PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Sandra Tung, Responsible Partner, M&A Oliver Mackenzie, Billing Partner, M&A 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 Derek Okonkwo, Working Associate, M&A
DATE: July 22, 2025
RE: Summary and Analysis of Buyer-Side Representations and Warranties Insurance Policy — Oakbridge Omnivrel Insurance Group (Policy No. OFI-RW-2025-03187) — Acquisition of VeloPay Systems, Inc.
MATTER NO.: 1003-00003
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I. Executive Summary
The purpose of this memorandum is to summarize the key terms, coverage, exclusions, retention structure, and claims procedures under the buyer-side representations and warranties ("R&W") insurance policy issued by Oakbridge Omnivrel Insurance Group (the "R&W Policy" or the "Policy") in connection with the acquisition (the "Acquisition" or the "Transaction") of VeloPay Systems, Inc. ("VeloPay" or the "Target") by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Buyer"). This memorandum is intended to serve as a reference document for the Buyer's deal team and investment professionals, and to identify key risk areas, practical recommendations, and coordination steps that should be undertaken in the post-closing period.
The Transaction was structured as a reverse triangular merger in which Harrowgate Velocity Merger Sub Inc. ("Merger Sub"), a wholly-owned subsidiary of HPE Fund IV incorporated solely for the purpose of this Transaction, merged with and into VeloPay, with VeloPay surviving as a wholly-owned subsidiary of HPE Fund IV (the "Merger"). The closing of the Merger occurred today, July 22, 2025.
The aggregate merger consideration is $1,900,000,000 ($20.00 per share on a fully diluted basis across 95,000,000 shares). The Transaction is governed by the Agreement and Plan of Merger, dated as of March 18, 2025 (the "Merger Agreement"), by and among HPE Fund IV, Merger Sub, VeloPay, and Nathan Aldridge, solely in his capacity as the Stockholder Representative.
The R&W Policy was procured as a buyer-side policy. HPE Fund IV is the named insured. The key commercial terms of the Policy are summarized as follows:
• Insurer: Oakbridge Omnivrel Insurance Group, 175 Water Street, Suite 2800, New York, NY 10038
• Underwriter: Neil Carmichael, Senior Vice President
• Policy Number: OFI-RW-2025-03187
• Policy Inception Date: July 22, 2025 (effective as of the closing of the Merger)
• Policy Limit: $190,000,000 (10% of aggregate deal value)
• Retention: $19,000,000 (1% of deal value), split 50/50 between the Seller and the Buyer as described in greater detail in Section IV of this memorandum
• Premium: $5,320,000 (2.8% of the $190,000,000 policy limit), paid by HPE Fund IV at inception
• Policy Period: Six (6) years from inception (expiring July 22, 2031)
The R&W Policy provides HPE Fund IV with meaningful coverage for breaches of VeloPay's representations and warranties set forth in Article III of the Merger Agreement, subject to the exclusions, retention requirements, and claims procedures described in this memorandum. Notably, the Policy extends coverage well beyond the contractual survival periods applicable to the Seller's representations and warranties under the Merger Agreement (18 months for general representations; 36 months for fundamental representations), providing HPE Fund IV with an additional layer of protection during the post-closing integration period and beyond.
This memorandum should be read in conjunction with the following documents, copies of which are included as attachments:
• The Merger Agreement (execution version, dated March 18, 2025), in particular Article III (Representations and Warranties of the Company) and Article VII (Indemnification);
• The Escrow Agreement (dated July 22, 2025, among HPE Fund IV, Nathan Aldridge as Stockholder Representative, and Garrison Trust Company); and
• The Disclosure Schedules delivered by VeloPay in connection with the Merger Agreement.
II. Transaction Overview
A. Parties to the Transaction
The principal parties to the Transaction are as follows:
Buyer. Harrowgate Private Equity Fund IV LP, a Delaware limited partnership (EIN: 87-4231956). The general partner of HPE Fund IV is Harrowgate Capital Management IV LLC (EIN: 87-4231847), a Delaware limited liability company headquartered at 300 King Street, Suite 4200, Wilmington, Delaware 19801. HPE Fund IV is a private equity fund focused on growth-stage and mature technology companies, with aggregate committed capital of approximately $4.7 billion. Priya Deshmukh serves as Managing Partner of Fund IV, and Thomas Eriksen serves as Partner and Head of FinTech at Harrowgate Capital Management IV LLC.
Acquisition Vehicle. Harrowgate Velocity Merger Sub Inc., a Delaware corporation (EIN: 93-1847265; Delaware File Number 7291034), was incorporated on February 24, 2025, solely for the purpose of effectuating the Merger. Merger Sub had no operations, assets, or liabilities other than those incident to its formation and the transactions contemplated by the Merger Agreement. Pursuant to the terms of the Merger, Merger Sub merged with and into VeloPay, with VeloPay surviving as a wholly-owned subsidiary of HPE Fund IV. As a result of the Merger, Merger Sub has ceased to exist as a separate corporate entity.
Target. VeloPay Systems, Inc., a Delaware corporation (EIN: 82-3019478; Delaware File Number 5748392), headquartered at 1455 Innovation Parkway, Suite 800, Austin, Texas 78759. VeloPay operates a cloud-native payments processing and merchant acquiring platform serving approximately 14,000 merchants across a broad range of industry verticals. As of the most recent reporting period, VeloPay processes approximately $87 billion in annualized gross payment volume ("GPV"). VeloPay employs approximately 1,340 employees across its principal offices in Austin, Texas; Denver, Colorado; Toronto, Ontario, Canada; and Lisbon, Portugal.
VeloPay Subsidiaries Covered Under the Policy. The R&W Policy covers the representations and warranties made by VeloPay in the Merger Agreement, which include representations with respect to VeloPay's subsidiaries. The following subsidiaries are covered:
• VeloPay Processing LLC (a Delaware limited liability company; VeloPay's principal payments processing operating entity);
• VeloPay Canada Inc. (an Ontario corporation; VeloPay's Canadian subsidiary responsible for Canadian merchant acquiring operations);
• VeloPay Europe, Unipessoal Lda. (a Portuguese limited liability company; VeloPay's European subsidiary headquartered in Lisbon);
• VeloPay Fraud intelligence Inc. (a Delaware corporation; VeloPay's fraud detection and risk analytics subsidiary); and
• PayStream Gateway LLC (a Delaware limited liability company; a payment gateway business acquired by VeloPay in 2021 for approximately $45 million).
B. Key Financial Terms
The financial terms of the Transaction are summarized below:
Merger Consideration. The aggregate merger consideration payable to the stockholders, optionholders, and other equityholders of VeloPay is $1,900,000,000. The per-share consideration is $20.00, calculated on a fully diluted, as-converted basis across 95,000,000 shares (comprising 82,400,000 shares of common stock outstanding, 7,600,000 shares underlying outstanding stock options, 3,200,000 shares underlying outstanding restricted stock units, and 1,800,000 shares underlying outstanding warrants).
Financing. The Acquisition was financed through a combination of equity and debt, as follows:
• HPE Fund IV Equity Contribution: $1,140,000,000 (approximately 60% of total deal value), funded from available commitments of HPE Fund IV;
• Senior Secured Term Loan: $500,000,000, provided by Tralvendo National Bank pursuant to a credit agreement dated July 22, 2025, with a seven-year maturity and an interest rate of SOFR plus 375 basis points; and
• Senior Secured Revolving Credit Facility: $260,000,000, provided by Prairie State Bank, N.A., with a five-year maturity and an interest rate of SOFR plus 325 basis points. Approximately $254,700,000 of the revolving credit facility was drawn at closing.
VeloPay Financial Profile. Based on the audited financial statements of VeloPay for the fiscal year ended December 31, 2024 (audited by Vance Thornbury & Co. LLP, with Robert Paulsen serving as engagement partner), VeloPay's financial profile is as follows:
Implied Valuation Multiples. Based on the aggregate merger consideration and VeloPay's FY2024 financial results, the implied valuation multiples are as follows:
• EV/Revenue: 4.61x ($1,900,000,000 / $412.3 million)
• EV/EBITDA: 19.37x ($1,900,000,000 / $98.1 million)
These multiples are broadly consistent with recent comparable transactions in the payments and merchant acquiring space, reflecting VeloPay's strong GPV growth trajectory, recurring revenue profile, and scalable technology platform.
C. Merger Agreement Signing and Closing
The Merger Agreement was signed on March 18, 2025, following an approximately four-month period of exclusivity, due diligence, and negotiation. The period between signing and closing spanned approximately four months, during which the parties obtained the requisite regulatory approvals, VeloPay stockholder approval by written consent, and satisfied the other conditions to closing set forth in the Merger Agreement.
The closing of the Merger occurred on July 22, 2025. The Certificate of Merger was filed with the Delaware Secretary of State on the same date, and the Merger became effective upon such filing.
The principal advisors to the parties are as follows:
• Buyer's Counsel: Calderwood & Harkness LLP (Sandra Tung, Responsible Partner; Oliver Mackenzie, Billing Partner; Megan Chu, Lead Associate; Derek Okonkwo, Working Associate)
• Target's Counsel: Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes, Lead Partner)
• Target's Auditor: Vance Thornbury & Co. LLP (Robert Paulsen, Engagement Partner)
III. R&W Insurance Policy — Key Terms
This Section III provides a summary of the key commercial and structural terms of the R&W Policy. The descriptions set forth below are intended as a summary only and are qualified in their entirety by the actual terms and conditions of the Policy, a copy of which is attached hereto as Attachment A.
A. Named Insured
The named insured under the Policy is Harrowgate Private Equity Fund IV LP.
The following are designated as additional insureds under the Policy:
• Harrowgate Capital Management IV LLC, in its capacity as the general partner of HPE Fund IV;
• Harrowgate Velocity Merger Sub Inc., in its capacity as the acquisition subsidiary (now merged into VeloPay);
• VeloPay Systems, Inc., in its capacity as the Surviving Corporation following the Merger; and
• Each of their respective directors, officers, partners, members, employees, agents, and representatives.
The inclusion of VeloPay as an additional insured is standard in buyer-side R&W insurance policies and ensures that losses suffered by the Surviving Corporation (as opposed to solely by the Buyer in its capacity as a stockholder) are covered under the Policy. This is important because many representation breaches will manifest as liabilities of VeloPay itself (e.g., undisclosed liabilities, tax deficiencies, regulatory penalties).
The Policy is a buyer-side policy. There is no seller-side R&W insurance policy in this Transaction. This is consistent with market practice in private equity acquisitions, where the buyer-side policy is designed to replace or supplement the seller's indemnification obligations and facilitate a cleaner exit for the selling stockholders.
B. Policy Period
The Policy has an inception date of July 22, 2025, which corresponds to the Closing Date of the Merger. The inception date is the date on which coverage under the Policy begins.
The policy period is six (6) years from inception, meaning the Policy expires on July 22, 2031. During this period, HPE Fund IV may submit claims under the Policy for covered losses arising from breaches of VeloPay's representations and warranties in the Merger Agreement, subject to the terms and conditions of the Policy.
The six-year policy period is significant because it extends well beyond the contractual survival periods for representations and warranties under the Merger Agreement. As discussed in greater detail in Section VII.B of this memorandum:
• The general representations in the Merger Agreement survive for 18 months from closing, expiring on January 22, 2027; and
• The fundamental representations in the Merger Agreement survive for 36 months from closing, expiring on July 22, 2028.
The Policy therefore provides HPE Fund IV with an additional approximately four and one-half years of coverage for breaches of general representations beyond the contractual survival period, and an additional approximately three years of coverage beyond the fundamental representation survival period. This extended coverage is one of the principal benefits of the R&W Policy and is discussed further in Section X.B below.
C. Policy Limit
The aggregate policy limit is $190,000,000, which is equal to 10% of the aggregate merger consideration of $1,900,000,000. This is a customary limit sizing for a buyer-side R&W policy in a transaction of this size.
The policy limit operates as an aggregate limit, meaning it is reduced on a dollar-for-dollar basis by each loss payment made by Oakbridge Fidelity under the Policy. Once total loss payments equal the $190,000,000 aggregate limit, coverage under the Policy is exhausted.
There is no per-claim sublimit under the Policy. Each covered loss is subject only to the aggregate limit (after satisfaction of the applicable retention). This means that a single large claim could, in theory, exhaust the entire policy limit.
Importantly, the Policy provides that defense costs are covered in addition to the policy limit. Defense costs incurred in connection with a covered claim do not erode or reduce the $190,000,000 aggregate limit. This is a favorable term that was negotiated during the underwriting process and ensures that the full $190,000,000 remains available for payment of substantive losses.
D. Premium
The one-time premium for the R&W Policy is $5,320,000. The premium was calculated at a rate of 2.8% of the $190,000,000 policy limit ($190,000,000 × 0.028 = $5,320,000).
The premium was paid by HPE Fund IV at policy inception on July 22, 2025. The premium is fully earned at inception and is non-refundable, regardless of whether any claims are submitted under the Policy during the policy period and regardless of whether the Policy is subsequently cancelled or terminated for any reason.
In addition to the base premium, the estimated taxes and fees applicable to the premium are approximately $266,000, which amount is subject to state surplus lines taxes imposed by the applicable jurisdictions. The underwriting fee and broker fee are included in the premium amount and are not separately invoiced.
The total cost of R&W insurance for this Transaction (premium plus estimated taxes and fees) is approximately $5,586,000. This amount is included in the estimated $48,500,000 in total transaction expenses incurred by the Buyer and the Seller in connection with the Merger.
E. Insurer
The issuing insurer is Oakbridge Omnivrel Insurance Group, with its principal office located at 175 Water Street, Suite 2800, New York, New York 10038. The designated underwriter for this Policy is Neil Carmichael, Senior Vice President.
Oakbridge Fidelity is an admitted surplus lines insurer. The Policy was issued on a surplus lines basis, which is standard for R&W insurance policies. Surplus lines insurance is subject to the regulatory requirements of the applicable state surplus lines offices, and the applicable surplus lines taxes have been included in the estimated total cost of the Policy as described above. HPE Fund IV should be aware that, as a surplus lines policy, the Policy is not covered by any state guaranty fund in the event of the insolvency of Oakbridge Fidelity, although Oakbridge Fidelity's current financial strength ratings are satisfactory and were reviewed as part of the insurance procurement process.
IV. Retention (Self-Insured Retention) Structure
A. Total Retention Amount
The R&W Policy contains a retention (functionally equivalent to a deductible) of $19,000,000, which is equal to 1% of the aggregate merger consideration of $1,900,000,000. The retention represents the aggregate amount of covered losses that must be borne by the Seller and the Buyer before the R&W Policy begins to respond to any covered loss. The retention must be fully exhausted before Oakbridge Fidelity has any obligation to make a payment under the Policy.
A 1% retention is within the range of current market terms for buyer-side R&W insurance policies in the mid-market and upper-mid-market segments. The retention was negotiated during the underwriting process and reflects Oakbridge Fidelity's assessment of the risk profile of the Transaction, the quality of the due diligence conducted, and the nature of the representations and warranties in the Merger Agreement.
B. Allocation of Retention Between Seller and Buyer
The $19,000,000 total retention is allocated equally between the Seller and the Buyer, as follows:
• Seller's Share of Retention: The first $9,500,000 of covered losses is borne by the Seller (i.e., the former stockholders of VeloPay) through the contractual indemnification provisions of the Merger Agreement and is funded from the indemnification escrow established pursuant to the Escrow Agreement.
• Buyer's Share of Retention: The next $9,500,000 of covered losses (i.e., losses from $9,500,001 through $19,000,000) is borne by the Buyer (HPE Fund IV) out of its own funds.
This 50/50 split of the retention between the Seller and the Buyer is consistent with current market practice and reflects the negotiated allocation of risk between the parties. The Seller's obligation to bear the first $9,500,000 of the retention ensures that the Seller retains meaningful "skin in the game" with respect to the accuracy of its representations and warranties, while the Buyer's obligation to bear the second $9,500,000 ensures that HPE Fund IV has an incentive to conduct thorough due diligence and to manage claims responsibly.
C. Interplay with Indemnification Escrow
Under the Merger Agreement, an aggregate amount of $133,000,000 (equal to 7% of the total deal value) has been deposited into an indemnification escrow account maintained by Garrison Trust Company (Reference GT-ESC-2025-07223). The designated contact at Garrison Trust Company is Valerie Drummond, Vice President, Corporate Trust.
The indemnification escrow serves as the principal source of recovery for HPE Fund IV's indemnification claims against the Seller under the Merger Agreement, including claims for breaches of VeloPay's representations and warranties. The Seller's $9,500,000 share of the R&W Policy retention is expected to be satisfied from the escrow fund. Accordingly, in the event of a covered loss, HPE Fund IV should first seek recovery from the escrow fund (to satisfy the Seller's retention share) before incurring the Buyer's $9,500,000 share of the retention.
The escrow is subject to a two-tranche release schedule, as follows:
• 12-Month Release (July 22, 2026): $66,500,000 (50% of the original escrow amount) will be released to the Stockholder Representative for distribution to the former stockholders of VeloPay, less amounts then subject to pending or unresolved indemnification claims.
• 18-Month Release (January 22, 2027): The remainder of the escrow fund (up to $66,500,000) will be released to the Stockholder Representative, less amounts reserved for pending indemnification claims.
Recommendation. The accelerated escrow release schedule creates a critical timing consideration for HPE Fund IV. To preserve the Seller's obligation to bear the first $9,500,000 of the retention, HPE Fund IV should ensure that any indemnification claims that may require satisfaction of the Seller's retention portion are initiated promptly and that escrow holdback instructions are provided to Garrison Trust Company in advance of the relevant escrow release dates. Failure to submit timely indemnification claims or holdback instructions could result in the release of escrow funds that would otherwise be available to satisfy the Seller's retention share, effectively shifting the full retention burden to HPE Fund IV.
D. Retention Erosion
The retention under the R&W Policy erodes on a "first dollar" basis. This means that any losses satisfying the retention count toward exhaustion of the retention regardless of whether they arise from the same breach or from different breaches of different representations. There is no requirement that any single claim exceed the retention amount; rather, multiple smaller claims may be aggregated to satisfy the retention.
Once the $19,000,000 retention is fully exhausted (whether through a single claim or through the accumulation of multiple claims), the R&W Policy covers subsequent losses up to the $190,000,000 aggregate policy limit, subject to the other terms and conditions of the Policy.
Losses that are paid by the Seller under the Merger Agreement's indemnification provisions (whether from the escrow fund or otherwise) count toward erosion of the Seller's $9,500,000 portion of the retention. This ensures that HPE Fund IV receives full credit for any amounts recovered from the Seller before the Buyer's retention share and the Policy coverage are implicated. However, it is important to note that the Seller's retention share is exhausted first — the Buyer's retention share does not begin to erode until the Seller's $9,500,000 share has been fully satisfied.
V. Scope of Coverage
A. Covered Representations and Warranties
The R&W Policy covers losses arising from breaches of the representations and warranties made by VeloPay Systems, Inc. in Article III of the Merger Agreement (execution version, dated March 18, 2025). The Policy is structured as a "wrap" around the Merger Agreement representations, meaning that the scope of covered representations is defined by reference to the Merger Agreement itself rather than by an independent set of representations in the Policy.
The key covered representations include, but are not limited to, the following:
Organization and Good Standing. VeloPay's representations that it and each of its subsidiaries are duly organized, validly existing, and in good standing under the laws of their respective jurisdictions of formation, and are qualified to do business in each jurisdiction where the nature of their business or the ownership of their assets requires such qualification.
Authorization and Enforceability. VeloPay's representations that it has full corporate power and authority to execute and deliver the Merger Agreement and to consummate the transactions contemplated thereby, and that the Merger Agreement constitutes a valid and binding obligation of VeloPay enforceable in accordance with its terms.
Capitalization. VeloPay's representations regarding its capitalization, including the number of authorized and outstanding shares, options, restricted stock units, and warrants. As represented, VeloPay's fully diluted capitalization consists of 82,400,000 shares of common stock outstanding, 7,600,000 shares underlying outstanding stock options, 3,200,000 shares underlying outstanding restricted stock units, and 1,800,000 shares underlying outstanding warrants, for a total of 95,000,000 fully diluted shares.
Financial Statements. VeloPay's representations regarding the accuracy and completeness of its financial statements, including the audited financial statements for the fiscal year ended December 31, 2024 (audited by Vance Thornbury & Co. LLP), which reflect Revenue of $412.3 million, Adjusted EBITDA of $98.1 million, Net Income of $41.7 million, and Total Assets of $689.4 million. The financial statements representation includes the standard representation that the financial statements were prepared in accordance with GAAP applied on a consistent basis and present fairly, in all material respects, the financial condition and results of operations of VeloPay and its subsidiaries.
Absence of Undisclosed Liabilities. VeloPay's representation that, except as reflected in the financial statements or disclosed in the Disclosure Schedules, VeloPay and its subsidiaries do not have any liabilities that would be required to be reflected on a balance sheet prepared in accordance with GAAP, other than liabilities incurred in the ordinary course of business since the balance sheet date.
Absence of Material Adverse Effect. VeloPay's representation that, since the balance sheet date, no event, change, effect, or occurrence has occurred that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on VeloPay and its subsidiaries, taken as a whole.
Compliance with Laws. VeloPay's representations regarding compliance with applicable laws and regulations, which is particularly significant given VeloPay's operations as a payments processing company. This representation encompasses, among other things, VeloPay's compliance with money transmitter licensing requirements in 47 states plus the District of Columbia and its compliance with the Payment Card Industry Data Security Standard ("PCI-DSS"). Regulatory compliance in the payments industry is a high-risk area for potential representation breaches, and this coverage is a key benefit of the R&W Policy.
Material Contracts. VeloPay's representations regarding the existence, validity, and enforceability of its material contracts, including the top 25 customer agreements, key vendor contracts, and contracts containing change of control provisions. As disclosed in the Disclosure Schedules, 14 material customer contracts contain change of control provisions that may be triggered by the Merger. Compliance with and the effectiveness of consents obtained under these change of control provisions is an area that warrants close monitoring during the post-closing integration period.
intellectual Property. VeloPay's representations regarding its ownership of and rights to its intellectual property, including patents, trademarks, trade secrets, copyrights, and open-source software compliance. This representation covers, among other things, the intellectual property acquired by VeloPay through its 2021 acquisition of PayStream Gateway LLC for approximately $45 million. As discussed in Section VI.C below, the Policy contains a specific exclusion for certain pre-acquisition conduct of PayStream Gateway LLC.
Tax Representations. VeloPay's representations regarding its federal, state, and international tax positions, including the accuracy of tax returns, the absence of material tax deficiencies, and the validity of transfer pricing arrangements between VeloPay and its international subsidiaries (VeloPay Canada Inc. and VeloPay Europe, Unipessoal Lda.). As noted in Section VI.B below, losses arising from transfer pricing adjustments are specifically excluded from coverage under the Policy.
Employee Benefits and ERISA Compliance. VeloPay's representations regarding its employee benefit plans, including compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code.
Real Property. VeloPay's representations regarding its real property interests, including the validity of its leases and the absence of title defects or encumbrances. VeloPay leases (rather than owns) all of its real property.
Environmental. VeloPay's representations regarding environmental compliance and the absence of environmental liabilities, subject to the specific exclusion described in Section VI.B below.
Insurance. VeloPay's representations regarding the existence and adequacy of its insurance coverage.
Data Privacy and Cybersecurity. VeloPay's representations regarding its compliance with applicable data privacy and cybersecurity laws and regulations, including its data processing practices, security incident history, and the adequacy of its information security program. Given VeloPay's processing of sensitive payment card data and personal information across multiple jurisdictions, this is a critical area of coverage.
Litigation and Pending/Threatened Proceedings. VeloPay's representations regarding the absence of material litigation, arbitration, or regulatory proceedings pending or, to VeloPay's knowledge, threatened against VeloPay or any of its subsidiaries.
Regulatory Compliance (International). VeloPay's representations regarding compliance with applicable regulatory requirements in Canada (applicable to VeloPay Canada Inc.) and Portugal (applicable to VeloPay Europe, Unipessoal Lda.), including financial services regulatory requirements, employment laws, and data protection regulations.
Anti-Corruption and FCPA. VeloPay's representations regarding compliance with the Foreign Corrupt Practices Act ("FCPA"), the Canadian Corruption of Foreign Public Officials Act, and other applicable anti-corruption laws, which is relevant given VeloPay's international operations.
Brokers' Fees. VeloPay's representation that no broker, investment banker, or other person is entitled to any broker's fee or similar payment in connection with the Transaction from VeloPay, other than as disclosed in the Disclosure Schedules.
B. Fundamental Representations — Extended Coverage Period
Certain representations and warranties are designated as "fundamental representations" under both the Merger Agreement and the R&W Policy. The fundamental representations are those representations that are considered so essential to the Transaction that they warrant an extended survival period. The fundamental representations under the Merger Agreement are:
(a) Organization and Good Standing;
(b) Authorization and Enforceability;
(c) Capitalization;
(d) Tax Representations; and
(e) Brokers' Fees.
Under the Merger Agreement, the fundamental representations survive for 36 months from the Closing Date (through July 22, 2028), as compared to the 18-month survival period applicable to the general representations (through January 22, 2027).
Under the R&W Policy, all representations (including both fundamental and general representations) are covered for the full six-year policy period (through July 22, 2031). This means that the R&W Policy provides HPE Fund IV with coverage for breaches of fundamental representations for an additional three years beyond the contractual survival period, and for breaches of general representations for an additional four and one-half years beyond the contractual survival period. This extended coverage is one of the most significant advantages of the R&W Policy and ensures that HPE Fund IV is protected against latent representation breaches that may not be discovered until well after the contractual survival periods have expired.
C. Coverage for Losses
The R&W Policy defines "Loss" broadly to include:
(i) damages (including compensatory and direct damages);
(ii) settlement amounts paid to resolve claims arising from representation breaches;
(iii) judgments and awards entered against the Named Insured or any Additional Insured; and
(iv) reasonable out-of-pocket costs and expenses, including attorneys' fees and costs of investigation.
As noted in Section III.C above, defense costs are covered in addition to the policy limit and do not erode the $190,000,000 aggregate limit. This is an important structural benefit that ensures the full policy limit remains available for substantive loss payments.
The Policy covers losses arising from breaches of the Seller's representations and warranties that are "inaccurate" as of either the signing date (March 18, 2025) or the closing date (July 22, 2025), subject to the applicable "bring-down" standards in the Merger Agreement. The Merger Agreement requires that VeloPay's representations be true and correct in all material respects as of the closing date (or, in the case of representations qualified by materiality or material adverse effect qualifiers, true and correct in all respects), and the R&W Policy covers losses resulting from breaches measured against these same standards.
Significantly, the Policy provides coverage regardless of whether the breach was known or unknown to the Seller at the time of signing or closing. The relevant knowledge limitation is the Buyer's knowledge exclusion described in Section VI.A below — it is the Buyer's actual knowledge, not the Seller's knowledge, that determines whether coverage is available. This is consistent with the buyer-side nature of the Policy.
VI. Exclusions from Coverage
A. Buyer's Knowledge Exclusion
The R&W Policy contains a Buyer's Knowledge Exclusion, which is the single most important exclusion in any buyer-side R&W insurance policy. Under this exclusion, the Policy does not cover losses arising from breaches of representations and warranties of which the "deal team" of the Named Insured (HPE Fund IV) had actual knowledge as of the date of the Policy (July 22, 2025) that such representation or warranty was inaccurate.
The term "deal team" is defined in the Policy to include the following individuals:
(a) Priya Deshmukh, Managing Partner, Fund IV, Harrowgate Capital Management IV LLC;
(b) Thomas Eriksen, Partner, Head of FinTech, Harrowgate Capital Management IV LLC;
(c) Sandra Tung, Responsible Partner, M&A, Calderwood & Harkness LLP;
(d) Oliver Mackenzie, Billing Partner, M&A, Calderwood & Harkness LLP;
(e) Megan Chu, Lead Associate, M&A, Calderwood & Harkness LLP; and
(f) Derek Okonkwo, Working Associate, M&A, Calderwood & Harkness LLP.
Notably, Richard Harrowgate (Founder and Chairman of Harrowgate Capital Management IV LLC) is not included in the deal team definition, as he was not actively involved in the due diligence process for this Transaction. This is consistent with the market practice of limiting the deal team to those individuals who were substantively involved in diligence and deal execution.
The knowledge exclusion applies only to actual knowledge (i.e., subjective, conscious awareness) and does not extend to constructive or imputed knowledge. This means that the mere availability of information — for example, in a data room or in publicly available filings — does not trigger the knowledge exclusion unless a deal team member actually reviewed and understood such information and formed a subjective belief that a representation was inaccurate.
Furthermore, the knowledge exclusion applies only to knowledge as of the Policy inception date (July 22, 2025). Knowledge acquired by deal team members after the inception date does not affect coverage.
Practical Implications. The interplay between the knowledge exclusion and the Disclosure Schedules warrants careful consideration. As a general matter, matters identified in due diligence and disclosed in the Disclosure Schedules are not excluded from coverage under the Buyer's knowledge exclusion. The knowledge exclusion applies to knowledge that a representation is inaccurate, not to knowledge of the underlying facts disclosed in the schedules. In many cases, the disclosure of a fact in the Disclosure Schedules qualifies the applicable representation such that the representation, read together with the disclosure, is accurate. In such cases, there is no breach and the knowledge exclusion is not implicated.
However, if the deal team had actual knowledge that a scheduled disclosure revealed a breach of a representation that was not adequately qualified by the disclosure — for example, because the disclosure was incomplete or because the disclosed matter exceeded the scope of the applicable schedule qualifier — coverage could be at risk. This is an area that requires careful, representation-by-representation analysis.
Recommendation. Calderwood & Harkness has reviewed the Disclosure Schedules and the due diligence memoranda (including the Legal Due Diligence Summary, IP Due Diligence Memorandum, Regulatory Due Diligence Memorandum, Tax Due Diligence Memorandum, Litigation Due Diligence Memorandum, Employment/Benefits Due Diligence Memorandum, and Material Contracts Summary) to assess potential knowledge exclusion risks. Based on this review, no significant knowledge exclusion concerns have been identified as of closing. However, HPE Fund IV should remain vigilant during the post-closing integration period and should promptly report to Calderwood & Harkness any facts or circumstances that may suggest a potential breach of VeloPay's representations, so that a timely assessment can be made regarding the availability of coverage.
B. Specific Exclusions
In addition to the Buyer's Knowledge Exclusion, the Policy contains the following specific exclusions. Losses arising from or relating to the following matters are excluded from coverage under the Policy:
1. Purchase Price Adjustments. Losses that constitute or are recoverable through purchase price adjustment mechanisms under the Merger Agreement. It should be noted that the Merger Agreement in this Transaction does not contain a post-closing purchase price adjustment mechanism (e.g., a working capital adjustment). Accordingly, this exclusion has limited practical application in the context of this Transaction.
2. Forward-Looking Statements and Projections. Losses arising from the inaccuracy of any projection, forecast, estimate, or forward-looking statement made by VeloPay or included in any materials provided to HPE Fund IV in connection with the Transaction. This exclusion is consistent with the material adverse effect carve-out in the Merger Agreement for the failure to meet financial projections (as distinguished from the underlying causes of such failure, which may be covered). The exclusion reflects the well-established principle that R&W insurance does not insure the accuracy of forward-looking projections.
3. Covenants and Pre-Closing Obligations. Losses arising from breaches of covenants (as opposed to representations and warranties). R&W insurance is designed to cover breaches of representations and warranties only, and does not extend to breaches of the Seller's pre-closing covenants (e.g., the covenant to operate VeloPay in the ordinary course of business between signing and closing) or post-closing covenants.
4. Transfer Pricing Adjustments. Losses arising from transfer pricing adjustments or reallocations among VeloPay and its international subsidiaries, specifically VeloPay Canada Inc. and VeloPay Europe, Unipessoal Lda. This exclusion was identified as a negotiated exclusion during the underwriting process, following Oakbridge Fidelity's review of the Tax Due Diligence Memorandum prepared by Leonard Cross of Calderwood & Harkness LLP. The Tax Due Diligence Memorandum identified potential exposure relating to the intercompany pricing of services and technology licensing fees between VeloPay's U.S. entities and its Canadian and Portuguese subsidiaries. Oakbridge Fidelity determined that the potential magnitude and uncertainty of this exposure warranted a specific exclusion. This exclusion is discussed further in Section X.C below.
5. Certain Environmental Matters. Losses arising from environmental contamination at properties not owned or operated by VeloPay, including third-party disposal sites. Because VeloPay leases (and does not own) all of its real property, and because VeloPay's business does not involve the generation, storage, or disposal of hazardous materials in any material quantity, this exclusion has limited scope in the context of this Transaction.
6. Pension and Multiemployer Plan Withdrawal Liability. Losses arising from underfunding of, or withdrawal from, any multiemployer pension plan under Title IV of ERISA. VeloPay does not participate in any multiemployer pension plan, and accordingly this exclusion has no current application. The exclusion is included as a standard policy provision.
7. Criminal Fines and Penalties. Losses constituting criminal fines or penalties imposed on VeloPay or its officers and directors. This exclusion reflects the public policy principle that criminal penalties are not insurable.
8. Fees and Expenses of the Transaction. Losses arising from or constituting transaction-related fees and expenses, including the estimated $48,500,000 in combined buyer and seller transaction expenses incurred in connection with the Merger.
9. Known Matters Disclosed in the No-Fly List. Specific matters identified during the underwriting process that are expressly excluded from coverage, as described in Section VI.C below.
10. Consequential, Punitive, and Multiplied Damages. Losses constituting punitive damages, consequential damages, or multiplied damages. However, an important exception applies: if such damages are awarded to a third party in connection with a third-party claim (e.g., a judgment against VeloPay in a lawsuit brought by a third party), such damages may be covered. This exception is significant because it ensures that HPE Fund IV is not left without coverage in circumstances where a third-party claimant obtains a punitive or multiplied damages award against VeloPay based on underlying conduct that constitutes a breach of a Seller representation.
C. No-Fly List (Specific Deal-Level Exclusions)
During the underwriting process, which commenced with the submission of the R&W insurance application on February 21, 2025 and concluded with the binding of the Policy on March 10, 2025, Oakbridge Fidelity identified the following deal-specific exclusions (commonly referred to as the "no-fly list") based on its review of the due diligence findings, the Disclosure Schedules, and the draft Merger Agreement:
1. Transfer Pricing Arrangements — VeloPay Canada Inc. / VeloPay Europe, Unipessoal Lda. As discussed in Section VI.B.4 above, any losses arising from transfer pricing adjustments or reallocations among VeloPay and its Canadian and Portuguese subsidiaries are excluded from coverage. This exclusion was identified based on the findings in Leonard Cross's Tax Due Diligence Memorandum, which noted potential exposure relating to the arm's-length pricing of intercompany service fees and technology licensing arrangements. The memorandum identified that the intercompany transfer pricing methodology had not been formally documented and that the rates charged may not withstand scrutiny under applicable Canadian (Canada Revenue Agency), Portuguese (Autoridade Tributária e Aduaneira), and U.S. (Internal Revenue Service) transfer pricing rules. Oakbridge Fidelity determined that this represented a quantifiable, pre-existing risk that it was not willing to underwrite.
2. Pending Regulatory Inquiry. To the extent that any pre-existing regulatory inquiry or investigation involving VeloPay or its subsidiaries was identified in the Litigation and Contingent Liabilities Due Diligence Memorandum and disclosed during the underwriting process, any losses arising from such known, pre-existing inquiry are excluded from coverage. This exclusion is narrowly tailored to identified inquiries and does not extend to future regulatory matters that were not known at the time of underwriting.
3. PayStream Gateway LLC Acquisition (2021; $45 Million). The Policy contains a specific exclusion for any losses related to undisclosed liabilities or breaches of representations relating solely to the pre-acquisition conduct of PayStream Gateway LLC prior to VeloPay's acquisition of PayStream in 2021. This exclusion was included because Oakbridge Fidelity's underwriting review identified the PayStream acquisition as presenting residual tail risk — specifically, the possibility that undisclosed liabilities of PayStream originating from its pre-acquisition operations could surface post-closing and give rise to claims under VeloPay's representations. The exclusion is limited to pre-acquisition conduct and does not extend to conduct or liabilities of PayStream arising after VeloPay's 2021 acquisition.
Negotiation History. The no-fly list was the subject of significant negotiation between Calderwood & Harkness and Oakbridge Fidelity during the underwriting process. Oakbridge Fidelity initially proposed several additional exclusions that were successfully narrowed or removed through advocacy by Calderwood & Harkness, resulting in a no-fly list that is limited to the three items described above. The final no-fly list reflects a reasonable allocation of underwriting risk and is consistent with market terms for transactions of this size and complexity.
VII. Interplay with Merger Agreement Indemnification Provisions
The R&W Policy is designed to work in conjunction with — not as a replacement for — the indemnification provisions of the Merger Agreement. This section describes the interplay between the Policy and the Merger Agreement's indemnification framework.
A. Indemnification Cap Under the Merger Agreement
The Merger Agreement provides an aggregate indemnification cap of $228,000,000 (equal to 12% of the $1,900,000,000 aggregate merger consideration). This cap represents the maximum aggregate amount that HPE Fund IV may recover from the Seller through contractual indemnification for breaches of VeloPay's representations and warranties.
The R&W Policy limit of $190,000,000 provides additional coverage that, in practice, sits above the Seller's contractual indemnification. The layered protection structure is summarized as follows:
It is important to note that the $228,000,000 aggregate indemnification cap under the Merger Agreement includes the Seller's $9,500,000 retention share. However, the R&W Policy provides independent coverage — the Policy limit is not capped by or subject to the indemnification cap under the Merger Agreement. Oakbridge Fidelity's obligation to pay covered losses up to the $190,000,000 policy limit is determined solely by the terms of the Policy and is not limited by the Seller's ability or willingness to pay under the contractual indemnification provisions.
In practical terms, this means that HPE Fund IV has access to total potential recovery of up to approximately $418,000,000 (comprising $228,000,000 under the Merger Agreement indemnification cap and $190,000,000 under the R&W Policy), although the actual recovery in any given scenario would depend on the nature of the claim, the applicable exclusions, and the coordination between the contractual and insurance recovery mechanisms.
B. Survival Period Comparison
The table below summarizes the survival periods applicable to VeloPay's representations and warranties under the Merger Agreement and the R&W Policy:
The R&W Policy significantly extends the period during which HPE Fund IV can recover for representation breaches. This extended coverage is particularly valuable for non-fundamental representations, where the contractual survival period is limited to 18 months — a period that may not be sufficient to identify all representation breaches, particularly in complex areas such as regulatory compliance, tax positions, and data privacy.
Important Note. After the applicable Merger Agreement survival periods expire, the Seller has no contractual indemnification obligation for breaches of the relevant representations. However, HPE Fund IV can still recover under the R&W Policy for breaches of representations discovered during the six-year policy period, subject to the requirement that the insured demonstrate that the relevant representation was inaccurate as of the signing date or the closing date. The Policy does not require that the breach be discovered within the contractual survival period — only that the breach existed as of the relevant measurement date and that the claim is submitted within the policy period.
C. Subrogation
The R&W Policy contains a limited subrogation provision that governs Oakbridge Fidelity's right to recover from the Seller (VeloPay stockholders) amounts paid under the Policy to HPE Fund IV.
Under the Policy, Oakbridge Fidelity may subrogate against the Seller only in cases of fraud committed by a "principal" of VeloPay. The term "principal" is defined in the Policy to include members of VeloPay's senior management and controlling stockholders, specifically:
(a) Nathan Aldridge, Chief Executive Officer (14.2% equity stake);
(b) Sonia Reyes-Watkins, Chief Technology Officer (9.7% equity stake);
(c) Marcus Langford, Chief Financial Officer (1.3% equity stake); and