or substitute policies would exceed the Maximum Premium, the Buyer or the Surviving Corporation shall obtain as much coverage as can be obtained for the Maximum Premium."

The critical benchmarks established by these provisions are as follows:

1. Coverage Scope: The tail policy must provide coverage that is no less favorable in scope and terms than VeloPay's existing D&O policy as of March 18, 2025, the date of the Merger Agreement.

2. Coverage Amount: The aggregate limits of the tail policy must equal or exceed the aggregate limits of VeloPay's existing D&O policy as in effect on March 18, 2025.

3. Coverage Period: The tail policy must cover claims first made during a period of not less than six (6) years following the Effective Time (i.e., through at least July 22, 2031).

4. Covered Acts: The tail policy must cover claims arising from facts or events that occurred on or before the Effective Time.

5. Premium Cap: The aggregate premium for the tail policy may not exceed the Maximum Premium, calculated as 300% of VeloPay's last annual D&O premium.

With respect to the premium cap calculation, VeloPay's last annual premium for its existing D&O insurance program was approximately $780,000 per annum, as confirmed by Marcus Langford, VeloPay's Chief Financial Officer, and corroborated by Greystone Risk Advisors during the policy marketing process. Accordingly, the Maximum Premium under the Merger Agreement is $2,340,000 (300% × $780,000). The negotiated tail premium of $2,150,000 is well within the contractual cap, representing approximately 276% of VeloPay's last annual premium and leaving a margin of $190,000 below the Maximum Premium.

The obligation under Section 7.5 runs for the benefit of the "Indemnified Persons," defined in Section 7.5(d) of the Merger Agreement as all individuals who served as directors, officers, employees, fiduciaries, or agents of VeloPay or any of its subsidiaries at any time prior to and including the Effective Time, to the extent such persons are entitled to indemnification or advancement of expenses under VeloPay's certificate of incorporation, bylaws, or existing indemnification agreements.

B. Indemnification Obligations Under the Merger Agreement

The D&O tail policy operates within a broader indemnification framework established by Section 7.5 of the Merger Agreement. In addition to the insurance covenant described above, Section 7.5(c) of the Merger Agreement requires the Surviving Corporation to honor and fulfill all existing indemnification obligations of VeloPay to its directors, officers, employees, fiduciaries, and agents, including obligations arising under:

(i) VeloPay's Amended and Restated Certificate of Incorporation;

(ii) VeloPay's Amended and Restated Bylaws;

(iii) Any indemnification agreements between VeloPay and its directors and officers; and

(iv) Any resolution of VeloPay's board of directors providing for indemnification or advancement of expenses.

These obligations are required to survive the Effective Time for a period of not less than six (6) years. Pursuant to Section 7.5(c), the Surviving Corporation's certificate of incorporation and bylaws, as in effect immediately after the Effective Time, must contain provisions no less favorable to the Indemnified Persons than those set forth in VeloPay's charter documents as of the date of the Merger Agreement. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Surviving Corporation, both of which become effective at Closing, have been reviewed by Calderwood & Harkness and confirmed to preserve the existing exculpation and indemnification provisions in full compliance with this covenant.

It is important to emphasize that the D&O tail policy is complementary to, and not a substitute for, the Surviving Corporation's indemnification obligations. The tail policy provides an independent insurance-funded source of recovery for pre-closing directors and officers, while the Surviving Corporation's indemnification obligations constitute a direct contractual commitment to those individuals. The two mechanisms operate in parallel, with the tail policy serving as an additional layer of protection — particularly critical in scenarios where the Surviving Corporation is unable or unwilling to indemnify (e.g., due to insolvency, legal prohibition, or dispute as to the scope of indemnification), which is the core purpose of Side A coverage under the D&O policy, as discussed in greater detail in Section III.E below.

C. Covered Individuals

The tail policy covers all individuals who served as directors or officers of VeloPay Systems, Inc. at any time prior to and including the Effective Time, to the extent such persons qualify as "Insured Persons" under the policy. Based on VeloPay's corporate records, public filings, and information confirmed by Danielle Moreau, VeloPay's General Counsel, the following individuals are the current directors and officers of VeloPay as of the date of this memorandum and will be covered by the tail policy:

Directors of VeloPay Systems, Inc.:

Officers of VeloPay Systems, Inc.:

In addition to the individuals listed above, the tail policy covers all other persons who served as directors or officers of VeloPay at any time during the period covered by VeloPay's existing D&O insurance program, consistent with the "Insured Persons" definition in the policy. This includes any former directors or officers who departed prior to the Closing Date but whose service falls within the coverage period of VeloPay's existing claims-made D&O program.

We note that Nathan Aldridge and Sonia Reyes-Watkins will continue in management roles at the Surviving Corporation following the Closing, pursuant to the terms of the management continuity arrangements negotiated with HPE Fund IV. However, the tail policy covers only pre-closing acts and omissions in their capacities as directors and officers of VeloPay prior to the Effective Time. Any claims arising from their post-closing conduct at the Surviving Corporation would need to be addressed under the Surviving Corporation's going-forward D&O insurance program, which is being separately arranged.

III. Summary of Key Policy Terms

A. Carrier and Broker Information

The tail policy has been placed with Continental Shield Insurance Company, a specialty lines insurer headquartered at 400 Park Avenue, 18th Floor, New York, NY 10022. Continental Shield is a well-established carrier in the directors' and officers' liability insurance market, with deep experience in the placement of tail and run-off policies in connection with M&A transactions. The relevant policy and placement details are as follows:

• Carrier: Continental Shield Insurance Company

• Address: 400 Park Avenue, 18th Floor, New York, NY 10022

• Policy Number: CSI-DOT-2025-4821

• Policy Type: Directors' and Officers' Liability Insurance — Tail / Run-Off Policy (Claims-Made and Reported)

• Broker: Greystone Risk Advisors LLC

• Broker Address: 55 East 52nd Street, 23rd Floor, New York, NY 10055

• Broker Contact: Stephen Hargrave, Senior Vice President, Transaction Risk Practice

Continental Shield maintains strong financial strength and claims-paying ability ratings from the major rating agencies. As confirmed by Greystone Risk Advisors in their broker marketing summary (attached hereto as Appendix C), Continental Shield holds an "A+" (Superior) financial strength rating from A.M. Best, an "AA-" insurer financial strength rating from Standard & Poor's, and an "A1" insurance financial strength rating from Moody's. These ratings indicate a high degree of financial stability and claims-paying capacity, which is particularly important in the context of a six-year tail policy where the carrier must remain solvent and capable of honoring claims obligations throughout the extended run-off period. Greystone Risk Advisors has confirmed that Continental Shield's capitalization and surplus are more than adequate to support the limits of liability contemplated by this policy, and that Continental Shield has a strong track record of claims handling and resolution in the D&O tail policy market.

B. Policy Period

The tail policy has been structured to commence at the Effective Time of the Merger and to remain in force for a period of six (6) years, as follows:

• Inception Date: July 22, 2025, at the Effective Time (concurrent with the filing of the Certificate of Merger with the Secretary of State of the State of Delaware)

• Expiration Date: July 22, 2031, at 11:59 p.m. Eastern Time

The policy provides coverage for claims first made (or deemed first made) against any Insured Person during the policy period (July 22, 2025 through July 22, 2031) for "Wrongful Acts" (as defined in the policy and discussed in Section III.F below) committed on or before the Effective Time. This is a standard claims-made and reported policy structure, meaning that coverage is triggered only when a claim is first made against an Insured Person during the tail period and is reported to the Carrier during the policy period or within any applicable extended reporting window.

Critically, there is no retroactive date limitation under the tail policy. The policy covers Wrongful Acts occurring at any time prior to and including the Effective Time, without any temporal restriction on when the underlying conduct must have occurred. This is essential for providing comprehensive protection to the Insured Persons, as potential claims may arise from conduct that occurred years before the Closing Date. The absence of a retroactive date is consistent with the requirements of Section 7.5(a) of the Merger Agreement, which mandates coverage for "claims arising from facts or events that occurred on or before the Effective Time" without any temporal limitation on the underlying facts or events.

The six-year tail period satisfies the minimum duration required under Section 7.5(a) of the Merger Agreement and is consistent with the six-year survival period for the Surviving Corporation's indemnification obligations under Section 7.5(c). The alignment of these two periods ensures that Insured Persons have both insurance coverage and contractual indemnification protection for the same duration following the Effective Time. The six-year period also corresponds to the maximum statute of limitations period for most categories of civil claims that are likely to be asserted against directors and officers, including fiduciary duty claims under Delaware law (which are generally subject to a three-year statute of limitations under 10 Del. C. § 8106, but may be extended by tolling doctrines) and securities fraud claims (which are subject to a five-year statute of repose under 28 U.S.C. § 1658(b)(2)).

C. Limits of Liability

The proposed tail policy provides aggregate limits of liability that are intended to match or exceed the aggregate limits maintained under VeloPay's existing D&O insurance program as of March 18, 2025, the date of the Merger Agreement. As of the date of this memorandum, we are awaiting final written confirmation from Greystone Risk Advisors of the specific dollar amounts for the aggregate policy limit, Side A limit, and any sublimits applicable to specific coverage grants. Based on our preliminary discussions with Stephen Hargrave at Greystone, we understand the policy limits structure to be as follows:

• Aggregate Policy Limit: To be confirmed by Greystone Risk Advisors; expected to match or exceed VeloPay's existing D&O aggregate limit (VeloPay's existing program provides aggregate limits of $25,000,000, inclusive of a $15,000,000 primary layer and a $10,000,000 excess layer).

• Side A Coverage (Non-Indemnifiable Loss): Side A coverage is provided on a shared limit basis within the aggregate policy limit. We have asked Greystone to confirm whether a dedicated Side A excess layer or "Side A DIC" (Difference in Conditions) component has been included or is available. A dedicated Side A excess would provide additional limits exclusively for non-indemnifiable losses, which would be a meaningful enhancement to the coverage structure.

• Side B Coverage (Corporate Reimbursement): Side B coverage is provided within the aggregate policy limit and reimburses the Surviving Corporation for amounts it pays to indemnify directors and officers for covered claims.

• Side C / Entity Coverage: See Section III.E below for a discussion of entity coverage. Given VeloPay's status as a private company post-acquisition, entity securities claims coverage may be limited or excluded.

• Defense Costs: Defense costs are included within the limits of liability (i.e., the policy has "eroding limits" or "burning limits"). This means that defense costs paid under the policy reduce the available aggregate limit. This is a standard feature of virtually all D&O policies in the market and is consistent with VeloPay's existing D&O program. We have confirmed with Greystone that no separate, non-eroding defense cost limit was available at a commercially reasonable premium.

We will circulate a supplemental memorandum or confirmation email to the distribution list upon receipt of Greystone's final confirmation of the policy limits. It is critical that the aggregate limits and coverage structure of the tail policy be confirmed to be no less favorable than VeloPay's existing D&O program prior to binding.

D. Premium. The total premium for the six-year tail policy is $2,150,000, which is fully earned at inception and payable as a single lump-sum premium at binding. The key premium-related terms are as follows:

• Total Premium: $2,150,000

• Payment Structure: Single lump-sum payment, fully earned at inception

• Refund / Cancellation: The premium is non-refundable and non-cancelable. Once bound, the policy cannot be canceled by either the Carrier or the policyholder during the six-year tail period, and no portion of the premium is subject to return.

• Payment Timing: The premium is to be paid by the Surviving Corporation (or by HPE Fund IV on its behalf) on or prior to the Effective Time. Wire instructions for payment to Continental Shield Insurance Company will be included in the Funds Flow Memorandum being prepared by Calderwood & Harkness in connection with the Closing.

• Premium Cap Compliance: The negotiated premium of $2,150,000 falls within the Maximum Premium of $2,340,000 established by Section 7.5(b) of the Merger Agreement (300% × $780,000 annual premium = $2,340,000). The premium represents approximately 276% of VeloPay's last annual D&O premium, leaving a margin of $190,000 below the contractual cap.

• Transaction Expense Treatment: The $2,150,000 premium will be borne by the Surviving Corporation as a transaction expense and is included within the estimated $48,500,000 total transaction expenses set forth in the Closing Statement. This treatment is consistent with the Merger Agreement's allocation of D&O insurance costs to the Buyer/Surviving Corporation.

The non-cancelable, fully-earned nature of the premium is a standard feature of tail/run-off D&O policies and is a significant benefit to the Insured Persons. It ensures that coverage remains in force for the full six-year period regardless of any changes in the financial condition or management of the Surviving Corporation, any disputes between the Surviving Corporation and the Carrier, or any other intervening events. The policyholder cannot elect to cancel the policy to recover premium, and the Carrier cannot cancel the policy for any reason (including non-payment of additional premium, as no additional premium is due).

E. Insuring Agreements

The tail policy contains three principal insuring agreements, each of which provides a distinct type of coverage:

Insuring Agreement A — Side A (Direct Coverage for Non-Indemnifiable Losses):

Insuring Agreement A obligates Continental Shield to pay, on behalf of individual Insured Persons, "Loss" arising from "Claims" for "Wrongful Acts" in circumstances where the Surviving Corporation (or VeloPay, prior to the Effective Time) is unable or unwilling to indemnify the Insured Person. This is commonly referred to as "Side A" coverage. Side A coverage is the most important component of a D&O policy from the perspective of individual directors and officers, as it provides a direct, first-party source of recovery that does not depend on the financial capacity or willingness of the company to provide indemnification.

Side A coverage is triggered in several critical scenarios, including: (a) the Surviving Corporation becomes insolvent and is unable to fund indemnification; (b) the Surviving Corporation is legally prohibited from providing indemnification (e.g., under Delaware law, a corporation may not indemnify a director for liability in a derivative suit unless the court so orders); (c) the Surviving Corporation refuses to indemnify, whether due to a dispute as to the scope of indemnification, a change in management philosophy, or for any other reason; or (d) the Surviving Corporation's bylaws or indemnification agreements do not cover the particular type of loss at issue. In each of these scenarios, Side A coverage provides a critical safety net for the individual directors and officers.

Insuring Agreement B — Side B (Corporate Reimbursement):

Insuring Agreement B obligates Continental Shield to reimburse the Surviving Corporation for amounts that the Surviving Corporation pays to indemnify Insured Persons for "Loss" arising from covered "Claims" for "Wrongful Acts." This is commonly referred to as "Side B" coverage. Side B coverage functions as a reimbursement mechanism — the Surviving Corporation first advances or pays indemnification to the director or officer, and then seeks reimbursement from the Carrier under the policy. Side B coverage benefits the Surviving Corporation by shifting the economic burden of indemnification to the insurance policy, thereby protecting the Surviving Corporation's balance sheet from the cost of defending and resolving D&O claims.

Insuring Agreement C — Entity Coverage:

Insuring Agreement C, if applicable, provides coverage to the entity itself (VeloPay / the Surviving Corporation) for claims made against the entity. In the context of publicly traded companies, Side C coverage typically applies to securities claims brought against the company and its directors and officers. In the present context, given that VeloPay will be a privately held, wholly-owned subsidiary of HPE Fund IV following the Merger, entity securities claims coverage is expected to be limited in scope or excluded entirely. We have asked Greystone Risk Advisors to confirm the precise scope of entity coverage under the tail policy. To the extent entity coverage is included, it would be limited to claims alleging securities law violations in connection with VeloPay's pre-closing activities as a private company (including, potentially, claims by pre-closing investors or stockholders related to the Merger itself).

Under all three insuring agreements, the policy provides coverage for defense costs, settlements, and judgments arising from covered claims. "Loss" under the policy is expected to include compensatory damages, settlement amounts, defense costs (including attorneys' fees, expert witness fees, and other costs of defending a claim), and pre-judgment and post-judgment interest, subject to standard exclusions for fines, penalties, and punitive or exemplary damages (except where insurable under applicable law).

F. Definition of "Wrongful Act"

The policy defines "Wrongful Act" broadly, consistent with market-standard D&O policy language. A "Wrongful Act" means any actual or alleged error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted by an Insured Person in their capacity as a director or officer of VeloPay Systems, Inc. The definition is capacity-specific, meaning that it covers only acts or omissions in the individual's capacity as a director or officer of VeloPay, and does not extend to acts or omissions in other capacities (e.g., as a director of an unrelated entity, as an individual, or in a post-closing capacity at the Surviving Corporation).

Critically, the definition is limited to Wrongful Acts occurring on or before the Effective Time of the Merger. This temporal limitation is inherent in the tail policy structure — the tail policy is designed to cover pre-closing conduct only. Any claims arising from post-closing conduct by individuals who continue in management roles at the Surviving Corporation (such as Nathan Aldridge and Sonia Reyes-Watkins) would need to be addressed under the Surviving Corporation's going-forward D&O insurance program.

The breadth of the "Wrongful Act" definition is important because it encompasses not only affirmative misconduct but also alleged errors, omissions, and failures to act. This is consistent with the nature of D&O liability, which frequently arises from allegations of negligence, breach of fiduciary duty, failure to supervise, or failure to disclose material information, rather than affirmative fraudulent conduct.

G. Definition of "Claim"

The policy defines "Claim" to include the following categories of proceedings and demands:

(a) A written demand for monetary or non-monetary relief against an Insured Person;

(b) A civil, criminal, administrative, or regulatory proceeding commenced against an Insured Person by the service of a complaint, filing of a charge, issuance of a summons, or similar pleading, or the return of an indictment;

(c) A formal or informal investigation of an Insured Person by a governmental, regulatory, or self-regulatory authority, commenced by the service or filing of a notice of investigation, subpoena, target letter, or similar document, provided that such investigation is one that the policy specifically covers (certain policies limit investigation coverage to formal investigations or investigations initiated by specified types of governmental authorities; we have asked Greystone to confirm the precise scope of investigation coverage under the Continental Shield policy); and

(d) Any other proceeding or demand that satisfies the policy's "Claim" definition as set forth in the policy form.

A Claim is deemed "first made" when the earliest of the foregoing events occurs. For purposes of the tail policy, coverage is triggered only if the Claim is first made during the policy period (July 22, 2025 through July 22, 2031) and is reported to Continental Shield during the policy period or within any applicable extended reporting period set forth in the policy.

The "deemed first made" provision is also significant: if, during the policy period, an Insured Person becomes aware of circumstances that could reasonably be expected to give rise to a Claim, and the Insured Person provides written notice of such circumstances to Continental Shield during the policy period, then any Claim that subsequently arises from such circumstances will be deemed to have been first made during the policy period, even if the actual Claim is not asserted until after the policy expires. This "notice of circumstances" provision is a critical feature of the tail policy, as it allows Insured Persons to preserve coverage by providing timely notice of potential claims even if the actual Claim is not asserted until after the six-year tail period has expired.

H. Retention / Deductible

The tail policy includes a self-insured retention (or deductible) that applies to certain categories of claims. The retention structure is expected to be as follows, subject to final confirmation from Greystone Risk Advisors:

• Side A Claims (Non-Indemnifiable Loss): No retention. Side A coverage provides first-dollar protection for individual directors and officers where the Surviving Corporation is unable or unwilling to indemnify. The absence of a retention on Side A claims is a market-standard feature and is critical to ensuring that individual directors and officers have immediate access to policy proceeds without bearing any portion of the loss themselves.

• Side B Claims (Corporate Reimbursement): Subject to a per-claim retention, the amount of which is to be confirmed by Greystone Risk Advisors. We understand from preliminary discussions that the retention is expected to be in the range of $250,000 to $500,000 per claim, consistent with the retention under VeloPay's existing D&O program. The Side B retention is effectively borne by the Surviving Corporation, as it represents the amount the Surviving Corporation must pay in indemnification before the policy responds.

• Side C Claims (Entity Coverage): If entity coverage is included, it is typically subject to a per-claim retention that may be equal to or greater than the Side B retention. The retention amount is to be confirmed by Greystone.

The retention applies on a per-claim basis, meaning that each separate Claim is subject to a separate retention amount. Related Claims (as defined in the policy) may be treated as a single Claim for purposes of the retention and the policy's aggregate limit, which could either benefit or disadvantage the Insured Persons depending on the circumstances.

We will provide final confirmation of all retention amounts upon receipt of the policy binder from Greystone Risk Advisors.

IV. Key Exclusions and Limitations

A. Standard Exclusions

Like all D&O insurance policies, the Continental Shield tail policy contains a number of exclusions that limit the scope of coverage. These exclusions are generally consistent with market-standard D&O policy language and are intended to exclude categories of loss that are either uninsurable as a matter of public policy, covered by other types of insurance, or outside the reasonable scope of D&O coverage. The principal standard exclusions are summarized below:

1. Fraud / Dishonesty Exclusion. The policy excludes coverage for Claims arising from deliberately fraudulent or dishonest acts or omissions, or willful violations of law, by an Insured Person. This exclusion applies only if the fraudulent, dishonest, or willful conduct is established by a final, non-appealable adjudication in the underlying proceeding (or, in certain policy forms, by a final adjudication in any proceeding). Until such a final adjudication occurs, the Insured Person is entitled to the benefit of coverage, including coverage for defense costs. This is a critical protection for Insured Persons, as it prevents the Carrier from denying coverage based on mere allegations of fraud prior to a judicial determination. The severability of this exclusion is discussed in Section IV.B below.

2. Personal Profit / Illegal Remuneration Exclusion. The policy excludes coverage for Claims seeking the return of any profit, remuneration, or advantage to which the Insured Person was not legally entitled, where such profit, remuneration, or advantage was gained by the Insured Person as a result of conduct that is established by a final, non-appealable adjudication to have been illegal or in violation of the Insured Person's duties. Like the fraud exclusion, this exclusion requires a final adjudication and does not apply until such adjudication occurs.

3. Insured vs. Insured Exclusion. The policy excludes coverage for Claims brought by or on behalf of one Insured Person against another Insured Person, or by or on behalf of the company (VeloPay / the Surviving Corporation) against an Insured Person. This exclusion is designed to prevent collusive claims where insured parties manufacture litigation to access policy proceeds. However, the insured vs. insured exclusion is subject to important carve-backs, which are discussed in detail in Section IV.B below.

4. Prior or Pending Litigation Exclusion. The policy excludes coverage for Claims arising from, based upon, or attributable to any litigation, proceeding, or investigation that was pending as of the inception date of the tail policy (July 22, 2025), or based upon, arising from, or attributable to the same or substantially similar facts, circumstances, or allegations as any such pending matter. This exclusion also extends to Claims based upon facts or circumstances of which any Insured Person had knowledge as of the inception date and that could reasonably be expected to give rise to a Claim. This exclusion is critical in the tail policy context, as it delineates the boundary between coverage under VeloPay's existing D&O policy (which covers claims first made during its policy period, including claims arising from known litigation) and coverage under the tail policy (which covers claims first made during the tail period that are not based on prior or pending matters). Coordination with VeloPay's existing policy is discussed in Section IV.C below.

5. Bodily Injury / Property Damage Exclusion. The policy excludes coverage for Claims alleging, arising from, or relating to bodily injury, sickness, disease, emotional distress (if resulting from bodily injury), death, or damage to or destruction of tangible property. These types of losses are properly covered under other insurance lines, such as general liability, workers' compensation, and property insurance.

6. ERISA Exclusion. The policy excludes coverage for Claims arising under or related to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including claims alleging breach of fiduciary duty under ERISA Sections 404 and 405. ERISA-related exposures are typically addressed through a separate fiduciary liability insurance policy. We note that VeloPay maintains a separate fiduciary liability policy, and the treatment of that policy in connection with the Merger should be reviewed separately.

7. Pollution / Environmental Exclusion. The policy excludes coverage for Claims arising from, based upon, or attributable to the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants or contaminants into or upon the environment, or any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize pollutants or contaminants. Environmental liabilities are addressed through specialized environmental insurance products.

B. Specific Negotiated Modifications

In addition to the standard exclusions summarized above, Calderwood & Harkness and Greystone Risk Advisors have negotiated several important modifications and clarifications to the policy's exclusion provisions. These modifications are designed to ensure that the tail policy provides robust protection in the specific context of the Merger and the post-closing environment in which the Insured Persons will be seeking coverage. The key negotiated modifications are as follows:

1. Insured vs. Insured Exclusion — Carve-Backs. The insured vs. insured exclusion is subject to carve-backs (exceptions to the exclusion) that preserve coverage for certain categories of claims that, while technically brought by one insured against another, represent legitimate claims that the policy should cover. Specifically, the following carve-backs have been confirmed or are being negotiated:

(a) Derivative Actions: Claims brought derivatively on behalf of the company by a stockholder or former stockholder against directors or officers are carved back from the insured vs. insured exclusion. This is critical in the M&A context, as stockholders may bring derivative or class action claims challenging the sale process, the fairness of the merger consideration, or the conduct of the board of directors in connection with the Merger.

(b) Whistleblower Claims: Claims brought by an Insured Person in their capacity as a whistleblower under applicable federal or state whistleblower protection statutes are carved back from the exclusion.

(c) Employment Claims by Insured Persons as Employees: Claims brought by an Insured Person in their capacity as an employee (rather than as a director or officer) against other Insured Persons are carved back from the exclusion. This addresses the scenario where an officer who is also an employee brings an employment-related claim (e.g., wrongful termination, discrimination) against other directors or officers.

(d) Claims by the Surviving Corporation Post-Change of Control: We have specifically requested confirmation that the insured vs. insured exclusion includes a carve-back for claims brought by the Surviving Corporation (or by HPE Fund IV or its affiliates on behalf of the Surviving Corporation) against pre-closing directors and officers following the Merger. This is of paramount importance in the present context. Following the Closing, the Surviving Corporation will be wholly owned and controlled by HPE Fund IV. If HPE Fund IV or the Surviving Corporation were to discover post-closing that pre-closing directors or officers engaged in misconduct, breached their fiduciary duties, or caused harm to the Company, the Surviving Corporation (now under new management) might wish to bring claims against those individuals. Without a carve-back to the insured vs. insured exclusion, such claims could be excluded from coverage, which would defeat a primary purpose of the tail policy. We are awaiting confirmation from Greystone Risk Advisors that this carve-back is included in the final policy form.

2. Fraud / Dishonesty Exclusion — Final Adjudication and Severability. We have confirmed that the fraud/dishonesty exclusion contains two important protections for Insured Persons:

(a) Final Adjudication Requirement: The exclusion applies only upon a final, non-appealable adjudication in the underlying proceeding (or, depending on the policy form, in any proceeding). Mere allegations of fraud or dishonesty do not trigger the exclusion. This means that the Carrier must continue to provide coverage, including advancement of defense costs, unless and until a court has made a final determination that the Insured Person actually engaged in fraudulent or dishonest conduct.

(b) Severability: The exclusion is severable, meaning that it applies only to the specific Insured Person who is found by final adjudication to have committed the fraudulent or dishonest act. Other "innocent" Insured Persons who are named in the same Claim are not affected by the exclusion and continue to be entitled to full coverage. This is a critical protection in multi-defendant proceedings where allegations of fraud may be directed at some but not all defendants.

3. No Change of Control Exclusion. We have confirmed that the tail policy does not contain any exclusion for Claims arising from, related to, or in connection with a change of control of VeloPay. This is essential, given that the Merger itself constitutes a change of control, and many of the Claims most likely to be asserted against pre-closing directors and officers will relate to their conduct in connection with the Merger process. Any change of control exclusion would impermissibly narrow the scope of coverage and would be inconsistent with the requirements of Section 7.5(a) of the Merger Agreement.

4. No Transaction Exclusion. We have confirmed that the policy does not contain an exclusion for Claims arising from or relating to the Merger itself or the related transactions contemplated by the Merger Agreement. This is important because a significant portion of the D&O risk in the post-closing environment relates to potential challenges to the Merger, including claims that the board of directors breached its fiduciary duties in approving the Merger, that the $20.00 per share merger consideration was inadequate, that the sale process was flawed, or that the proxy statement/prospectus contained material misstatements or omissions. Coverage for these types of claims is a core purpose of the tail policy.

C. Prior Acts Coverage and Continuity

One of the most critical aspects of the tail policy is its role in ensuring seamless continuity of coverage between VeloPay's existing claims-made D&O policy and the tail policy. The existing policy and the tail policy must work together to provide uninterrupted protection for the Insured Persons, without any coverage gaps.

VeloPay's existing D&O insurance policy is a claims-made policy that provides coverage for Claims first made during its policy period. Upon the occurrence of the Effective Time, the existing policy will effectively cease to provide coverage for new Claims (i.e., Claims first made after the Effective Time). The tail policy is designed to pick up where the existing policy leaves off, providing coverage for Claims first made after the Effective Time that relate to pre-closing Wrongful Acts.

To ensure seamless continuity, we have confirmed the following:

(a) No Retroactive Date Limitation: The tail policy does not contain any retroactive date that would limit coverage to Wrongful Acts occurring after a specified date. The policy covers all Wrongful Acts occurring at any time prior to and including the Effective Time. This is essential because potential Claims may arise from conduct that occurred years or even decades before the Closing Date.

(b) No Gap in Coverage: The inception date of the tail policy (July 22, 2025, at the Effective Time) is concurrent with the effective termination of coverage under VeloPay's existing D&O policy for new Claims. There is no gap between the expiration of the existing policy's coverage for new Claims and the inception of the tail policy. Any Claim first made prior to the Effective Time will be covered under the existing policy; any Claim first made on or after the Effective Time will be covered under the tail policy (subject to the tail policy's terms, conditions, and exclusions).

(c) Coordination of Known Circumstances: The prior or pending litigation exclusion in the tail policy requires careful coordination with the existing policy. Any litigation, proceedings, or investigations that are pending as of the inception date of the tail policy, and any Claims arising from facts or circumstances known to the Insured Persons as of that date, must be reported under VeloPay's existing D&O policy (to the extent they have not already been reported) to preserve coverage under the existing policy. The tail policy's prior/pending exclusion will operate to exclude coverage for such matters, as they should properly be handled under the existing policy. Danielle Moreau, VeloPay's General Counsel, is coordinating with VeloPay's existing D&O carrier to ensure that all known matters have been properly reported prior to the Effective Time.

V. Interplay with R&W Insurance and Indemnification Framework

A. Distinction from R&W Insurance

It is important to clearly distinguish the D&O tail policy from the buyer-side representations and warranties insurance policy (the "R&W Policy") that has been procured by HPE Fund IV in connection with the Merger. The R&W Policy has been placed with Oakbridge Omnivrel Insurance Group (Policy No. OFI-RW-2025-03187), with an aggregate limit of $190,000,000. The two policies serve fundamentally different purposes and protect different parties against different types of losses:

• D&O Tail Policy: Provides coverage to individual directors and officers of VeloPay for personal liability arising from Claims for Wrongful Acts committed in their capacities as directors and officers prior to the Effective Time. The Insured Persons are the individual directors and officers; the Surviving Corporation is the policyholder and, under Side B, a beneficiary of corporate reimbursement coverage.

• R&W Insurance Policy: Provides coverage to HPE Fund IV (as the named insured and buyer) for losses arising from breaches of the seller representations and warranties contained in the Merger Agreement. The R&W Policy covers the buyer's economic losses from inaccurate representations, not the personal liability of individual directors and officers.

The two policies have different triggers, different insured parties, different loss definitions, and different coverage grants. D&O coverage is triggered by a "Claim" against an individual director or officer; R&W coverage is triggered by a "breach" of a specific representation or warranty in the Merger Agreement. D&O coverage protects individual directors and officers from personal liability; R&W coverage protects the buyer from economic losses resulting from inaccurate deal representations. There is no coordination, offset, or "other insurance" provision linking the two policies, and a recovery under one policy does not reduce or preclude a recovery under the other.

The distinction is significant in practice. If, for example, it were discovered post-closing that VeloPay's financial statements contained material misstatements, HPE Fund IV could potentially pursue a claim under the R&W Policy for breach of the financial statement representations in the Merger Agreement, and the directors and officers responsible for the financial statements could face personal liability claims covered by the D&O tail policy. The two recoveries would address different losses (the buyer's economic loss from the inaccurate deal representations versus the directors' and officers' personal liability for the misstatements) and would proceed independently.

B. Interplay with Indemnification Escrow

The Merger Agreement establishes an indemnification escrow of $133,000,000 (representing approximately 7% of the $1.9 billion deal value), held by Garrison Trust Company, N.A. as escrow agent (Reference No. GT-ESC-2025-07223). The indemnification escrow serves as a source of recovery for HPE Fund IV for indemnification claims under Article IX of the Merger Agreement (e.g., breaches of representations and warranties by VeloPay, breaches of pre-closing covenants, and specified indemnification matters). The escrow is subject to a survival period of eighteen (18) months from the Closing Date (expiring January 22, 2027), with staged releases as follows:

(i) $66,500,000 released at twelve (12) months post-Closing (July 22, 2026), less the amount of any pending or unresolved indemnification claims; and

(ii) The remaining balance released at eighteen (18) months post-Closing (January 22, 2027), less the amount of any pending or unresolved indemnification claims.

The indemnification escrow is a contractual mechanism under the Merger Agreement that provides a source of recovery for the buyer (HPE Fund IV) for contractual indemnification claims. It is distinct from the D&O tail policy in several important respects:

• The escrow funds contractual indemnification claims by HPE Fund IV under the Merger Agreement; the D&O policy funds personal liability claims against individual directors and officers.

• The escrow has a survival period of only 18 months (expiring January 22, 2027); the D&O tail policy extends for six years (through July 22, 2031), providing coverage for a period of more than four years beyond the escrow's expiration.

• The escrow is funded from the merger consideration payable to VeloPay's stockholders (i.e., it is effectively a holdback from seller proceeds); the D&O policy is funded by a premium payment from the Surviving Corporation.

• The D&O tail policy provides an independent source of recovery for directors and officers in their personal capacities. It does not rely on, and is not subject to, the escrow mechanism. Conversely, recovery under the D&O policy does not reduce the escrow or affect the buyer's rights under the indemnification provisions of the Merger Agreement.

The temporal disparity between the escrow survival period and the D&O tail period is particularly noteworthy. Many D&O claims—including fiduciary duty claims, securities fraud claims, and regulatory enforcement actions—may not be asserted until years after the underlying conduct occurs. By providing coverage through July 22, 2031, the tail policy ensures that pre-closing directors and officers have insurance protection for the full six-year period, well beyond the point at which the indemnification escrow is exhausted and released.

C. Indemnification Cap and D&O Coverage

The Merger Agreement establishes an aggregate indemnification cap of $228,000,000, representing approximately 12% of the $1.9 billion deal value. This cap limits the total amount of contractual indemnification that HPE Fund IV may recover from the seller equityholders under Article IX of the Merger Agreement for breaches of representations and warranties, pre-closing covenant breaches, and other indemnifiable matters (subject to customary exceptions for certain fundamental representations and specified indemnification matters, which may be subject to a higher cap or no cap).

The D&O tail policy provides a separate, independent, and additional layer of protection for individual directors and officers that operates outside of, and is not subject to, the contractual indemnification cap. This distinction is particularly critical for Side A coverage (non-indemnifiable losses), where the D&O policy provides first-dollar protection to individual directors and officers for losses that the Surviving Corporation is unable or unwilling to indemnify. Even if the Surviving Corporation's indemnification obligations are exhausted, disputed, or otherwise unavailable, the D&O policy remains fully available to the Insured Persons.

In practical terms, the D&O tail policy and the Merger Agreement's indemnification framework serve different constituencies and different risk-shifting functions. The indemnification framework allocates deal risk between buyer and seller; the D&O tail policy protects individual directors and officers from personal liability. The two mechanisms are complementary but independent.

VI. Compliance with Merger Agreement Covenants

Based on our review of the proposed tail policy terms as described in this memorandum and as communicated by Greystone Risk Advisors, we confirm that the Continental Shield D&O tail policy (Policy No. CSI-DOT-2025-4821) satisfies each element of the D&O Insurance Covenant set forth in Section 7.5(a) and (b) of the Merger Agreement:

Subject to final confirmation of the aggregate policy limits from Greystone Risk Advisors, the tail policy is in full compliance with all Merger Agreement requirements. We do not anticipate any issues with respect to the policy limits, as Greystone has represented that the limits will match or exceed the existing VeloPay D&O program limits.

VII. Closing Mechanics and Deliverables

A. Binding and Payment

The following steps must be completed in connection with the binding of the D&O tail policy and the payment of the premium at Closing:

1. Binding: The tail policy will be bound effective at the Effective Time of the Merger on July 22, 2025. Greystone Risk Advisors will coordinate with Continental Shield to issue a binder or evidence of coverage reflecting the binding of the policy, conditioned only on the occurrence of the Effective Time and receipt of the premium payment.

2. Premium Payment: The premium of $2,150,000 must be wired to Continental Shield Insurance Company on or before the Closing. Wire instructions for the premium payment have been requested from Greystone Risk Advisors and will be incorporated into the Funds Flow Memorandum being prepared by Calderwood & Harkness. The premium will be funded by the Surviving Corporation (or by HPE Fund IV on its behalf) from closing funds and will be reflected as a transaction expense in the Closing Statement.

3. Evidence of Coverage: Greystone Risk Advisors will provide confirmation of binding and evidence of coverage (in the form of a binder, certificate of insurance, or cover note) prior to the Closing. This evidence of coverage will be delivered as a closing deliverable pursuant to the Master Closing Checklist (Item No. 87 — "D&O Tail Policy: Evidence of Binding and Coverage").

4. Funds Flow: The $2,150,000 premium payment will be included as a line item in the Funds Flow Memorandum, with wire instructions for payment to Continental Shield. Calderwood & Harkness will coordinate with Garrison Trust Company and the parties' respective counsel to ensure that the premium payment is included in the closing funds flow and executed on schedule.

B. Documentation. The following documentation will be obtained and maintained in connection with the tail policy:

1. Policy Binder / Certificate of Insurance: To be provided by Greystone Risk Advisors prior to Closing and delivered as a closing deliverable.

2. Original Policy: The original policy document will be issued by Continental Shield following the Closing. Policy issuance typically occurs within 30 to 60 days following binding. Upon receipt, the original policy will be reviewed by Calderwood & Harkness to confirm that the terms are consistent with the binder and the terms described in this memorandum.

3. Calderwood & Harkness Closing File: A copy of the binder, certificate of insurance, and (upon receipt) the original policy will be retained in the Calderwood & Harkness closing file for Matter No. 1003-00003.

4. Insurance Deliverables Checklist: Derek Okonkwo is maintaining a comprehensive Insurance Deliverables Checklist that tracks all insurance-related closing deliverables, including the D&O tail policy binder, the R&W insurance policy, and all other insurance certificates and evidence of coverage required in connection with the Closing.

5. Broker Confirmation Letter: Stephen Hargrave of Greystone Risk Advisors will provide a formal confirmation letter confirming the placement of the tail policy, summarizing the key terms of coverage, and confirming that the policy has been bound effective at the Effective Time.

C. Post-Closing Administration

Following the Closing, the administration and oversight of the D&O tail policy will transition to the Surviving Corporation. The key administrative responsibilities and procedures are as follows:

1. Policyholder: The Surviving Corporation (VeloPay Systems, Inc., as a wholly-owned subsidiary of HPE Fund IV) will be the named policyholder and will be responsible for all policyholder obligations during the six-year tail period, including claims reporting, cooperation with the Carrier, and compliance with policy conditions.

2. Claims Reporting: All Claims and circumstances that could give rise to Claims must be reported promptly to Continental Shield during the policy period in accordance with the policy's notice provisions. Timely reporting is essential to preserving coverage under a claims-made policy. Failure to report a Claim or a circumstance within the policy period could result in a denial of coverage. The Surviving Corporation's legal department (and any successor legal function) must be trained on and aware of the claims reporting procedures and the importance of timely notice.

3. Post-Closing Obligations Tracker: Calderwood & Harkness will include the D&O tail policy in the Post-Closing Obligations Tracker maintained for HPE Fund IV and the Surviving Corporation. The following key dates and obligations will be tracked:

• Policy Inception: July 22, 2025

• Policy Expiration: July 22, 2031

• Claims Reporting Obligations: Ongoing throughout the six-year tail period; annual reminder notices to the Surviving Corporation's legal department

• Annual Review: Recommended annual review of pending and potential D&O claims to ensure timely and complete reporting to Continental Shield

• Expiration Notice: Calendar reminder to be set for six months prior to policy expiration (January 22, 2031) to evaluate whether any additional claims or circumstances should be reported before the policy expires

4. Coordination with Surviving Corporation Legal Department: Danielle Moreau, currently serving as VeloPay's General Counsel, and the successor legal department of the Surviving Corporation, will serve as the primary points of contact for D&O tail policy administration. Calderwood & Harkness will provide a briefing to the Surviving Corporation's legal team at or shortly after Closing, covering the key terms of the tail policy, claims reporting procedures, and the importance of timely notice.

5. Ongoing Monitoring: HPE Fund IV and the Surviving Corporation should implement internal compliance procedures to ensure that any threatened or actual claims against pre-closing directors and officers are promptly identified, evaluated, and reported to Continental Shield. This includes monitoring for litigation, regulatory investigations, and written demands received by the Surviving Corporation or any Insured Person.

VIII. Risk Considerations and Open Items

A. Key Risk Areas

While the D&O tail policy provides comprehensive coverage for the Insured Persons, it is important to identify the principal risk areas that may give rise to Claims during the tail period. Based on our review of VeloPay's business, the Merger transaction, and the due diligence materials, we have identified the following key risk areas:

1. Merger-Related Claims. The most significant near-term D&O risk relates to potential challenges to the Merger itself. VeloPay's stockholders may assert claims challenging the adequacy of the $20.00 per share merger consideration, alleging that the board of directors breached its fiduciary duties in connection with the sale process, or contending that the proxy statement/prospectus contained material misstatements or omissions. Such claims could take the form of direct or derivative actions under Delaware corporate law, or federal securities fraud claims under Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. These types of claims are common in the context of significant M&A transactions and repre

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
TO:
Sandra Tung, Responsible Partner, M&A, Calderwood & Harkness LLP
Priya Deshmukh, Managing Partner, Fund IV, Harrowgate Capital Management IV LLC
Thomas Eriksen, Partner, Head of FinTech, Harrowgate Capital Management IV LLC
FROM:
Megan Chu, Lead Associate, M&A, Calderwood & Harkness LLP
Derek Okonkwo, Working Associate, M&A, Calderwood & Harkness LLP
DATE: July 21, 2025
RE: Directors' and Officers' Liability Insurance Tail Policy — VeloPay Systems, Inc.; Analysis of Coverage Terms Negotiated with Continental Shield Insurance Company (Policy No. CSI-DOT-2025-4821)
Matter Number: 1003-00003
Firm: Calderwood & Harkness LLP, 787 Seventh Avenue, 38th Floor, New York, NY 10019
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to analyze the terms of the Directors' and Officers' Liability Insurance tail (run-off) policy negotiated for the benefit of the pre-closing directors and officers of VeloPay Systems, Inc. ("VeloPay" or the "Company") in connection with the pending $1.9 billion reverse triangular merger (the "Merger") between Harrowgate Private Equity Fund IV LP ("HPE Fund IV") and VeloPay closing on July 22, 2025 (the "Closing Date"). This memorandum is prepared at the direction of Sandra Tung, Responsible Partner, for the benefit of our clients at Harrowgate Capital Management IV LLC ("HCM IV" or the "Buyer") in connection with the Buyer's obligations under the Agreement and Plan of Merger dated as of March 18, 2025 (the "Merger Agreement") by and among HPE Fund IV, Heron Acquisition Sub, Inc. ("Merger Sub"), and VeloPay.
The Merger Agreement, specifically Section 7.5 thereof, requires the Buyer or the Surviving Corporation to obtain or cause to be obtained a "tail" D&O insurance policy covering VeloPay's pre-closing directors and officers for a period of not less than six (6) years following the Effective Time of the Merger (the "Effective Time"). This obligation is a material covenant of the Buyer under the Merger Agreement and a condition precedent to the obligations of VeloPay's board of directors to recommend the Merger to VeloPay's stockholders, as set forth in the proxy statement/prospectus filed with the Securities and Exchange Commission on April 30, 2025.
Following an extensive marketing process conducted by Greystone Risk Advisors LLC ("Greystone" or the "Broker"), the designated insurance broker (contact: Stephen Hargrave, Senior Vice President, 55 East 52nd Street, 23rd Floor, New York, NY 10055), a tail D&O insurance policy has been negotiated and is ready for binding with Continental Shield Insurance Company ("Continental Shield" or the "Carrier"), a highly rated specialty insurance carrier headquartered in New York. The key terms of the proposed policy are as follows:
• Policy Number: CSI-DOT-2025-4821
• Carrier: Continental Shield Insurance Company
• Broker: Greystone Risk Advisors LLC
• Policy Type: Directors' and Officers' Liability Insurance — Tail / Run-Off Policy (Claims-Made)
• Tail Policy Term: Six (6) years from the Closing Date (July 22, 2025 through July 22, 2031)
• Premium: $2,150,000, payable as a single lump-sum premium at binding (fully earned at inception; non-refundable and non-cancelable)
Based on our review, Calderwood & Harkness LLP recommends that HPE Fund IV proceed with binding the Continental Shield D&O tail policy. The policy satisfies each of the requirements of Section 7.5 of the Merger Agreement, provides coverage that is no less favorable in scope and amount than the existing D&O insurance maintained by VeloPay as of March 18, 2025, and falls within the premium cap established by the Merger Agreement. We recommend binding the policy effective at the Effective Time of the Merger on July 22, 2025, with the premium payment incorporated into the Funds Flow Memorandum for the Closing.
II. Background and Contractual Obligations
A. Merger Agreement Requirements
Section 7.5(a) of the Merger Agreement (the "D&O Insurance Covenant") imposes a binding obligation on HPE Fund IV, Merger Sub, and the Surviving Corporation (VeloPay, as the surviving entity in the reverse triangular merger with Merger Sub) with respect to the procurement and maintenance of D&O insurance for the benefit of VeloPay's pre-closing directors and officers. In relevant part, Section 7.5(a) provides that:
"From and after the Effective Time, the Buyer shall, or shall cause the Surviving Corporation to, maintain in effect for not less than six (6) years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company as of the date of this Agreement (or the Buyer or the Surviving Corporation may substitute therefor policies with a nationally recognized insurance company of at least the same coverage and amounts containing terms and conditions that are no less favorable to the Indemnified Persons than such current policies), with respect to claims arising from facts or events that occurred on or before the Effective Time. In lieu of maintaining such existing policies, the Buyer or the Surviving Corporation may obtain a 'tail' or 'run-off' insurance policy or policies with respect to claims arising from facts or events that occurred on or before the Effective Time, with coverage and amounts and containing terms and conditions that are no less favorable to the Indemnified Persons than the coverage, amounts, terms and conditions provided under the Company's existing directors' and officers' liability insurance policies as of the date of this Agreement."
This covenant is further qualified by a premium cap provision in Section 7.5(b) of the Merger Agreement, which provides:
"Notwithstanding the foregoing, in no event shall the Buyer or the Surviving Corporation be required to expend in the aggregate an amount in excess of 300% of the last annual premium paid by the Company for its existing directors' and officers' liability insurance policies in order to maintain or procure insurance coverage pursuant to this Section 7.5 (such 300% amount, the 'Maximum Premium'). In the event that the cost of the 'tail' or 'run-off' policy or the annual premiums for the existing or substitute policies would exceed the Maximum Premium, the Buyer or the Surviving Corporation shall obtain as much coverage as can be obtained for the Maximum Premium."
The critical benchmarks established by these provisions are as follows:
1. Coverage Scope: The tail policy must provide coverage that is no less favorable in scope and terms than VeloPay's existing D&O policy as of March 18, 2025, the date of the Merger Agreement.
2. Coverage Amount: The aggregate limits of the tail policy must equal or exceed the aggregate limits of VeloPay's existing D&O policy as in effect on March 18, 2025.
3. Coverage Period: The tail policy must cover claims first made during a period of not less than six (6) years following the Effective Time (i.e., through at least July 22, 2031).
4. Covered Acts: The tail policy must cover claims arising from facts or events that occurred on or before the Effective Time.
5. Premium Cap: The aggregate premium for the tail policy may not exceed the Maximum Premium, calculated as 300% of VeloPay's last annual D&O premium.
With respect to the premium cap calculation, VeloPay's last annual premium for its existing D&O insurance program was approximately $780,000 per annum, as confirmed by Marcus Langford, VeloPay's Chief Financial Officer, and corroborated by Greystone Risk Advisors during the policy marketing process. Accordingly, the Maximum Premium under the Merger Agreement is $2,340,000 (300% × $780,000). The negotiated tail premium of $2,150,000 is well within the contractual cap, representing approximately 276% of VeloPay's last annual premium and leaving a margin of $190,000 below the Maximum Premium.
The obligation under Section 7.5 runs for the benefit of the "Indemnified Persons," defined in Section 7.5(d) of the Merger Agreement as all individuals who served as directors, officers, employees, fiduciaries, or agents of VeloPay or any of its subsidiaries at any time prior to and including the Effective Time, to the extent such persons are entitled to indemnification or advancement of expenses under VeloPay's certificate of incorporation, bylaws, or existing indemnification agreements.
B. Indemnification Obligations Under the Merger Agreement
The D&O tail policy operates within a broader indemnification framework established by Section 7.5 of the Merger Agreement. In addition to the insurance covenant described above, Section 7.5(c) of the Merger Agreement requires the Surviving Corporation to honor and fulfill all existing indemnification obligations of VeloPay to its directors, officers, employees, fiduciaries, and agents, including obligations arising under:
(i) VeloPay's Amended and Restated Certificate of Incorporation;
(ii) VeloPay's Amended and Restated Bylaws;
(iii) Any indemnification agreements between VeloPay and its directors and officers; and
(iv) Any resolution of VeloPay's board of directors providing for indemnification or advancement of expenses.
These obligations are required to survive the Effective Time for a period of not less than six (6) years. Pursuant to Section 7.5(c), the Surviving Corporation's certificate of incorporation and bylaws, as in effect immediately after the Effective Time, must contain provisions no less favorable to the Indemnified Persons than those set forth in VeloPay's charter documents as of the date of the Merger Agreement. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Surviving Corporation, both of which become effective at Closing, have been reviewed by Calderwood & Harkness and confirmed to preserve the existing exculpation and indemnification provisions in full compliance with this covenant.
It is important to emphasize that the D&O tail policy is complementary to, and not a substitute for, the Surviving Corporation's indemnification obligations. The tail policy provides an independent insurance-funded source of recovery for pre-closing directors and officers, while the Surviving Corporation's indemnification obligations constitute a direct contractual commitment to those individuals. The two mechanisms operate in parallel, with the tail policy serving as an additional layer of protection — particularly critical in scenarios where the Surviving Corporation is unable or unwilling to indemnify (e.g., due to insolvency, legal prohibition, or dispute as to the scope of indemnification), which is the core purpose of Side A coverage under the D&O policy, as discussed in greater detail in Section III.E below.
C. Covered Individuals
The tail policy covers all individuals who served as directors or officers of VeloPay Systems, Inc. at any time prior to and including the Effective Time, to the extent such persons qualify as "Insured Persons" under the policy. Based on VeloPay's corporate records, public filings, and information confirmed by Danielle Moreau, VeloPay's General Counsel, the following individuals are the current directors and officers of VeloPay as of the date of this memorandum and will be covered by the tail policy:
Directors of VeloPay Systems, Inc.:
Officers of VeloPay Systems, Inc.:
In addition to the individuals listed above, the tail policy covers all other persons who served as directors or officers of VeloPay at any time during the period covered by VeloPay's existing D&O insurance program, consistent with the "Insured Persons" definition in the policy. This includes any former directors or officers who departed prior to the Closing Date but whose service falls within the coverage period of VeloPay's existing claims-made D&O program.
We note that Nathan Aldridge and Sonia Reyes-Watkins will continue in management roles at the Surviving Corporation following the Closing, pursuant to the terms of the management continuity arrangements negotiated with HPE Fund IV. However, the tail policy covers only pre-closing acts and omissions in their capacities as directors and officers of VeloPay prior to the Effective Time. Any claims arising from their post-closing conduct at the Surviving Corporation would need to be addressed under the Surviving Corporation's going-forward D&O insurance program, which is being separately arranged.
III. Summary of Key Policy Terms
A. Carrier and Broker Information
The tail policy has been placed with Continental Shield Insurance Company, a specialty lines insurer headquartered at 400 Park Avenue, 18th Floor, New York, NY 10022. Continental Shield is a well-established carrier in the directors' and officers' liability insurance market, with deep experience in the placement of tail and run-off policies in connection with M&A transactions. The relevant policy and placement details are as follows:
• Carrier: Continental Shield Insurance Company
• Address: 400 Park Avenue, 18th Floor, New York, NY 10022
• Policy Number: CSI-DOT-2025-4821
• Policy Type: Directors' and Officers' Liability Insurance — Tail / Run-Off Policy (Claims-Made and Reported)
• Broker: Greystone Risk Advisors LLC
• Broker Address: 55 East 52nd Street, 23rd Floor, New York, NY 10055
• Broker Contact: Stephen Hargrave, Senior Vice President, Transaction Risk Practice
Continental Shield maintains strong financial strength and claims-paying ability ratings from the major rating agencies. As confirmed by Greystone Risk Advisors in their broker marketing summary (attached hereto as Appendix C), Continental Shield holds an "A+" (Superior) financial strength rating from A.M. Best, an "AA-" insurer financial strength rating from Standard & Poor's, and an "A1" insurance financial strength rating from Moody's. These ratings indicate a high degree of financial stability and claims-paying capacity, which is particularly important in the context of a six-year tail policy where the carrier must remain solvent and capable of honoring claims obligations throughout the extended run-off period. Greystone Risk Advisors has confirmed that Continental Shield's capitalization and surplus are more than adequate to support the limits of liability contemplated by this policy, and that Continental Shield has a strong track record of claims handling and resolution in the D&O tail policy market.
B. Policy Period
The tail policy has been structured to commence at the Effective Time of the Merger and to remain in force for a period of six (6) years, as follows:
• Inception Date: July 22, 2025, at the Effective Time (concurrent with the filing of the Certificate of Merger with the Secretary of State of the State of Delaware)
• Expiration Date: July 22, 2031, at 11:59 p.m. Eastern Time
The policy provides coverage for claims first made (or deemed first made) against any Insured Person during the policy period (July 22, 2025 through July 22, 2031) for "Wrongful Acts" (as defined in the policy and discussed in Section III.F below) committed on or before the Effective Time. This is a standard claims-made and reported policy structure, meaning that coverage is triggered only when a claim is first made against an Insured Person during the tail period and is reported to the Carrier during the policy period or within any applicable extended reporting window.
Critically, there is no retroactive date limitation under the tail policy. The policy covers Wrongful Acts occurring at any time prior to and including the Effective Time, without any temporal restriction on when the underlying conduct must have occurred. This is essential for providing comprehensive protection to the Insured Persons, as potential claims may arise from conduct that occurred years before the Closing Date. The absence of a retroactive date is consistent with the requirements of Section 7.5(a) of the Merger Agreement, which mandates coverage for "claims arising from facts or events that occurred on or before the Effective Time" without any temporal limitation on the underlying facts or events.
The six-year tail period satisfies the minimum duration required under Section 7.5(a) of the Merger Agreement and is consistent with the six-year survival period for the Surviving Corporation's indemnification obligations under Section 7.5(c). The alignment of these two periods ensures that Insured Persons have both insurance coverage and contractual indemnification protection for the same duration following the Effective Time. The six-year period also corresponds to the maximum statute of limitations period for most categories of civil claims that are likely to be asserted against directors and officers, including fiduciary duty claims under Delaware law (which are generally subject to a three-year statute of limitations under 10 Del. C. § 8106, but may be extended by tolling doctrines) and securities fraud claims (which are subject to a five-year statute of repose under 28 U.S.C. § 1658(b)(2)).
C. Limits of Liability
The proposed tail policy provides aggregate limits of liability that are intended to match or exceed the aggregate limits maintained under VeloPay's existing D&O insurance program as of March 18, 2025, the date of the Merger Agreement. As of the date of this memorandum, we are awaiting final written confirmation from Greystone Risk Advisors of the specific dollar amounts for the aggregate policy limit, Side A limit, and any sublimits applicable to specific coverage grants. Based on our preliminary discussions with Stephen Hargrave at Greystone, we understand the policy limits structure to be as follows:
• Aggregate Policy Limit: To be confirmed by Greystone Risk Advisors; expected to match or exceed VeloPay's existing D&O aggregate limit (VeloPay's existing program provides aggregate limits of $25,000,000, inclusive of a $15,000,000 primary layer and a $10,000,000 excess layer).
• Side A Coverage (Non-Indemnifiable Loss): Side A coverage is provided on a shared limit basis within the aggregate policy limit. We have asked Greystone to confirm whether a dedicated Side A excess layer or "Side A DIC" (Difference in Conditions) component has been included or is available. A dedicated Side A excess would provide additional limits exclusively for non-indemnifiable losses, which would be a meaningful enhancement to the coverage structure.
• Side B Coverage (Corporate Reimbursement): Side B coverage is provided within the aggregate policy limit and reimburses the Surviving Corporation for amounts it pays to indemnify directors and officers for covered claims.
• Side C / Entity Coverage: See Section III.E below for a discussion of entity coverage. Given VeloPay's status as a private company post-acquisition, entity securities claims coverage may be limited or excluded.
• Defense Costs: Defense costs are included within the limits of liability (i.e., the policy has "eroding limits" or "burning limits"). This means that defense costs paid under the policy reduce the available aggregate limit. This is a standard feature of virtually all D&O policies in the market and is consistent with VeloPay's existing D&O program. We have confirmed with Greystone that no separate, non-eroding defense cost limit was available at a commercially reasonable premium.
We will circulate a supplemental memorandum or confirmation email to the distribution list upon receipt of Greystone's final confirmation of the policy limits. It is critical that the aggregate limits and coverage structure of the tail policy be confirmed to be no less favorable than VeloPay's existing D&O program prior to binding.
D. Premium. The total premium for the six-year tail policy is $2,150,000, which is fully earned at inception and payable as a single lump-sum premium at binding. The key premium-related terms are as follows:
• Total Premium: $2,150,000
• Payment Structure: Single lump-sum payment, fully earned at inception
• Refund / Cancellation: The premium is non-refundable and non-cancelable. Once bound, the policy cannot be canceled by either the Carrier or the policyholder during the six-year tail period, and no portion of the premium is subject to return.
• Payment Timing: The premium is to be paid by the Surviving Corporation (or by HPE Fund IV on its behalf) on or prior to the Effective Time. Wire instructions for payment to Continental Shield Insurance Company will be included in the Funds Flow Memorandum being prepared by Calderwood & Harkness in connection with the Closing.
• Premium Cap Compliance: The negotiated premium of $2,150,000 falls within the Maximum Premium of $2,340,000 established by Section 7.5(b) of the Merger Agreement (300% × $780,000 annual premium = $2,340,000). The premium represents approximately 276% of VeloPay's last annual D&O premium, leaving a margin of $190,000 below the contractual cap.
• Transaction Expense Treatment: The $2,150,000 premium will be borne by the Surviving Corporation as a transaction expense and is included within the estimated $48,500,000 total transaction expenses set forth in the Closing Statement. This treatment is consistent with the Merger Agreement's allocation of D&O insurance costs to the Buyer/Surviving Corporation.
The non-cancelable, fully-earned nature of the premium is a standard feature of tail/run-off D&O policies and is a significant benefit to the Insured Persons. It ensures that coverage remains in force for the full six-year period regardless of any changes in the financial condition or management of the Surviving Corporation, any disputes between the Surviving Corporation and the Carrier, or any other intervening events. The policyholder cannot elect to cancel the policy to recover premium, and the Carrier cannot cancel the policy for any reason (including non-payment of additional premium, as no additional premium is due).
E. Insuring Agreements
The tail policy contains three principal insuring agreements, each of which provides a distinct type of coverage:
Insuring Agreement A — Side A (Direct Coverage for Non-Indemnifiable Losses):
Insuring Agreement A obligates Continental Shield to pay, on behalf of individual Insured Persons, "Loss" arising from "Claims" for "Wrongful Acts" in circumstances where the Surviving Corporation (or VeloPay, prior to the Effective Time) is unable or unwilling to indemnify the Insured Person. This is commonly referred to as "Side A" coverage. Side A coverage is the most important component of a D&O policy from the perspective of individual directors and officers, as it provides a direct, first-party source of recovery that does not depend on the financial capacity or willingness of the company to provide indemnification.
Side A coverage is triggered in several critical scenarios, including: (a) the Surviving Corporation becomes insolvent and is unable to fund indemnification; (b) the Surviving Corporation is legally prohibited from providing indemnification (e.g., under Delaware law, a corporation may not indemnify a director for liability in a derivative suit unless the court so orders); (c) the Surviving Corporation refuses to indemnify, whether due to a dispute as to the scope of indemnification, a change in management philosophy, or for any other reason; or (d) the Surviving Corporation's bylaws or indemnification agreements do not cover the particular type of loss at issue. In each of these scenarios, Side A coverage provides a critical safety net for the individual directors and officers.
Insuring Agreement B — Side B (Corporate Reimbursement):
Insuring Agreement B obligates Continental Shield to reimburse the Surviving Corporation for amounts that the Surviving Corporation pays to indemnify Insured Persons for "Loss" arising from covered "Claims" for "Wrongful Acts." This is commonly referred to as "Side B" coverage. Side B coverage functions as a reimbursement mechanism — the Surviving Corporation first advances or pays indemnification to the director or officer, and then seeks reimbursement from the Carrier under the policy. Side B coverage benefits the Surviving Corporation by shifting the economic burden of indemnification to the insurance policy, thereby protecting the Surviving Corporation's balance sheet from the cost of defending and resolving D&O claims.
Insuring Agreement C — Entity Coverage:
Insuring Agreement C, if applicable, provides coverage to the entity itself (VeloPay / the Surviving Corporation) for claims made against the entity. In the context of publicly traded companies, Side C coverage typically applies to securities claims brought against the company and its directors and officers. In the present context, given that VeloPay will be a privately held, wholly-owned subsidiary of HPE Fund IV following the Merger, entity securities claims coverage is expected to be limited in scope or excluded entirely. We have asked Greystone Risk Advisors to confirm the precise scope of entity coverage under the tail policy. To the extent entity coverage is included, it would be limited to claims alleging securities law violations in connection with VeloPay's pre-closing activities as a private company (including, potentially, claims by pre-closing investors or stockholders related to the Merger itself).
Under all three insuring agreements, the policy provides coverage for defense costs, settlements, and judgments arising from covered claims. "Loss" under the policy is expected to include compensatory damages, settlement amounts, defense costs (including attorneys' fees, expert witness fees, and other costs of defending a claim), and pre-judgment and post-judgment interest, subject to standard exclusions for fines, penalties, and punitive or exemplary damages (except where insurable under applicable law).
F. Definition of "Wrongful Act"
The policy defines "Wrongful Act" broadly, consistent with market-standard D&O policy language. A "Wrongful Act" means any actual or alleged error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted by an Insured Person in their capacity as a director or officer of VeloPay Systems, Inc. The definition is capacity-specific, meaning that it covers only acts or omissions in the individual's capacity as a director or officer of VeloPay, and does not extend to acts or omissions in other capacities (e.g., as a director of an unrelated entity, as an individual, or in a post-closing capacity at the Surviving Corporation).
Critically, the definition is limited to Wrongful Acts occurring on or before the Effective Time of the Merger. This temporal limitation is inherent in the tail policy structure — the tail policy is designed to cover pre-closing conduct only. Any claims arising from post-closing conduct by individuals who continue in management roles at the Surviving Corporation (such as Nathan Aldridge and Sonia Reyes-Watkins) would need to be addressed under the Surviving Corporation's going-forward D&O insurance program.
The breadth of the "Wrongful Act" definition is important because it encompasses not only affirmative misconduct but also alleged errors, omissions, and failures to act. This is consistent with the nature of D&O liability, which frequently arises from allegations of negligence, breach of fiduciary duty, failure to supervise, or failure to disclose material information, rather than affirmative fraudulent conduct.
G. Definition of "Claim"
The policy defines "Claim" to include the following categories of proceedings and demands:
(a) A written demand for monetary or non-monetary relief against an Insured Person;
(b) A civil, criminal, administrative, or regulatory proceeding commenced against an Insured Person by the service of a complaint, filing of a charge, issuance of a summons, or similar pleading, or the return of an indictment;
(c) A formal or informal investigation of an Insured Person by a governmental, regulatory, or self-regulatory authority, commenced by the service or filing of a notice of investigation, subpoena, target letter, or similar document, provided that such investigation is one that the policy specifically covers (certain policies limit investigation coverage to formal investigations or investigations initiated by specified types of governmental authorities; we have asked Greystone to confirm the precise scope of investigation coverage under the Continental Shield policy); and
(d) Any other proceeding or demand that satisfies the policy's "Claim" definition as set forth in the policy form.
A Claim is deemed "first made" when the earliest of the foregoing events occurs. For purposes of the tail policy, coverage is triggered only if the Claim is first made during the policy period (July 22, 2025 through July 22, 2031) and is reported to Continental Shield during the policy period or within any applicable extended reporting period set forth in the policy.
The "deemed first made" provision is also significant: if, during the policy period, an Insured Person becomes aware of circumstances that could reasonably be expected to give rise to a Claim, and the Insured Person provides written notice of such circumstances to Continental Shield during the policy period, then any Claim that subsequently arises from such circumstances will be deemed to have been first made during the policy period, even if the actual Claim is not asserted until after the policy expires. This "notice of circumstances" provision is a critical feature of the tail policy, as it allows Insured Persons to preserve coverage by providing timely notice of potential claims even if the actual Claim is not asserted until after the six-year tail period has expired.
H. Retention / Deductible
The tail policy includes a self-insured retention (or deductible) that applies to certain categories of claims. The retention structure is expected to be as follows, subject to final confirmation from Greystone Risk Advisors:
• Side A Claims (Non-Indemnifiable Loss): No retention. Side A coverage provides first-dollar protection for individual directors and officers where the Surviving Corporation is unable or unwilling to indemnify. The absence of a retention on Side A claims is a market-standard feature and is critical to ensuring that individual directors and officers have immediate access to policy proceeds without bearing any portion of the loss themselves.
• Side B Claims (Corporate Reimbursement): Subject to a per-claim retention, the amount of which is to be confirmed by Greystone Risk Advisors. We understand from preliminary discussions that the retention is expected to be in the range of $250,000 to $500,000 per claim, consistent with the retention under VeloPay's existing D&O program. The Side B retention is effectively borne by the Surviving Corporation, as it represents the amount the Surviving Corporation must pay in indemnification before the policy responds.
• Side C Claims (Entity Coverage): If entity coverage is included, it is typically subject to a per-claim retention that may be equal to or greater than the Side B retention. The retention amount is to be confirmed by Greystone.
The retention applies on a per-claim basis, meaning that each separate Claim is subject to a separate retention amount. Related Claims (as defined in the policy) may be treated as a single Claim for purposes of the retention and the policy's aggregate limit, which could either benefit or disadvantage the Insured Persons depending on the circumstances.
We will provide final confirmation of all retention amounts upon receipt of the policy binder from Greystone Risk Advisors.
IV. Key Exclusions and Limitations
A. Standard Exclusions
Like all D&O insurance policies, the Continental Shield tail policy contains a number of exclusions that limit the scope of coverage. These exclusions are generally consistent with market-standard D&O policy language and are intended to exclude categories of loss that are either uninsurable as a matter of public policy, covered by other types of insurance, or outside the reasonable scope of D&O coverage. The principal standard exclusions are summarized below:
1. Fraud / Dishonesty Exclusion. The policy excludes coverage for Claims arising from deliberately fraudulent or dishonest acts or omissions, or willful violations of law, by an Insured Person. This exclusion applies only if the fraudulent, dishonest, or willful conduct is established by a final, non-appealable adjudication in the underlying proceeding (or, in certain policy forms, by a final adjudication in any proceeding). Until such a final adjudication occurs, the Insured Person is entitled to the benefit of coverage, including coverage for defense costs. This is a critical protection for Insured Persons, as it prevents the Carrier from denying coverage based on mere allegations of fraud prior to a judicial determination. The severability of this exclusion is discussed in Section IV.B below.
2. Personal Profit / Illegal Remuneration Exclusion. The policy excludes coverage for Claims seeking the return of any profit, remuneration, or advantage to which the Insured Person was not legally entitled, where such profit, remuneration, or advantage was gained by the Insured Person as a result of conduct that is established by a final, non-appealable adjudication to have been illegal or in violation of the Insured Person's duties. Like the fraud exclusion, this exclusion requires a final adjudication and does not apply until such adjudication occurs.
3. Insured vs. Insured Exclusion. The policy excludes coverage for Claims brought by or on behalf of one Insured Person against another Insured Person, or by or on behalf of the company (VeloPay / the Surviving Corporation) against an Insured Person. This exclusion is designed to prevent collusive claims where insured parties manufacture litigation to access policy proceeds. However, the insured vs. insured exclusion is subject to important carve-backs, which are discussed in detail in Section IV.B below.
4. Prior or Pending Litigation Exclusion. The policy excludes coverage for Claims arising from, based upon, or attributable to any litigation, proceeding, or investigation that was pending as of the inception date of the tail policy (July 22, 2025), or based upon, arising from, or attributable to the same or substantially similar facts, circumstances, or allegations as any such pending matter. This exclusion also extends to Claims based upon facts or circumstances of which any Insured Person had knowledge as of the inception date and that could reasonably be expected to give rise to a Claim. This exclusion is critical in the tail policy context, as it delineates the boundary between coverage under VeloPay's existing D&O policy (which covers claims first made during its policy period, including claims arising from known litigation) and coverage under the tail policy (which covers claims first made during the tail period that are not based on prior or pending matters). Coordination with VeloPay's existing policy is discussed in Section IV.C below.
5. Bodily Injury / Property Damage Exclusion. The policy excludes coverage for Claims alleging, arising from, or relating to bodily injury, sickness, disease, emotional distress (if resulting from bodily injury), death, or damage to or destruction of tangible property. These types of losses are properly covered under other insurance lines, such as general liability, workers' compensation, and property insurance.
6. ERISA Exclusion. The policy excludes coverage for Claims arising under or related to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including claims alleging breach of fiduciary duty under ERISA Sections 404 and 405. ERISA-related exposures are typically addressed through a separate fiduciary liability insurance policy. We note that VeloPay maintains a separate fiduciary liability policy, and the treatment of that policy in connection with the Merger should be reviewed separately.
7. Pollution / Environmental Exclusion. The policy excludes coverage for Claims arising from, based upon, or attributable to the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants or contaminants into or upon the environment, or any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize pollutants or contaminants. Environmental liabilities are addressed through specialized environmental insurance products.
B. Specific Negotiated Modifications
In addition to the standard exclusions summarized above, Calderwood & Harkness and Greystone Risk Advisors have negotiated several important modifications and clarifications to the policy's exclusion provisions. These modifications are designed to ensure that the tail policy provides robust protection in the specific context of the Merger and the post-closing environment in which the Insured Persons will be seeking coverage. The key negotiated modifications are as follows:
1. Insured vs. Insured Exclusion — Carve-Backs. The insured vs. insured exclusion is subject to carve-backs (exceptions to the exclusion) that preserve coverage for certain categories of claims that, while technically brought by one insured against another, represent legitimate claims that the policy should cover. Specifically, the following carve-backs have been confirmed or are being negotiated:
(a) Derivative Actions: Claims brought derivatively on behalf of the company by a stockholder or former stockholder against directors or officers are carved back from the insured vs. insured exclusion. This is critical in the M&A context, as stockholders may bring derivative or class action claims challenging the sale process, the fairness of the merger consideration, or the conduct of the board of directors in connection with the Merger.
(b) Whistleblower Claims: Claims brought by an Insured Person in their capacity as a whistleblower under applicable federal or state whistleblower protection statutes are carved back from the exclusion.
(c) Employment Claims by Insured Persons as Employees: Claims brought by an Insured Person in their capacity as an employee (rather than as a director or officer) against other Insured Persons are carved back from the exclusion. This addresses the scenario where an officer who is also an employee brings an employment-related claim (e.g., wrongful termination, discrimination) against other directors or officers.
(d) Claims by the Surviving Corporation Post-Change of Control: We have specifically requested confirmation that the insured vs. insured exclusion includes a carve-back for claims brought by the Surviving Corporation (or by HPE Fund IV or its affiliates on behalf of the Surviving Corporation) against pre-closing directors and officers following the Merger. This is of paramount importance in the present context. Following the Closing, the Surviving Corporation will be wholly owned and controlled by HPE Fund IV. If HPE Fund IV or the Surviving Corporation were to discover post-closing that pre-closing directors or officers engaged in misconduct, breached their fiduciary duties, or caused harm to the Company, the Surviving Corporation (now under new management) might wish to bring claims against those individuals. Without a carve-back to the insured vs. insured exclusion, such claims could be excluded from coverage, which would defeat a primary purpose of the tail policy. We are awaiting confirmation from Greystone Risk Advisors that this carve-back is included in the final policy form.
2. Fraud / Dishonesty Exclusion — Final Adjudication and Severability. We have confirmed that the fraud/dishonesty exclusion contains two important protections for Insured Persons:
(a) Final Adjudication Requirement: The exclusion applies only upon a final, non-appealable adjudication in the underlying proceeding (or, depending on the policy form, in any proceeding). Mere allegations of fraud or dishonesty do not trigger the exclusion. This means that the Carrier must continue to provide coverage, including advancement of defense costs, unless and until a court has made a final determination that the Insured Person actually engaged in fraudulent or dishonest conduct.
(b) Severability: The exclusion is severable, meaning that it applies only to the specific Insured Person who is found by final adjudication to have committed the fraudulent or dishonest act. Other "innocent" Insured Persons who are named in the same Claim are not affected by the exclusion and continue to be entitled to full coverage. This is a critical protection in multi-defendant proceedings where allegations of fraud may be directed at some but not all defendants.
3. No Change of Control Exclusion. We have confirmed that the tail policy does not contain any exclusion for Claims arising from, related to, or in connection with a change of control of VeloPay. This is essential, given that the Merger itself constitutes a change of control, and many of the Claims most likely to be asserted against pre-closing directors and officers will relate to their conduct in connection with the Merger process. Any change of control exclusion would impermissibly narrow the scope of coverage and would be inconsistent with the requirements of Section 7.5(a) of the Merger Agreement.
4. No Transaction Exclusion. We have confirmed that the policy does not contain an exclusion for Claims arising from or relating to the Merger itself or the related transactions contemplated by the Merger Agreement. This is important because a significant portion of the D&O risk in the post-closing environment relates to potential challenges to the Merger, including claims that the board of directors breached its fiduciary duties in approving the Merger, that the $20.00 per share merger consideration was inadequate, that the sale process was flawed, or that the proxy statement/prospectus contained material misstatements or omissions. Coverage for these types of claims is a core purpose of the tail policy.
C. Prior Acts Coverage and Continuity
One of the most critical aspects of the tail policy is its role in ensuring seamless continuity of coverage between VeloPay's existing claims-made D&O policy and the tail policy. The existing policy and the tail policy must work together to provide uninterrupted protection for the Insured Persons, without any coverage gaps.
VeloPay's existing D&O insurance policy is a claims-made policy that provides coverage for Claims first made during its policy period. Upon the occurrence of the Effective Time, the existing policy will effectively cease to provide coverage for new Claims (i.e., Claims first made after the Effective Time). The tail policy is designed to pick up where the existing policy leaves off, providing coverage for Claims first made after the Effective Time that relate to pre-closing Wrongful Acts.
To ensure seamless continuity, we have confirmed the following:
(a) No Retroactive Date Limitation: The tail policy does not contain any retroactive date that would limit coverage to Wrongful Acts occurring after a specified date. The policy covers all Wrongful Acts occurring at any time prior to and including the Effective Time. This is essential because potential Claims may arise from conduct that occurred years or even decades before the Closing Date.
(b) No Gap in Coverage: The inception date of the tail policy (July 22, 2025, at the Effective Time) is concurrent with the effective termination of coverage under VeloPay's existing D&O policy for new Claims. There is no gap between the expiration of the existing policy's coverage for new Claims and the inception of the tail policy. Any Claim first made prior to the Effective Time will be covered under the existing policy; any Claim first made on or after the Effective Time will be covered under the tail policy (subject to the tail policy's terms, conditions, and exclusions).
(c) Coordination of Known Circumstances: The prior or pending litigation exclusion in the tail policy requires careful coordination with the existing policy. Any litigation, proceedings, or investigations that are pending as of the inception date of the tail policy, and any Claims arising from facts or circumstances known to the Insured Persons as of that date, must be reported under VeloPay's existing D&O policy (to the extent they have not already been reported) to preserve coverage under the existing policy. The tail policy's prior/pending exclusion will operate to exclude coverage for such matters, as they should properly be handled under the existing policy. Danielle Moreau, VeloPay's General Counsel, is coordinating with VeloPay's existing D&O carrier to ensure that all known matters have been properly reported prior to the Effective Time.
V. Interplay with R&W Insurance and Indemnification Framework
A. Distinction from R&W Insurance
It is important to clearly distinguish the D&O tail policy from the buyer-side representations and warranties insurance policy (the "R&W Policy") that has been procured by HPE Fund IV in connection with the Merger. The R&W Policy has been placed with Oakbridge Omnivrel Insurance Group (Policy No. OFI-RW-2025-03187), with an aggregate limit of $190,000,000. The two policies serve fundamentally different purposes and protect different parties against different types of losses:
• D&O Tail Policy: Provides coverage to individual directors and officers of VeloPay for personal liability arising from Claims for Wrongful Acts committed in their capacities as directors and officers prior to the Effective Time. The Insured Persons are the individual directors and officers; the Surviving Corporation is the policyholder and, under Side B, a beneficiary of corporate reimbursement coverage.
• R&W Insurance Policy: Provides coverage to HPE Fund IV (as the named insured and buyer) for losses arising from breaches of the seller representations and warranties contained in the Merger Agreement. The R&W Policy covers the buyer's economic losses from inaccurate representations, not the personal liability of individual directors and officers.
The two policies have different triggers, different insured parties, different loss definitions, and different coverage grants. D&O coverage is triggered by a "Claim" against an individual director or officer; R&W coverage is triggered by a "breach" of a specific representation or warranty in the Merger Agreement. D&O coverage protects individual directors and officers from personal liability; R&W coverage protects the buyer from economic losses resulting from inaccurate deal representations. There is no coordination, offset, or "other insurance" provision linking the two policies, and a recovery under one policy does not reduce or preclude a recovery under the other.
The distinction is significant in practice. If, for example, it were discovered post-closing that VeloPay's financial statements contained material misstatements, HPE Fund IV could potentially pursue a claim under the R&W Policy for breach of the financial statement representations in the Merger Agreement, and the directors and officers responsible for the financial statements could face personal liability claims covered by the D&O tail policy. The two recoveries would address different losses (the buyer's economic loss from the inaccurate deal representations versus the directors' and officers' personal liability for the misstatements) and would proceed independently.
B. Interplay with Indemnification Escrow
The Merger Agreement establishes an indemnification escrow of $133,000,000 (representing approximately 7% of the $1.9 billion deal value), held by Garrison Trust Company, N.A. as escrow agent (Reference No. GT-ESC-2025-07223). The indemnification escrow serves as a source of recovery for HPE Fund IV for indemnification claims under Article IX of the Merger Agreement (e.g., breaches of representations and warranties by VeloPay, breaches of pre-closing covenants, and specified indemnification matters). The escrow is subject to a survival period of eighteen (18) months from the Closing Date (expiring January 22, 2027), with staged releases as follows:
(i) $66,500,000 released at twelve (12) months post-Closing (July 22, 2026), less the amount of any pending or unresolved indemnification claims; and
(ii) The remaining balance released at eighteen (18) months post-Closing (January 22, 2027), less the amount of any pending or unresolved indemnification claims.
The indemnification escrow is a contractual mechanism under the Merger Agreement that provides a source of recovery for the buyer (HPE Fund IV) for contractual indemnification claims. It is distinct from the D&O tail policy in several important respects:
• The escrow funds contractual indemnification claims by HPE Fund IV under the Merger Agreement; the D&O policy funds personal liability claims against individual directors and officers.
• The escrow has a survival period of only 18 months (expiring January 22, 2027); the D&O tail policy extends for six years (through July 22, 2031), providing coverage for a period of more than four years beyond the escrow's expiration.
• The escrow is funded from the merger consideration payable to VeloPay's stockholders (i.e., it is effectively a holdback from seller proceeds); the D&O policy is funded by a premium payment from the Surviving Corporation.
• The D&O tail policy provides an independent source of recovery for directors and officers in their personal capacities. It does not rely on, and is not subject to, the escrow mechanism. Conversely, recovery under the D&O policy does not reduce the escrow or affect the buyer's rights under the indemnification provisions of the Merger Agreement.
The temporal disparity between the escrow survival period and the D&O tail period is particularly noteworthy. Many D&O claims—including fiduciary duty claims, securities fraud claims, and regulatory enforcement actions—may not be asserted until years after the underlying conduct occurs. By providing coverage through July 22, 2031, the tail policy ensures that pre-closing directors and officers have insurance protection for the full six-year period, well beyond the point at which the indemnification escrow is exhausted and released.
C. Indemnification Cap and D&O Coverage
The Merger Agreement establishes an aggregate indemnification cap of $228,000,000, representing approximately 12% of the $1.9 billion deal value. This cap limits the total amount of contractual indemnification that HPE Fund IV may recover from the seller equityholders under Article IX of the Merger Agreement for breaches of representations and warranties, pre-closing covenant breaches, and other indemnifiable matters (subject to customary exceptions for certain fundamental representations and specified indemnification matters, which may be subject to a higher cap or no cap).
The D&O tail policy provides a separate, independent, and additional layer of protection for individual directors and officers that operates outside of, and is not subject to, the contractual indemnification cap. This distinction is particularly critical for Side A coverage (non-indemnifiable losses), where the D&O policy provides first-dollar protection to individual directors and officers for losses that the Surviving Corporation is unable or unwilling to indemnify. Even if the Surviving Corporation's indemnification obligations are exhausted, disputed, or otherwise unavailable, the D&O policy remains fully available to the Insured Persons.
In practical terms, the D&O tail policy and the Merger Agreement's indemnification framework serve different constituencies and different risk-shifting functions. The indemnification framework allocates deal risk between buyer and seller; the D&O tail policy protects individual directors and officers from personal liability. The two mechanisms are complementary but independent.
VI. Compliance with Merger Agreement Covenants
Based on our review of the proposed tail policy terms as described in this memorandum and as communicated by Greystone Risk Advisors, we confirm that the Continental Shield D&O tail policy (Policy No. CSI-DOT-2025-4821) satisfies each element of the D&O Insurance Covenant set forth in Section 7.5(a) and (b) of the Merger Agreement:
Subject to final confirmation of the aggregate policy limits from Greystone Risk Advisors, the tail policy is in full compliance with all Merger Agreement requirements. We do not anticipate any issues with respect to the policy limits, as Greystone has represented that the limits will match or exceed the existing VeloPay D&O program limits.
VII. Closing Mechanics and Deliverables
A. Binding and Payment
The following steps must be completed in connection with the binding of the D&O tail policy and the payment of the premium at Closing:
1. Binding: The tail policy will be bound effective at the Effective Time of the Merger on July 22, 2025. Greystone Risk Advisors will coordinate with Continental Shield to issue a binder or evidence of coverage reflecting the binding of the policy, conditioned only on the occurrence of the Effective Time and receipt of the premium payment.
2. Premium Payment: The premium of $2,150,000 must be wired to Continental Shield Insurance Company on or before the Closing. Wire instructions for the premium payment have been requested from Greystone Risk Advisors and will be incorporated into the Funds Flow Memorandum being prepared by Calderwood & Harkness. The premium will be funded by the Surviving Corporation (or by HPE Fund IV on its behalf) from closing funds and will be reflected as a transaction expense in the Closing Statement.
3. Evidence of Coverage: Greystone Risk Advisors will provide confirmation of binding and evidence of coverage (in the form of a binder, certificate of insurance, or cover note) prior to the Closing. This evidence of coverage will be delivered as a closing deliverable pursuant to the Master Closing Checklist (Item No. 87 — "D&O Tail Policy: Evidence of Binding and Coverage").
4. Funds Flow: The $2,150,000 premium payment will be included as a line item in the Funds Flow Memorandum, with wire instructions for payment to Continental Shield. Calderwood & Harkness will coordinate with Garrison Trust Company and the parties' respective counsel to ensure that the premium payment is included in the closing funds flow and executed on schedule.
B. Documentation. The following documentation will be obtained and maintained in connection with the tail policy:
1. Policy Binder / Certificate of Insurance: To be provided by Greystone Risk Advisors prior to Closing and delivered as a closing deliverable.
2. Original Policy: The original policy document will be issued by Continental Shield following the Closing. Policy issuance typically occurs within 30 to 60 days following binding. Upon receipt, the original policy will be reviewed by Calderwood & Harkness to confirm that the terms are consistent with the binder and the terms described in this memorandum.
3. Calderwood & Harkness Closing File: A copy of the binder, certificate of insurance, and (upon receipt) the original policy will be retained in the Calderwood & Harkness closing file for Matter No. 1003-00003.
4. Insurance Deliverables Checklist: Derek Okonkwo is maintaining a comprehensive Insurance Deliverables Checklist that tracks all insurance-related closing deliverables, including the D&O tail policy binder, the R&W insurance policy, and all other insurance certificates and evidence of coverage required in connection with the Closing.
5. Broker Confirmation Letter: Stephen Hargrave of Greystone Risk Advisors will provide a formal confirmation letter confirming the placement of the tail policy, summarizing the key terms of coverage, and confirming that the policy has been bound effective at the Effective Time.
C. Post-Closing Administration
Following the Closing, the administration and oversight of the D&O tail policy will transition to the Surviving Corporation. The key administrative responsibilities and procedures are as follows:
1. Policyholder: The Surviving Corporation (VeloPay Systems, Inc., as a wholly-owned subsidiary of HPE Fund IV) will be the named policyholder and will be responsible for all policyholder obligations during the six-year tail period, including claims reporting, cooperation with the Carrier, and compliance with policy conditions.
2. Claims Reporting: All Claims and circumstances that could give rise to Claims must be reported promptly to Continental Shield during the policy period in accordance with the policy's notice provisions. Timely reporting is essential to preserving coverage under a claims-made policy. Failure to report a Claim or a circumstance within the policy period could result in a denial of coverage. The Surviving Corporation's legal department (and any successor legal function) must be trained on and aware of the claims reporting procedures and the importance of timely notice.
3. Post-Closing Obligations Tracker: Calderwood & Harkness will include the D&O tail policy in the Post-Closing Obligations Tracker maintained for HPE Fund IV and the Surviving Corporation. The following key dates and obligations will be tracked:
• Policy Inception: July 22, 2025
• Policy Expiration: July 22, 2031
• Claims Reporting Obligations: Ongoing throughout the six-year tail period; annual reminder notices to the Surviving Corporation's legal department
• Annual Review: Recommended annual review of pending and potential D&O claims to ensure timely and complete reporting to Continental Shield
• Expiration Notice: Calendar reminder to be set for six months prior to policy expiration (January 22, 2031) to evaluate whether any additional claims or circumstances should be reported before the policy expires
4. Coordination with Surviving Corporation Legal Department: Danielle Moreau, currently serving as VeloPay's General Counsel, and the successor legal department of the Surviving Corporation, will serve as the primary points of contact for D&O tail policy administration. Calderwood & Harkness will provide a briefing to the Surviving Corporation's legal team at or shortly after Closing, covering the key terms of the tail policy, claims reporting procedures, and the importance of timely notice.
5. Ongoing Monitoring: HPE Fund IV and the Surviving Corporation should implement internal compliance procedures to ensure that any threatened or actual claims against pre-closing directors and officers are promptly identified, evaluated, and reported to Continental Shield. This includes monitoring for litigation, regulatory investigations, and written demands received by the Surviving Corporation or any Insured Person.
VIII. Risk Considerations and Open Items
A. Key Risk Areas
While the D&O tail policy provides comprehensive coverage for the Insured Persons, it is important to identify the principal risk areas that may give rise to Claims during the tail period. Based on our review of VeloPay's business, the Merger transaction, and the due diligence materials, we have identified the following key risk areas:
1. Merger-Related Claims. The most significant near-term D&O risk relates to potential challenges to the Merger itself. VeloPay's stockholders may assert claims challenging the adequacy of the $20.00 per share merger consideration, alleging that the board of directors breached its fiduciary duties in connection with the sale process, or contending that the proxy statement/prospectus contained material misstatements or omissions. Such claims could take the form of direct or derivative actions under Delaware corporate law, or federal securities fraud claims under Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. These types of claims are common in the context of significant M&A transactions and repre

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

Record

Parties

Dates

Amounts