Contract analysis

I. INTRODUCTION AND PRELIMINARY STATEMENT

1. I, Dana Kowalski, am the Chief Financial Officer of Crestline Packaging Solutions LLC ("CPS" or "Crestline"). I am over eighteen (18) years of age, competent to testify, and make this declaration under penalty of perjury pursuant to 28 U.S.C. § 1746. I submit this declaration (this "Declaration") in support of the voluntary petitions for relief filed by CPS and CPS Holdings Inc. (together, the "Debtors") under Cha

2. I have served as CFO of CPS since March 2019. Prior to my appointment as CFO, I served in various finance and accounting roles within CPS beginning in 2015, including Senior Vice President of Finance and Controller. In these capacities, I have developed an extensive and detailed understanding of the Debtors' business operations, financial condition, capital structure, and the circumstances giving rise to the comme

3. I am authorized to submit this Declaration on behalf of both Debtors. CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation, is the direct parent entity of CPS and the sole holder of CPS's equity interests. CPS Holdings has no independent operations, no employees, and no assets other than its equity interest in CPS. Both entities are filing for relief under Chapter 11 of the Bankruptcy Code to effectuate the

4. The purpose of this Declaration is to provide the Court with factual support for each of the First Day Motions filed by the Debtors on the Petition Date. Unless otherwise indicated, all facts stated in this Declaration are based on my personal knowledge, my review of relevant documents, the Debtors' books and records, or information provided to me by other officers, employees, and retained professionals of the Deb

5. This Declaration supports the following First Day Motions: (a) Motion for Joint Administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248) pursuant to Bankruptcy Rule 1015(b); (b) Motion to Approve Claims and Noticing Agent — specifically, the Debtors' application to retain Pinnacle Claims Administration LLC as claims and noticing agent pursuant to 28 U.S.C. § 156(c); (c

6. In support of these motions, I describe below the Debtors' business operations, corporate structure, financial condition, capital structure, and the events that precipitated the filing of these Chapter 11 cases. I also set forth the factual basis supporting each of the First Day Motions and explain why the relief sought therein is necessary and appropriate to preserve the Debtors' going-concern value and facilitat

II. GENERAL BACKGROUND OF THE DEBTORS A. Corporate History and Formation

7. CPS was formed in 2007 as an Ohio limited liability company. Since its formation, CPS has operated as a manufacturer of specialty chemical packaging and industrial containment products, serving customers across the chemical, petrochemical, and agricultural sectors.

8. CPS Holdings Inc. is a Delaware corporation and the direct parent of CPS. CPS Holdings was organized as an intermediate holding entity in connection with the leveraged acquisition of CPS described below, and it serves solely as a holding company. CPS Holdings maintains its registered agent at National Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801. CPS Holdings has no independent operatio

9. In 2017, Thornfield Capital Partners LP ("Thornfield"), a Delaware limited partnership and private equity firm with approximately $4.8 billion in assets under management, headquartered at 590 Lexington Avenue, Suite 3200, New York, New York 10022, acquired 100% of the equity of CPS Holdings in a leveraged buyout (the "LBO") for an enterprise value of approximately $410 million. Thornfield contributed approximately

10. CPS is headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308. CPS's principal business is the design, manufacture, and sale of specialty chemical packaging and industrial containment products. The company's product lines include: (a) HDPE (High-Density Polyethylene) Drums. CPS manufactures a comprehensive range of HDPE drums used for the storage and transport of liquid and semi-liquid chemicals. Thes

11. CPS serves a diverse base of customers in the chemical, petrochemical, and agricultural sectors, including several Fortune 500 companies. The company's products are critical components of its customers' supply chains, as they are required for the safe storage, transport, and regulatory-compliant handling of hazardous and non-hazardous chemicals and industrial materials.

12. As of the Petition Date, CPS employed approximately 1,420 individuals across four manufacturing plants. The Debtors' workforce includes skilled machine operators, extrusion technicians, quality assurance and quality control personnel, maintenance technicians, logistics and warehouse staff, and corporate administrative and management personnel. CPS's workforce is a critical asset of the company, and the retention

13. The Debtors operate four manufacturing facilities and one leased warehouse, as set forth in the table below:

14. The Akron HQ facility (Plant 1) is the Debtors' largest manufacturing site and houses both the company's corporate offices and its primary HDPE drum production lines. The Evansville facility (Plant 2) focuses on IBC and steel pail manufacturing and serves customers throughout the Midwest and Southeast regions. The Baton Rouge facility (Plant 3) specializes in the manufacture of specialty containment vessels, prim

15. In addition to the four manufacturing plants, the Debtors maintain a leased warehouse at 900 Darrow Road, Akron, Ohio 44305, which is leased from Benchmark Real Estate Holdings LLC. The warehouse lease expires on December 31, 2025, and the monthly rent under the lease is $42,000. As of the Petition Date, the Debtors are current on rent payments under this warehouse lease, subject to the arrearage discussed in Sec

16. The Debtors are parties to a number of key contracts and commercial relationships that are essential to the continued operation of their business. The most significant of these are summarized below.

17. Resin Supply Agreement. CPS is a party to a five-year Resin Supply Agreement with Northstar Polymers Inc. ("Northstar"), a specialty polymer and resin supplier headquartered in Houston, Texas. The agreement, dated March 1, 2019, provides for the supply of HDPE resin and other polymer feedstock that is critical to CPS's HDPE drum and IBC production operations. HDPE resin is the single largest input cost in the Deb

18. Equipment Lease. CPS is a party to a seven-year master equipment lease with Meridian Industrial Leasing Corp. ("Meridian") for extrusion equipment located at Plant 4 (Ravenna). The monthly lease payment under the Meridian master lease is $87,500. The extrusion equipment subject to this lease is essential to the Debtors' manufacturing operations at the Ravenna facility, and the Debtors intend to continue making pa

19. Warehouse Lease. As noted above, CPS leases warehouse space at 900 Darrow Road, Akron, Ohio 44305, from Benchmark Real Estate Holdings LLC ("Benchmark"). The monthly rent under the Benchmark lease is $42,000, and the lease expires on December 31, 2025. As of the Petition Date, the Debtors are approximately three months in arrears on rent payments under the Benchmark lease, resulting in a prepetition cure amount o

20. The Debtors' senior management team is led by the following officers: (a) Marcus J. Reinholdt — Chief Executive Officer. Mr. Reinholdt has served as CEO of CPS since 2017 and is responsible for the overall strategic direction and management of the company's operations. (b) Dana Kowalski — Chief Financial Officer (the declarant). I have served as CFO of CPS since March 2019 and am responsible for all financial pla

21. The continued service and dedication of the Debtors' management team and workforce is essential to the successful execution of the restructuring and the preservation of the Debtors' going-concern value. The Debtors' management has been actively engaged in the prepetition restructuring negotiations described herein and will continue to oversee the Debtors' day-to-day operations throughout the Chapter 11 process.

III. FINANCIAL OVERVIEW A. Historical Financial Performance

22. For the fiscal year ended December 31, 2021 ("FY2021"), CPS reported total revenue of approximately $312.6 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. The company's revenue declined approximately 18% from fiscal year 2020 ("FY2020") to FY2021, driven principally by significant increases in the cost of HDPE resin and other raw materials, br

23. Financial performance continued to deteriorate during the first quarter of 2022 ("Q1 2022"). For the trailing twelve-month period ended March 31, 2022, the Debtors' EBITDA was approximately $29.1 million, reflecting continued margin compression as resin and raw material costs remained elevated and customer pricing adjustments lagged input cost increases. The decline in EBITDA had a material adverse effect on the

24. As of the Petition Date, the Debtors' funded debt obligations totaled approximately $247.3 million, consisting of the following:

25. First Lien Credit Facility. The first lien revolving credit facility (the "Revolver") and the first lien term loan (the "Term Loan," and together with the Revolver, the "First Lien Credit Facility") were entered into on October 13, 2017, pursuant to a Credit Agreement (the "First Lien Credit Agreement") among CPS, as borrower, CPS Holdings, as guarantor, Ridgeline National Bank, N.A., as administrative agent and

26. Second Lien Notes. On October 13, 2017, in connection with the closing of the LBO, CPS issued $60.0 million in aggregate principal amount of 9.75% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes," CUSIP: 22761TAA3) pursuant to an Indenture (the "Second Lien Notes Indenture") among CPS, as issuer, CPS Holdings, as guarantor, and Continental Fiduciary Trust Company, as indenture trustee (the "Inde

27. Both the First Lien Credit Agreement and the Second Lien Notes Indenture were entered into on October 13, 2017, in connection with the closing of Thornfield's leveraged acquisition of CPS Holdings. The obligations under both instruments are secured by substantially all of the assets of CPS and guaranteed by CPS Holdings, with the liens securing the First Lien Credit Facility having priority over the liens securin

28. The federal employer identification numbers for each of the Debtors are as follows: • Crestline Packaging Solutions LLC: 31-1782094 • CPS Holdings Inc.: 82-3491657

IV. EVENTS LEADING TO THE CHAPTER 11 FILING A. Covenant Breach

29. Section 7.11 of the First Lien Credit Agreement contains a financial maintenance covenant requiring CPS to maintain a maximum leverage ratio — defined as the ratio of Total Net Debt to EBITDA — not to exceed 5.75x (the "Leverage Covenant"). The Leverage Covenant is tested on a quarterly basis as of the end of each fiscal quarter based on the trailing twelve-month EBITDA figure.

30. As of the end of Q1 2022 (March 31, 2022), the Debtors' actual leverage ratio was calculated as follows: Total Net Debt: $247.3 million ÷ TTM EBITDA: $29.1 million = 8.50x

31. The Debtors' leverage ratio of 8.50x exceeded the maximum permitted level of 5.75x by 2.75x, representing a breach of 47.8% above the covenant ceiling. This significant breach constituted an event of default under Section 7.11 of the First Lien Credit Agreement.

32. The primary causes of the Debtors' financial deterioration and the resulting covenant breach were threefold: (i) significant increases in the cost of HDPE resin and other raw materials, which are the Debtors' largest variable input costs and are subject to commodity price fluctuations beyond the Debtors' control; (ii) supply chain disruptions, including transportation bottlenecks, labor shortages at upstream supp

33. On April 22, 2022, Ridgeline National Bank, N.A., acting in its capacity as administrative agent under the First Lien Credit Agreement, delivered a formal Notice of Default (the "Notice of Default") to CPS, citing the breach of Section 7.11 of the First Lien Credit Agreement (the Leverage Covenant). The Notice of Default stated that the leverage ratio breach constituted an "Event of Default" under Section 8.01(c)

34. The Notice of Default also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, which provides that the occurrence of a payment or covenant default under the First Lien Credit Agreement constitutes an event of default under the Second Lien Notes Indenture if such default results in acceleration or permits the holders of the relevant debt to accelerate the maturity thereof.

35. As a result of the defaults under the First Lien Credit Agreement and the Second Lien Notes Indenture, the lenders under the First Lien Credit Agreement and the holders of the Second Lien Notes obtained acceleration rights, and default-rate interest began accruing under both instruments. The default-rate interest under the Second Lien Notes Indenture is 2.00% per annum in excess of the stated coupon rate of 9.75%

36. Following receipt of the Notice of Default, the Debtors immediately engaged with Ridgeline and the company's key creditor constituencies to negotiate a consensual path forward. These negotiations were conducted with the assistance of the Debtors' restructuring counsel, Calderwood & Harkness LLP, and financial advisor, Aldersgate Advisory Group LLC.

37. During the course of these negotiations, the Ad Hoc Group of First Lien Lenders (as defined below) organized and retained counsel. The Ad Hoc Group held approximately 68% in aggregate principal amount of the outstanding first lien term loan and represented a critical constituency in the restructuring process.

38. On May 18, 2022, the Debtors, Ridgeline (as administrative agent), and the consenting first lien lenders executed a Forbearance Agreement (the "Forbearance Agreement"), pursuant to which the consenting first lien lenders agreed to forbear from exercising their rights and remedies arising from the existing defaults for an initial period of 45 days (through July 2, 2022). The Forbearance Agreement was subject to cu

39. On July 1, 2022, the Forbearance Agreement was extended for an additional period of approximately two weeks, through July 15, 2022, to allow the Debtors and their creditor constituencies to finalize the terms of the Restructuring Support Agreement described below. Throughout the forbearance period, the Debtors engaged in active and intensive negotiations with all major creditor constituencies, including the Ad Ho

40. In anticipation of the restructuring, the Debtors retained Calderwood & Harkness LLP ("Calderwood & Harkness") as their restructuring counsel and Aldersgate Advisory Group LLC ("Aldersgate") as their financial advisor and investment banker. Aldersgate's engagement has been led by Priya Narayanan, Managing Director. These professionals have extensive experience in complex corporate restructurings and have been ins

41. During the prepetition period, two principal creditor constituencies organized and retained separate legal counsel: (a) Ad Hoc Group of First Lien Lenders. An ad hoc group of holders of the first lien term loan (the "Ad Hoc Group of First Lien Lenders") was organized, holding approximately 68% in aggregate principal amount of the outstanding Term Loan. Key members of the Ad Hoc Group of First Lien Lenders include

42. Following extensive arm's-length negotiations among the Debtors, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders — which negotiations involved multiple in-person sessions, dozens of conference calls, and the exchange of numerous term sheets, financial models, and draft documents — the parties reached agreement on the material terms of a prepackaged plan of reorg

43. On July 8, 2022, the Debtors, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders executed a Restructuring Support Agreement (the "RSA"), which memorializes the parties' agreement on the key terms of the restructuring and the prepackaged Plan.

44. I note for the Court's benefit that, while the RSA was formally executed on July 8, 2022 — after the Petition Date of June 20, 2022 — the key economic terms of the restructuring were substantially agreed upon among the parties during the prepetition period, and the Debtors' decision to file for Chapter 11 relief on June 20, 2022, was premised on the restructuring framework that is reflected in the RSA. The timing

45. The RSA includes the following key milestones: (a) Petition Date: No later than July 31, 2022 (actual filing: June 20, 2022); (b) Disclosure Statement Approval: Within 45 days of the Petition Date; (c) Plan Confirmation: Within 90 days of the Petition Date; and (d) Effective Date: Within 15 business days of entry of the Confirmation Order.

46. The RSA contains customary provisions, including party commitments to support the Plan, vote in favor of the Plan (to the extent holding claims entitled to vote), and refrain from taking any action inconsistent with the RSA or the Plan. The RSA also includes termination events tied to the failure to achieve the milestones set forth above, the occurrence of material adverse changes, and other customary conditions.

47. The Plan, as contemplated by the RSA, provides for the following treatment of claims and interests: (a) Class 2 — First Lien Secured Claims (approximately $191.3 million, consisting of $158.7 million in Term Loan claims and $32.6 million in Revolver claims): Holders of allowed first lien secured claims shall receive their pro rata share of (i) 92% of the reorganized equity of Reorganized CPS and (ii) $12.5 millio

48. After careful consideration, and in consultation with their restructuring counsel, financial advisor, and other professionals, the Debtors determined that a prepackaged Chapter 11 filing was the best available path to implement the restructuring contemplated by the RSA on an expeditious basis, preserve the Debtors' going-concern value, and maximize recoveries for all creditor constituencies. The prepackaged appro

49. In preparation for the filing, the Debtors engaged Kellner & Hartwick LLP ("Kellner & Hartwick") as local co-counsel in the Northern District of Ohio. Bruce Tatelman is the lead partner at Kellner & Hartwick responsible for the Debtors' engagement. Kellner & Hartwick maintains offices at 600 Superior Avenue East, Suite 1800, Cleveland, Ohio 44114.

50. Additionally, in anticipation of the filing, the Debtors obtained a directors' and officers' liability insurance tail policy (the "D&O Tail Policy") from Apex Indemnity Insurance Company, providing an aggregate coverage limit of $15.0 million. The tail premium for this policy was $1.2 million, which was paid prepetition. The D&O Tail Policy is designed to protect the Debtors' current and former directors and offi

V. PROFESSIONALS RETAINED BY THE DEBTORS

51. In connection with the restructuring and the filing of these Chapter 11 cases, the Debtors have retained the following professional firms, each of which will seek formal Court approval of its retention in accordance with the applicable provisions of the Bankruptcy Code and Bankruptcy Rules: (a) Calderwood & Harkness LLP — Restructuring Counsel. Calderwood & Harkness LLP serves as the Debtors' primary restructurin

52. Applications for the retention of each of the foregoing professionals are being or will be filed with the Court in accordance with Sections 327, 328, and 330 of the Bankruptcy Code and the applicable Bankruptcy Rules and Local Rules.

VI. FACTS IN SUPPORT OF THE FIRST DAY MOTIONS

53. Set forth below is a summary of the factual basis supporting each of the First Day Motions. Additional facts, legal authorities, and detailed argument in support of each motion are set forth in the respective pleadings and memoranda of law filed in support thereof. The descriptions provided herein are intended to supplement, and not to replace, the factual and legal arguments contained in the First Day Motions th

54. The Debtors have filed a motion, pursuant to Bankruptcy Rule 1015(b) and Local Rule 1015-1, for joint administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248).