Contract analysis

I. EXECUTIVE SUMMARY This memorandum sets forth our analysis of the key federal and state tax implications arising from the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline" or "CPS") of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP") for an aggregate purchase price of One Hundred Eighty Million Dollars ($180,000,000). The transaction is structured as an asset purchase

1. Purchase Price Allocation Under IRC §1060. The allocation of the $180,000,000 purchase price among the various classes of acquired assets under the residual method prescribed by Internal Revenue Code ("IRC" or the "Code") §1060 and the applicable Treasury Regulations, including the interplay between Buyer's preference for maximizing allocations to depreciable and amortizable assets and Seller's preference for capi

2. Pennsylvania Bulk Sale Notice and Tax Clearance Requirements. The obligation to notify the Pennsylvania Department of Revenue of the bulk sale at least sixty (60) days prior to closing and to obtain a tax clearance certificate as a condition to closing, together with the successor liability risks attendant to non-compliance.

3. Pennsylvania Realty Transfer Tax. The imposition of the Pennsylvania Realty Transfer Tax on the transfer of the Butler and Meadville real properties, estimated at approximately $360,000 based on a preliminary real property allocation of $18,000,000.

4. Pre-Closing Sales and Use Tax Exposure. The approximately $420,000 in potential sales and use tax exposure across Pennsylvania, Ohio, and West Virginia for tax periods 2021 through 2024, as identified during due diligence.

5. AVP's S-Corporation Status and Pass-Through Treatment. The treatment of AVP as an S-corporation under IRC §§1361–1379, the pass-through of gain to the Horvath family shareholders, the character of gain on the various asset classes, and the potential applicability of the built-in gains tax under IRC §1374.

6. Inapplicability of IRC §338 Elections. Confirmation that because the transaction is structured as an asset purchase rather than a stock purchase, no election under IRC §338(g) or §338(h)(10) is required or applicable. The asset purchase structure already provides Crestline with a stepped-up tax basis in all acquired assets.

7. State Tax Nexus Considerations for Crestline Post-Closing. The additional state tax nexus that will be created for Crestline through the acquisition of AVP's Pennsylvania facilities and operations, and the need for a comprehensive multistate nexus study. Principal Conclusions. Based on our analysis, and subject to the limitations and qualifications set forth in Section XII below, we conclude that: (a) the asset pu

II. TRANSACTION OVERVIEW A. Parties. Buyer. Crestline Packaging Solutions LLC is an Ohio limited liability company, organized under the laws of the State of Ohio. Its Employer Identification Number is 84-3291047, and its Ohio Secretary of State Filing Number is 4287653. Crestline's principal executive offices are located at 4100 Commerce Parkway, Suite 800, Akron, Ohio 44308. Crestline is a portfolio company of Ridge

III. PURCHASE PRICE ALLOCATION UNDER IRC §1060 A. Legal Framework

Section 1060 of the Internal Revenue Code governs the allocation of consideration in an "applicable asset acquisition." An applicable asset acquisition is defined as any transfer (whether direct or indirect) of assets constituting a trade or business where the transferee's basis in such assets is determined wholly by reference to the consideration paid for the assets. See IRC §1060(c); Treas. Reg. §1.1060-1(b)(1). Th

Section 1060(a) requires that, in an applicable asset acquisition, the consideration paid by the purchaser be allocated among the acquired assets using the residual method prescribed by IRC §338(b)(5). Under the residual method, the purchase price is allocated among the acquired assets in accordance with the asset class hierarchy set forth in Treasury Regulation §1.338-6. The purchase price is first allocated to asse

Section 197 intangibles are amortizable by the Buyer on a straight-line basis over a 15-year period beginning in the month of acquisition. The allocation to Class VI is therefore favorable to Buyer from a tax perspective. Class VII — Goodwill and Going Concern Value. Class VII includes goodwill and going concern value. Under the residual method, any portion of the purchase price remaining after allocation to Classes

1. Retain a qualified independent appraiser for real property and tangible personal property valuations at both the Butler and Meadville plants.

2. Coordinate with Hargrove Thornton LLP (Steven M. Raines) on the inventory valuation methodology and on the valuation of identifiable intangible assets as of the Closing Date.

3. Prepare a draft allocation schedule for inclusion as an exhibit to the APA, or as a separate post-closing agreement to be executed within ninety (90) days following the Closing Date.

4. Negotiate allocation principles and preliminary ranges with Seller's counsel (Nathan R. Feldstein, Broadmoor Strauss & Kline LLP) and Seller's accountants (Pendleton & Sawyer CPAs LLP) during the APA negotiation phase, with the goal of reaching agreement on methodology and general parameters prior to signing.

5. Ensure that the APA includes a covenant requiring both parties to report consistent allocations on their respective IRS Forms 8594.

IV. PENNSYLVANIA BULK SALE NOTICE AND TAX CLEARANCE REQUIREMENTS A. Statutory Requirements The Pennsylvania Tax Reform Code of 1971 (72 P.S. §7240) provides that when a person sells or transfers a business, or the stock of goods of a business, in bulk, the purchaser must notify the Pennsylvania Department of Revenue ("PA DOR") at least sixty (60) days prior to the date of the sale or transfer. The purpose of this req

V. PENNSYLVANIA REALTY TRANSFER TAX A. Applicable Tax The Commonwealth of Pennsylvania imposes a Realty Transfer Tax ("RTT") on the transfer of real property or interests in real property located within the Commonwealth. The tax is imposed pursuant to 72 P.S. §8101-C et seq. and is triggered by the recording of a deed or other document evidencing a transfer of real property. In addition to the state-level RTT, Pennsy

VI. SALES AND USE TAX EXPOSURE — PRE-CLOSING PERIODS A. Due Diligence Findings In the course of financial due diligence conducted by Hargrove Thornton LLP and legal due diligence conducted by Calderwood & Harkness LLP, a potential sales and use tax exposure of approximately $420,000 was identified across three jurisdictions — Pennsylvania, Ohio, and West Virginia — for tax periods 2021 through 2024. The exposure aris

VII. AVP'S S-CORPORATION STATUS AND TAX TREATMENT OF THE SALE A. S-Corporation Pass-Through Treatment AVP is a Pennsylvania corporation that has elected to be treated as an S-corporation for federal income tax purposes under IRC §§1361–1379. As an S-corporation, AVP is generally not subject to federal income tax at the corporate level (subject to certain exceptions, including the built-in gains tax discussed in Secti

Section 1374 of the Code imposes a corporate-level tax on an S-corporation's "net recognized built-in gain" during the "recognition period" following a conversion from C-corporation status to S-corporation status. The recognition period is currently five (5) years, as established by IRC §1374(d)(7) (as amended by the Protecting Americans from Tax Hikes Act of 2015). The built-in gains ("BIG") tax is imposed at the hi

Section 1411 of the Code imposes a 3.8% Net Investment Income Tax ("NIIT") on the lesser of: (a) net investment income; or (b) the excess of modified adjusted gross income over the applicable threshold amount ($250,000 for married filing jointly, $200,000 for single filers). Net investment income includes, among other items, gain from the disposition of property (other than property held in a trade or business in whi

VIII. INAPPLICABILITY OF IRC §338 ELECTIONS A. Section 338(g) Election

Section 338(g) of the Code provides that, in the case of a "qualified stock purchase" — i.e., a purchase by a corporation of 80% or more of the stock of a target within a 12-month period — the purchasing corporation may elect to treat the stock purchase as an asset acquisition for federal income tax purposes. The purpose of the §338(g) election is to allow a stock buyer to obtain a stepped-up basis in the target's as

Section 338(h)(10) of the Code provides for a joint election by the buyer and seller of stock in an S-corporation (or a member of a consolidated group) to treat a stock sale as an asset sale for federal income tax purposes. The §338(h)(10) election is commonly used in the acquisition of S-corporations because it allows the parties to achieve asset-sale tax treatment (i.e., a single level of tax at the shareholder lev

IX. STATE TAX NEXUS ANALYSIS FOR CRESTLINE POST-CLOSING A. Current Nexus Profile of Crestline Crestline currently operates six manufacturing plants located in Ohio, Indiana, and Kentucky. As a result of these operations, Crestline has existing income tax and sales and use tax filing obligations in those states, as well as in any additional states where it has established nexus through economic activity, employee pres