Contract analysis

From: Ryan Kowalski <rkowalski@calderwoodharkness.com> To: Patricia Okonkwo <pokonkwo@langfordcrewe.com> Cc: Harrison Wexford <hwexford@calderwoodharkness.com> Date: Mon, 07 Nov 2022 04:17:00 -0000 Subject: Crestline / Voss Chemical — ProShield Product Line Acquisition — Draft Asset Purchase Agreement [C&H Matter No. 1006-00007]

I hope this message finds you well. On behalf of our client, Crestline Packaging Solutions LLC, a Delaware limited liability company ("Buyer"), and at the direction of Harrison Wexford, please find attached an initial draft of the Asset Purchase Agreement (the "APA") for the proposed acquisition by Buyer of substantially all assets comprising the ProShield Industrial Coatings product line from Voss Chemical Industrie

This draft is being circulated for your review and markup on behalf of Seller. We have endeavored to reflect the principal commercial terms discussed to date while incorporating customary provisions for a transaction of this nature. The APA is governed by New York law.

**Parties.** The APA identifies Crestline Packaging Solutions LLC as Buyer and Voss Chemical Industries, Inc. as Seller. Frederick G. Voss and Elena M. Voss are named as Seller Principals solely for purposes of certain indemnification obligations and restrictive covenant provisions described below.

To facilitate your review, I have summarized below the key terms and structural elements of the draft.

The total base deal value is $18,000,000, structured as follows:

- $14,500,000 in cash payable at Closing; - $2,000,000 deposited into an indemnification escrow account to be held by Pinnacle Trust Company, N.A. pursuant to a separate Escrow Agreement; and - Earnout consideration of up to $3,500,000, as described below.

Maximum total consideration (inclusive of the full earnout) is $20,000,000.

The earnout is volume-based, measured by total gallons of ProShield-branded coatings shipped during a 24-month Earnout Period running from January 17, 2023 through January 16, 2025. The earnout tiers are as follows:

- *Threshold:* 2,400,000 gallons. No earnout is payable below this level. - *Target:* 3,000,000 gallons → $1,500,000 earnout payment, calculated by linear interpolation at $2.50 per gallon for each gallon shipped above the Threshold. - *Stretch (Maximum):* 3,800,000 gallons → $3,500,000 earnout payment, calculated as the $1,500,000 Target amount plus linear interpolation at $2.50 per gallon for each gallon shipped ab

Payment is due within 60 days following the end of the Earnout Period. Any disputes regarding the earnout calculation are to be resolved through independent accountant review by Halcyon Chartered Accountants LLP (or a mutually agreed substitute).

I would note that the draft includes provisions addressing Buyer's operational covenants during the Earnout Period — specifically, commitments relating to continuity of operations and commercial efforts with respect to the ProShield product line. We anticipate this section may generate discussion and are happy to walk through our drafting approach at your convenience.

The $2,000,000 escrow secures Seller's indemnification obligations under the APA. The escrow is to be released 12 months after the Closing Date, net of any amounts subject to pending or resolved indemnification claims. The form of Escrow Agreement will be negotiated and executed as a condition to Closing.

The APA provides for a post-Closing net working capital true-up against a target NWC of $1,800,000. The adjustment is dollar-for-dollar, based on a final Closing balance sheet to be prepared by Buyer within 90 days following the Closing Date.

Key indemnification parameters are as follows:

- *Cap:* Seller's general indemnification obligations are capped at 25% of the base purchase price, or $4,500,000. - *Basket:* 1% of the base purchase price ($180,000), structured as a tipping basket — once aggregate Losses exceed $180,000, Buyer may recover from dollar one. - *Survival — General Representations and Warranties:* 12 months following the Closing Date. - *Survival — Fundamental Representations* (organiz

For your awareness, Buyer intends to obtain a buyer-side representations and warranties insurance policy in connection with the transaction. We expect to be in a position to share details regarding coverage terms and any related modifications to the indemnification framework separately in due course.

**Restrictive Covenants of Seller Principals**

The APA includes the following restrictive covenants applicable to Frederick G. Voss and Elena M. Voss, each running from the Closing Date:

- *Non-Competition:* A 4-year covenant covering the specialty industrial coatings market in the United States and Canada. - *Non-Solicitation:* A 3-year covenant covering transferred employees and ProShield customers.

The draft contemplates that Seller will provide transition manufacturing support, formulation technical assistance, and customer introduction services for a period of up to 6 months following the Closing Date, at a monthly fee of $35,000. The terms will be set forth in a Transition Services Agreement to be executed as an ancillary document at signing or Closing.

The APA provides for the acquisition of substantially all assets used in or related to the ProShield Industrial Coatings product line, including:

- *Equipment:* Dispersion mills, automated filling lines, stainless steel mixing tanks, and laboratory/QC equipment, with an aggregate book value of approximately $3.2 million. - *Inventory:* Raw materials, work-in-process, and finished goods, estimated at approximately $2.1 million at Closing. - *intellectual Property:* The "ProShield" trademark (US Reg. No. 2,876,411), 47 proprietary coating formulations, trade sec

Please note that real property is not included among the Acquired Assets. As you are likely aware, Voss leases the Tonawanda production facility, and Buyer is separately negotiating a direct lease with the landlord (Niagara Industrial Realty LLC). The draft also contemplates that 34 production, R&D, and sales employees will be offered employment by Buyer at Closing.

**Excluded Assets and Excluded Liabilities**

The APA clearly delineates excluded assets — including Seller's cash and cash equivalents, pre-Closing accounts receivable, corporate records, and assets not exclusively used in the ProShield product line — and excluded liabilities, which include pre-Closing tax liabilities, pending litigation, employee benefit plan liabilities, and environmental remediation obligations arising from pre-Closing conditions (subject to

Buyer will assume post-Closing trade payables related to the product line, warranty obligations on products shipped after the Closing Date, and obligations under assumed contracts arising after Closing.

Based on the transaction value, no filing under the Hart-Scott-Rodino Antitrust Improvements Act is required, as the deal falls below the applicable size-of-transaction threshold.

The target Closing Date is January 16, 2023. Conditions to Closing include, among other customary conditions: (i) lender consent from Great Lakes Commerce Bank, N.A., as administrative agent under Crestline's senior secured credit facility; (ii) landlord consent from Niagara Industrial Realty LLC; and (iii) receipt of required third-party consents for assigned contracts.

We would appreciate receiving a redline with Seller's counsel's comments within 10 business days — i.e., by approximately November 21, 2022. In the meantime, if you or Jim have any preliminary questions or would find it helpful to discuss any high-level concerns before preparing the full markup, Harrison and I are happy to make ourselves available for a call at your convenience.

Thank you, and we look forward to working with you and your team on this transaction.

Ryan Kowalski Calderwood & Harkness LLP 1114 Avenue of the Americas, 32nd Floor New York, NY 10036 T: (212) 554-7183 E: rkowalski@calderwoodharkness.com

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