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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

Section 280G Parachute Payment Analysis: Potential Excess Parachute Payments to VeloPay Systems, Inc. Executives in Connection with the Merger

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I. Executive Summary

The purpose of this memorandum is to set forth our analysis of the potential "excess parachute payments" under Internal Revenue Code ("IRC" or the "Code") Section 280G that may be triggered by the change of control of VeloPay Systems, Inc. ("VeloPay" or the "Company") resulting from the reverse triangular merger of Harrowgate Velocity Merger Sub Inc. ("Merger Sub"), a wholly-owned subsidiary of Harrowgate Private Equity Fund IV LP ("HPE Fund IV"), with and into VeloPay, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") expected to be signed on or about March 18, 2025 (the "Merger" or the "Transaction").

Transaction Overview. The Merger contemplates aggregate merger consideration of approximately $1.9 billion, representing $20.00 per share on a fully diluted basis of 95,000,000 shares. The Transaction is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"), pursuant to which Merger Sub will merge with and into VeloPay, with VeloPay surviving the Merger as a wholly-owned subsidiary of HPE Fund IV. The Transaction will be financed through a combination of equity contributions from HPE Fund IV and debt financing from Tralvendo National Bank and Prairie State Bank, N.A.

Change of Control. As discussed in greater detail in Section III below, the Merger constitutes a "change in the ownership" of VeloPay for purposes of IRC Section 280G(b)(2)(A)(i) and the applicable Treasury Regulations thereunder, thereby triggering the Section 280G parachute payment analysis for all "disqualified individuals" of VeloPay.

Disqualified Individuals. We have identified four "disqualified individuals" whose compensation arrangements must be analyzed under Section 280G: (i) Nathan Aldridge, Chief Executive Officer and Co-Founder, age 42; (ii) Sonia Reyes-Watkins, Chief Technology Officer and Co-Founder, age 39; (iii) Marcus Langford, Chief Financial Officer, age 47; and (iv) Danielle Moreau, General Counsel, age 44. As detailed in Section II.C below, we reviewed additional equity-holding employees and determined that no other individuals meet the definition of a disqualified individual whose payments approach the applicable thresholds.

Summary of Findings. Based on the information and illustrative compensation data available as of the date of this memorandum, our preliminary analysis indicates the following:

The aggregate estimated excess parachute payments across all four executives total approximately $17,130,000. If Section 280G and Section 4999 apply without mitigation: (a) the aggregate Section 4999 nondeductible excise tax imposed on the four executives would be approximately $3,426,000; and (b) VeloPay (as the surviving entity post-Merger) would lose a corporate tax deduction of approximately $17,130,000, resulting in an after-tax cost to HPE Fund IV of approximately $3,597,300 at the 21% federal corporate income tax rate (before consideration of state-level deduction disallowance, which may increase this amount).

Important Note: The figures set forth above are preliminary estimates based on illustrative and placeholder compensation data. Final calculations will be completed upon receipt of verified W-2 data and equity compensation income records from VeloPay for the 2020–2024 base period.

Mitigation Strategies. We have analyzed several mitigation strategies, including: (i) the Section 280G(b)(5)(B) shareholder vote safe harbor, which is available because VeloPay is a privately held corporation; (ii) the restructuring of certain payments and contract terms to reduce aggregate parachute payments; and (iii) the allocation of a portion of non-competition consideration paid to Mr. Aldridge and Ms. Reyes-Watkins to reasonable compensation for post-closing covenants.

Recommendation. We strongly recommend pursuing the Section 280G(b)(5)(B) shareholder vote safe harbor for each of the four disqualified individuals whose payments are expected to exceed the 3× base amount threshold. Our preliminary assessment of the voting feasibility indicates that the requisite supermajority approval (more than 75% of outstanding voting shares, excluding each disqualified individual's own shares) is achievable for all four executives, although the vote for Mr. Aldridge presents the narrowest margin and the greatest risk, as his exclusion removes the single largest block of committed shares from the voting pool. We recommend coordinating closely with Whitford Jessup & Crane LLP, VeloPay's outside counsel, and in particular with Ellen Fairchild and Rebecca Thornton-Hayes, on the stockholder vote mechanics, disclosure document preparation, and waiver agreements.

II. Background

A. Transaction Structure

The Transaction is structured as a reverse triangular merger under DGCL Section 251. Merger Sub, a Delaware corporation and wholly-owned subsidiary of HPE Fund IV formed solely for the purpose of effecting the Merger, will merge with and into VeloPay. VeloPay will be the surviving corporation in the Merger and will become a wholly-owned subsidiary of HPE Fund IV.

The aggregate merger consideration is approximately $1.9 billion, calculated as $20.00 per share multiplied by 95,000,000 shares on a fully diluted basis. The per-share merger consideration of $20.00 represents the price to be paid for each share of VeloPay common stock, with stock options, restricted stock units, and warrants treated as described in Section II.D below.

The Transaction will be financed through the following sources:

(a) HPE Fund IV Equity Contribution: $1,140,000,000, representing approximately 60% of the total deal value. The equity contribution will be funded from HPE Fund IV's committed capital and co-investment vehicles, including Harrowgate Velocity Co-Invest LP.

(b) Senior Secured Term Loan: $500,000,000 in senior secured term loan financing provided by Tralvendo National Bank, as administrative agent and lead arranger, pursuant to a commitment letter dated February 28, 2025.

(c) Revolving Credit Facility: $260,000,000 in revolving credit facility financing provided by Prairie State Bank, N.A., pursuant to a commitment letter dated February 28, 2025.

The Merger Agreement is expected to be signed on or about March 18, 2025. Closing of the Transaction is targeted for mid-2025, subject to the satisfaction or waiver of customary closing conditions, including the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other applicable regulatory approvals.

For purposes of IRC Section 280G, the Transaction constitutes a "change in the ownership" of VeloPay within the meaning of Treasury Regulation Section 1.280G-1, Q&A-27 through Q&A-29. Specifically, following the Merger, HPE Fund IV will acquire 100% of the outstanding equity interests of VeloPay, thereby satisfying the bright-line test under Q&A-27(a) (acquisition by any one person, or by more than one person acting as a group, of stock of a corporation that, together with stock held by such person or group, possesses more than 50% of the total fair market value or total voting power of the stock of such corporation). No further analysis is necessary to establish the change of control event.

B. VeloPay Corporate and Equity Overview

VeloPay is a corporation organized under the laws of the State of Delaware. The Company was founded in 2014 by Nathan Aldridge and Sonia Reyes-Watkins and operates a payments processing and merchant acquiring platform serving mid-market enterprise customers across the United States. VeloPay is privately held; no class of its securities is registered under Section 12 of the Securities Exchange Act of 1934, as amended, and the Company is not subject to reporting obligations under Section 13 or Section 15(d) of such Act.

For purposes of Section 280G, VeloPay is a "corporation" within the meaning of the Code. The Company is not an S corporation (as defined in Section 1361), a partnership, a limited liability company classified as a partnership for federal income tax purposes, or a tax-exempt organization described in Section 501(c). Accordingly, Section 280G applies to VeloPay without regard to any of the exceptions applicable to those entity types.

Critically, because VeloPay is a privately held corporation — meaning that no class of its stock is readily tradeable on an established securities market or otherwise — the shareholder vote safe harbor under Section 280G(b)(5)(B) is available as a mitigation strategy. This safe harbor, discussed in detail in Section VI.A below, permits the exclusion of parachute payments from the scope of Section 280G and Section 4999 if certain shareholder approval and disclosure requirements are satisfied.

VeloPay's fully diluted capitalization as of the date of this memorandum is as follows:

The per-share merger consideration of $20.00 is applied to the fully diluted share count to arrive at the aggregate $1.9 billion merger consideration. However, for purposes of the Section 280G(b)(5)(B) shareholder vote analysis in Section VI.A below, we note that only the 82,400,000 shares of common stock outstanding carry voting rights; stock options, RSUs, and warrants do not vote unless and until exercised or settled and shares of common stock are issued thereunder.

C. Identification of Disqualified Individuals

Under IRC Section 280G(c), a "disqualified individual" with respect to a corporation is any individual who is, with respect to such corporation, at any time during the 12-month period prior to and ending on the date of the change of control (the "disqualified individual determination period"): (i) an employee or independent contractor of the corporation who is also an officer of the corporation; (ii) a shareholder of the corporation owning more than 1% of the fair market value of the outstanding stock of the corporation; or (iii) a highly compensated individual who is among the highest-paid 1% of all employees of the corporation, or, if less, the highest-paid 250 employees. See Treasury Regulation Section 1.280G-1, Q&A-15 through Q&A-21.

We have identified four individuals who meet the definition of "disqualified individual" and whose compensation arrangements in connection with the Merger require analysis:

Nathan Aldridge — Chief Executive Officer and Co-Founder, age 42. Mr. Aldridge has been employed by VeloPay since its founding in 2014 and has served as CEO throughout the Company's existence. Mr. Aldridge holds approximately 11,700,800 shares of VeloPay common stock, representing approximately 14.2% of the 82,400,000 shares of common stock outstanding. Mr. Aldridge qualifies as a disqualified individual in multiple capacities: he is an officer of the corporation and a shareholder owning more than 1% of the outstanding stock. In addition, Mr. Aldridge's total compensation places him among the highest-paid employees of VeloPay.

Sonia Reyes-Watkins — Chief Technology Officer and Co-Founder, age 39. Ms. Reyes-Watkins has been employed by VeloPay since its founding in 2014 and has served as CTO throughout. Ms. Reyes-Watkins holds approximately 7,992,800 shares of VeloPay common stock, representing approximately 9.7% of the outstanding shares. Like Mr. Aldridge, Ms. Reyes-Watkins qualifies as a disqualified individual in multiple capacities: she is an officer and a greater-than-1% shareholder.

Marcus Langford — Chief Financial Officer, age 47. Mr. Langford joined VeloPay in 2018 and has served as CFO since that date. Mr. Langford holds approximately 1,071,200 shares of VeloPay common stock, representing approximately 1.3% of the outstanding shares. Mr. Langford qualifies as a disqualified individual as an officer and a greater-than-1% shareholder.

Danielle Moreau — General Counsel, age 44. Ms. Moreau joined VeloPay in 2019 and has served as General Counsel since that date. Ms. Moreau holds approximately 494,400 shares of VeloPay common stock, representing approximately 0.6% of the outstanding shares. Although Ms. Moreau does not hold more than 1% of the outstanding stock, she qualifies as a disqualified individual as an officer and as a "highly compensated individual." VeloPay employs approximately 1,340 individuals. Under the applicable Treasury Regulations, the "highly compensated individual" threshold captures the higher of the top 1% of employees (approximately 13 individuals) or the top 250 employees. Ms. Moreau's total compensation places her within the top 1% of VeloPay employees, and accordingly she is a disqualified individual for purposes of Section 280G.

In addition to the four executives identified above, we reviewed the equity holdings and compensation levels of other VeloPay employees holding stock options and RSUs, including the Company's Vice President of Engineering, Vice President of Product, Vice President of Sales, and certain other senior employees. Based on our review, no additional individuals meet the definition of "disqualified individual" whose total parachute payments approach the applicable 3× base amount threshold. We will update this analysis if additional information becomes available or if changes to compensation arrangements are made prior to closing.

D. Treatment of Equity Awards Under the Merger Agreement

The Merger Agreement is expected to provide for the following treatment of outstanding equity awards at closing:

Vested Stock Options. Each outstanding VeloPay stock option that is vested and exercisable as of immediately prior to the effective time of the Merger will be cancelled and converted into the right to receive an amount in cash equal to (i) $20.00 per share of common stock underlying such option, minus (ii) the per-share exercise price of such option, multiplied by (iii) the number of shares of common stock underlying such option (the "Option Spread"). This cancellation-for-cash treatment will be effected on a net basis, without regard to the holder's election to exercise, and will be subject to applicable tax withholding. The cancellation and cash-out of vested stock options does not involve acceleration of vesting and, accordingly, will not constitute a "parachute payment" to the extent such options were already fully vested prior to the change of control, subject to the presumption analysis under Treasury Regulation Section 1.280G-1, Q&A-22.

Unvested Stock Options. Each outstanding VeloPay stock option that is unvested as of immediately prior to the effective time of the Merger will be cancelled and treated as follows:

(a) Accelerated Portion (50%): Fifty percent (50%) of the shares subject to each unvested option will accelerate in full and be cancelled and converted into the right to receive an amount in cash equal to the Option Spread (i.e., $20.00 minus the per-share exercise price, multiplied by the number of accelerated shares). This acceleration constitutes a "payment in the nature of compensation" that is contingent on the change of control for purposes of Section 280G.

(b) Replacement Award Portion (50%): The remaining fifty percent (50%) of the shares subject to each unvested option will be cancelled and converted into replacement equity awards of HPE Fund IV (the "Replacement Awards"), on terms to be set forth in the Merger Agreement. The Replacement Awards will vest ratably over a 24-month period following the closing, subject to the holder's continued employment through each applicable vesting date. The treatment of the Replacement Awards under Section 280G is discussed in Section V.A below.

Restricted Stock Units (RSUs). Each outstanding unvested VeloPay RSU as of immediately prior to the effective time of the Merger will accelerate in full and be cancelled and converted into the right to receive an amount in cash equal to $20.00 per RSU share, subject to applicable tax withholding. The full acceleration of all unvested RSUs constitutes a "payment in the nature of compensation" contingent on the change of control. The parachute payment value attributable to this acceleration is determined under the methodology described in Section III.D below.

Warrants. Each outstanding warrant to purchase VeloPay common stock will be cancelled and converted into the right to receive an amount in cash equal to $20.00 minus the per-warrant exercise price of $8.50, or $11.50 per warrant, multiplied by the number of shares underlying such warrant. The warrants are held by third-party investors and are not held by any disqualified individual; accordingly, the warrant treatment does not implicate Section 280G.

The acceleration of unvested equity awards — particularly the 50% acceleration of unvested stock options and the 100% acceleration of unvested RSUs — is the primary driver of potential parachute payments for each of the disqualified individuals identified above.

III. Legal Framework — Section 280G and Section 4999

A. Overview of Section 280G

IRC Section 280G denies a corporate tax deduction for any "excess parachute payment" made by a corporation to a "disqualified individual." The provision was enacted as part of the Deficit Reduction Act of 1984 and was intended to discourage excessive compensation payments made in connection with corporate changes of control — commonly referred to as "golden parachute" payments.

A "parachute payment" is defined under Section 280G(b)(2) as any payment in the nature of compensation to (or for the benefit of) a disqualified individual if: (i) such payment is contingent on a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation (each, a "change of control"); and (ii) the aggregate present value of such payments equals or exceeds three times (3×) the individual's "base amount."

The "base amount" is defined under Section 280G(b)(3) as the individual's average annualized includible compensation for the most recent five taxable years ending before the date of the change of control (the "base period"). "Includible compensation" means compensation that was includible in the individual's gross income under Chapter 1 of the Code — generally, all W-2 wages, including salary, bonuses, commissions, the taxable portion of equity compensation income (e.g., income recognized upon the exercise of nonqualified stock options or the vesting of RSUs), and all other compensation includible in gross income. For individuals who were not employed for the full five-year base period, the base amount is calculated using the annualized average for the actual period of employment.

If the 3× threshold is triggered — that is, if the aggregate present value of all parachute payments to a disqualified individual equals or exceeds 3× the individual's base amount — then the "excess parachute payment" is calculated as the amount by which the total parachute payments exceed 1× the base amount. It is important to note that once the 3× threshold is crossed, the penalty applies to all payments in excess of 1× (not 3×) the base amount, creating a severe cliff effect.

Section 280G disallows the corporate deduction for the excess parachute payment amount. This deduction disallowance applies to the payor corporation (here, VeloPay as the surviving entity post-Merger) regardless of the form of the payment.

B. Section 4999 Excise Tax

In addition to the corporate-level deduction disallowance under Section 280G, IRC Section 4999 imposes a nondeductible excise tax of 20% on the recipient of any excess parachute payment. This excise tax is imposed on the individual executive — not the corporation — and is in addition to the ordinary federal and state income taxes otherwise applicable to the compensation. The Section 4999 excise tax is itself nondeductible by the individual.

The combined effect of Section 280G and Section 4999 can be severe: the payor corporation loses its tax deduction for the excess parachute payment, and the recipient individual owes a 20% excise tax on the same amount, on top of ordinary income tax at marginal rates that can approach or exceed 37% at the federal level (plus applicable state income taxes). In the absence of a contractual gross-up provision — under which the employer reimburses the executive for the excise tax (including the tax on the gross-up itself) — the economic burden on the executive can be substantial.

We note that based on our preliminary review of the VeloPay executive employment agreements, no gross-up provisions for Section 4999 excise taxes are contemplated. We have asked Whitford Jessup & Crane LLP to confirm this understanding. If gross-up provisions were included, the cost analysis would be significantly different, as the gross-up itself would constitute an additional parachute payment, potentially creating a circular calculation.

C. Payments Contingent on Change of Control

A payment is "contingent on" a change of control if the payment would not in fact have been made had no change of control occurred. The Treasury Regulations provide detailed guidance on the determination of whether a payment is contingent on a change of control:

(i) Payments triggered by the change of control itself — including single-trigger severance payments, cash-out payments for equity awards, and transaction bonuses that are payable solely upon the occurrence of the change of control — are clearly contingent on the change of control.

(ii) Acceleration of vesting of equity awards — where unvested stock options, restricted stock, RSUs, or other equity-based awards accelerate in whole or in part upon or in connection with the change of control, the value of such acceleration is a payment contingent on the change of control.

(iii) Double-trigger severance payments — payments triggered by a termination of employment that occurs within a specified window before or after the change of control (e.g., termination without "cause" or resignation for "good reason" within 12 or 24 months following the change of control) are treated as contingent on the change of control to the extent that the change of control is a material factor in the payment.

(iv) Transaction bonuses and retention payments — bonuses payable upon signing, closing, or completion of integration are contingent on the change of control.

(v) Non-competition and non-solicitation payments — consideration paid for restrictive covenants entered into in connection with the change of control may constitute parachute payments, except to the extent allocable to reasonable compensation for the covenant, as discussed in Section V.A (Category 5) and Section VI.B below.

Treasury Regulation Section 1.280G-1, Q&A-22 through Q&A-24 establishes a rebuttable presumption that any payment made to a disqualified individual pursuant to an agreement entered into within one year before the change of control, or any payment made within one year before or one year after the change of control, is contingent on the change of control. This presumption may be rebutted only by a showing, by clear and convincing evidence, that the payment is substantially certain to have been made regardless of the change of control. The "clear and convincing evidence" standard is a high bar, and in practice, the presumption is difficult to overcome for payments made in close temporal proximity to the change of control.

Payments that would have been made regardless of the change of control — for example, salary continuation at existing levels, vested benefits payable in accordance with their terms, and bonus payments earned based on pre-established performance criteria without reference to the change of control — may be excluded from the parachute payment calculation if established by clear and convincing evidence. However, to the extent any element of the payment is accelerated, enhanced, or triggered by the change of control, the accelerated or enhanced portion will be treated as contingent on the change of control.

D. Valuation of Accelerated Equity Awards

The valuation of accelerated equity awards for purposes of Section 280G requires careful analysis under Treasury Regulation Section 1.280G-1, Q&A-24(c). The parachute payment amount attributable to the acceleration of vesting of a stock option or RSU is not the full fair market value of the award, but rather the value of the "lapse of the obligation to continue to perform services" — in other words, the incremental value attributable to the early receipt of the economic benefit.

For stock options and RSUs that would have vested over a remaining service period absent the change of control, the parachute payment amount is generally calculated as follows:

(a) Full Value of the Payment: Determine the total value of the accelerated payment — for options, this is the aggregate Option Spread ($20.00 minus the exercise price, times the number of accelerated shares); for RSUs, this is the aggregate fair market value of the shares ($20.00 per RSU share times the number of accelerated RSUs).

(b) Present Value discount: discount the full value to account for the fact that, absent the acceleration, the payment would not have been received until a later date. The present value discount is calculated using the applicable federal rate ("AFR") published by the IRS for the month in which the change of control occurs, compounded semiannually. A commonly used simplification is the "1% per month" rule, under which the parachute payment value is reduced by approximately 1% for each full month of vesting that was accelerated. However, the more precise methodology — using the actual AFR and the specific remaining vesting schedule — is preferred and will be used in our final calculations.

(c) Acceleration Component: The resulting amount is the "acceleration component" — the parachute payment value attributable to the acceleration of vesting. This amount is included in the aggregate parachute payments for purposes of the 3× threshold test and, if the threshold is exceeded, in the calculation of excess parachute payments.

For the Replacement Awards (the 50% of unvested options that convert to HPE Fund IV replacement awards vesting over 24 months), the analysis is more nuanced. To the extent the Replacement Awards are structured as a continuation of the original vesting obligation — with no enhancement in value or reduction in the service period relative to the original award — the Replacement Awards may not be treated as accelerated, and no parachute payment may arise from the replacement itself. However, if the Replacement Awards involve a change in the terms of the award that provides an economic benefit to the holder (e.g., a shorter vesting period, a lower exercise price, or above-market terms), such benefit may constitute a parachute payment contingent on the change of control. We will need to review the specific terms of the Replacement Awards as set forth in the Merger Agreement and any related award agreements to complete this analysis.

IV. Calculation of Base Amounts

A. Base Period

The change of control is expected to occur at the closing of the Merger, which is currently targeted for mid-2025. For purposes of calculating each disqualified individual's base amount, the base period consists of the five most recent taxable years of the individual ending before the date of the change of control. Assuming the closing occurs in calendar year 2025, the base period encompasses the five calendar years ending December 31, 2024: namely, 2020, 2021, 2022, 2023, and 2024.

For any disqualified individual who was not employed by VeloPay for the entire five-year base period, the base amount is calculated using the annualized average of includible compensation for the shorter period of employment within the base period. As noted below, all four disqualified individuals were employed by VeloPay for the full five-year base period (2020–2024).

Annualized includible compensation for each base period year includes: base salary, annual cash bonus (including discretionary bonuses), income recognized upon the exercise of stock options or the vesting of RSUs (as reported on Form W-2), income recognized upon the vesting of any other equity-based awards, and all other compensation includible in gross income for the applicable taxable year. Employer-provided benefits that are excludable from gross income (such as employer contributions to qualified retirement plans within applicable limits, and employer-provided health insurance premiums) are not included in the base amount calculation.

Important Note: The base amount calculations set forth below are based on preliminary and illustrative compensation data. We have requested verified W-2 data and equity compensation income records from VeloPay for each disqualified individual for each of the 2020–2024 tax years. Final base amount calculations will be completed upon receipt and review of such data.

B. Nathan Aldridge — Base Amount Calculation

Title: Chief Executive Officer and Co-Founder Employment Start Date: 2014 (founding) Age: 42

Mr. Aldridge has been employed by VeloPay since its founding in 2014 and has served as CEO throughout the base period. The following table sets forth Mr. Aldridge's estimated annual includible compensation for each year of the base period:

Average Annualized Compensation (Base Amount): $6,250,000 ÷ 5 = $1,250,000

3× Threshold: $1,250,000 × 3 = $3,750,000

Accordingly, if the aggregate present value of all parachute payments to Mr. Aldridge contingent on the change of control equals or exceeds $3,750,000, Section 280G and Section 4999 will be triggered, and the excess parachute payment will equal the total parachute payments minus $1,250,000 (1× base amount).

C. Sonia Reyes-Watkins — Base Amount Calculation

Title: Chief Technology Officer and Co-Founder Employment Start Date: 2014 (founding) Age: 39

Ms. Reyes-Watkins has been employed by VeloPay since its founding in 2014 and has served as CTO throughout the base period. The following table sets forth Ms. Reyes-Watkins's estimated annual includible compensation for each year of the base period:

Average Annualized Compensation (Base Amount): $5,250,000 ÷ 5 = $1,050,000

3× Threshold: $1,050,000 × 3 = $3,150,000

If the aggregate present value of all parachute payments to Ms. Reyes-Watkins contingent on the change of control equals or exceeds $3,150,000, Section 280G and Section 4999 will be triggered.

D. Marcus Langford — Base Amount Calculation

Title: Chief Financial Officer Employment Start Date: 2018 Age: 47

Mr. Langford joined VeloPay in 2018 and has served as CFO throughout the base period. Mr. Langford was employed for the full five-year base period (2020–2024). The following table sets forth Mr. Langford's estimated annual includible compensation:

Average Annualized Compensation (Base Amount): $4,345,000 ÷ 5 = $869,000 (rounded to approximately $875,000 for purposes of this preliminary analysis)

3× Threshold: $875,000 × 3 = $2,625,000

E. Danielle Moreau — Base Amount Calculation

Title: General Counsel Employment Start Date: 2019 Age: 44

Ms. Moreau joined VeloPay in 2019 and has served as General Counsel throughout the base period. Ms. Moreau was employed for the full five-year base period (2020–2024). The following table sets forth Ms. Moreau's estimated annual includible compensation:

Average Annualized Compensation (Base Amount): $3,645,000 ÷ 5 = $729,000 (rounded to approximately $725,000 for purposes of this preliminary analysis)

3× Threshold: $725,000 × 3 = $2,175,000

V. Identification and Quantification of Parachute Payments

A. Categories of Payments Contingent on Change of Control

For each of the four disqualified individuals, we have identified the following categories of payments that are potentially contingent on the change of control and must be included in the Section 280G parachute payment analysis:

Category 1 — Accelerated Vesting of Unvested Stock Options. As described in Section II.D above, 50% of each executive's unvested stock options will accelerate at closing, with the accelerated options cancelled and converted to cash at the net spread of $20.00 minus the weighted average exercise price of $12.84, or $7.16 per share (the "Accelerated Option Spread"). The parachute payment value attributable to this acceleration is calculated under the methodology described in Section III.D above — specifically, the full value of the Accelerated Option Spread, discounted to reflect the present value of the remaining vesting period that was accelerated.

The remaining 50% of unvested options will be converted to Replacement Awards vesting over 24 months post-closing. The Replacement Awards present a more complex analytical question. If the Replacement Awards are structured as a continuation of the original award, with no enhancement in economic terms, the replacement should not itself constitute a parachute payment. However, to the extent the Replacement Awards are contingent on the change of control — which they are, since the original VeloPay options are cancelled and replaced only because the Merger occurs — the full value of the Replacement Awards may be treated as a parachute payment, with an offsetting reduction for the portion allocable to reasonable compensation for post-closing services (discussed in Section VI.B below). We recommend analyzing the specific terms of the Replacement Awards once finalized in the Merger Agreement.

Category 2 — Accelerated Vesting of RSUs. All unvested RSUs held by each executive will fully accelerate at closing and convert to cash at $20.00 per share. The parachute payment value equals the acceleration component — the present value of the economic benefit attributable to the early vesting, calculated using the AFR discount methodology. For RSUs with relatively short remaining vesting periods, the acceleration component may approach the full value of the RSUs; for RSUs with longer remaining vesting periods, the discount will be more significant.

Category 3 — Severance and Employment Agreement Payments. Each of the four disqualified individuals is party to an employment agreement with VeloPay that contains severance provisions. Based on our preliminary review, the executive employment agreements provide for severance payments upon a qualifying termination of employment (termination without "cause" or resignation for "good reason"), with enhanced severance in the event such termination occurs within a specified period following a change of control (a "double-trigger" arrangement). We understand the severance provisions to be as follows, subject to confirmation with Whitford Jessup & Crane LLP:

• Aldridge and Reyes-Watkins: 2× annual base salary and target annual bonus, plus 18 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 24 months following a change of control.

• Langford: 1.5× annual base salary and target annual bonus, plus 12 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 18 months following a change of control.

• Moreau: 1.5× annual base salary and target annual bonus, plus 12 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 18 months following a change of control.

For purposes of this preliminary analysis, we have assumed that the double-trigger severance payments are contingent on the change of control, as the enhanced severance is available only in connection with a qualifying termination occurring within the post-change-of-control window. However, because the severance payments require a subsequent triggering event (a qualifying termination), the parachute payment analysis must account for the probability that the second trigger will occur. Under Treasury Regulation Section 1.280G-1, Q&A-24(a), if a payment is contingent on a change of control but the amount of the payment is also contingent on the occurrence of a separate event (such as a termination of employment), the payment may be included in the parachute payment calculation at its full amount if it is "reasonably likely" that the second event will occur, or at a discounted amount reflecting the probability of the second event. For conservatism, we have included the full severance amounts in this preliminary analysis. We note, however, that if the executives remain employed post-closing and no qualifying termination occurs, the double-trigger severance payments would not be made and would not constitute parachute payments.

Category 4 — Transaction Bonuses / Retention Payments. Based on our preliminary review, we understand that VeloPay's Board of Directors is considering approval of a retention bonus pool for key employees in connection with the Merger. To the extent any disqualified individual receives a signing bonus, closing bonus, or integration bonus payable in connection with the Transaction, such payment would constitute a parachute payment contingent on the change of control. We have included estimated transaction bonus amounts in the calculations below, subject to confirmation.

Category 5 — Non-Competition / Non-Solicitation Agreement Payments. We understand that Mr. Aldridge and Ms. Reyes-Watkins will each enter into three-year non-competition and non-solicitation agreements as a condition to closing of the Merger. The non-compete agreements will restrict each individual from directly or indirectly competing in the payments processing and merchant acquiring industry within the United States for a period of three years following the closing.

The consideration payable for the non-compete agreements raises an important Section 280G issue. Under Treasury Regulation Section 1.280G-1, Q&A-9, payments in consideration for a covenant not to compete are treated as parachute payments to the extent they are contingent on the change of control. However, the regulations further provide that, to the extent such payments constitute "reasonable compensation" for the restrictive covenant, they may be excluded from the definition of "excess parachute payment" under Q&A-42. The allocation between the parachute payment component and the reasonable compensation component must be supported by objective evidence — ideally, an independent appraisal using a comparability or income-based approach — and must take into account the scope, duration, and enforceability of the restrictive covenant, the individual's compensation level, and the competitive significance of the individual's expertise and relationships.

We recommend that VeloPay engage an independent valuation firm to prepare an appraisal supporting the reasonable compensation allocation for the Aldridge and Reyes-Watkins non-compete agreements. This allocation can materially reduce the parachute payment amounts attributable to the non-compete consideration.

Category 6 — Rollover Equity. Mr. Aldridge will roll over approximately $14,200,000 in equity value into Harrowgate Velocity Co-Invest LP, and Ms. Reyes-Watkins will roll over approximately $9,700,000, in each case as a co-investment alongside HPE Fund IV in the surviving corporation. As a general matter, rollover equity is not treated as a "payment" for purposes of Section 280G because it represents a reinvestment of the individual's existing equity position — the individual is not receiving compensation but rather exchanging one equity investment for another. See Treasury Regulation Section 1.280G-1, Q&A-11 and Q&A-12. However, the rollover must be on arm's-length terms: if the rollover equity is issued at a discount to fair market value, or if the terms of the co-investment vehicle provide above-market economics (e.g., preferential distribution rights, reduced carry obligations, or anti-dilution protections not available to other investors), the differential could constitute a payment in the nature of compensation contingent on the change of control. We will need to review the terms of the Harrowgate Velocity Co-Invest LP limited partnership agreement and the specific rollover terms to confirm that no above-market terms exist.

Category 7 — Other Compensation Contingent on Change of Control. We have reviewed VeloPay's compensation arrangements for additional categories of payments that may be contingent on the change of control, including accelerated vesting of deferred compensation arrangements, enhanced pension or retirement benefits, and any other forms of contingent compensation. Based on our preliminary review, VeloPay does not maintain a defined benefit pension plan, and the Company's 401(k) plan does not include any change-of-control acceleration provisions. We have not identified any additional categories of parachute payments, but will update this analysis upon receipt of complete compensation data.

B. Nathan Aldridge — Detailed Parachute Payment Calculation

Based on the categories identified above, the following is our preliminary estimate of the total parachute payments to Mr. Aldridge contingent on the change of control:

Accelerated Stock Options (50% of Unvested). We understand that Mr. Aldridge holds approximately 1,400,000 unvested stock options with a weighted average exercise price of $12.84. Fifty percent (50%) of these options — approximately 700,000 shares — will accelerate at closing. The Accelerated Option Spread is $7.16 per share ($20.00 minus $12.84), yielding a gross acceleration value of $5,012,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 18 months and an AFR of approximately 4.5%), the estimated parachute payment value is approximately $4,660,000.

Accelerated RSUs (100% of Unvested). Mr. Aldridge holds approximately 120,000 unvested RSUs. All RSUs will accelerate and convert to cash at $20.00 per share, yielding a gross value of $2,400,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 12 months), the estimated parachute payment value is approximately $2,290,000.

Severance Payments (Double-Trigger). Under Mr. Aldridge's employment agreement, a qualifying termination within 24 months following the change of control would entitle him to 2× annual base salary and target annual bonus. Based on his current base salary of $650,000 and estimated target annual bonus of $425,000, the double-trigger severance payment would be approximately $2,150,000 ($1,075,000 × 2). In addition, 18 months of COBRA premium reimbursement is estimated at approximately $45,000. For purposes of this preliminary analysis, we have included the full severance amount of approximately $2,195,000, noting that this payment would only be triggered upon a qualifying termination and may be reduced or excluded if Mr. Aldridge remains employed post-closing. For conservatism in this preliminary analysis, we include this amount but note it is subject to significant downward revision.

Non-Compete Agreement. Mr. Aldridge is expected to receive consideration in connection with the three-year non-competition agreement. The gross non-compete consideration has not yet been finalized; for purposes of this analysis, we assume non-compete consideration of approximately $1,500,000. A portion of this amount — which we estimate at approximately $750,000 based on preliminary analysis of comparability data — may be allocated to reasonable compensation for the covenant, reducing the parachute payment amount to approximately $750,000. The reasonable compensation allocation must be supported by an independent appraisal.

Transaction Bonus. We estimate a closing bonus of approximately $250,000, subject to confirmation.

Rollover Equity. Mr. Aldridge's rollover of $14,200,000 into Harrowgate Velocity Co-Invest LP is not a parachute payment, subject to confirmation that the rollover terms are at fair market value.

Replacement Awards. The remaining 50% of Mr. Aldridge's unvested options (approximately 700,000 shares) will convert to Replacement Awards vesting over 24 months. To the extent these awards constitute reasonable compensation for future services, they may be excluded from the parachute payment calculation. We have excluded the Replacement Awards from the preliminary estimate below but note that this treatment is subject to further analysis.

Summary — Aldridge Parachute Payments:

Note: For purposes of the summary table in Section I, we used a reduced figure of $8,420,000, which reflects a more conservative scenario assuming Mr. Aldridge remains employed post-closing (eliminating the double-trigger severance) and a higher reasonable compensation allocation to the non-compete. The range of potential parachute payments for Mr. Aldridge is approximately $8,420,000 to $10,145,000, depending on these variables.

Comparison to 3× Threshold: $10,145,000 significantly exceeds $3,750,000 (3× base amount). Even in the most favorable scenario ($8,420,000), the 3× threshold is substantially exceeded.

Excess Parachute Payment: $10,145,000 − $1,250,000 (1× base amount) = $8,895,000 (high estimate); $8,420,000 − $1,250,000 = $7,170,000 (low estimate).

Section 4999 Excise Tax (20%): $8,895,000 × 20% = $1,779,000 (high); $7,170,000 × 20% = $1,434,000 (low).

C. Sonia Reyes-Watkins — Detailed Parachute Payment Calculation

Accelerated Stock Options (50% of Unvested). Ms. Reyes-Watkins holds approximately 1,100,000 unvested stock options. Fifty percent (approximately 550,000 shares) will accelerate at closing. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $3,938,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 18 months), the estimated parachute payment value is approximately $3,660,000.

Accelerated RSUs (100% of Unvested). Ms. Reyes-Watkins holds approximately 100,000 unvested RSUs. All RSUs will accelerate and convert to cash at $20.00 per share, yielding a gross value of $2,000,000. The estimated parachute payment value (acceleration component) is approximately $1,910,000.

Severance Payments (Double-Trigger). Based on Ms. Reyes-Watkins's current base salary of $575,000 and estimated target annual bonus of $350,000, the double-trigger severance payment (2× salary and bonus) would be approximately $1,850,000. COBRA reimbursement is estimated at approximately $45,000, for a total of approximately $1,895,000. As with Mr. Aldridge, this amount is included for conservatism but is subject to significant downward revision if Ms. Reyes-Watkins remains employed post-closing.

Non-Compete Agreement. Gross non-compete consideration is estimated at approximately $1,200,000. Applying a preliminary reasonable compensation allocation of approximately $600,000, the estimated parachute payment value is approximately $600,000.

Transaction Bonus. Estimated at approximately $200,000, subject to confirmation.

Rollover Equity. Ms. Reyes-Watkins's rollover of $9,700,000 into Harrowgate Velocity Co-Invest LP is not a parachute payment, subject to confirmation of arm's-length terms.

Summary — Reyes-Watkins Parachute Payments:

Note: The reduced estimate reflected in the Executive Summary ($6,780,000) excludes double-trigger severance and uses a higher reasonable compensation allocation to the non-compete. The range is approximately $6,780,000 to $8,265,000.

Comparison to 3× Threshold: Both estimates significantly exceed $3,150,000 (3× base amount).

Excess Parachute Payment: $8,265,000 − $1,050,000 = $7,215,000 (high); $6,780,000 − $1,050,000 = $5,730,000 (low).

Section 4999 Excise Tax (20%): $7,215,000 × 20% = $1,443,000 (high); $5,730,000 × 20% = $1,146,000 (low).

D. Marcus Langford — Detailed Parachute Payment Calculation

Accelerated Stock Options (50% of Unvested). Mr. Langford holds approximately 650,000 unvested stock options. Fifty percent (approximately 325,000 shares) will accelerate. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $2,327,000. The estimated parachute payment value (acceleration component) is approximately $2,165,000.

Accelerated RSUs (100% of Unvested). Mr. Langford holds approximately 60,000 unvested RSUs. All RSUs will accelerate at $20.00 per share, yielding a gross value of $1,200,000. The estimated parachute payment value is approximately $1,145,000.

Severance Payments (Double-Trigger). Based on Mr. Langford's current base salary of $475,000 and estimated target annual bonus of $300,000, the double-trigger severance payment (1.5× salary and bonus) would be approximately $1,162,500. COBRA reimbursement is estimated at approximately $30,000, for a total of approximately $1,192,500. As with the other executives, this amount is subject to downward revision if Mr. Langford remains employed post-closing.

Non-Compete Agreement. Based on our preliminary review, Mr. Langford is not expected to enter into a non-compete agreement in connection with the Merger. We have asked Whitford Jessup & Crane LLP to confirm.

Transaction Bonus. Estimated at approximately $150,000, subject to confirmation.

Summary — Langford Parachute Payments:

Note: The reduced estimate in the Executive Summary ($3,190,000) excludes double-trigger severance. The range is approximately $3,190,000 to $4,652,500.

Comparison to 3× Threshold: Both estimates exceed $2,625,000 (3× base amount).

Excess Parachute Payment: $4,652,500 − $875,000 = $3,777,500 (high); $3,190,000 − $875,000 = $2,315,000 (low).

Section 4999 Excise Tax (20%): $3,777,500 × 20% = $755,500 (high); $2,315,000 × 20% = $463,000 (low).

E. Danielle Moreau — Detailed Parachute Payment Calculation

Accelerated Stock Options (50% of Unvested). Ms. Moreau holds approximately 500,000 unvested stock options. Fifty percent (approximately 250,000 shares) will accelerate. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $1,790,000. The estimated parachute payment value (acceleration component) is approximately $1,665,000.

Accelerated RSUs (100% of Unvested). Ms. Moreau holds approximately 50,000 unvested RSUs. All RSUs will accelerate at $20.00 per share, yielding a gross value of $1,000,000. The estimated parachute payment value is approximately $955,000.

Severance Payments (Double-Trigger). Based on Ms. Moreau's current base salary of $425,000 and estimated target annual bonus of $250,000, the double-trigger severance payment (1.5× salary and bonus) would be approximately $1,012,500. COBRA reimbursement is estimated at approximately $30,000, for a total of approximately $1,042,500. Subject to the same caveats regarding continued employment.

Non-Compete Agreement. Based on our preliminary review, Ms. Moreau is not expected to enter into a non-compete agreement in connection with the Merger. We have asked Whitford Jessup & Crane LLP to confirm.

Transaction Bonus. Estimated at approximately $100,000, subject to confirmation.

Summary — Moreau Parachute Payments:

Note: The reduced estimate in the Executive Summary ($2,640,000) excludes double-trigger severance. The range is approximately $2,640,000 to $3,762,500.

Comparison to 3× Threshold: Both estimates exceed $2,175,000 (3× base amount).

Excess Parachute Payment: $3,762,500 − $725,000 = $3,037,500 (high); $2,640,000 − $725,000 = $1,915,000 (low).

Section 4999 Excise Tax (20%): $3,037,500 × 20% = $607,500 (high); $1,915,000 × 20% = $383,000 (low).

F. Summary Table — All Disqualified Individuals

The following table summarizes the preliminary parachute payment analysis for all four disqualified individuals. For purposes of this summary, we have used the conservative (low) estimates, which exclude double-trigger severance payments and apply favorable reasonable compensation allocations to non-compete consideration where applicable:

The aggregate Section 4999 excise tax exposure across all four executives is approximately $3,426,000, and the aggregate after-tax cost to HPE Fund IV (through the surviving corporation) of lost Section 280G deductions is approximately $3,597,300 at the 21% federal corporate income tax rate, for a combined economic cost of approximately $7,023,300 before consideration of state-level deduction disallowance.

VI. Mitigation Strategies

A. Shareholder Vote Safe Harbor — Section 280G(b)(5)(B)

Availability. The shareholder vote safe harbor under Section 280G(b)(5) is available for corporations that do not have a class of securities that is readily tradeable on an established securities market or otherwise. Because VeloPay is a privately held corporation and no class of its securities is publicly traded, VeloPay satisfies this threshold requirement. Section 280G(b)(5)(A)(i) provides that the term "parachute payment" shall not include any payment to a disqualified individual if: (1) such payment was approved by a vote of the persons who owned, immediately before the change of control, more than 75% of the voting power of all outstanding stock of the corporation entitled to vote; and (2) there was adequate disclosure to shareholders of all material facts concerning all payments which (but for the shareholder approval) would be parachute payments.

If the safe harbor is successfully invoked, the approved payments are excluded from the definition of "parachute payment" entirely — meaning that neither the Section 280G deduction disallowance nor the Section 4999 excise tax applies.

Mechanics. To invoke the Section 280G(b)(5) safe harbor, VeloPay must satisfy two independent requirements:

First, VeloPay must provide adequate disclosure of all material facts concerning the payments to each disqualified individual to all shareholders entitled to vote. The disclosure must include: (i) a description of each payment, (ii) the aggregate value of each category of payment, (iii) the identity of the disqualified individual, and (iv) the consequences of the shareholder vote (i.e., that if the vote approves the payments, neither Section 280G nor Section 4999 will apply; and that if the vote does not approve the payments, the payments will be reduced or forfeited). The disclosure must be sufficient to enable the shareholders to make an informed decision.

Second, VeloPay must obtain the approval of more than 75% of the voting power of all outstanding shares of stock entitled to vote — not merely 75% of shares present at a meeting or 75% of shares actually voting. This is a supermajority requirement based on total outstanding voting shares. For VeloPay, based on 82,400,000 shares of common stock outstanding, the 75% threshold is 61,800,000 shares.

Critically, under the Treasury Regulations, the shares owned by the disqualified individual whose payments are being voted upon must be excluded from both the numerator and the denominator of the voting calculation. This means that each disqualified individual cannot vote on their own payments, and their shares are not counted in determining the total voting pool or the 75% threshold. The vote must be conducted separately for each disqualified individual (or, if combined into a single vote, with appropriate adjustments to ensure that no individual votes on their own payments).

Waiver Requirement. As a prerequisite to the safe harbor, each disqualified individual must agree, in writing, that if the shareholder vote does not approve the payments, the individual will forfeit or repay the excess amounts — that is, the payments will be reduced to an amount that does not trigger Section 280G (typically, to 2.99× the base amount, or such lesser amount as is approved). This waiver must be executed before the shareholder vote occurs.

Voting Threshold Analysis. Based on VeloPay's capitalization and the expected commitments under the Stockholder Support Agreement, we have prepared the following voting feasibility analysis for each disqualified individual:

Shareholder Composition (Voting Shares):

Vote Calculation for Nathan Aldridge:

Aldridge's shares (11,700,800 shares, 14.2%) are excluded from both the numerator and denominator. The adjusted voting pool is 82,400,000 − 11,700,800 = 70,699,200 shares. The 75% threshold is 70,699,200 × 75% = 53,024,400 shares.

Expected "yes" votes (from Stockholder Support Agreement parties, excluding Aldridge): Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Reyes-Watkins (7,992,800) = 45,320,000 shares. This represents approximately 64.1% of the adjusted pool — short of the 75% requirement by approximately 7,704,400 shares.

To achieve the 75% threshold, VeloPay would need to secure favorable votes from additional stockholders, including Langford (1,071,200), Moreau (494,400), other management/employees (~10,135,200), and/or other investors (~13,678,400). If substantially all of the other management/employee shares and a meaningful portion of other investor shares vote in favor, the 75% threshold should be achievable. However, the Aldridge vote presents the narrowest margin and the greatest execution risk.

Feasibility Assessment: Achievable but requires active solicitation of non-committed shareholders. We recommend engaging with VeloPay management and the principal investor groups to secure support.

Vote Calculation for Sonia Reyes-Watkins:

Reyes-Watkins's shares (7,992,800 shares, 9.7%) are excluded. Adjusted voting pool: 82,400,000 − 7,992,800 = 74,407,200 shares. Threshold: 74,407,200 × 75% = 55,805,400 shares.

Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) = 49,028,000 shares. This represents approximately 65.9% of the adjusted pool. An additional 6,777,400 favorable votes are needed. With Langford (1,071,200), Moreau (494,400), other management/employees (~10,135,200), and other investors (~13,678,400) available, the threshold is achievable.

Feasibility Assessment: Achievable with active solicitation; wider margin than Aldridge.

Vote Calculation for Marcus Langford:

Langford's shares (1,071,200 shares, 1.3%) are excluded. Adjusted voting pool: 82,400,000 − 1,071,200 = 81,328,800 shares. Threshold: 81,328,800 × 75% = 60,996,600 shares.

Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) + Reyes-Watkins (7,992,800) = 57,020,800 shares (approximately 70.1%). An additional 3,975,800 favorable votes are needed. With Moreau (494,400) and the other management/employee and investor blocks, this is highly achievable.

Feasibility Assessment: Highly achievable.

Vote Calculation for Danielle Moreau:

Moreau's shares (494,400 shares, 0.6%) are excluded. Adjusted voting pool: 82,400,000 − 494,400 = 81,905,600 shares. Threshold: 81,905,600 × 75% = 61,429,200 shares.

Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) + Reyes-Watkins (7,992,800) + Langford (1,071,200) = 58,091,800 shares (approximately 70.9%). An additional 3,337,400 favorable votes are needed. Highly achievable with other management/employee and investor shares.

Feasibility Assessment: Highly achievable.

A detailed feasibility matrix is set forth in Exhibit B.

Timing. The shareholder vote should ideally be conducted prior to or concurrently with the stockholder written consent approving the Merger. We recommend coordinating the Section 280G disclosure document and voting process with the execution of the Stockholder Support Agreement and the distribution of the Information Statement to VeloPay stockholders. The target is to complete the shareholder vote on or before March 18, 2025, the expected Merger Agreement signing date. If the vote cannot be completed prior to signing, it should be completed as a condition to closing, with appropriate representations, warranties

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
Section 280G Parachute Payment Analysis: Potential Excess Parachute Payments to VeloPay Systems, Inc. Executives in Connection with the Merger
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I. Executive Summary
The purpose of this memorandum is to set forth our analysis of the potential "excess parachute payments" under Internal Revenue Code ("IRC" or the "Code") Section 280G that may be triggered by the change of control of VeloPay Systems, Inc. ("VeloPay" or the "Company") resulting from the reverse triangular merger of Harrowgate Velocity Merger Sub Inc. ("Merger Sub"), a wholly-owned subsidiary of Harrowgate Private Equity Fund IV LP ("HPE Fund IV"), with and into VeloPay, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") expected to be signed on or about March 18, 2025 (the "Merger" or the "Transaction").
Transaction Overview. The Merger contemplates aggregate merger consideration of approximately $1.9 billion, representing $20.00 per share on a fully diluted basis of 95,000,000 shares. The Transaction is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"), pursuant to which Merger Sub will merge with and into VeloPay, with VeloPay surviving the Merger as a wholly-owned subsidiary of HPE Fund IV. The Transaction will be financed through a combination of equity contributions from HPE Fund IV and debt financing from Tralvendo National Bank and Prairie State Bank, N.A.
Change of Control. As discussed in greater detail in Section III below, the Merger constitutes a "change in the ownership" of VeloPay for purposes of IRC Section 280G(b)(2)(A)(i) and the applicable Treasury Regulations thereunder, thereby triggering the Section 280G parachute payment analysis for all "disqualified individuals" of VeloPay.
Disqualified Individuals. We have identified four "disqualified individuals" whose compensation arrangements must be analyzed under Section 280G: (i) Nathan Aldridge, Chief Executive Officer and Co-Founder, age 42; (ii) Sonia Reyes-Watkins, Chief Technology Officer and Co-Founder, age 39; (iii) Marcus Langford, Chief Financial Officer, age 47; and (iv) Danielle Moreau, General Counsel, age 44. As detailed in Section II.C below, we reviewed additional equity-holding employees and determined that no other individuals meet the definition of a disqualified individual whose payments approach the applicable thresholds.
Summary of Findings. Based on the information and illustrative compensation data available as of the date of this memorandum, our preliminary analysis indicates the following:
The aggregate estimated excess parachute payments across all four executives total approximately $17,130,000. If Section 280G and Section 4999 apply without mitigation: (a) the aggregate Section 4999 nondeductible excise tax imposed on the four executives would be approximately $3,426,000; and (b) VeloPay (as the surviving entity post-Merger) would lose a corporate tax deduction of approximately $17,130,000, resulting in an after-tax cost to HPE Fund IV of approximately $3,597,300 at the 21% federal corporate income tax rate (before consideration of state-level deduction disallowance, which may increase this amount).
Important Note: The figures set forth above are preliminary estimates based on illustrative and placeholder compensation data. Final calculations will be completed upon receipt of verified W-2 data and equity compensation income records from VeloPay for the 2020–2024 base period.
Mitigation Strategies. We have analyzed several mitigation strategies, including: (i) the Section 280G(b)(5)(B) shareholder vote safe harbor, which is available because VeloPay is a privately held corporation; (ii) the restructuring of certain payments and contract terms to reduce aggregate parachute payments; and (iii) the allocation of a portion of non-competition consideration paid to Mr. Aldridge and Ms. Reyes-Watkins to reasonable compensation for post-closing covenants.
Recommendation. We strongly recommend pursuing the Section 280G(b)(5)(B) shareholder vote safe harbor for each of the four disqualified individuals whose payments are expected to exceed the 3× base amount threshold. Our preliminary assessment of the voting feasibility indicates that the requisite supermajority approval (more than 75% of outstanding voting shares, excluding each disqualified individual's own shares) is achievable for all four executives, although the vote for Mr. Aldridge presents the narrowest margin and the greatest risk, as his exclusion removes the single largest block of committed shares from the voting pool. We recommend coordinating closely with Whitford Jessup & Crane LLP, VeloPay's outside counsel, and in particular with Ellen Fairchild and Rebecca Thornton-Hayes, on the stockholder vote mechanics, disclosure document preparation, and waiver agreements.
II. Background
A. Transaction Structure
The Transaction is structured as a reverse triangular merger under DGCL Section 251. Merger Sub, a Delaware corporation and wholly-owned subsidiary of HPE Fund IV formed solely for the purpose of effecting the Merger, will merge with and into VeloPay. VeloPay will be the surviving corporation in the Merger and will become a wholly-owned subsidiary of HPE Fund IV.
The aggregate merger consideration is approximately $1.9 billion, calculated as $20.00 per share multiplied by 95,000,000 shares on a fully diluted basis. The per-share merger consideration of $20.00 represents the price to be paid for each share of VeloPay common stock, with stock options, restricted stock units, and warrants treated as described in Section II.D below.
The Transaction will be financed through the following sources:
(a) HPE Fund IV Equity Contribution: $1,140,000,000, representing approximately 60% of the total deal value. The equity contribution will be funded from HPE Fund IV's committed capital and co-investment vehicles, including Harrowgate Velocity Co-Invest LP.
(b) Senior Secured Term Loan: $500,000,000 in senior secured term loan financing provided by Tralvendo National Bank, as administrative agent and lead arranger, pursuant to a commitment letter dated February 28, 2025.
(c) Revolving Credit Facility: $260,000,000 in revolving credit facility financing provided by Prairie State Bank, N.A., pursuant to a commitment letter dated February 28, 2025.
The Merger Agreement is expected to be signed on or about March 18, 2025. Closing of the Transaction is targeted for mid-2025, subject to the satisfaction or waiver of customary closing conditions, including the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other applicable regulatory approvals.
For purposes of IRC Section 280G, the Transaction constitutes a "change in the ownership" of VeloPay within the meaning of Treasury Regulation Section 1.280G-1, Q&A-27 through Q&A-29. Specifically, following the Merger, HPE Fund IV will acquire 100% of the outstanding equity interests of VeloPay, thereby satisfying the bright-line test under Q&A-27(a) (acquisition by any one person, or by more than one person acting as a group, of stock of a corporation that, together with stock held by such person or group, possesses more than 50% of the total fair market value or total voting power of the stock of such corporation). No further analysis is necessary to establish the change of control event.
B. VeloPay Corporate and Equity Overview
VeloPay is a corporation organized under the laws of the State of Delaware. The Company was founded in 2014 by Nathan Aldridge and Sonia Reyes-Watkins and operates a payments processing and merchant acquiring platform serving mid-market enterprise customers across the United States. VeloPay is privately held; no class of its securities is registered under Section 12 of the Securities Exchange Act of 1934, as amended, and the Company is not subject to reporting obligations under Section 13 or Section 15(d) of such Act.
For purposes of Section 280G, VeloPay is a "corporation" within the meaning of the Code. The Company is not an S corporation (as defined in Section 1361), a partnership, a limited liability company classified as a partnership for federal income tax purposes, or a tax-exempt organization described in Section 501(c). Accordingly, Section 280G applies to VeloPay without regard to any of the exceptions applicable to those entity types.
Critically, because VeloPay is a privately held corporation — meaning that no class of its stock is readily tradeable on an established securities market or otherwise — the shareholder vote safe harbor under Section 280G(b)(5)(B) is available as a mitigation strategy. This safe harbor, discussed in detail in Section VI.A below, permits the exclusion of parachute payments from the scope of Section 280G and Section 4999 if certain shareholder approval and disclosure requirements are satisfied.
VeloPay's fully diluted capitalization as of the date of this memorandum is as follows:
The per-share merger consideration of $20.00 is applied to the fully diluted share count to arrive at the aggregate $1.9 billion merger consideration. However, for purposes of the Section 280G(b)(5)(B) shareholder vote analysis in Section VI.A below, we note that only the 82,400,000 shares of common stock outstanding carry voting rights; stock options, RSUs, and warrants do not vote unless and until exercised or settled and shares of common stock are issued thereunder.
C. Identification of Disqualified Individuals
Under IRC Section 280G(c), a "disqualified individual" with respect to a corporation is any individual who is, with respect to such corporation, at any time during the 12-month period prior to and ending on the date of the change of control (the "disqualified individual determination period"): (i) an employee or independent contractor of the corporation who is also an officer of the corporation; (ii) a shareholder of the corporation owning more than 1% of the fair market value of the outstanding stock of the corporation; or (iii) a highly compensated individual who is among the highest-paid 1% of all employees of the corporation, or, if less, the highest-paid 250 employees. See Treasury Regulation Section 1.280G-1, Q&A-15 through Q&A-21.
We have identified four individuals who meet the definition of "disqualified individual" and whose compensation arrangements in connection with the Merger require analysis:
Nathan Aldridge — Chief Executive Officer and Co-Founder, age 42. Mr. Aldridge has been employed by VeloPay since its founding in 2014 and has served as CEO throughout the Company's existence. Mr. Aldridge holds approximately 11,700,800 shares of VeloPay common stock, representing approximately 14.2% of the 82,400,000 shares of common stock outstanding. Mr. Aldridge qualifies as a disqualified individual in multiple capacities: he is an officer of the corporation and a shareholder owning more than 1% of the outstanding stock. In addition, Mr. Aldridge's total compensation places him among the highest-paid employees of VeloPay.
Sonia Reyes-Watkins — Chief Technology Officer and Co-Founder, age 39. Ms. Reyes-Watkins has been employed by VeloPay since its founding in 2014 and has served as CTO throughout. Ms. Reyes-Watkins holds approximately 7,992,800 shares of VeloPay common stock, representing approximately 9.7% of the outstanding shares. Like Mr. Aldridge, Ms. Reyes-Watkins qualifies as a disqualified individual in multiple capacities: she is an officer and a greater-than-1% shareholder.
Marcus Langford — Chief Financial Officer, age 47. Mr. Langford joined VeloPay in 2018 and has served as CFO since that date. Mr. Langford holds approximately 1,071,200 shares of VeloPay common stock, representing approximately 1.3% of the outstanding shares. Mr. Langford qualifies as a disqualified individual as an officer and a greater-than-1% shareholder.
Danielle Moreau — General Counsel, age 44. Ms. Moreau joined VeloPay in 2019 and has served as General Counsel since that date. Ms. Moreau holds approximately 494,400 shares of VeloPay common stock, representing approximately 0.6% of the outstanding shares. Although Ms. Moreau does not hold more than 1% of the outstanding stock, she qualifies as a disqualified individual as an officer and as a "highly compensated individual." VeloPay employs approximately 1,340 individuals. Under the applicable Treasury Regulations, the "highly compensated individual" threshold captures the higher of the top 1% of employees (approximately 13 individuals) or the top 250 employees. Ms. Moreau's total compensation places her within the top 1% of VeloPay employees, and accordingly she is a disqualified individual for purposes of Section 280G.
In addition to the four executives identified above, we reviewed the equity holdings and compensation levels of other VeloPay employees holding stock options and RSUs, including the Company's Vice President of Engineering, Vice President of Product, Vice President of Sales, and certain other senior employees. Based on our review, no additional individuals meet the definition of "disqualified individual" whose total parachute payments approach the applicable 3× base amount threshold. We will update this analysis if additional information becomes available or if changes to compensation arrangements are made prior to closing.
D. Treatment of Equity Awards Under the Merger Agreement
The Merger Agreement is expected to provide for the following treatment of outstanding equity awards at closing:
Vested Stock Options. Each outstanding VeloPay stock option that is vested and exercisable as of immediately prior to the effective time of the Merger will be cancelled and converted into the right to receive an amount in cash equal to (i) $20.00 per share of common stock underlying such option, minus (ii) the per-share exercise price of such option, multiplied by (iii) the number of shares of common stock underlying such option (the "Option Spread"). This cancellation-for-cash treatment will be effected on a net basis, without regard to the holder's election to exercise, and will be subject to applicable tax withholding. The cancellation and cash-out of vested stock options does not involve acceleration of vesting and, accordingly, will not constitute a "parachute payment" to the extent such options were already fully vested prior to the change of control, subject to the presumption analysis under Treasury Regulation Section 1.280G-1, Q&A-22.
Unvested Stock Options. Each outstanding VeloPay stock option that is unvested as of immediately prior to the effective time of the Merger will be cancelled and treated as follows:
(a) Accelerated Portion (50%): Fifty percent (50%) of the shares subject to each unvested option will accelerate in full and be cancelled and converted into the right to receive an amount in cash equal to the Option Spread (i.e., $20.00 minus the per-share exercise price, multiplied by the number of accelerated shares). This acceleration constitutes a "payment in the nature of compensation" that is contingent on the change of control for purposes of Section 280G.
(b) Replacement Award Portion (50%): The remaining fifty percent (50%) of the shares subject to each unvested option will be cancelled and converted into replacement equity awards of HPE Fund IV (the "Replacement Awards"), on terms to be set forth in the Merger Agreement. The Replacement Awards will vest ratably over a 24-month period following the closing, subject to the holder's continued employment through each applicable vesting date. The treatment of the Replacement Awards under Section 280G is discussed in Section V.A below.
Restricted Stock Units (RSUs). Each outstanding unvested VeloPay RSU as of immediately prior to the effective time of the Merger will accelerate in full and be cancelled and converted into the right to receive an amount in cash equal to $20.00 per RSU share, subject to applicable tax withholding. The full acceleration of all unvested RSUs constitutes a "payment in the nature of compensation" contingent on the change of control. The parachute payment value attributable to this acceleration is determined under the methodology described in Section III.D below.
Warrants. Each outstanding warrant to purchase VeloPay common stock will be cancelled and converted into the right to receive an amount in cash equal to $20.00 minus the per-warrant exercise price of $8.50, or $11.50 per warrant, multiplied by the number of shares underlying such warrant. The warrants are held by third-party investors and are not held by any disqualified individual; accordingly, the warrant treatment does not implicate Section 280G.
The acceleration of unvested equity awards — particularly the 50% acceleration of unvested stock options and the 100% acceleration of unvested RSUs — is the primary driver of potential parachute payments for each of the disqualified individuals identified above.
III. Legal Framework — Section 280G and Section 4999
A. Overview of Section 280G
IRC Section 280G denies a corporate tax deduction for any "excess parachute payment" made by a corporation to a "disqualified individual." The provision was enacted as part of the Deficit Reduction Act of 1984 and was intended to discourage excessive compensation payments made in connection with corporate changes of control — commonly referred to as "golden parachute" payments.
A "parachute payment" is defined under Section 280G(b)(2) as any payment in the nature of compensation to (or for the benefit of) a disqualified individual if: (i) such payment is contingent on a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation (each, a "change of control"); and (ii) the aggregate present value of such payments equals or exceeds three times (3×) the individual's "base amount."
The "base amount" is defined under Section 280G(b)(3) as the individual's average annualized includible compensation for the most recent five taxable years ending before the date of the change of control (the "base period"). "Includible compensation" means compensation that was includible in the individual's gross income under Chapter 1 of the Code — generally, all W-2 wages, including salary, bonuses, commissions, the taxable portion of equity compensation income (e.g., income recognized upon the exercise of nonqualified stock options or the vesting of RSUs), and all other compensation includible in gross income. For individuals who were not employed for the full five-year base period, the base amount is calculated using the annualized average for the actual period of employment.
If the 3× threshold is triggered — that is, if the aggregate present value of all parachute payments to a disqualified individual equals or exceeds 3× the individual's base amount — then the "excess parachute payment" is calculated as the amount by which the total parachute payments exceed 1× the base amount. It is important to note that once the 3× threshold is crossed, the penalty applies to all payments in excess of 1× (not 3×) the base amount, creating a severe cliff effect.
Section 280G disallows the corporate deduction for the excess parachute payment amount. This deduction disallowance applies to the payor corporation (here, VeloPay as the surviving entity post-Merger) regardless of the form of the payment.
B. Section 4999 Excise Tax
In addition to the corporate-level deduction disallowance under Section 280G, IRC Section 4999 imposes a nondeductible excise tax of 20% on the recipient of any excess parachute payment. This excise tax is imposed on the individual executive — not the corporation — and is in addition to the ordinary federal and state income taxes otherwise applicable to the compensation. The Section 4999 excise tax is itself nondeductible by the individual.
The combined effect of Section 280G and Section 4999 can be severe: the payor corporation loses its tax deduction for the excess parachute payment, and the recipient individual owes a 20% excise tax on the same amount, on top of ordinary income tax at marginal rates that can approach or exceed 37% at the federal level (plus applicable state income taxes). In the absence of a contractual gross-up provision — under which the employer reimburses the executive for the excise tax (including the tax on the gross-up itself) — the economic burden on the executive can be substantial.
We note that based on our preliminary review of the VeloPay executive employment agreements, no gross-up provisions for Section 4999 excise taxes are contemplated. We have asked Whitford Jessup & Crane LLP to confirm this understanding. If gross-up provisions were included, the cost analysis would be significantly different, as the gross-up itself would constitute an additional parachute payment, potentially creating a circular calculation.
C. Payments Contingent on Change of Control
A payment is "contingent on" a change of control if the payment would not in fact have been made had no change of control occurred. The Treasury Regulations provide detailed guidance on the determination of whether a payment is contingent on a change of control:
(i) Payments triggered by the change of control itself — including single-trigger severance payments, cash-out payments for equity awards, and transaction bonuses that are payable solely upon the occurrence of the change of control — are clearly contingent on the change of control.
(ii) Acceleration of vesting of equity awards — where unvested stock options, restricted stock, RSUs, or other equity-based awards accelerate in whole or in part upon or in connection with the change of control, the value of such acceleration is a payment contingent on the change of control.
(iii) Double-trigger severance payments — payments triggered by a termination of employment that occurs within a specified window before or after the change of control (e.g., termination without "cause" or resignation for "good reason" within 12 or 24 months following the change of control) are treated as contingent on the change of control to the extent that the change of control is a material factor in the payment.
(iv) Transaction bonuses and retention payments — bonuses payable upon signing, closing, or completion of integration are contingent on the change of control.
(v) Non-competition and non-solicitation payments — consideration paid for restrictive covenants entered into in connection with the change of control may constitute parachute payments, except to the extent allocable to reasonable compensation for the covenant, as discussed in Section V.A (Category 5) and Section VI.B below.
Treasury Regulation Section 1.280G-1, Q&A-22 through Q&A-24 establishes a rebuttable presumption that any payment made to a disqualified individual pursuant to an agreement entered into within one year before the change of control, or any payment made within one year before or one year after the change of control, is contingent on the change of control. This presumption may be rebutted only by a showing, by clear and convincing evidence, that the payment is substantially certain to have been made regardless of the change of control. The "clear and convincing evidence" standard is a high bar, and in practice, the presumption is difficult to overcome for payments made in close temporal proximity to the change of control.
Payments that would have been made regardless of the change of control — for example, salary continuation at existing levels, vested benefits payable in accordance with their terms, and bonus payments earned based on pre-established performance criteria without reference to the change of control — may be excluded from the parachute payment calculation if established by clear and convincing evidence. However, to the extent any element of the payment is accelerated, enhanced, or triggered by the change of control, the accelerated or enhanced portion will be treated as contingent on the change of control.
D. Valuation of Accelerated Equity Awards
The valuation of accelerated equity awards for purposes of Section 280G requires careful analysis under Treasury Regulation Section 1.280G-1, Q&A-24(c). The parachute payment amount attributable to the acceleration of vesting of a stock option or RSU is not the full fair market value of the award, but rather the value of the "lapse of the obligation to continue to perform services" — in other words, the incremental value attributable to the early receipt of the economic benefit.
For stock options and RSUs that would have vested over a remaining service period absent the change of control, the parachute payment amount is generally calculated as follows:
(a) Full Value of the Payment: Determine the total value of the accelerated payment — for options, this is the aggregate Option Spread ($20.00 minus the exercise price, times the number of accelerated shares); for RSUs, this is the aggregate fair market value of the shares ($20.00 per RSU share times the number of accelerated RSUs).
(b) Present Value discount: discount the full value to account for the fact that, absent the acceleration, the payment would not have been received until a later date. The present value discount is calculated using the applicable federal rate ("AFR") published by the IRS for the month in which the change of control occurs, compounded semiannually. A commonly used simplification is the "1% per month" rule, under which the parachute payment value is reduced by approximately 1% for each full month of vesting that was accelerated. However, the more precise methodology — using the actual AFR and the specific remaining vesting schedule — is preferred and will be used in our final calculations.
(c) Acceleration Component: The resulting amount is the "acceleration component" — the parachute payment value attributable to the acceleration of vesting. This amount is included in the aggregate parachute payments for purposes of the 3× threshold test and, if the threshold is exceeded, in the calculation of excess parachute payments.
For the Replacement Awards (the 50% of unvested options that convert to HPE Fund IV replacement awards vesting over 24 months), the analysis is more nuanced. To the extent the Replacement Awards are structured as a continuation of the original vesting obligation — with no enhancement in value or reduction in the service period relative to the original award — the Replacement Awards may not be treated as accelerated, and no parachute payment may arise from the replacement itself. However, if the Replacement Awards involve a change in the terms of the award that provides an economic benefit to the holder (e.g., a shorter vesting period, a lower exercise price, or above-market terms), such benefit may constitute a parachute payment contingent on the change of control. We will need to review the specific terms of the Replacement Awards as set forth in the Merger Agreement and any related award agreements to complete this analysis.
IV. Calculation of Base Amounts
A. Base Period
The change of control is expected to occur at the closing of the Merger, which is currently targeted for mid-2025. For purposes of calculating each disqualified individual's base amount, the base period consists of the five most recent taxable years of the individual ending before the date of the change of control. Assuming the closing occurs in calendar year 2025, the base period encompasses the five calendar years ending December 31, 2024: namely, 2020, 2021, 2022, 2023, and 2024.
For any disqualified individual who was not employed by VeloPay for the entire five-year base period, the base amount is calculated using the annualized average of includible compensation for the shorter period of employment within the base period. As noted below, all four disqualified individuals were employed by VeloPay for the full five-year base period (2020–2024).
Annualized includible compensation for each base period year includes: base salary, annual cash bonus (including discretionary bonuses), income recognized upon the exercise of stock options or the vesting of RSUs (as reported on Form W-2), income recognized upon the vesting of any other equity-based awards, and all other compensation includible in gross income for the applicable taxable year. Employer-provided benefits that are excludable from gross income (such as employer contributions to qualified retirement plans within applicable limits, and employer-provided health insurance premiums) are not included in the base amount calculation.
Important Note: The base amount calculations set forth below are based on preliminary and illustrative compensation data. We have requested verified W-2 data and equity compensation income records from VeloPay for each disqualified individual for each of the 2020–2024 tax years. Final base amount calculations will be completed upon receipt and review of such data.
B. Nathan Aldridge — Base Amount Calculation
Title: Chief Executive Officer and Co-Founder Employment Start Date: 2014 (founding) Age: 42
Mr. Aldridge has been employed by VeloPay since its founding in 2014 and has served as CEO throughout the base period. The following table sets forth Mr. Aldridge's estimated annual includible compensation for each year of the base period:
Average Annualized Compensation (Base Amount): $6,250,000 ÷ 5 = $1,250,000
3× Threshold: $1,250,000 × 3 = $3,750,000
Accordingly, if the aggregate present value of all parachute payments to Mr. Aldridge contingent on the change of control equals or exceeds $3,750,000, Section 280G and Section 4999 will be triggered, and the excess parachute payment will equal the total parachute payments minus $1,250,000 (1× base amount).
C. Sonia Reyes-Watkins — Base Amount Calculation
Title: Chief Technology Officer and Co-Founder Employment Start Date: 2014 (founding) Age: 39
Ms. Reyes-Watkins has been employed by VeloPay since its founding in 2014 and has served as CTO throughout the base period. The following table sets forth Ms. Reyes-Watkins's estimated annual includible compensation for each year of the base period:
Average Annualized Compensation (Base Amount): $5,250,000 ÷ 5 = $1,050,000
3× Threshold: $1,050,000 × 3 = $3,150,000
If the aggregate present value of all parachute payments to Ms. Reyes-Watkins contingent on the change of control equals or exceeds $3,150,000, Section 280G and Section 4999 will be triggered.
D. Marcus Langford — Base Amount Calculation
Title: Chief Financial Officer Employment Start Date: 2018 Age: 47
Mr. Langford joined VeloPay in 2018 and has served as CFO throughout the base period. Mr. Langford was employed for the full five-year base period (2020–2024). The following table sets forth Mr. Langford's estimated annual includible compensation:
Average Annualized Compensation (Base Amount): $4,345,000 ÷ 5 = $869,000 (rounded to approximately $875,000 for purposes of this preliminary analysis)
3× Threshold: $875,000 × 3 = $2,625,000
E. Danielle Moreau — Base Amount Calculation
Title: General Counsel Employment Start Date: 2019 Age: 44
Ms. Moreau joined VeloPay in 2019 and has served as General Counsel throughout the base period. Ms. Moreau was employed for the full five-year base period (2020–2024). The following table sets forth Ms. Moreau's estimated annual includible compensation:
Average Annualized Compensation (Base Amount): $3,645,000 ÷ 5 = $729,000 (rounded to approximately $725,000 for purposes of this preliminary analysis)
3× Threshold: $725,000 × 3 = $2,175,000
V. Identification and Quantification of Parachute Payments
A. Categories of Payments Contingent on Change of Control
For each of the four disqualified individuals, we have identified the following categories of payments that are potentially contingent on the change of control and must be included in the Section 280G parachute payment analysis:
Category 1 — Accelerated Vesting of Unvested Stock Options. As described in Section II.D above, 50% of each executive's unvested stock options will accelerate at closing, with the accelerated options cancelled and converted to cash at the net spread of $20.00 minus the weighted average exercise price of $12.84, or $7.16 per share (the "Accelerated Option Spread"). The parachute payment value attributable to this acceleration is calculated under the methodology described in Section III.D above — specifically, the full value of the Accelerated Option Spread, discounted to reflect the present value of the remaining vesting period that was accelerated.
The remaining 50% of unvested options will be converted to Replacement Awards vesting over 24 months post-closing. The Replacement Awards present a more complex analytical question. If the Replacement Awards are structured as a continuation of the original award, with no enhancement in economic terms, the replacement should not itself constitute a parachute payment. However, to the extent the Replacement Awards are contingent on the change of control — which they are, since the original VeloPay options are cancelled and replaced only because the Merger occurs — the full value of the Replacement Awards may be treated as a parachute payment, with an offsetting reduction for the portion allocable to reasonable compensation for post-closing services (discussed in Section VI.B below). We recommend analyzing the specific terms of the Replacement Awards once finalized in the Merger Agreement.
Category 2 — Accelerated Vesting of RSUs. All unvested RSUs held by each executive will fully accelerate at closing and convert to cash at $20.00 per share. The parachute payment value equals the acceleration component — the present value of the economic benefit attributable to the early vesting, calculated using the AFR discount methodology. For RSUs with relatively short remaining vesting periods, the acceleration component may approach the full value of the RSUs; for RSUs with longer remaining vesting periods, the discount will be more significant.
Category 3 — Severance and Employment Agreement Payments. Each of the four disqualified individuals is party to an employment agreement with VeloPay that contains severance provisions. Based on our preliminary review, the executive employment agreements provide for severance payments upon a qualifying termination of employment (termination without "cause" or resignation for "good reason"), with enhanced severance in the event such termination occurs within a specified period following a change of control (a "double-trigger" arrangement). We understand the severance provisions to be as follows, subject to confirmation with Whitford Jessup & Crane LLP:
• Aldridge and Reyes-Watkins: 2× annual base salary and target annual bonus, plus 18 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 24 months following a change of control.
• Langford: 1.5× annual base salary and target annual bonus, plus 12 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 18 months following a change of control.
• Moreau: 1.5× annual base salary and target annual bonus, plus 12 months of COBRA premium reimbursement, upon a double-trigger qualifying termination within 18 months following a change of control.
For purposes of this preliminary analysis, we have assumed that the double-trigger severance payments are contingent on the change of control, as the enhanced severance is available only in connection with a qualifying termination occurring within the post-change-of-control window. However, because the severance payments require a subsequent triggering event (a qualifying termination), the parachute payment analysis must account for the probability that the second trigger will occur. Under Treasury Regulation Section 1.280G-1, Q&A-24(a), if a payment is contingent on a change of control but the amount of the payment is also contingent on the occurrence of a separate event (such as a termination of employment), the payment may be included in the parachute payment calculation at its full amount if it is "reasonably likely" that the second event will occur, or at a discounted amount reflecting the probability of the second event. For conservatism, we have included the full severance amounts in this preliminary analysis. We note, however, that if the executives remain employed post-closing and no qualifying termination occurs, the double-trigger severance payments would not be made and would not constitute parachute payments.
Category 4 — Transaction Bonuses / Retention Payments. Based on our preliminary review, we understand that VeloPay's Board of Directors is considering approval of a retention bonus pool for key employees in connection with the Merger. To the extent any disqualified individual receives a signing bonus, closing bonus, or integration bonus payable in connection with the Transaction, such payment would constitute a parachute payment contingent on the change of control. We have included estimated transaction bonus amounts in the calculations below, subject to confirmation.
Category 5 — Non-Competition / Non-Solicitation Agreement Payments. We understand that Mr. Aldridge and Ms. Reyes-Watkins will each enter into three-year non-competition and non-solicitation agreements as a condition to closing of the Merger. The non-compete agreements will restrict each individual from directly or indirectly competing in the payments processing and merchant acquiring industry within the United States for a period of three years following the closing.
The consideration payable for the non-compete agreements raises an important Section 280G issue. Under Treasury Regulation Section 1.280G-1, Q&A-9, payments in consideration for a covenant not to compete are treated as parachute payments to the extent they are contingent on the change of control. However, the regulations further provide that, to the extent such payments constitute "reasonable compensation" for the restrictive covenant, they may be excluded from the definition of "excess parachute payment" under Q&A-42. The allocation between the parachute payment component and the reasonable compensation component must be supported by objective evidence — ideally, an independent appraisal using a comparability or income-based approach — and must take into account the scope, duration, and enforceability of the restrictive covenant, the individual's compensation level, and the competitive significance of the individual's expertise and relationships.
We recommend that VeloPay engage an independent valuation firm to prepare an appraisal supporting the reasonable compensation allocation for the Aldridge and Reyes-Watkins non-compete agreements. This allocation can materially reduce the parachute payment amounts attributable to the non-compete consideration.
Category 6 — Rollover Equity. Mr. Aldridge will roll over approximately $14,200,000 in equity value into Harrowgate Velocity Co-Invest LP, and Ms. Reyes-Watkins will roll over approximately $9,700,000, in each case as a co-investment alongside HPE Fund IV in the surviving corporation. As a general matter, rollover equity is not treated as a "payment" for purposes of Section 280G because it represents a reinvestment of the individual's existing equity position — the individual is not receiving compensation but rather exchanging one equity investment for another. See Treasury Regulation Section 1.280G-1, Q&A-11 and Q&A-12. However, the rollover must be on arm's-length terms: if the rollover equity is issued at a discount to fair market value, or if the terms of the co-investment vehicle provide above-market economics (e.g., preferential distribution rights, reduced carry obligations, or anti-dilution protections not available to other investors), the differential could constitute a payment in the nature of compensation contingent on the change of control. We will need to review the terms of the Harrowgate Velocity Co-Invest LP limited partnership agreement and the specific rollover terms to confirm that no above-market terms exist.
Category 7 — Other Compensation Contingent on Change of Control. We have reviewed VeloPay's compensation arrangements for additional categories of payments that may be contingent on the change of control, including accelerated vesting of deferred compensation arrangements, enhanced pension or retirement benefits, and any other forms of contingent compensation. Based on our preliminary review, VeloPay does not maintain a defined benefit pension plan, and the Company's 401(k) plan does not include any change-of-control acceleration provisions. We have not identified any additional categories of parachute payments, but will update this analysis upon receipt of complete compensation data.
B. Nathan Aldridge — Detailed Parachute Payment Calculation
Based on the categories identified above, the following is our preliminary estimate of the total parachute payments to Mr. Aldridge contingent on the change of control:
Accelerated Stock Options (50% of Unvested). We understand that Mr. Aldridge holds approximately 1,400,000 unvested stock options with a weighted average exercise price of $12.84. Fifty percent (50%) of these options — approximately 700,000 shares — will accelerate at closing. The Accelerated Option Spread is $7.16 per share ($20.00 minus $12.84), yielding a gross acceleration value of $5,012,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 18 months and an AFR of approximately 4.5%), the estimated parachute payment value is approximately $4,660,000.
Accelerated RSUs (100% of Unvested). Mr. Aldridge holds approximately 120,000 unvested RSUs. All RSUs will accelerate and convert to cash at $20.00 per share, yielding a gross value of $2,400,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 12 months), the estimated parachute payment value is approximately $2,290,000.
Severance Payments (Double-Trigger). Under Mr. Aldridge's employment agreement, a qualifying termination within 24 months following the change of control would entitle him to 2× annual base salary and target annual bonus. Based on his current base salary of $650,000 and estimated target annual bonus of $425,000, the double-trigger severance payment would be approximately $2,150,000 ($1,075,000 × 2). In addition, 18 months of COBRA premium reimbursement is estimated at approximately $45,000. For purposes of this preliminary analysis, we have included the full severance amount of approximately $2,195,000, noting that this payment would only be triggered upon a qualifying termination and may be reduced or excluded if Mr. Aldridge remains employed post-closing. For conservatism in this preliminary analysis, we include this amount but note it is subject to significant downward revision.
Non-Compete Agreement. Mr. Aldridge is expected to receive consideration in connection with the three-year non-competition agreement. The gross non-compete consideration has not yet been finalized; for purposes of this analysis, we assume non-compete consideration of approximately $1,500,000. A portion of this amount — which we estimate at approximately $750,000 based on preliminary analysis of comparability data — may be allocated to reasonable compensation for the covenant, reducing the parachute payment amount to approximately $750,000. The reasonable compensation allocation must be supported by an independent appraisal.
Transaction Bonus. We estimate a closing bonus of approximately $250,000, subject to confirmation.
Rollover Equity. Mr. Aldridge's rollover of $14,200,000 into Harrowgate Velocity Co-Invest LP is not a parachute payment, subject to confirmation that the rollover terms are at fair market value.
Replacement Awards. The remaining 50% of Mr. Aldridge's unvested options (approximately 700,000 shares) will convert to Replacement Awards vesting over 24 months. To the extent these awards constitute reasonable compensation for future services, they may be excluded from the parachute payment calculation. We have excluded the Replacement Awards from the preliminary estimate below but note that this treatment is subject to further analysis.
Summary — Aldridge Parachute Payments:
Note: For purposes of the summary table in Section I, we used a reduced figure of $8,420,000, which reflects a more conservative scenario assuming Mr. Aldridge remains employed post-closing (eliminating the double-trigger severance) and a higher reasonable compensation allocation to the non-compete. The range of potential parachute payments for Mr. Aldridge is approximately $8,420,000 to $10,145,000, depending on these variables.
Comparison to 3× Threshold: $10,145,000 significantly exceeds $3,750,000 (3× base amount). Even in the most favorable scenario ($8,420,000), the 3× threshold is substantially exceeded.
Excess Parachute Payment: $10,145,000 − $1,250,000 (1× base amount) = $8,895,000 (high estimate); $8,420,000 − $1,250,000 = $7,170,000 (low estimate).
Section 4999 Excise Tax (20%): $8,895,000 × 20% = $1,779,000 (high); $7,170,000 × 20% = $1,434,000 (low).
C. Sonia Reyes-Watkins — Detailed Parachute Payment Calculation
Accelerated Stock Options (50% of Unvested). Ms. Reyes-Watkins holds approximately 1,100,000 unvested stock options. Fifty percent (approximately 550,000 shares) will accelerate at closing. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $3,938,000. Applying the present value discount for the acceleration component (assuming a weighted average remaining vesting period of approximately 18 months), the estimated parachute payment value is approximately $3,660,000.
Accelerated RSUs (100% of Unvested). Ms. Reyes-Watkins holds approximately 100,000 unvested RSUs. All RSUs will accelerate and convert to cash at $20.00 per share, yielding a gross value of $2,000,000. The estimated parachute payment value (acceleration component) is approximately $1,910,000.
Severance Payments (Double-Trigger). Based on Ms. Reyes-Watkins's current base salary of $575,000 and estimated target annual bonus of $350,000, the double-trigger severance payment (2× salary and bonus) would be approximately $1,850,000. COBRA reimbursement is estimated at approximately $45,000, for a total of approximately $1,895,000. As with Mr. Aldridge, this amount is included for conservatism but is subject to significant downward revision if Ms. Reyes-Watkins remains employed post-closing.
Non-Compete Agreement. Gross non-compete consideration is estimated at approximately $1,200,000. Applying a preliminary reasonable compensation allocation of approximately $600,000, the estimated parachute payment value is approximately $600,000.
Transaction Bonus. Estimated at approximately $200,000, subject to confirmation.
Rollover Equity. Ms. Reyes-Watkins's rollover of $9,700,000 into Harrowgate Velocity Co-Invest LP is not a parachute payment, subject to confirmation of arm's-length terms.
Summary — Reyes-Watkins Parachute Payments:
Note: The reduced estimate reflected in the Executive Summary ($6,780,000) excludes double-trigger severance and uses a higher reasonable compensation allocation to the non-compete. The range is approximately $6,780,000 to $8,265,000.
Comparison to 3× Threshold: Both estimates significantly exceed $3,150,000 (3× base amount).
Excess Parachute Payment: $8,265,000 − $1,050,000 = $7,215,000 (high); $6,780,000 − $1,050,000 = $5,730,000 (low).
Section 4999 Excise Tax (20%): $7,215,000 × 20% = $1,443,000 (high); $5,730,000 × 20% = $1,146,000 (low).
D. Marcus Langford — Detailed Parachute Payment Calculation
Accelerated Stock Options (50% of Unvested). Mr. Langford holds approximately 650,000 unvested stock options. Fifty percent (approximately 325,000 shares) will accelerate. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $2,327,000. The estimated parachute payment value (acceleration component) is approximately $2,165,000.
Accelerated RSUs (100% of Unvested). Mr. Langford holds approximately 60,000 unvested RSUs. All RSUs will accelerate at $20.00 per share, yielding a gross value of $1,200,000. The estimated parachute payment value is approximately $1,145,000.
Severance Payments (Double-Trigger). Based on Mr. Langford's current base salary of $475,000 and estimated target annual bonus of $300,000, the double-trigger severance payment (1.5× salary and bonus) would be approximately $1,162,500. COBRA reimbursement is estimated at approximately $30,000, for a total of approximately $1,192,500. As with the other executives, this amount is subject to downward revision if Mr. Langford remains employed post-closing.
Non-Compete Agreement. Based on our preliminary review, Mr. Langford is not expected to enter into a non-compete agreement in connection with the Merger. We have asked Whitford Jessup & Crane LLP to confirm.
Transaction Bonus. Estimated at approximately $150,000, subject to confirmation.
Summary — Langford Parachute Payments:
Note: The reduced estimate in the Executive Summary ($3,190,000) excludes double-trigger severance. The range is approximately $3,190,000 to $4,652,500.
Comparison to 3× Threshold: Both estimates exceed $2,625,000 (3× base amount).
Excess Parachute Payment: $4,652,500 − $875,000 = $3,777,500 (high); $3,190,000 − $875,000 = $2,315,000 (low).
Section 4999 Excise Tax (20%): $3,777,500 × 20% = $755,500 (high); $2,315,000 × 20% = $463,000 (low).
E. Danielle Moreau — Detailed Parachute Payment Calculation
Accelerated Stock Options (50% of Unvested). Ms. Moreau holds approximately 500,000 unvested stock options. Fifty percent (approximately 250,000 shares) will accelerate. The Accelerated Option Spread is $7.16 per share, yielding a gross acceleration value of approximately $1,790,000. The estimated parachute payment value (acceleration component) is approximately $1,665,000.
Accelerated RSUs (100% of Unvested). Ms. Moreau holds approximately 50,000 unvested RSUs. All RSUs will accelerate at $20.00 per share, yielding a gross value of $1,000,000. The estimated parachute payment value is approximately $955,000.
Severance Payments (Double-Trigger). Based on Ms. Moreau's current base salary of $425,000 and estimated target annual bonus of $250,000, the double-trigger severance payment (1.5× salary and bonus) would be approximately $1,012,500. COBRA reimbursement is estimated at approximately $30,000, for a total of approximately $1,042,500. Subject to the same caveats regarding continued employment.
Non-Compete Agreement. Based on our preliminary review, Ms. Moreau is not expected to enter into a non-compete agreement in connection with the Merger. We have asked Whitford Jessup & Crane LLP to confirm.
Transaction Bonus. Estimated at approximately $100,000, subject to confirmation.
Summary — Moreau Parachute Payments:
Note: The reduced estimate in the Executive Summary ($2,640,000) excludes double-trigger severance. The range is approximately $2,640,000 to $3,762,500.
Comparison to 3× Threshold: Both estimates exceed $2,175,000 (3× base amount).
Excess Parachute Payment: $3,762,500 − $725,000 = $3,037,500 (high); $2,640,000 − $725,000 = $1,915,000 (low).
Section 4999 Excise Tax (20%): $3,037,500 × 20% = $607,500 (high); $1,915,000 × 20% = $383,000 (low).
F. Summary Table — All Disqualified Individuals
The following table summarizes the preliminary parachute payment analysis for all four disqualified individuals. For purposes of this summary, we have used the conservative (low) estimates, which exclude double-trigger severance payments and apply favorable reasonable compensation allocations to non-compete consideration where applicable:
The aggregate Section 4999 excise tax exposure across all four executives is approximately $3,426,000, and the aggregate after-tax cost to HPE Fund IV (through the surviving corporation) of lost Section 280G deductions is approximately $3,597,300 at the 21% federal corporate income tax rate, for a combined economic cost of approximately $7,023,300 before consideration of state-level deduction disallowance.
VI. Mitigation Strategies
A. Shareholder Vote Safe Harbor — Section 280G(b)(5)(B)
Availability. The shareholder vote safe harbor under Section 280G(b)(5) is available for corporations that do not have a class of securities that is readily tradeable on an established securities market or otherwise. Because VeloPay is a privately held corporation and no class of its securities is publicly traded, VeloPay satisfies this threshold requirement. Section 280G(b)(5)(A)(i) provides that the term "parachute payment" shall not include any payment to a disqualified individual if: (1) such payment was approved by a vote of the persons who owned, immediately before the change of control, more than 75% of the voting power of all outstanding stock of the corporation entitled to vote; and (2) there was adequate disclosure to shareholders of all material facts concerning all payments which (but for the shareholder approval) would be parachute payments.
If the safe harbor is successfully invoked, the approved payments are excluded from the definition of "parachute payment" entirely — meaning that neither the Section 280G deduction disallowance nor the Section 4999 excise tax applies.
Mechanics. To invoke the Section 280G(b)(5) safe harbor, VeloPay must satisfy two independent requirements:
First, VeloPay must provide adequate disclosure of all material facts concerning the payments to each disqualified individual to all shareholders entitled to vote. The disclosure must include: (i) a description of each payment, (ii) the aggregate value of each category of payment, (iii) the identity of the disqualified individual, and (iv) the consequences of the shareholder vote (i.e., that if the vote approves the payments, neither Section 280G nor Section 4999 will apply; and that if the vote does not approve the payments, the payments will be reduced or forfeited). The disclosure must be sufficient to enable the shareholders to make an informed decision.
Second, VeloPay must obtain the approval of more than 75% of the voting power of all outstanding shares of stock entitled to vote — not merely 75% of shares present at a meeting or 75% of shares actually voting. This is a supermajority requirement based on total outstanding voting shares. For VeloPay, based on 82,400,000 shares of common stock outstanding, the 75% threshold is 61,800,000 shares.
Critically, under the Treasury Regulations, the shares owned by the disqualified individual whose payments are being voted upon must be excluded from both the numerator and the denominator of the voting calculation. This means that each disqualified individual cannot vote on their own payments, and their shares are not counted in determining the total voting pool or the 75% threshold. The vote must be conducted separately for each disqualified individual (or, if combined into a single vote, with appropriate adjustments to ensure that no individual votes on their own payments).
Waiver Requirement. As a prerequisite to the safe harbor, each disqualified individual must agree, in writing, that if the shareholder vote does not approve the payments, the individual will forfeit or repay the excess amounts — that is, the payments will be reduced to an amount that does not trigger Section 280G (typically, to 2.99× the base amount, or such lesser amount as is approved). This waiver must be executed before the shareholder vote occurs.
Voting Threshold Analysis. Based on VeloPay's capitalization and the expected commitments under the Stockholder Support Agreement, we have prepared the following voting feasibility analysis for each disqualified individual:
Shareholder Composition (Voting Shares):
Vote Calculation for Nathan Aldridge:
Aldridge's shares (11,700,800 shares, 14.2%) are excluded from both the numerator and denominator. The adjusted voting pool is 82,400,000 − 11,700,800 = 70,699,200 shares. The 75% threshold is 70,699,200 × 75% = 53,024,400 shares.
Expected "yes" votes (from Stockholder Support Agreement parties, excluding Aldridge): Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Reyes-Watkins (7,992,800) = 45,320,000 shares. This represents approximately 64.1% of the adjusted pool — short of the 75% requirement by approximately 7,704,400 shares.
To achieve the 75% threshold, VeloPay would need to secure favorable votes from additional stockholders, including Langford (1,071,200), Moreau (494,400), other management/employees (~10,135,200), and/or other investors (~13,678,400). If substantially all of the other management/employee shares and a meaningful portion of other investor shares vote in favor, the 75% threshold should be achievable. However, the Aldridge vote presents the narrowest margin and the greatest execution risk.
Feasibility Assessment: Achievable but requires active solicitation of non-committed shareholders. We recommend engaging with VeloPay management and the principal investor groups to secure support.
Vote Calculation for Sonia Reyes-Watkins:
Reyes-Watkins's shares (7,992,800 shares, 9.7%) are excluded. Adjusted voting pool: 82,400,000 − 7,992,800 = 74,407,200 shares. Threshold: 74,407,200 × 75% = 55,805,400 shares.
Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) = 49,028,000 shares. This represents approximately 65.9% of the adjusted pool. An additional 6,777,400 favorable votes are needed. With Langford (1,071,200), Moreau (494,400), other management/employees (~10,135,200), and other investors (~13,678,400) available, the threshold is achievable.
Feasibility Assessment: Achievable with active solicitation; wider margin than Aldridge.
Vote Calculation for Marcus Langford:
Langford's shares (1,071,200 shares, 1.3%) are excluded. Adjusted voting pool: 82,400,000 − 1,071,200 = 81,328,800 shares. Threshold: 81,328,800 × 75% = 60,996,600 shares.
Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) + Reyes-Watkins (7,992,800) = 57,020,800 shares (approximately 70.1%). An additional 3,975,800 favorable votes are needed. With Moreau (494,400) and the other management/employee and investor blocks, this is highly achievable.
Feasibility Assessment: Highly achievable.
Vote Calculation for Danielle Moreau:
Moreau's shares (494,400 shares, 0.6%) are excluded. Adjusted voting pool: 82,400,000 − 494,400 = 81,905,600 shares. Threshold: 81,905,600 × 75% = 61,429,200 shares.
Expected "yes" votes: Ridgeline (18,457,600) + Apex (13,843,200) + Broadleaf (5,026,400) + Aldridge (11,700,800) + Reyes-Watkins (7,992,800) + Langford (1,071,200) = 58,091,800 shares (approximately 70.9%). An additional 3,337,400 favorable votes are needed. Highly achievable with other management/employee and investor shares.
Feasibility Assessment: Highly achievable.
A detailed feasibility matrix is set forth in Exhibit B.
Timing. The shareholder vote should ideally be conducted prior to or concurrently with the stockholder written consent approving the Merger. We recommend coordinating the Section 280G disclosure document and voting process with the execution of the Stockholder Support Agreement and the distribution of the Information Statement to VeloPay stockholders. The target is to complete the shareholder vote on or before March 18, 2025, the expected Merger Agreement signing date. If the vote cannot be completed prior to signing, it should be completed as a condition to closing, with appropriate representations, warranties

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